Shares in Bendigo and Adelaide Bank dropped 3 per cent this morning to $10.77 after rising up to close at $11.12 yesterday. Yesterday it reported a weaker-than-expected 6.6 per cent slide in full-year cash profits to $415.7 million due mainly to higher costs. However, the results showed momentum in its loan book and profit margins that were wider in the second half, as it benefited from lower funding costs. Read the full story by Clancy Yeates here.

Analyst notes released this morning reveal a growing concern that Bendigo and Adelaide Bank faces lower margins as the target cash rate decreases.

"Bendigo and Adelaide Bank delivered better margins in the second half of 2018-19 and the exit margin was up 3 to 4 basis points on the 2018-19 second half estimate average," Morgan Stanley analysts write in a note to clients. "However, this captures the benefit of standard variable rate repricing but does not allow for full impact of lower rates, which we think will be a 5 basis point headwind in first half of 2019-20...We forecast margins to fall 4 basis points in 2019-20 estimates with risks to the downside if RBA cuts rates." They also believe a cut in dividends in possible in 2019-20.

They raised their target price from $10.10 to $10.30, but urge the bank to reduce costs as quickly as possible.

Meanwhile Macquarie's analysts have a $9.50 target price and 'underperform' rating on the stock.

"Underlying revenue declined about 2 per cent in second half of 2018-19, as fee income pressures persisted and volume growth trends remained subdued. While Bendigo and Adelaide Bank is targeting better cost trends in 2019-20, unless revenue conditions improve, cost-to-income targets appear highly aspirational," they write.