Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — H1 2012 Earnings Presentation
53 slides from Bank Of Queensland's earnings presentation, Feb 29, 2012
Slide 1: Bank of Queensland Half year results
Bank of Queensland Half year results 29 February 2012
Slide 2: Agenda
Agenda Result highlights Stuart Grimshaw Managing Director & CEO Financial results & portfolio details Ewan Cameron Chief Financial Officer Strategy and outlook Stuart Grimshaw Managing Director & CEO 2 Bank of Queensland Limited ABN 32 009 656 740
Slide 3: Important notices
Important notices Financial amounts All dollar values are in Australian dollars (A$) and financial data is presented as at the date stated. Pro-forma financial information and past information provided in this Presentation is for illustrative purposes only and is not represented as being indicative
Slide 4: Result highlights
Result highlights Stuart Grimshaw Managing Director and CEO
Slide 5: Result highlights
Result highlights Statutory loss of $90.6m as a result of strengthening provision levels to best in market Normalised underlying profit up 3% at $222m Announced $450m Capital Raising to bring Core Tier 1 to industry-leading level NIM improved by 3bps, bucking the industry trend Maintaining 45% norma
Slide 6: Underlying earnings momentum
Underlying earnings momentum 1H11 1H12 Normalised underlying profit before tax $215.5m $221.9m 3% Normalised cash net profit (loss) after tax $57.4m ($72.4m) 226% Statutory net profit (loss) after tax $48.0m ($90.6m) 289% Cash EPS (normalised fully diluted) 23.7¢ (34.0¢) 57.7¢ Ordinary dividend 26¢
Slide 7: Strong deposit growth
Strong deposit growth Lending growth: ~0.8 x system* Deposit growth: ~1.3 x system* 10% 5% 8% 4% BOQ System System BOQ System SystemSystem BOQ BOQ Lending growth Retail deposit growth * Last 12 months. 7 Source: APRA data. System data excludes Heritage Bank data that was included in Dec 2011. Bank o
Slide 8: Lending and deposit growth
Lending and deposit growth Loan growth fully funded by retail deposits in 1H12 Loans under management ($b)1 Retail deposits ($b) 6% CAGR 33.4 33.8 32.0 11% 3.7 3.7 BOQ Finance 21.1 28.9 3.9 20.3 26.3 3.2 5.3 5.2 15% 18.1 SME and 3.0 5.1 commercial 16.2 4.7 4.4 14.0 74% 18.9 21.0 23.0 24.4 24.9 Retai
Slide 9: Strong capital position
Strong capital position Capital position to be significantly strengthened following the capital raising Pro-forma BOQ Core Tier 11 2.2% 8.6% 6.4% Core Tier 1 1H12 Equity raising Pro-forma Core Tier 1 (1) As at 1H12 on a Basel II basis. Estimated 1H12 pro forma Basel III Core Tier 1 of 8.5%. 9 Bank o
Slide 10: Balance sheet strength
Balance sheet strength Equity raising to place BOQ’s Core Tier 1 capital position at top end of peer range Prudent approach to collective provisioning provides enhanced protection against a further deterioration in the Queensland economy Core Tier 1 vs. peers1 Collective provision vs. peers2 8.6% 8.
