Bank of Queensland Ltd (ASX: BOQ) shares are on the move on Wednesday morning.
At the time of writing, the regional bank's shares are up 4.5% to $7.44.
This follows the release of its FY 2025 results before the market open.
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Bank of Queensland shares charge higher on results day
Investors appear to have been impressed with the bank's performance during the 12 months ended 31 August and it isn't hard to see why.
Bank of Queensland reported an improvement in its underlying performance as it continues its transformation into a simpler, more efficient bank.
According to the release, the bank delivered a 12% increase in cash earnings to $383 million. This was driven by improved margins, good cost control, and growth in commercial lending.
Things weren't quite as positive on a statutory basis, with its net profit after tax falling 53% to $133 million. However, this reflects one-off restructuring and impairment charges.
Another positive from the result was its net interest margin, which increased 8 basis points to 1.64%.
This solid performance ultimately allowed the Bank of Queensland board to increase its fully franked final dividend by almost 18% to 20 cents per share. This took its total dividends for FY 2025 to 38 cents per share.
Operational performance
The improvement in the bank's cash earnings was driven by stronger margins, disciplined cost management, and a favourable shift in the bank's balance sheet mix.
And while home lending fell 7%, Bank of Queensland's strategy to recycle capital into higher-returning commercial assets paid off, with commercial lending rising 14% year on year.
The bank's net interest margin of 1.64% rose by 8 basis points, benefiting from the conversion of all owner-managed branches and stronger business lending margins.
On the costs front, Bank of Queensland held operating expenses flat despite inflationary pressures and its ongoing investment in digital transformation. Excluding branch conversion impacts, underlying expenses fell 4%.
Transformation progress
FY 2025 marked another year of solid progress in the bank's simplification and digitisation strategy. The bank's digital transformation advanced further, with 44% of retail customers now migrated to its new digital banking platform.
The launch of BOQ's digital mortgage platform, providing conditional approval in under 90 seconds, was another key milestone. This is enabling faster processing and lower costs to serve.
As mentioned above, the bank also completed the conversion of all owner-managed branches to its proprietary model, improving margins by 12 basis points and allowing for a more targeted retail footprint. This is particularly the case across Queensland.
Looking ahead, management expects ongoing productivity improvements from these initiatives, with $250 million in annualised savings targeted by FY 2026 as legacy systems, including ME Bank's heritage platforms, are decommissioned.
Bank of Queensland's managing director and CEO, Patrick Allaway, was pleased with the 12 months. He said:
We have made strong progress in FY25, delivering on our transformation and improving financial performance. In 2023 we reset our strategy to strengthen, simplify, digitise and optimise the performance of BOQ. We are well progressed through this ambitious program of work to uplift operational resilience, simplify the way we operate, scale customer growth with improved digital experiences, and shift our balance sheet mix to deliver more sustainable returns.
We've seen encouraging momentum across our core businesses with strong growth in business lending and have expanded our proprietary acquisition channels. We continue to invest in bankers and technology, improving our customer relationships and digital banking experience. Our ability to address emerging challenges and proven track record of executing our strategy are important factors supporting our transformation and future success.
Outlook
Bank of Queensland expects the Australian economy to strengthen through FY 2026 as inflation eases and household disposable incomes improve.
Management anticipates continued growth in business lending, a modest decline in mortgages, and further efficiency gains as transformation initiatives continue.
The bank is targeting sub-inflation expense growth in FY 2026, a CET1 capital ratio between 10.25% and 10.75%, and a dividend payout ratio between 60% and 75% of cash earnings.
