Bendigo and Adelaide Bank (BEN) appears to be finding an earnings baseline, with the rate of cash earnings decline slowing in the second half of 2012. However, given its concentrated exposures to residential mortgages and deposit funding, BEN remains vulnerable to external shocks. Key drivers of BEN's earnings outlook are the residential property market, deposit funding costs, and system credit growth. BEN has an overweight exposure to residential mortgages and leads the sector in deposit funding, but has faced pressure from rising deposit costs.

1. Stock Focus
Bendigo and Adelaide Bank (BEN)
1
FINDING AN EARNINGS BASE?
RECOMMENDATION : NEUTRAL
Since its March 2008 merger with Adelaide Bank, BEN
has had to navigate hostile funding markets, facing
sharply rising deposit costs. However, BEN appears to
be moving towards finally finding an earnings baseline,
with the rate of cash earnings decline slowing in 2H12
and the lagged impact of out-of-cycle mortgage re-
pricing in May and June 2012 to help mitigate further
1H13 downside pressure. Table 1. However, given its
concentrated exposures to both residential mortgages
and deposit funding markets, BEN remains vulnerable to
external macroeconomic shocks. Increased Tier 1
capital provides some additional comfort. We initiate
with a Neutral recommendation and $8.81 blended
valuation.
WHAT SURPRISED?
 No major surprises. Medium-term thematic remains intact:
rising deposit costs and margin pressure to be offset by
loan re-repricing.
WHAT’S CHANGED?
 We initiate with a Neutral recommendation and $8.81
blended valuation.
WHAT NOW?
 Loan re-pricing to mitigate deposit price pressure in 1H13.
 Community Bank margin sharing to be reviewed in 1H13.
 We prefer to wait for any future share price declines to offer
a margin of safety before considering an upgrade to our
views as we believe there is little risk of a near-term re-
rating.
Trading Data
Last Price $8.68
12 month range $6.85 - $9.70
Market Cap $3,443m
Free Float $3,435m (100%)
Avg. Daily Volume 1.0m
Avg. Daily Value $8.6m
12 month return (historical) 10.5%
Strong loan growth outperforming system
is a regular feature of BEN.
NIM pressure from rising deposit costs is
expected to be mitigated by out-of-cycle
rate rises.
Earnings Forecasts
Yr to June 09A 10A 11A 12A 13E 14E
E&P Cash EPS (¢) 15.5 81.2 89.9 82.0 73.0 78.2
Basic Cash EPS (¢) 18.8 83.3 92.3 84.2 75.1 80.3
Reported EPS (¢) 18.8 83.3 92.3 84.2 75.1 80.3
E&P Cash EPS Growth (%) (86.0) 423.0 10.7 (8.8) (11.0) 7.1
DPS (¢) 43.0 58.0 60.0 60.0 64.0 63.8
Yield (%) 5.0 6.7 6.9 6.9 7.4 7.4
Grossed-Up Yield (%) 7.1 9.5 9.9 9.9 10.5 10.5
Franking (%) 100% 100% 100% 100% 100% 100%
E&P Cash Multiple (x) 46.2 10.4 9.4 10.3 11.6 10.8
Price/Book (x) 0.9 0.8 0.9 0.9 0.8 0.8
PEG Ratio (x) 0.1 10.8 (0.5) (2.3)
Net Interest Margin (%) 1.4 1.8 1.8 1.8 1.7 1.8
Return on Average Assets (%) 0.1 0.6 0.6 0.6 0.5 0.5
ROE (%) 1.5 7.5 7.9 7.4 7.1 8.2
Valuation (blended) $8.81
George Gabriel, CFA
ggabriel@evansandpartners.com.au
August 21, 2012
+61 3 9631 9853

