Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — H1 2018 Earnings Presentation
37 slides from Bank Of Queensland's earnings presentation, Apr 17, 2018
Slide 1: 1H18 Results Presentation
>» 1H18 Results Presentation 17 April 2018 FOR THE HALF YEAR ENDED 28 FEBRUARY 2018 Bank of Queensland Limited ABN 32 009 656 740, AFSL No 244616
Slide 2: Disclaimer
DISCLAIMER BS This is a presentation of general background information about Bank of Queensland Limited’s (BOQ’s) activities at the date of this document. It is in summary form and does not purport to be complete. It should be read in conjunction with BOQ’s other periodic and continuous disclosure a
Slide 3: Agenda
AGENDA Results Overview Jon Sutton Managing Director & CEO Financial Detail Anthony Rose Chief Financial Officer Summary & Outlook Jon Sutton Managing Director & CEO Bank of Queensiand Limited Results Presentation 1H18
Slide 4: 1H18 Highlights
1H18 HIGHLIGHTS 1 — Improved lending growth 2 — Retail and BOQ Business delivering on Group four-pillar strategy 3 — Asset quality remains sound 4 — __ Investing in transformation while maintaining expense discipline 5 — Strong capital position provides flexibility Bank of Queensland Limited Results
Slide 5: Key Elements of the Result
KEY ELEMENTS OF THE RESULT CASH EARNINGS AFTER TAX ($M) EARNINGS PER ORDINARY SHARE (CENTS) i 181 175 182 ar aut 458 46.5 BEEGE FREE 1Ki6 = HIB. SHI? aHi7.—AH18 iKi6 = HIS HI? Hi? «AH RETURN ON EQUITY (%) DIVIDENDS PER ORDINARY SHARE (CENTS) 105 ag 7 os 38 38 38 n 38 TE al iKi6 = HIS HI? Hi? «AH iKi
Slide 6: Drivers of the Result
DRIVERS OF THE RESULT LENDING GROWTH ($M) NET INTEREST MARGIN (%)(") 1,949 au 1.96 1.96 1.97 1.91 0.06 0.06 0.06 228 as — (157) 1H16 2H16 1H17 2H17 1H18 1H16 2H16 1H17 2H17 1H18 HB Mortgage offset account impact COST TO INCOME RATIO (%) LOAN IMPAIRMENT EXPENSE ($M) 46.4 47.3 47.4 47.6 36 31 ‘| 27 i
Slide 7: Improved Lending Growth
IMPROVED LENDING GROWTH SUMMARY TOTAL LENDING GROWTH VS PCP ($M) * Strong home loan growth through Virgin Money Australia & BOQ 671 Specialist continuing + Mortgage broker volumes building * Strong growth in commercial loans driven by niche segments ¢ Branch network run-off slowing (157) * Historica
Slide 8: Retail Banking Focus on Channels & Deposits
RETAIL BANKING FOCUS ON CHANNELS & DEPOSITS BS SUMMARY RETAIL HOUSING SETTLEMENTS BY CHANNEL ($M) Retail expanding distribution channels through BOQ Broker, Virgin Money Australia and Digital * Settlement volumes improved on PCP basis * Strong relationship deposit growth in branch network driven by
Slide 9: BOQ Business Growing Niche Segments
BOQ BUSINESS GROWING NICHE SEGMENTS * BOQ Business focus on growing niche segments of agribusiness, corporate healthcare & retirement living, hospitality & tourism 47 +13% CAGR 0.5 08 HB Franchising” Agribusiness * BOQ Specialist mortgage growth remains strong — building future pipeline of commercia
Slide 10: Asset Quality Remains Sound
ASSET QUALITY REMAINS SOUND SUMMARY IMPAIRED ASSETS % OF GROSS LOANS (bps) * Impaired assets continue to reduce + Arrears levels remain benign * QLD and WA showing signs of improvement + Prompt implementation of prudential practice guides 30-DAY ARREARS (bps) 39 1H18 76 98 54 i U Fy14 FYI5 FY16 FYI7
Slide 11: Investing in Transformation While Maintaining Expense Discipline
INVESTING IN TRANSFORMATION WHILE MAINTAINING EXPENSE DISCIPLINE » SUMMARY CORE EXPENSES REDUCING ($M) * Cost savings enabling investment in technology and growth businesses * New web experience platform now utilised across BOQ, Virgin Money 264 261 262 256 252 [Wh Other» a 15 19 22 18 Hl Amortisati
Slide 12: CET1 position remains very strong for a standardised bank at 9.42%