Slide 11: Expense discipline maintained
Expense discipline maintained Track record of growing balance sheet whilst maintaining expense discipline Normalised cost-to-income ratio1 Expense composition ($m)1 56.1% 49.9% $178m $181m 45.8% 44.5% 45.0% $9m $10m 10% $75m $78m 4% $14m $15m 14% $36m $35m (1%) $44m $43m (3%) 2008 2009 2010 2011 1H1
Slide 12: Confidence to maintain dividend
Confidence to maintain dividend Despite financial loss during the half, the Board has approved a 26 cent per share dividend, flat with 1H11 Strengthened balance sheet provides platform to target future dividend growth Earnings per share* Dividends 28¢ Dividend yield 46.1¢ 26¢ 26¢ (annualised) 23.7¢
Slide 13: Financial results and portfolio details
Financial results and portfolio details Ewan Cameron Chief Financial Officer
Slide 14: Increased provisions resulting in loss for the half
Increased provisions resulting in loss for the half… 1H11 1H12 % Change $m $m vs pcp Total Income 388.2 396.6 2% Adj: Normalisation items 4.8 6.7 Normalised Total Income 393.0 403.3 3% Expenses 186.0 197.0 6% Adj: Normalisation items (8.5) (15.6) Normalised Operating Expenses 177.5 181.4 2% Normalis
Slide 15: Normalisation items
Normalisation items Summary of normalised income and expense items below* 1H11 1H12 Normalisation adjustments Income ($m) Expenses ($m) After tax Income ($m) Expenses ($m) After tax (before tax) (before tax) (before tax) (before tax) Amortisation of customer contracts (4.4) (3.1) (4.3) (5.6) Integra
Slide 16: Normalised cash NPAT trend
Normalised cash NPAT trend Normalised cash NPAT ($m) Collective Provisions 119 overlay charge of $160m 100 has reduced normalised cash NPAT by $112m, to 57 versus 1H11 40 a loss of $72m (30)% 112 Adjusted for Collective Provisions changes, (72) Normalised Cash NPAT was $40m 2H10 1H11 2H11 1H12 16 Ba
Slide 17: Net interest margin
Net interest margin * Strong NIM performance in a tough funding environment NIM up 3 bps 2.02%** (3 bps) 3rd Party 5 bps 0.34% Payments 2 bps (1 bps) 1.99%** 3rd Party 0.34% Payments 1.68%* 1.65%* Margin Asset Funding Non Other Margin FY11 pricing & & capital performing 1H12 mix loans * Normalised n
Slide 18: Subdued income growth in line with balance sheet growth
Subdued income growth in line with balance sheet growth Normalised Net Interest Income Normalised Non Interest Income 5% (7%) $326m $83m $77m $310m 1H11 1H12 1H11 1H12 Improved NIM combined with Reduction in Trading Income of $5m, balance sheet growth offset by drag driven by revaluation of credit h
Slide 19: Expense composition
Expense composition Normalised cash cost-to-income ratio target of 45% achieved, despite lower income growth levels Cost-to-income ratio Operating expenses* 1.4% Occupancy $15.4m (14% growth) Employee costs 2.3% $78.2m (4% growth) IT costs 49.7% 0.5% 0.5% $35.0m $32m $32m (-1% growth) 45.0% $53m $57
Slide 20: Funding mix
Funding mix Continued focus on growing retail funding base, goal to exceed 63% Diversified wholesale funding channels domestic and offshore Funding mix (%)* 15% 13% 11% 12% 16% 17% 15% 17% 15% 16% 17% 17% 57% 51% 54% 56% 2H10 1H11 2H11 1H12 Retail Securitisation ST wholesale LT wholesale * Retail de
Slide 21: Growing retail base comparable to majors
Growing retail base comparable to majors 6pt increase in 18 Retail Funding Contribution (%)* months; now in line with market 77% Achieving target of 62% 58% 57% 56% 55% 63% will position well 51% against peers Focus on sustainable deposits BOQ Major 1 Major 2 Major 3 Major 4 Regional 1 Regional 2 (*
Slide 22: Shift towards more sustainable retail funding
Shift towards more sustainable retail funding Retail Funding ($b) 4% Term Deposit Pricing (%) 21.1 20.3 0.3 (88)% 7m TD 6m TD Promo Websaver Special Special 2.6 3.0 58% Base Websaver 1.9 +119bps 6.30 +50bps 4.6 10% 5.90 +169bps Other 4.2 5.11 increase; 4.75 40bps due to 4.21 4.25 yield curve 13.3 15
Slide 23: Strong capital base and liquidity
Strong capital base and liquidity Tier 1 and total capital levels will increase to market leading levels post recent capital raising Conservative liquidity maintained throughout period Capital adequacy Liquidity 13.0% 21.2% 20.2% 11.7% 11.4% 10.8% Tier 2 Tier 2 17.6% ratio 3.4% Hybrid Tier 1 1.0% Ti
Slide 24: On track for GG Debt Maturity in October
On track for GG Debt Maturity in October Primarily aiming to issue in RMBS / ABS markets; strong appetite from Redemption Plan ($m) domestic & overseas investors Excess Retail deposit growth over loan 1,350-2,600 growth of $50m-$80m per month 0-500 Liquidity > 12% Continue to monitor senior unsecure