2. 2
FY12 RESULT SUMMARY
BEN appears to be finally finding an earnings baseline, with the rate of cash earnings decline
slowing in 2H12. Table 1. Since its March 2008 merger with Adelaide Bank, BEN has had to
navigate hostile funding markets, facing sharply rising deposit costs. However, we expect that
the lagged impact of out-of-cycle mortgage re-pricing in May and June 2012 will help mitigate
downside pressure in 1H13 earnings.
However, the outlook is not highly visible. Given the narrow deposit funding base and
concentrated residential mortgages loan book, BEN is vulnerable to deposit market or
residential property shocks. Indeed, CEO Mike Hirst said: “There's no doubt that it's been a
very challenging 12 months for banks generally, with the issues in Europe meaning
competition for deposits has been particularly strong since September. We don't really see any
reason why we shouldn't be able to continue to return a reasonable result, but the uncertainty
that is around the market makes it difficult to provide any guidance.” Hirst said funding cost
pressures, plus the weak demand for loans, was likely to continue in the year ahead.
Comparing BEN’s performance against a stable baseline is difficult given M&A, capital
management and changing business segment composition (key segments are Retail Banking;
Third Party Banking; Wealth; Rural Bank and Central functions). Recent events include:
 Bank of Cyprus Australia (BOCA) acquisition included in 2H12 results for 4 months from
March 2012, contributing income of $11.1m.
 $150m capital raising (17.751m shares at $8.45 per share) on 19 Dec 2011.
 Sale of 7.8% in IOOF (IFL) for $110m in Aug 2012, increasing Tier 1 by ~13bp.
 Sale of portfolio of subordinated notes, releasing ~$90m of capital deductions against
these holdings, increasing Tier 1 by ~29bp.
 Purchase of Macquarie’s $1.5bn margin lending portfolio for $52m in Jan 2009.
Key 2H12 result trends include:
 Cash earnings down -1.7% in 2H12 and -6.9% in 1H12.
 Cash EPS down -8.2% in 1H12 and -7.8% in 2H12.
 Net interest income down -1.3% in 2H12.
 DPS has been flat at 30cps over the last 5 halves (from 2H10 onwards).
 Tier 1 capital increased to 8.39% as at June 2012 and will increase to 8.81% given post-
balance date sale of IFL and subordinated notes.
TABLE 1: BEN EARNINGS TRENDS

3. 3
KEY DRIVERS
Key drivers of BEN’s earnings outlook are (i) residential property market outlook;
(ii) deposit funding markets; and (iii) system credit growth. We consider these
issues below.
1. Overweight residential property
BEN’s loan portfolio is overweight residential property (69% total loans). Even WBC, which is
predominantly Australian-focused, only has ~51`% earnings exposure to Australian
residential property. Tables 1-2.
TABLE 1: BEN LOAN MIX BY SEGMENT
Source: BEN. Loan mix by security as at June 12.
TABLE 2: WBC EARNINGS MIX
2. Sector-leading deposit base
BEN leads the sector in deposit funding mix, comprising ~80% total funding. Whilst deposit
funding is usually a strength (reducing reliance on volatile wholesale funds), rising deposit
costs have recently hurt earnings.

4. 4
CHART 1: DEPOSITS AS % OF TOTAL FUNDING
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CBA ANZ NAB WBC BEN BOQ
Source: Company Reports, EAP Research. NB. Funding positions as at 1H12, BEN as at 2H12.
3. Above-system credit growth
Even though system credit growth has been low, BEN typically grows above-system. System
credit growth (year to June 2012) was 4.4%, up from 2.8% in June 2011. The key driver has
been business credit growth (to which BEN has little exposure), with housing credit growth in
decline (both investor and owner-occupied), from 6% in June 2011 to 5.4% in December 2011
to 5.1% YTD. Charts 2-3. Table 3.
CHART 2: TOTAL SYSTEM CREDIT GROWTH
-10%
0%
10%
20%
30%
Total Credit Housing Credit Business Credit
Source: RBA
CHART 3: HOUSING CREDIT GROWTH
0.0%
10.0%
20.0%
30.0%
40.0%
Owner Occupied Housing Investor Housing
Source: RBASource: RBA
Source: APRA

