Bendigo and Adelaide Bank Ltd has reported a 16.9 per cent fall in first half net profit as the regional lender was hit by the valuation of hedging acquired together with Adelaide Bank.

Net profit for the six months to December declined to $60.5 million, from $72.8 million in the previous corresponding period, the Bendigo-based bank said in a statement on Monday.

Net profit fell 27.2 per cent from a restated $83.1 million based on adjustments made to take into account the merger with Adelaide Bank.

The net profit figure was hit by a $58.3 million after tax charge, mainly related to the revaluation of cash-flow hedging which were acquired as part of the merger with Adelaide Bank.

The bank’s cash earnings surged 72.8 per cent to $118.8 million as Bendigo’s retail division had strong growth and opened 24 new branches.

Bendigo’s first half revenue rose 39.3 per cent to $446 million.

The bank declared an interim dividend of 28 cents per share, 30 per cent franked, unchanged from a year ago.

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Bendigo also announced on Monday it had made a $174 million takeover bid for the stock exchange listed Adelaide Managed Funds Asset Backed Yield Trust.

The offer of $1.835 per Adelaide Managed Funds unit has been recommended by the fund’s independent directors in the absence of a superior proposal.

It represents a 54.3 per cent premium to the one month volume weighted average price of Adelaide Managed Funds units to February 13.

The fund provides investors with exposure to subordinated high yielding instruments within securitisation structures.

“Following consideration of the current unit price and trading liquidity of Adelaide Managed Funds, and given the current state of the Australian credit market, the Adelaide Managed Funds independent directors consider that accepting Bendigo’s proposal is in the best interests of unitholders,” independent director Nancy Fox said in a statement.

The funds units closed on Friday at $1.17.

“Our determined and disciplined approach to writing sustainable and profitable business has placed the group in the best possible position to manage these market challenges,” Bendigo chief executive Rob Hunt said in the statement.

“We have strengthened our balance sheet, and improved our liability mix.

“This was achieved by lifting the proportion of retail funding and reducing our reliance on wholesale funding.”

Mr Hunt said the bank had continued to make the business more efficient, helped by the merger with Adelaide, with the cost to income ratio falling to 58.3 per cent from 60.5 per cent a year ago.

The bank had achieved cost savings of $33.1 million through the merger with Adelaide Bank.

Operating expenses grew by 47 per cent, mainly because of the addition of 1140 full time equivalent staff from Adelaide Bank.

Bendigo Bank increased deposits by 31.5 per cent to $19.8 billion, helping the bank reduce its wholesale funding. Total securitisation fell 53 per cent to $9.7 billion as of December 31 from the year before.

The bank said it was well capitalised with a tier 1 ratio of 7.99 per cent as of December 31.

The capital position had been strengthened since then after the bank sold $52 million of new convertible preference shares to fund the takeover of Macquarie Group Ltd’s margin loan portfolio.

Provisions and reserves for doubtful debts grew 14 per cent to $156.9 million from June 30. General and collective provisions were equivalent to 51 basis points of the bank’s risk weighted assets.

Bendigo Bank said it was expecting to open 25 new branches each year.

AAP