The bank's bottom line slumped and its mortgage book also shrank slightly in the three months.
Chief financial officer Tim Loan says his bank had a "fantastic" year in the year ended March 31 so rather than worrying about bottom line profit it decided to return a "dividend" in the form of lower mortgage rates.
"We took that hit through our interest rate margin and that's an ongoing benefit that we're providing," Loan says. "We've got to be very conscious that our customers actually own us."
The bank's June quarter general disclosure statement (GDS) shows net profit slumped 55% to $1.6 million in the three months ended June 30, with about half the decline reflecting a one-off $2.2 million tax charge reflecting the government's tax changes.
Pre-tax profit was down 24.4% to $4.1 million, reflecting a 4.4% drop in net interest income to $14.4 million and a 15.8% jump in charges against profit for bad loans to $3.5 million.
SBS's mortgage book shrank $3,754 to $1.71 billion. Using Reserve Bank figures as a proxy for the market, SBS's share of mortgages written by registered banks eased to 1.04% from 1.05% three months earlier.
SBS chief executive Ross Smith says his bank isn't aggressively lending. "No one is. There's not too many good deals around.
Another reason margins are down is because of the fierce competition among banks for deposits as they scramble to meet new Reserve Bank funding requirements, Smith says.
SBS, which had $2.58 billion in total assets at June 30, will take over fellow co-operative Hastings Building Society, which has $185 million in assets, from October - no money will change hands with HBS member becoming SBS members.
Smith says HBS "gives us a good footprint into Hawkes Bay," adding to SBS's existing North Island branches in Tauranga and Hamilton. SBS has 13 South Island branches including four in Christchurch.