5. 5
TABLE 3: BANKING MARET SHARE CHANGES
CHART 4: BEN MORTGAGE MARKET SHARE GROWTH RELATIVE TO PEERS
4. Net interest margin
Chart 5 illustrates the declining NIM. Chart 6 illustrates the sudden structural shift in Term
Deposit pricing relative to the RBA cash rate, the key driver of NIM decline. BEN also incurred
margin pressure due to its asset mix as its margin lending book significantly unwound during
FY12 due to global volatility, reweighting the asset mix towards lower margin residential
mortgages ($2.3bn in FY12 vs. $3.2bn in FY11).
However, Table 4 summarises the sector’s out-of-cycle rate rises. BEN will continue to reprice
its loans in line with its sector, and has greater leverage to this given its overweight
residential mortgage book.

6. 6
CHART 5: NET INTEREST MARGIN
CHART 6: AVERAGE TD PRICING v RBA CASH RATE
-1.25
-1.00
-0.75
-0.50
-0.25
0.00
0.25
0.50
0.75
1.00
1.25
Source: RBA
TABLE 4: OUT-OF-CYCLE RATE RISES
Source: RBA; EAP Research

7. 7
FINANCIAL SUMMARY
Bendigo and Adelaide Bank BEN
As at: 21/08/2012 Recommendation: Neutral Share Price $8.68
Year end June 2011A 2012E 2013E 2014E
INCOME STATEMENT
Interest Income $m 3,466 3,516 3,558 3,822
Interest Expense $m (2,531) (2,571) (2,563) (2,749)
Net Interest Income $m 935 944 995 1,073
Non Interest Income
Fees & Commissions $m 237 221 215 222
Trading Income $m 0 0 0 0
Other Banking Income $m 58 60 66 66
Banking Non Interest Income $m 295 281 281 288
Wealth Management Income $m 0 0 0 0
Income/(Loss) from Associates $m 3 1 0 0
Total operating income $m 1,236 1,213 1,265 1,351
Operating Expenses
Personnel Expenses $m (375) (388) (412) (429)
Occupancy & Equipment $m (62) (66) (67) (70)
Total Operating Expenses $m (767) (854) (805) (838)
Pre Prov. Oper. Profit Before Tax $m 469 359 460 513
Bad debt charge $m (44) (32) (29) (52)
Pre Tax Profit $m 425 326 431 461
Tax Expense $m (78) (131) (129) (138)
Minorities $m (5) 0 0 0
Reported Profit Statutory $m 342 195 302 323
Cash earnings adjustment $m (6) 128 0 0
Reported Cash Profit $m 336 323 302 323
Preference Share Dividends $m (9) (9) (9) (8)
E&P Normalised NPAT $m 328 315 294 314
E&P Cash EPS ¢ 89.9 82.0 73.0 78.2
Basic Cash EPS ¢ 92.3 84.2 75.1 80.3
Reported EPS ¢ 92.3 84.2 75.1 80.3
Dividend per Share ¢ 60.0 60.0 64.0 63.8
BALANCE SHEET
Gross Loans & Other Receivables $m 46,021 48,832 52,266 55,988
Total Assets $m 56,452 61,947 66,808 71,320
Impaired Assets $m 286 280 272 268
Deposits & Other Pub. Borrowing $m 40,521 44,573 48,188 51,620
Bonds, notes & subordinat’d debt $m 10,465 11,512 12,445 13,332
Total Shareholder Equity $m 3,729 3,953 4,111 4,157
Avg housing loans $m 21,769 22,968 24,403 26,203
Avg non-housing loans $m 23,087 24,359 25,881 27,790
Avg total gross loans $m 44,856 47,328 50,284 53,993
Avg Interest Earning Assets $m 50,691 53,444 56,851 61,023
Avg Total Assets $m 54,168 57,110 60,517 64,688
Avg Interest Bearing Liabilities $m 48,192 50,823 53,406 56,827
Avg Total Liabilities $m 50,015 52,745 56,233 60,738
Avg Shareholders’ Equity $m 4,153 4,365 4,284 3,951
GROWTH RATES
Per Share
E&P Cash EPS % 10.7% (8.8)% (11.0)% 7.1%
Basic Cash EPS % 10.8% (8.7)% (10.9)% 6.9%
