Nicholas Grove: National Australia Bank has announced its earnings for the 2012 financial year, and here to give investors his initial impressions of the bank's results, I'm joined by Morningstar's head of Australian banking research, David Ellis. David, thanks very much for joining us.

David Ellis: Pleasure, Nick.

Grove: First of all, David, were NAB's earnings and dividend in line with, above or below what you are expecting?

Ellis: Well, they were in line, simply because NAB had preannounced a couple of key earnings drivers about 10 days ago, particularly focused around bad debts. They had also preannounced the final dividend, so there was no surprises there. They had indicated that the cash profit would be similar to 2011. So there were no surprises with that. However, the makeup of the result was a little bit surprising and a little bit disappointing.

Grove: So, David, what were the key drivers that made up these results?

Ellis: Well, the key drivers that we identified, that we were looking at, were net interest margins and they declined sharply in first half 2012 and continued that decline into second half 2012, which was a little disappointing. Bad debts, even though there has been lot of focus on that with the preannouncement a couple of weeks ago, that was still little bit worse than I was expecting. The majority of the pre-disclosure related to the United Kingdom and to National Australia Bank's banking operations in the UK, but there was bad debt weakness here in Australia.

Some of the positives, however, some of the good things in the result were operating costs. So, costs are coming down actually, so they are not growing. Costs came down in the year and in the second half, so that helped to offset some of the weakness in the revenue growth and the weakness in the bad debts.

Our non-interest income recovered strongly from the previous year. That was good, but that's a volatile number and that changes from period to period. So while it was up in this year, it may be down next year, so it's not necessarily a good quality indicator of future earnings. So, overall, there was reasonable revenue growth - nothing fantastic - but reasonable. Credit growth was okay, there was some weakness in the Australian business sector, but the major weakness for the National Australia Bank was in the UK operations and they have been a festering sore now for quite a while and unfortunately will continue to be so for all for several years.

Grove: Finally, David, was there anything about the result that surprised you or that will alter your outlook for the bank?

Ellis: Yeah, and the margins were bit softer than I was expecting. So we've had to pull back some of our forecast on net interest margins. The dividend was also was preannounced. It was still a reasonably strong result, the dividend increase for the year. That's important because our thesis, our long-held thesis, has been that the four major banks are going to continue to deliver sustainable growing dividends and that's very important. And while the profit number was a bit softer, the fact that the dividend was around 4 per cent higher than 2011, and indications that the dividend will continue to grow, reinforces our thesis and our positive view on the major banks.

Grove: David, thank you very much for your time.

Ellis: It's a pleasure, Nick.