Bank of Queensland : BOQ Half Year 28 February 2024

2024 HALF YEAR RESULTS

For the period ended 29 February 2024

BOQ Group 2024 Half Year Results

Bank of Queensland Limited | ABN: 32 009 656 740

ASX Appendix 4D

for the half year period ended 29 February 2024

Results for announcement to the market (1)

				$ million
Revenues from ordinary activities (2)	Down	12%	to	796
Profit from ordinary activities after tax attributable to members (2) (3)	Up	3675%	to	151
Profit for the year attributable to members (2) (3)	Up	3675%	to	151

Dividends	Record Date	Paid or payable on	Amounts per security
Ordinary shares (BOQ)
Full year ordinary dividend - fully franked	27-Oct-23	16-Nov-23	21 cents
Interim ordinary dividend - fully franked	3-May-24	27-May-24	17 cents

1. Rule 4.2A.3. Refer to Appendix 7.1 for the cross reference index for ASX Appendix 4D.
2. On prior corresponding period (six months ended 28 February 2023). Based on statutory profit results.
3. $150 million profit attributable to equity holders of the parent and $1 million profit attributable to other equity instruments.

Contents

1	Financial highlights	4
1.1	Reconciliation of cash earnings to statutory profit	4
1.2	Financial summary	6
2	Group performance analysis	9
2.1	Income statement and key metrics	9
2.2	Net interest income	11
2.3	Non-interest income	12
2.4	Operating expenses	13
2.5	Capitalised investment expenditure	14
2.6	Lending	15
2.7	Customer deposits	17
3	Business settings	18
3.1	Asset quality	18
3.2	Funding and liquidity	22
3.3	Capital management	26
3.4	Tax expense	27
4	Divisional performance	28
4.1	Retail income statement, key metrics and financial performance review	28
4.2	BOQ Business income statement, key metrics and financial performance review	30
4.3	Other income state and financial performance review	32
4.4	Outlook	32
5	Appendix to financial performance	33
5.1	Cash EPS calculations	33
5.2	Average balance sheet and margin analysis	34
6	Consolidated half year financial report	35
	Directors' report	35
	Lead Auditor's Independence Declaration	36
	Consolidated income statement	37
	Consolidated statement of comprehensive income	38
	Consolidated balance sheet	39
	Consolidated statement of changes in equity	40
	Consolidated statement of cash flows	42
	Notes to the financial statements	43
6.1	Basis of preparation	43
6.2	Financial performance	44
6.3	Capital and balance sheet management	47
6.4	Controlled entities	54
6.5	Other notes	55
	Directors' declaration	58
	Independent auditor's report to the shareholders of Bank of Queensland Limited	59
7	Appendices	61

2024 Half Year Results

3

Financial highlights 4

Group performance analysis 9

Business settings 18

Divisional performance 28

Appendix to financial performance 33

Financial performance

For the half year ended 29 February 2024

1. Financial highlights

1.1 Reconciliation of cash earnings to statutory profit

Note on cash earnings to statutory profit

Statutory profit is prepared in accordance with the Corporations Act 2001 and the Australian Accounting Standards, which comply with International Financial Reporting Standards (IFRS). Cash earnings is a non-accounting measure commonly used in the banking industry to assist in presenting a view of Bank of Queensland Limited and its controlled entities' (BOQ or the Group) underlying earnings.

Figures disclosed in the Financial Performance report are on a cash earnings basis unless stated as being on a statutory profit basis. The non-statutory measures have not been subject to an independent audit or review.

Cash earnings excludes several items that introduce volatility or do not reflect underlying performance of the current period. This allows a more effective comparison of performance across reporting periods.

The exclusions relate to:

• Sale of New Zealand asset portfolio - this represents the impairment loss on sale of a portfolio of assets held by BOQ Finance (NZ) Limited and the New Zealand branch of BOQ Equipment Finance Limited, including incurred and estimated future transaction costs;
• Amortisation of acquisition fair value adjustments - arise from the acquisition of subsidiaries; and
• Hedge ineffectiveness - represents earnings volatility from hedges that are not fully effective and create a timing difference in reported profit. These hedges remain economically effective.