Dividend Per Share % 3.4% 0.0% 6.7% (0.3)%
Profit & Loss
Net Interest Income % 9.4% 1.0% 5.4% 7.9%
Banking Non Interest Income % 4.5% (4.7)% (0.1)% 2.6%
Wealth Management Income % N/A% N/A% N/A% N/A%
Total Non Interest Income % 4.5% (4.7)% (0.1)% 2.6%
Total Operating Income % 8.9% (1.9)% 4.3% 6.8%
Operating Expenses % 3.7% 11.4% (5.8)% 4.0%
Pre-Provision Profit % 18.5% (23.5)% 28.3% 11.5%
Impairment Charges % (1.1)% (26.7)% (11.2)% 81.1%
Cash Profit % 15.5% (3.9)% (6.5)% 6.9%
Balance Sheet
Gross Loans & Other Receivables % 5.3% 6.1% 7.0% 7.1%
Total Shareholders’ Equity % (3.9)% 6.0% 4.0% 1.1%
Average Balance Sheet
Housing Loans % 7.9% 5.5% 6.2% 7.4%
Non-Housing Loans % 7.9% 5.5% 6.2% 7.4%
Avg Interest Earning Assets % 6.9% 5.4% 6.4% 7.3%
Avg Interest Bearing Liabilities % 6.6% 5.5% 5.1% 6.4%
Year end June 2011A 2012E 2013E 2014E
VALUATION METRICS
E&P Cash P/E Multiple x 9.4 10.3 11.6 10.8
Basic P/E Multiple x 9.7 10.6 11.9 11.1
Price/Pre-prov. operating profit x 6.8 9.7 7.6 6.8
NTA per share $ 5.7 5.7 6.1 6.3
Book Value per Share $ 10.2 9.8 10.2 10.3
Price/NTA x 1.5 1.5 1.4 1.4
Price/Book x 0.9 0.9 0.8 0.8
Dividend per Share ¢ 60.0 60.0 64.0 63.8
Dividend Payout Ratio x 0.7 0.7 0.9 0.8
Dividend Yield % 6.9% 6.9% 7.4% 7.4%
Grossed Up Yield % 9.9% 9.9% 10.5% 10.5%
Issued Shares m 367.1 402.2 402.2 402.2
Weighted Average Shares m 364.3 383.5 402.2 402.2
PERFORMANCE ANALYSIS
Profitability
Income / Avg Assets % 2.3% 2.1% 2.1% 2.1%
Expense / Avg Assets % (0.1)% (0.2)% (0.2)% (0.2)%
Return on Average Assets % 0.6% 0.6% 0.5% 0.5%
Return on Ordinary Equity % 7.9% 7.4% 7.1% 8.2%
Return on Risk Weighted Assets % 1.3% 1.1% 1.0% 1.0%
Net Interest Margin Analysis
Net Interest Spread % 1.6% 1.5% 1.5% 1.4%
Net Interest Margin % 1.8% 1.8% 1.7% 1.8%
Non Int. Income to Total Income % 24.3% 22.2% 21.4% 20.6%
Efficiency
Cost/Income % 62.1% 70.4% 63.6% 62.0%
Tax Rate
Effective tax rate % 18.4% 40.2% 30.0% 30.0%
CAPITAL ADEQUACY
Risk Weighted Assets $m 26,043 28,310 30,301 32,459
Tier 1 Capital $m 2,043 2,376 2,542 2,597
Total Capital $m 2,720 2,949 3,154 3,252
Tier 1 Ratio % 7.8% 8.4% 8.4% 8.0%
Tier 2 Ratio % 2.6% 2.0% 2.0% 2.0%
Total Capital Ratio % 10.4% 10.4% 10.4% 10.0%
ACE Ratio % 8.3% 8.5% 7.7% 7.1%
Tangible Leverage Ratio % 3.7% 3.7% 3.7% 3.5%
ASSET QUALITY
90-day Past Due Loans $m 568 556 540 532
Non Performing Loans $m 854 836 812 800
NPL / Gross Loans and Other Rec % 1.9% 1.7% 1.6% 1.4%
Total Provisions $m 154 640 142 152
Total Prov. / Gr. Loans & Oth Rec % 0.3% 1.3% 0.3% 0.3%
Individual Provision $m 42 32 37 39
Individual Provision Cover % 14.7% 11.4% 13.5% 14.6%
Collective Provision $m 112 608 105 112
Collective Prov. / Perform. Loans % 0.2% 1.3% 0.2% 0.2%
Impairment Charges / Avg RWA % 0.2% 0.1% 0.1% 0.2%
Imp Assets / Gr. Loans & Oth Rec % 0.6% 0.6% 0.5% 0.5%
Impaired asset coverage % 14.7% 11.4% 13.5% 14.6%
Collective Provision / RWA % 0.4% 2.1% 0.3% 0.3%
BDD / Gr. loans and Oth Rec % 0.1% 0.1% 0.1% 0.1%
WEALTH MANAGEMENT
Funds Under Administration $m 0 0 0 0
Inforce Premiums $m 0 0 0 0
Funds Mgt Revenue Margin % 0.0% 0.0% 0.0% 0.0%
Life Insurance Revenue margin % 0.0% 0.0% 0.0% 0.0%
Shareholder Invest. Returns % 0.0% 0.0% 0.0% 0.0%