* CET1 position remains very strong for a standardised bank at 9.42% + Interim 9.25% CET1 target remains in place + Basel & APRA announcements” suggest BOQ’s position remains very comfortable relative to peers * Capital management initiatives under active consideration Standardised 9.4% Boa Advanced
Slide 13: Financial Detail
>» Financial Detail oer Se
Slide 14: Financial Performance
FINANCIAL PERFORMANCE 1H18 v 1H17 1H18 v 2H17 1H18 v 2H17 adjusted!) Net interest income 5% 0% 0% Non interest income (6%) (21%) (6%) Total income 3% A (3%) (1%) Operating expenses 4% 0% 0% Underlying profit 3% A (6%) (1%) Loan impairment expense (19%) V 5% 5% Profit before tax 5% A (7%) (2%) Income
Slide 15: Loan Portfolio and Growth
LOAN PORTFOLIO AND GROWTH SUMMARY GROSS LOANS & ADVANCES ($B) 431 438 445 * Growth across all portfolios * Total lending growth at 0.7x system; Housing 0.5x; Commercial 1.6x 600 Finance * Strongest growth in niche commercial segments and new housing HB Commercial channels Housing & ° Growth being dr
Slide 16: BOQ Reporting Segment Overview
BOQ REPORTING SEGMENT OVERVIEW BOQ Business fe BOQ BUSINESS Brands ik. B00 @ BOQ SPECIALIST Distinctive banking Housing loans and deposits originated through . . . the branch network, direct channels, Virgin Commercial loans, SME loans, housing loans, Money Australia and mortgage brokers. BE finance
Slide 17: Financial Performance: Retail Banking
FINANCIAL PERFORMANCE: RETAIL BANKING 1H18 v 1H17 1H18 vs 2H17 Net interest income 5% A (1%) W Non interest income 3%) V (6%) V Total income Am A (2%) V Operating expenses 4% A 2% A Underlying profit 3% A (6%) V Loan impairment expense (9%) VW 233%) & Profit before tax 5% A (11%) V Income tax expens
Slide 18: Retail Banking
RETAIL BANKING SUMMARY Focus on channel diversification and MFI customer growth Virgin Money Australia housing loan growth remains strong, contributing 20% of Retail housing settlements BOQ Broker volumes driving 20% of Retail housing settlements Branch network run-off improving BEES growth focused
Slide 19: Financial Performance: Business Banking
FINANCIAL PERFORMANCE: BUSINESS BANKING 1H18vV1H17 —_1H18 vs 2H17 adjusted”) Net interest income 1% 1% A Non interest income 0% (6%) V Total income 6% A 0% Operating expenses 5% A (1%) W Underlying profit 8% A 1% A Loan impairment expense (25%) V (33%) V Profit before tax 11% A 5% A Income tax expen
Slide 20: Business Banking
BUSINESS BANKING SUMMARY INCOME AND EXPENSES ($M)(?) * Focus on quality and growth in niche segments, delivering $281m in commercial loan growth * BOQ Specialist mortgage growth remains strong * BOQ Finance focus on margin and mix * Delivering through consistent and superior industry specialist rela
Slide 21: Funding Mix
FUNDING MIX SUMMARY OVERALL FUNDING MIX ($B) Focus on growing lower cost deposits, diversifying funding base and improving mix Long term funding profile built out through senior unsecured Pricing analytics tool deployed to enhance term deposit retention levels Capital Note issuance to refinance rede
Slide 22: Net Interest Margin
NET INTEREST MARGIN NET INTEREST MARGIN MOVEMENTS 2H17 TO 1H18 2.23% 2.28% 0,02% 0,02% - (0.01%) (0.01%) (0.01%) I Third party costs ist Hl \et interest margin THI7 2H17 Asset pricing & Funding costs & Hedging costs Capital &LCDs Third party 1H18 mix mix costs 1H18 CONSIDERATIONS SUMMARY OF KEY MOVI
Slide 23: Non Interest Income
NON INTEREST INCOME SUMMARY NON INTEREST INCOME BREAKDOWN ($M) Banking fees remain under pressure ATM fee impact $0.6m for the half St Andrew’s income stabilised Profit on disposal") Trading income opportunities diminished 8 Trading income I Insurance Hi Other HB Banking 1HI6 2H16 1HI7 2H17 1H18 Ban
Slide 24: Expenses
EXPENSES BS SUMMARY OPERATING EXPENSE BREAKDOWN ($M) ¢ Flat cost profile from 2H17 + IT expenses increased due to higher software amortisation 261 262 + Efficiency programs delivered targeted savings, allowing investment aie 0 0 Operating in growth businesses a model Other I General 22 21 21 21 22 C