Reconciliation of cash earnings to statutory net profit after tax ($m)

172(19)

1	(3)	151

Cash earnings	Sale of	Amortisation of	Hedge	Statutory net profit
after tax	New Zealand	acquisition fair	ineffectiveness	after tax
	asset portfolio	value adjustments

In the financial tables throughout the Financial Performance report, 'large' indicates that the absolute percentage change in the balance was greater than 200 per cent or 500 basis points. 'Large' also indicates the result was a gain or positive in one period and a loss or negative in the corresponding period.

4 Bank of Queensland Limited and its Controlled Entities

Financial highlights 4

Group performance analysis 9

Business settings 18

Divisional performance 28

Appendix to financial performance 33

Financial performance

For the half year ended 29 February 2024

1.1 Reconciliation of cash earnings to statutory profit (continued)

1. Reconciliation of cash earnings to statutory net profit after tax

	Half year performance
	Feb 24	Aug 23	Feb 23	Feb 24	Feb 24
	$m	$m	$m	vs Aug 23	vs Feb 23
Cash earnings after tax	172	194	256	(11%)	(33%)
Sale of New Zealand asset portfolio (1)	(19)	-	-	large	large
Amortisation of acquisition fair value adjustments	1	3	4	(67%)	(75%)
Hedge ineffectiveness	(3)	2	(1)	large	200%
Goodwill impairment (2)	-	-	(200)	-	(100%)
ME Bank integration costs (3)	-	(44)	(13)	(100%)	(100%)
Remedial Action Plans (4)	-	-	(42)	-	(100%)
Restructuring costs (5)	-	(35)	-	(100%)	-
Statutory net profit after tax	151	120	4	26%	large

1. The New Zealand asset portfolio sale completed on 31 March 2024. Further detail has been provided in Note 6.4 Controlled entities to the financial statements.
2. In 1H23, the Group recognised a goodwill impairment of $200 million. Refer to Note 4.1 in the 2023 Annual Report for further detail.
3. ME Bank integration costs associated with the restructure and integration of Members Equity Bank Limited (ME Bank or ME). The program closed in FY23.
4. In 1H23, an after-tax provision of $42 million was raised for the estimated cost of multi-year Remedial Action Plans. Further detail has been provided in Note 6.5.3 Provisions and contingent liabilities to the financial statements.
5. Restructuring costs incurred as a result of a Group operating model review to simplify the business.

1. 1H24 Non-cash earnings reconciling items

			Amortisation
	Cash	Sale of New	of acquisition		Statutory
	earnings	Zealand asset	fair value	Hedge	net profit
	Feb 24	portfolio	adjustments	ineffectiveness	Feb 24
	$m	$m	$m	$m	$m
Net interest income	725	-	5	-	730
Non-interest income	70	-	-	(4)	66
Total income	795	-	5	(4)	796
Operating expenses	(524)	(18)	(5)	-	(547)
Underlying profit	271	(18)	-	(4)	249
Loan impairment expense	(15)	-	1	-	(14)
Profit before tax	256	(18)	1	(4)	235
Income tax expense	(84)	(1)	-	1	(84)
Profit after tax	172	(19)	1	(3)	151

2024 Half Year Results

5

Financial highlights 4

Group performance analysis 9

Business settings 18

Divisional performance 28

Appendix to financial performance 33

Financial performance

For the half year ended 29 February 2024

1.2	Financial summary
Cash earnings after tax ($m)	Statutory net profit after tax (NPAT) ($m)
	Down 33%	large

268	223	256	194
		172
1H22	2H22	1H23	2H23	1H24
Common equity tier 1 ratio (CET1 ratio) (%) (1)

Up 5bps

9.68	9.57	10.71	10.91	10.76
1H22	2H22	1H23	2H23	1H24

Cash basic earnings per share (EPS) (cents)