8. 8
RESEARCH RECOMMENDATION DEFINITIONS
Positive Stock is expected to outperform the S&P/ASX 200 over the coming 24 months
Neutral Stock expected to perform in line with the S&P/ASX 200 over the coming 24 months
Negative Stock is expected to underperform the S&P/ASX 200 over the coming 24 months
Speculative Stock has limited history from which to derive a fundamental investment view or its prospects
are highly dependent on event risk, eg. Successful exploration, scientific breakthrough, high
commodity prices, regulatory change, etc.
Suspended Stock is temporarily suspended due to compliance with applicable regulatory and/or Evans &
Partners policies in circumstances where Evans & Partners is acting in an advisory capacity.
Not Rated Stock is not included in our investment research universe.
Research Criteria Definitions
Recommendations are primarily determined with reference to how a stock ranks relative to the S&P/ASX 200 on
the following criteria:
Valuation Rolling 12 month prospective multiples (composite of Price-to-Earnings Ratio, Dividend
Yield and EV/EBITDA), or long-term NPV for resource stocks.
Earnings Outlook Forecast 2 year EPS growth.
Earnings Momentum Percentage change in the current consensus EPS estimate for the stock (rolling 1 year
forward basis) over the consensus EPS estimate for the stock 3 months ago.
Shareholder Returns Composite of forecast ROE (rolling 1 year forward basis) and the percentage change in
ROE over 2 years.
Debt Servicing Capacity Rolling 12 month EBIT Interest Cover ratio.
Cyclical Risk Qualitative assessment of the 2 year outlook for a stock/industry’s profit cycle.
Industry Quality Qualitative assessment of an industry’s growth/returns potential and company specific
management capability.
Financial Transparency If we don’t understand it, we won’t recommend it.
For stocks where Evans & Partners does not generate its own forecasts, Bloomberg consensus data is used.
Analysts can introduce other factors when determining their recommendation, with any material factors stated in
the written research where appropriate.

9. 9
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