Bank of Queensland (BOQ) is a financial institution, with services spanning retail and commercial banking, wealth management, insurance and equipment finance.

As its name implies, BOQ predominantly caters to the Queensland market but has branches throughout Australia.

FY13 results

Much of BOQ's recent strong share price performance has come on the back of its FY13 results. Cash profit surged to $250.9 million, from $30.6 million a year earlier.

The bottom line turnaround was driven by a major decline in impairment charges from $401 million in FY12 to $112 million in FY13. This reflected a dramatic improvement in asset quality (by exiting weak and impaired assets).

Net interest margin (NIM) grew from 1.65% to 1.7%, continuing a positive trend from FY09 when NIM was 1.6%.

FY13's NIM growth came on the back of a more favourable funding mix, which has also positioned BOQ to boost lending volumes in what remains a highly competitive mortgage market.

There was also good cost control, with the cost-to-income ratio falling to 44.3%. This exceeded the initial guidance of 45% due to the successful implementation of efficiency and effectiveness programs.

Outlook

Management has targeted return on tangible equity (ROTE) of 13%+ by FY15. FY13 ROTE was 11.9%, well in excess of the ~10% initial guidance.

Due to a combination of falling impairments, rising net interest income and disciplined cost control, we think the 15% ROE target will be achieved by management.

The one area of concern was the retail lending growth of 0.6x system growth during FY13, this below the 1.2x target aimed for by FY15.

Yet, as we mentioned before, the rise in NIM and dramatically improved asset mix gives the group flexibility to boost lending volumes ahead of FY15.

The FY13 result was robust in nearly all areas, and expectations for a continuation of this momentum into FY14 are likely to provide a further boost to BOQ's share price.

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