Down 33%

41.1	34.2	39.0	29.5
		26.2
1H22	2H22	1H23	2H23	1H24

Cash cost to income ratio (CTI) (%)

			large
55.5	57.6	54.9	61.3	65.9
1H22	2H22	1H23	2H23	1H24

212	197			151
		4	120
1H22	2H22	1H23	2H23	1H24

Dividends per ordinary share (cents)

Down 15%

22	24	20	21	17
1H22	2H22	1H23	2H23	1H24

Cash net interest margin (NIM) (%)

Down 24bps

1.74	1.70	1.79	1.58	1.55
1H22	2H22	1H23	2H23	1H24

Cash return on average equity (ROE) (%)

Down 260bps

9.1	7.2	8.4
	6.2
		5.8
1H22	2H22	1H23	2H23	1H24

1. During 1H23, Australian Prudential Regulation Authority's (APRA) new Basel III capital framework came into effect. The impact of the changes to the measurement of credit risk and operational risk contributed a 120 basis points increase to the CET1 ratio. Periods prior to 1H23 are as previously reported.

6 Bank of Queensland Limited and its Controlled Entities

Financial highlights 4

Group performance analysis 9

Business settings 18

Divisional performance 28

Appendix to financial performance 33

Financial performance

For the half year ended 29 February 2024

1.2 Financial summary (continued)

Net profit after tax	$151m
$172m
Cash earnings	Statutory NPAT
Down 33 per cent on 1H23.	Up on 1H23

Cash net profit after tax (NPAT) decreased by 33 per cent on 1H23, driven by competition for lending, higher funding costs, inflation and investment in risk, compliance and technology.

Cash net interest margin

1.55%

Decrease of 24 basis points on 1H23 driven by competition for lending and higher funding costs mainly in 2H23.

Cash operating expenses

$524m

Up six per cent on 1H23, reflecting inflationary pressure and investment in risk, compliance and technology.

Cash loan impairment expense (LIE)

$15m

Loan impairment expense of $15 million in 1H24 compares to a loan impairment expense of $34 million in 1H23 due to a lower collective provision expense.

CET1 ratio

10.76%

Decrease of 15 basis points on 2H23 driven by higher investment spend, lower securitisation benefits and the New Zealand asset portfolio sale.

Cash ROE

5.8%

Decrease of 260 basis points on 1H23, driven by lower cash earnings.

Cash earnings after tax for 1H24 of $172 million was 33 per cent lower than 1H23. The decrease was driven by a 13 per cent reduction in net interest income and six per cent expense growth, partly offset by a decrease in loan impairment expense. Statutory net profit after tax of $151 million compares to $4 million in 1H23. 1H24 includes a $19 million loss due to the sale of the New Zealand asset portfolio as the business continues to simplify.

Operating expenses

Total operating expenses of $524 million increased six per cent on 1H23. This reflected continued inflationary pressure and investment in risk, compliance and technology. This was partially offset by lower marketing spend, lower amortisation and savings from productivity initiatives.

Net interest income

Net interest income (NII) of $725 million decreased $107 million or 13 per cent on 1H23. This was driven by a 24 basis points decrease in net interest margin (NIM) to 1.55 per cent, partially offset by one per cent growth in average interest earning assets (AIEA). The reduction in NIM reflected continued competition across both lending and deposits and higher wholesale funding costs as the Term Funding Facility (TFF) was replaced. NIM contraction in 1H24 moderated with a decline of three basis points on 2H23.

AIEA increased one per cent on 1H23, predominantly driven by growth in asset finance and commercial lending and higher liquid assets partially offset by contraction in the housing portfolio. The housing contraction reflects a decision to prioritise economic return over volume growth in a competitive market.

Non-interest income

Non-interest income of $70 million was flat on 1H23. Higher income from third party credit card and insurance products and trading income was offset by lower banking fee income.

Loan impairment expense

The loan impairment expense of $15 million decreased by $19 million on 1H23. Collective provision expense was lower than in 1H23 reflecting higher house prices, partly offset by the impacts of cost of living and interest rate pressures.

The specific provision expense was $13 million in 1H24. Specific provision activity remains low.

Capital management

The CET1 ratio of 10.76 per cent was 15 basis points lower than 2H23. The capital generated through cash earnings net of dividend was offset by higher investment spend, run off in capital relief securitisation trusts, lower available for sale reserve, higher capital deductions and the sale of the New Zealand asset portfolio. At 10.76 per cent, the CET1 ratio is above the management target range of 10.25 - 10.75 per cent.

Shareholder returns

BOQ has determined to pay an ordinary dividend of 17 cents per share, which is 65 per cent of 1H24 cash earnings. The Board has committed to a target dividend payout ratio of 60-75 per cent. (1)

1. The amount of any dividend paid will be at the discretion of the Board and will depend on several factors, including a) the recognition of profits and availability of cash for distributions; b) the anticipated future earnings of the company; or c) when the forecast timeframe for capital demands of the business allows for a prudent distribution to shareholders.

2024 Half Year Results

7

Financial highlights 4

Group performance analysis 9

Business settings 18

Divisional performance 28

Appendix to financial performance 33

Financial performance

For the half year ended 29 February 2024

1.2 Financial summary (continued)

Remedial Action Plans update

In 2023 BOQ established two multi-year programs of work (the Programs) to uplift operational resilience, risk culture and governance (Program rQ) and address compliance weakness across the Anti-Money Laundering and Counter-Terrorism Financing operating model (AML First Program). Subsequently in May 2023, the Bank entered into a Court Enforceable Undertaking (CEUs) with each of the Australian Prudential Regulation Authority (APRA) and the Australian Transaction Reports and Analysis Centre (AUSTRAC).

BOQ established Remedial Action Plans (RAPs) as required by each CEU that set out the actions the Bank must take and the timeframes necessary to address the underlying weaknesses outlined in the CEUs. The RAPs were approved by APRA and AUSTRAC on 30 November 2023 and 20 October 2023 respectively.

BOQ's initial focus was on establishing the Programs, including significant activity to establish sound governance structures, project management and workstream operating practices across the Programs, as well as the mobilisation of resources. BOQ has also executed, and continues to execute, the actions and deliverables required by the RAPs, with numerous deliverables in design, implementation or embedment phases.

An Independent Reviewer has been appointed to oversee the Program rQ RAP and an External Auditor has been appointed to oversee the AML First Program and the RAP. The first reports from these parties have now been submitted to APRA and AUSTRAC respectively. Reports will continue to be produced and submitted to APRA and AUSTRAC every four months in accordance with the conditions of the CEUs.

A provision of $60 million was recognised in 1H23 to improve operational and financial resilience, and risk culture and to address weaknesses in AML compliance practices. The provision excluded the cost of activities related to improvements beyond the matters identified in the CEUs and costs associated with identifying and remediating any potential new issues.

8 Bank of Queensland Limited and its Controlled Entities

Financial highlights 4

Group performance analysis 9

Business settings 18

Divisional performance 28

Appendix to financial performance 33

Financial performance

For the half year ended 29 February 2024

2. Group performance analysis

2.1 Income statement and key metrics

	Half year performance
	Feb 24	Aug 23	Feb 23	Feb 24	Feb 24
	$m	$m	$m	vs Aug 23	vs Feb 23
Net interest income (1)	725	768	832	(6%)	(13%)
Non-interest income (1)	70	72	70	(3%)	-
Total income	795	840	902	(5%)	(12%)
Operating expenses (1)	(524)	(515)	(495)	2%	6%
Underlying profit	271	325	407	(17%)	(33%)
Loan impairment expense (1)	(15)	(37)	(34)	(59%)	(56%)
Profit before tax	256	288	373	(11%)	(31%)
Income tax expense (1)	(84)	(94)	(117)	(11%)	(28%)
Cash earnings after tax	172	194	256	(11%)	(33%)
Statutory net profit after tax	151	120	4	26%	large

(1) Refer to Section 1.1 Reconciliation of cash earnings to statutory profit for a reconciliation of cash earnings to statutory net profit after tax.

		Half year performance
					Feb 24	Feb 24
Key metrics		Feb 24	Aug 23	Feb 23	vs Aug 23	vs Feb 23
SHAREHOLDER RETURNS
Share price	$	5.90	5.76	7.06	2%	(16%)
Market capitalisation	$m	3,892	3,786	4,607	3%	(16%)
Dividends per ordinary share (fully franked)	cents	17	21	20	(19%)	(15%)
CASH EARNINGS BASIS
Basic earnings per share (EPS)	cents	26.2	29.5	39.0	(11%)	(33%)
Diluted EPS	cents	23.9	26.3	35.2	(9%)	(32%)
Dividend payout ratio	%	65.2	71.0	51.0	large	large
STATUTORY BASIS
Basic EPS	cents	22.9	18.1	0.2	27%	large
Diluted EPS (1)	cents	21.3	17.3	0.2	23%	large
Dividend payout ratio	%	74.4	115.3	large	large	large

1. 1H23 diluted EPS has been restated to exclude the impact of the Capital Notes, Capital Notes 2 and Capital Notes 3. These notes were anti-dilutive during the period and as a result, their impact has been excluded from diluted EPS.

2024 Half Year Results

9

Financial highlights 4

Group performance analysis 9

Business settings 18

Divisional performance 28

Appendix to financial performance 33

Financial performance

For the half year ended 29 February 2024

2.1 Income statement and key metrics (continued)

		Half year performance
					Feb 24	Feb 24
Key metrics		Feb 24	Aug 23	Feb 23	vs Aug 23	vs Feb 23
PROFITABILITY AND EFFICIENCY MEASURES
CASH EARNINGS BASIS
Net profit after tax	$m	172	194	256	(11%)	(33%)
Underlying profit (1)	$m	271	325	407	(17%)	(33%)
NIM (2)	%	1.55	1.58	1.79	(3bps)	(24bps)
Cost to income ratio (CTI)	%	65.9	61.3	54.9	460bps	large
Loan impairment expense to gross loans and advances (GLA)	bps	4	9	8	(5)	(4)
Return on average equity (ROE)	%	5.8	6.2	8.4	(40bps)	(260bps)
Return on average tangible equity (ROTE) (3)	%	7.2	7.5	10.6	(30bps)	(340bps)
STATUTORY BASIS
Net profit after tax	$m	151	120	4	26%	large
Underlying profit (1)	$m	249	217	131	15%	90%
NIM(2)	%	1.56	1.60	1.81	(4bps)	(25bps)
CTI	%	68.7	74.5	85.6	large	large
Loan impairment expense to GLA	bps	3	9	8	(6)	(5)
ROE	%	5.1	3.9	-	120bps	large
ROTE (3)	%	6.3	4.8	-	150bps	large
ASSET QUALITY
30 days past due (dpd) arrears	$m	1,552	1,262	1,146	23%	35%
90 dpd arrears	$m	851	736	592	16%	44%
Impaired assets	$m	116	114	133	2%	(13%)
Specific provisions to impaired assets	%	51	54	53	(300bps)	(200bps)
Total provision and equity reserve for credit losses (ERCL) / GLA	bps	41	44	45	(3)	(4)
CAPITAL
CET1 ratio	%	10.76	10.91	10.71	(15bps)	5bps
Total capital adequacy ratio	%	15.17	15.64	15.89	(47bps)	(72bps)
Risk weighted assets (RWA)	$m	40,702	40,680	41,020	-	(1%)

1. Profit before loan impairment expense and tax.
2. NIM is calculated net of offset accounts.
3. Based on after tax earnings applied to average shareholders' equity (excluding preference shares and treasury shares) less goodwill and identifiable intangible assets (customer related intangibles/brands and computer software).

10 Bank of Queensland Limited and its Controlled Entities