The Bank of Queensland Limited (ASX: BOQ) share price fell around 5% in October 2021 in a month that the S&P/ASX 200 Index (ASX: XJO) was largely flat.
During the month, the regional bank released its FY21 result. Often, investors like to partly base their thoughts on a business on how it performed in the latest financial year.
Here are some of the highlights from BOQ's FY21 report:
BOQ's FY21 result
The regional bank reported that its statutory net profit after tax (NPAT) jumped 221% to $369 million. Cash earnings after tax also rose quickly, going up 83% to $412 million. In earnings per share (EPS) terms, it rose by 51% to 74.7 cents.
This profit result was driven by increased net interest income and a credit to the loan impairment expense of $21 million. However, this was partly offset by higher operating expenses. Excluding the ME Bank acquisition, total income rose 5% to $1.18 billion.
BOQ's net interest margin (NIM) increased by 1 basis point to 1.92% including ME Bank and grew 4 basis points to 1.95% excluding ME Bank. The improvement was largely driven by lower funding costs and deposit mix, partially offset by market competition and the ongoing impact of a low interest rate environment.
The actual net interest income, excluding ME Bank, rose by 6% for the year.
Operating expenses rose due to higher business volumes and the building of its new digital bank and other technology projects.
The loan impairment expense improved thanks to a better economic outlook and improvements in data quality relating to collateral. Concerns about loan impairments seemingly had a major impact on the BOQ share price during the COVID-19 crash.
The bank said it has made progress to sustainable profitability and the result showed momentum with four consecutive halves of improving performance.
ME Bank was bought for $1.325 billion during the year. The aim is to create an alternative to the big banks. It's expecting to add low double digits to cash EPS, including the synergies, in FY22.
BOQ said that ME Bank brings together strong complementary trusted brands and it broadly doubles the retail bank and provides geographic diversification.
Outlook for the BOQ share price
Firstly, the bank said that it's cautiously optimistic that Australia remains well placed for economic recovery, characterised by house price rises and growth in consumer spending and business investment. It remains focused on sustainable profitable growth.
Whilst it is expecting lending volume growth, the NIM could decline by between 5 basis points to 7 basis points as competition continues and the low interest rate environment remains. Expenses are expected to grow by 3%, which will be offset by accelerated integration synergies.
It's going to remain prudent with capital and provisioning. Management said that the business has a strong capital position and expects its CET1 ratio to remain above 9.5%.
In terms of broker opinions, Citi rates the BOQ share price as a buy, with a price target of $10.50. The broker believes that BOQ is priced at 12x FY22's estimated earnings with a grossed-up dividend yield of 6.7%.