Slide 25: Portfolio Details
Portfolio Details Ewan Cameron Chief Financial Officer
Slide 26: Geographic diversification continues
Geographic diversification continues Consistent trend of growing geographic diversity – less reliance on Queensland Subdued growth across all states 1H09* 1H12* 1H12 – Growth rate % QLD NSW 60% 11% QLD 1% QLD 66% NSW 3% NSW VIC 10% NSW 3% VIC VIC 13% WA 0% VIC Other 4% OTHER WA 11% 16% Other Other 2
Slide 27: Increased impairment charges coupled with $160 million collective provision overlay
Increased impairment charges coupled with $160 million collective provision overlay Commercial review of portfolio Specific and collective expense ($m) resulted in an increased specific Collective Provision 328 2 charge for the period Collective Overlay Specific and W/off 160 The additional impairme
Slide 28: Impaired loans increasing by 30%
Impaired loans increasing by 30% Total impaired loans ($m) 579 444 $135 million increase due to a 423 combination of retail and commercial loans 1H11 2H11 1H12 SE Queensland exposures were particularly prevalent New individual impaired loans $311m $257m $92m Exposure < $5m $13m Exposure $5m to $10m
Slide 29: Strengthening and protecting the balance sheet
Strengthening and protecting the balance sheet Significantly improved specific and Provision coverage ($m / %) collective provision coverage 2.72%1 Collective provision boosted by 70 $160m in overlays plus $2m in provision changes 242 1.56%1 1.47%1 67 57 80 81 Portfolio metrics 1H11 2H11 1H12 Specif
Slide 30: More robust collective coverage
More robust collective coverage Collective provision Significant strengthening of Commercial Collective through $242m $4m overlays to provide coverage against $20m downside risk of lower property values across portfolio $155m $81m $80m Housing Collective strengthened to $35m $23m $4m $4m reflect hig
Slide 31: Arrears management
Arrears management Arrears 90 days + by product 2.74% Home loan arrears saw an small 2.61% 2.35% uptick in line with seasonal trends 1.80% 1.73% 1H11 1.49% 1.26% 1.11% 1.15% 1.13% 2H11 0.93% 0.88% New Commercial and Other Retail 0.73% 0.55% 0.23% 1H12 helped by shift to impaireds 1 Housing Other Ret
Slide 32: Asset quality review
Asset quality review A comprehensive review of BOQ’s Commercial Loan Portfolio was undertaken during March 2012 The review was undertaken using external professional firms and comprised teams of experienced bankers, insolvency personnel, and real estate restructuring specialists A detailed assessmen
Slide 33: Commercial impaired & provision walk
Commercial impaired & provision walk Commercial Impaired Asset Walk ($m) Increased Provisions coverage of Impaired Accounts from 42% to 58% through combination of 162.5 specific provisions and $47m 40.5 1.4 increase to valuation overlay New Impaired specific coverage 24.3 of 45% 424.2 325.1 Exit of
Slide 34: Large exposures
Large exposures The Bank has 24 relationships with exposures Largest exposures by Industry group greater than $20m. Up 3 from 21 at FY11 Financial and Insurance Services Retail 4% No new customers; increased lending on sub-$20m 6% exposures Other Construction 21% 10% Total commitment exposure $882m
Slide 35: Strategy & outlook
Strategy & outlook Stuart Grimshaw Managing Director and CEO
Slide 36: Global themes
Global themes Developed markets austerity and deleveraging Increased liquidity in global markets Stabilising global macroeconomic outlook but uncertainties remain Emerging markets driving global growth Regulatory environment continuing to evolve Digitisation 36 Bank of Queensland Limited ABN 32 009
Slide 37: Australian themes
Australian themes Solid economic outlook for Australia but risks remain Strong and robust Australian banking system Moderate credit growth environment Large and rapidly growing funds management industry Expected shift in super allocation towards cash and fixed interest assets 37 Bank of Queensland L
Slide 38: Strategic rationale
Strategic rationale Create a successful banking model that is: Fit What? Focused Different There has been little differentiation amongst the competitors Customers want something different from their banks Why? New models are starting to emerge around the world BOQ has a real opportunity to do someth
Slide 39: Majors increasing dominance