Slide 25: Asset Quality
ASSET QUALITY SUMMARY LOAN IMPAIRMENT EXPENSE BY PRODUCT (bps) ¢ Loan impairment expense flat at 10bps of GLA + |mpaired assets reduced a further 10% from 2H17 + New impaired asset volumes also reduced to lowest level since pre- 2012 IMPAIRED ASSETS ($M) == Commercial == Group Total al = Retail 7 ==
Slide 26: Provision Coverage
PROVISION COVERAGE SUMMARY SPECIFIC PROVISIONS / IMPAIRED ASSETS (%) * Specific provision coverage increased to 57% 55 57 50 53 50 + Provision coverage compares favourably with peers * Total provision coverage remains strong FY14 FY15 FY16 FY17 1H18 TOTAL PROVISION & GRCL“/ IMPAIRED ASSETS (%) PROVI
Slide 27: Arrears
ARREARS SUMMARY COMMERCIAL ARREARS (bps) ¢ Arrears levels remain low across all portfolios + Usual seasonal uptick apparent in February quarter 1231381185 20, 22,126 m= 30DPD a m= 9ODPD 75 82 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 HOUSING ARREARS (bps) BOQ FINANCE ARREARS (bps) M10 tog 100 gg 129402 99
Slide 28: Capital
CAPITAL COMMON EQUITY TIER 1 MOVEMENTS 0.80% = 0.18% _ _0.08% (0.13%) (0a) | == —<—$ (o.05%) TOORGy Underlying capital generation 9.30% 13bps 2H17 Cash earnings RWA, Ordinary(") Capital APS120 GROL release Securitisation Other) THIS movement dividend initiatives impact SUMMARY CAPITAL MANAGEMENT * 9
Slide 29: Sale of St Andrew's
SALE OF ST ANDREW’S SUMMARY ST ANDREW’S HISTORICAL CONTRIBUTION ($M) * Sale to Freedom Insurance for total proceeds of $65m"), inclusive of a $35m pre-completion reinsurance arrangement 1HI7 2H17 ¢ Entry into a three-year exclusive life insurance distribution artnershi fi A pannereP Non interest inc
Slide 30: Summary & Outlook
>» SuMMary & OUTIOOK — wren’ bieciore ceo
Slide 31: External Environment
EXTERNAL ENVIRONMENT Industry Economic ¢ Intense regulatory & public scrutiny ¢ Conduct, culture & trust critical ¢ Structural changes likely * Conditions supportive of small business * QLD & WA showing signs of improvement * Slowing credit growth Bank of Queensiand Limited Results Presentation 1H18
Slide 32: Strategic Focus
Strategic STRATEGIC FOCUS pillar Customer in charge Grow the right way There's always a better way Loved like no other + — Achieving minimum digital Improving deposit gathering * — Overhauling key processes to Delivering a differentiated parity and meeting more of and lifting MFI penetration align t
Slide 33: Outlook
OUTLOOK 1 — Niche segment strategy delivering growth 2 — _ Virgin Money Australia continues to exceed expectations 3 —_ Structural changes in the industry provides opportunities 4 — _ Expense and investment discipline remains a priority 5 — Strong capital position provides flexibility Bank of Queens
Slide 34: Appendices
>» Appendices
Slide 35: Housing Portfolio
HOUSING PORT SUMMARY HOUSING PORTFOLIO LVR BANDS 9 ¢ Broker settlements increased to 30% including Virgin Money 12% 8% Lessin cs + Interest only settlements trending to less than 30% » 17% 40-60% + Room for growth under 10% investor cap 20% 61-80% + Owner occupied P&l loans represent 49% of portfoli
Slide 36: Limited Exposure to High Risk Sectors
LIMITED EXPOSURE TO HIGH RISK SECTORS APARTMENT CONSTRUCTION EXPOSURES LENDING TO RESIDENTIAL APARTMENT CONSTRUCTION + $90m current exposure to residential construction | * 16 developments across 3 states, completing 2018 through 2019 + Well diversified intra-state OTHER HIGH RISK SECTORS + No mater
Slide 37: Abbreviations
ABBREVIATIONS 1H: First half of financial year 2H: Second half of financial year 30DPD: 30 days past due QODPD: 90 days past due APRA: Australian Prudential Regulation Authority APS: ADI Prudential Standards Apts: Apartments AT1: Additional Tier One Avg: Average BDD: Bad & Doubtful Debt Expense bps: