New Zealand's fifth largest bank, Kiwibank, reported a net profit after tax of NZ$51 million for the first half of its 2019/20 financial year. This was NZ$9 million below its first half result a year earlier as higher operating costs and a shrinking NIM took their toll. The bank's chief executive, Steve Jurkovich, said via media release accompanying the results that the profit was in line with expectations.Underpinning the result was a NZ$2 million increase in operating income for the six months to 31 December 2019 - up to $277 million from $275 million, delivering a return on equity of 5.8 per cent (7.5 per cent for the previous comparable period).Jurkovich said business lending was up by 17 per cent and home loans were up by 4 per cent in the six months to 31 December 2019.The bank expanded its footprint in the half, reporting "above-system growth" in lending (up by NZ$1.1 billion, or 5.3 per cent on the previous corresponding period) and customer deposits (an increase of NZ$1 billion or 5.4 per cent). A one-off gain of NZ$2 million from the sale of its Prezzy card business also contributed to Kiwibank's first half income.The bank's success in customer and deposit growth came at a price, though, with rising operating costs and a net interest margin contraction - down to 1.97 per cent from 2.13 per cent in the December 2018 half - along with accelerated investment in its transformation programme, and increased risk and compliance investment. The net outcome was that Kiwibank's cost to income ratio has blown out to almost 75 per cent, compared to 67 per cent in the six months to end December 2018.Capital ratios also declined slightly but remained well above the RBNZ minimum requirements: CET1 for December 2019 was 12 per cent, with total Tier 1 capital at 13.2 per cent (12.4 per cent and 13.7 per cent in June 2019). Kiwibank's only Tier 2 capital funding instrument was redeemed in July 2019.Among other changes flagged in Jurkovich's commentary have been the closure or shrinking of some branches as more customers move to online banking, and the bank's ongoing plan to become "cheque-free" from the end of February.