Bank of Queensland Limited (ASX: BOQ) has today reported a strong half-year profit result in the face of an uncertain economic environment.
In the six months to 28 February 2015, BOQ reported a 19% jump in cash earnings, to $167 million, on revenues of $537 million, up 20% on the prior corresponding period.
Pleasingly, the board has declared an interim dividend of 36 cents per share, fully franked, payable on 12 May 2015.
Today's profit result was boosted by a return toward system lending growth (meaning, it's now lending at a rate similar to its peers) and an expansion in its net interest margin from 1.77% to 1.97%.
The net interest margin is the difference between what a bank charges on loans and what it pays on deposits.
For comparison, during their respective 2014 financial years, Australia's Big Four banks had an average net interest margin of 2.07%.
Another trend positively impacting results was a 0.18% drop in loan impairment expense, representing a $10 million benefit to profit before tax.
Diluted earnings per share for the period came in at 41.6 cents, up from 40.6 cents per share in the prior period.
Unfortunately, during the half, BOQ reported a higher cost to income ratio of 48.1% – up from 43.8% last year – and a flat return on equity figure at 10.3%.
Commenting on the results, Managing Director and CEO Jon Sutton said, "What you see today is a bank that has come a long way in recent years. This is another strong result which represents a record half year profit for BOQ. I am particularly pleased to see lending growth improve while the Bank's risk settings, margins, balance sheet and capital position are all strengthening."
While the group maintains a well-funded balance sheet, with a common equity tier-1 ratio of 8.82%, Mr Sutton said the outlook for the economy remained uncertain over the short to medium term.
The sobering economic commentary has been a regular feature of bankers' presentations of late. Australia and New Zealand Banking Group (ASX: ANZ) chief Mike Smith acknowledged a tougher economic outlook during its most recent results announcement.
Is BOQ a blockbuster stock to buy today?
Before buying any bank stock, it's important to understand their earnings are largely cyclical.
As noted above, if an investor simply stripped away the impact of falling provisions charges (which is only a very minor consideration when determining average profit over the banking cycle), profit before tax would've increased just 9%. With its stock currently trading at a price-earnings ratio of 17 and price-book ratio of 1.6, that's not good enough in my opinion.
Whilst its top line growth is encouraging, with the economy expected to slow in coming years, I recommend investors avoid Bank of Queensland shares at today's seemingly high price.