Majors increasing dominance Australian Banking share of Footings (Non-Financial & Household Lending and Deposits) % Other 10 11 12 7 Regionals 18 18 Majors 72 70 82 Dec 2002 Dec 2007 Dec 2011 Dec‐02 Dec‐07 Dec‐11 Source: APRA Monthly Banking Statistics, BOQ Analysis 39 Bank of Queensland Limited ABN
Slide 40: Major bank customers not net promoters
Major bank customers not net promoters National Customer Advocacy Net Promoter Score 38% 36% 14% 10% 4% Peer 5 Major 1 Major 2 Major 3 Major 4 Peer 1 Peer 2 Peer 3 Peer 4 (4%) (5%) (9%) (13%) (15%) Source Roy Morgan Consumer Finance Survey 12 months to December 2011. Net Promoter Score is calculated
Slide 41: New models emerging in response
New models emerging in response New models starting to emerge globally are based around five main principles WHAT THIS MEANS FOR CUSTOMERS: 1. LOCAL AND GLOBAL Friendly local service and global, mobile connectivity 2. CONTROL AND ADVICE Individuals want control of their finances and to take advice w
Slide 42: BOQ's opportunity
BOQ’s opportunity BOQ OMB model positions for unique BOQ distribution outstrips share growth and customer experience % of market Managers motivated to grow their own business by serving new customers Branch share Market share Unmatched longevity in the branch, motivation to serve 10% customers for t
Slide 43: How we will do it
How we will do it We will re-invent our challenger business and explore long term breakout options 1. 1. A A more more disciplined disciplined and and focused focused organisation organisation •• Leadership Leadership & & culture culture –– new new leaders leaders appointed, appointed, cultural cult
Slide 44: Short term priorities
Short term priorities In the short term, we have some key themes and actions Area of work What is being looked at / changed: Quick wins • Opening up mortgage broker channel • Expand telephone banking hours & scope Core process • Internal process efficiency improvement (benchmarking to competitors, c
Slide 45: How we will measure operational success
How we will measure operational success 1. Share of wallet Î means stronger relationships 2. Share of markets Î equals higher income 3. Share of channels Î opportunities to serve customers 4. Net Promoter Score1 Î delivers more customers 5. Franchisee and staff engagement Î how we get things done (1
Slide 46: Long term opportunities
Long term opportunities Footprint vs. market share gaps offer significant opportunities for long term upside Metric Where we are today Best in class competitor • Banking: 59% • Banking: 58% 1.1 Share of wallet1 • Wealth: 0% • Wealth: 7% • QLD: 6.0% • QLD: 18.2% 2.1 Retail market share2 • WA: 1.2% •
Slide 47: Outlook
Outlook High exchange rate and weakened confidence has created a difficult economic environment, particularly notable in SE Queensland Credit growth has been subdued. We expect this to continue through to 2H12 We see opportunities in our core geographical markets (extractive industry, downstream sma
Slide 48: Appendix: Portfolio information
Appendix: Portfolio information
Slide 49: Home Loan portfolio
Home Loan portfolio Home loan arrears stabilised Housing arrears 30 / 90 Days Impaireds up due to increased 2.5% repossession activity, resulting in 2.0% 30+ 1.78% higher specific bad debt expense 1.5% 1.0% Losses driven by Gold Coast 0.5% 90+ 0.93% loss experience, in particular 0.0% $1m+ exposures
Slide 50: Lines of Credit portfolio
Lines of Credit portfolio 30 Day arrears showing positive Line of Credit 30 / 90 days trends until November as a result of 5.0% 4.0% increased collection activity 30+ 3.0% 2.87% Seasonal impact during December 2.0% 90+ and January; February lower due to 1.0% 2.35% 29 day month 0.0% Mar Apr May Jun J
Slide 51: Commercial portfolio
Commercial portfolio February improvement in Commercial 30 / 90 days Commercial Arrears driven by 5.0% increased impaireds 4.0% 30+ 3.0% 2.46% 2.0% $99m increase in impaired loans 90+ 1.0% 1.26% driven by the reduction in collateral 0.0% security values Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Fe
Slide 52: Leasing portfolio continues to improve
Leasing portfolio continues to improve Improvements in asset quality Leasing 30 / 90 days 1.5% trends holding; arrears at long term 30+ 1.17% low levels 1.0% 0.5% Impaired loans running down from 90+ Aug 2011 peak of $28m 0.0% 0.23% Sep Oct Nov Dec Jan Feb Maintaining strong collective Portfolio met
Slide 53: Bank of Queensland Limited
53 Bank ofBank Queensland Limited Limited of Queensland ABN 32ABN 009 32 656009 740656 740