Pareto Bank Asa · OSL:PARB
Pareto Bank Asa — Q3 2020 Earnings Presentation
49 slides from Pareto Bank Asa's earnings presentation, 2020
Slide 1: Financial Results – Third Quarter 2020
PARETO BANK Financial Results – Third Quarter 2020
Slide 2: Table of Contents
TABLE OF CONTENTS Highlights Financials Business Areas Outlook & Ambitions 2
Slide 3: Third Quarter 2020 Highlights
THIRD QUARTER 2020 Highlights • Profit after tax 102.9m (96.5m). • Return on equity after tax 12.2% (12.9%). • Net interest income of NOK 188.2m (173.0m). Stable fee income and lower funding cost. • Stable lending volumes throughout the quarter. Lending volume ended down by NOK 361m to NOK 13,874m (
Slide 4: Key Figures
KEY FIGURES Profit after tax (NOKm) Return on Equity * CET1 ratio 15.7 % 17.8 % 17.5 % 17.3 % 127.9 12.9 % 12.2 % 96.5 102.9 Q3-19 Q2-20 Q3-20 Q3-19 Q2-20 Q3-20 30.09.2019 30.06.2020 30.09.2020 Net interest income (NOKm) Cost/Income ratio Loss ratio ** 183.8 188.2 173.0 0.07% 0.04% 19.0% 18.4% 18.5%
Slide 5: Table of Contents
TABLE OF CONTENTS Highlights Financials Business Areas Outlook & Ambitions 5
Slide 6: Income Statement
INCOME STATEMENT P&L (NOKm) Q3-20 Q3-19 YTD-20 YTD-19 Net interest income driven by lower market funding Net interest income 188.2 173.0 556.0 499.9 costs and stable fee income. Net other operating income -13.1 -2.9 -6.1 4.2 Total net income 175.2 170.1 549.9 504.1 Rate cut for fixed-rate deposits a
Slide 7: Adjusting to Market Rates
ADJUSTING TO MARKET RATES Development in net interest margin Comments • Lending margin fell in line 6.37% with rate cut in the end of 6.17% 5.87% 5.73% 5.79% Q2. 5.50% 5.46% 5.57% 5.62% 5.53% 5.35% 5.27% 5.37% 5.41% 5.22% 5.22% • Deposit rates follow change in nibor. • Deposit margin expected to imp
Slide 8: Lower Funding Costs
LOWER FUNDING COSTS Quarterly change in net interest income 9,624 Q3-20 5,867 190000.0 Q2-20 2,718 188,219 183,802 5,046 180000.0 6,220 2,488 38 170000.0 160000.0 150000.0 140000.0 130000.0 120000.0 Lending Lending Market Fee income Deposit volume Deposit rate Other * volume rate Funding 8 *) Other
Slide 9: Fair Value of Financial Instruments
FAIR VALUE OF FINANCIAL INSTRUMENTS Pricing of fixed-rate deposits Buyback of own-issued securities • Fixed-rate deposits are discounted by the current rate. • The bank bought back bonds with shorter maturities to reduce surplus liquidity and lower funding costs. • When the bank lowers the rate of f
Slide 10: Stable Outlook
STABLE OUTLOOK IFRS 9 model-based write-downs Credit exposure by stage (NOKm) • Full review of commitments led to no material increase in 130 impairments. Stage 3 825 NOK 130m • Stable macroeconomic outlook. Growth in economic activity. (+ 5m) Increase in housing prices. Stage 2 • Model probabilitie
Slide 11: Impairments and Losses
IMPAIRMENTS AND LOSSES Impairments and losses according to IFRS 9 (NOKm) • Reversal of impairments in stage 1 and stage 2. • Write-off of a single commitment. 104.5 98.4 • Individual impairments and write-downs within real estate. 20.7 No direct link to Covid-19. 23.6 • Total impairments and losses
Slide 12: Development Portfolio Quality
DEVELOPMENT PORTFOLIO QUALITY Historical impairments and losses (NOKm) 40.3 14.9 9.4 9.1 6.2 4.0 4.7 1.0 (0.1) Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 12
Slide 13: Robust Capital Position
ROBUST CAPITAL POSITION Core Equity Tier 1 Ratio (CET1) Leverage Ratio (LR) • Capitalized well above minimum requirement. • Strong leverage ratio well above minimum requirement. • Profits and stable lending build up capital holdings. • High average capital weighting of commitments. • Without the dec
Slide 14: Profitability Protects Against Losses
PROFITABILITY PROTECTS AGAINST LOSSES Loss absorbing capacity * • Profitability is the first line of defence against losses. • Even in a highly stressed scenario the bank is likely to show a 4.5 % 4.2 % 4.3 % profit. 4.1 % 3.8 % • Pareto Bank can absorb a high level of losses without losing 3.4 % ca
Slide 15: Table of Contents: Business Areas
TABLE OF CONTENTS Highlights Financials Business Areas: Focus on real estate Outlook & Ambitions 15
Slide 16: A Niche Player Financing Medium Sized Enterprises
A NICHE PLAYER FINANCING MEDIUM SIZED ENTERPRISES Business Areas Focus Credits / Customers Exposure Sweet spot The specialized real estate Land acquisition financing REAL developer bank for Eastern Property construction NOKm 50 - 100 Norway and larger facilities 69% ESTATE Norwegian cities. Commerci
Slide 17: Exposure per Business Area
EXPOSURE PER BUSINESS AREA 7,499 7,178 7,152 6,834 6,644 5,044 5,012 4,880 4,725 4,671 4,251 4,059 3,551 3,316 3,093 889 1,017 978 834 782 Residential property Commercial property Corporate Shipping Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 17
Slide 18: Residential Property
RESIDENTIAL PROPERTY Credit update Residential property exposure (NOKm) Total NOKm 7,152 • 168 customers with average commitment of NOK 43m. • 35 % residential exposure in Oslo and 54 % in Viken. Land without 1,402 • Stable portfolio quality. Covid-19 has so far had little direct houses impact. • Pr
Slide 19: Residential Property: Bruket Brygge
RESIDENTIAL PROPERTY Project: Bruket Brygge • Gressvik, Fredrikstad • SPG AS & Bakke AS • 148 apartments • 2, 3, 4 or 5 room apartments • Completion and hand-over to end-users from September 2020 to January 2021 19
Slide 20: Residential Property: Myrvoll tårn
RESIDENTIAL PROPERTY Project: Myrvoll tårn • Myrvoll, Oppegård • Bolig & Eiendomsutvikling AS • 17 apartments • From 65 to 116 m2 • Completion and hand-over to end-users September 2020 20
Slide 21: Residential Property: Project Risk Development
RESIDENTIAL PROPERTY Project risk development Project risk Loan amount Project risk decreases as the loan amount is drawn. Building Construction Land acquistion Pre-sale Ground works Construction Completion Repayment permits contracts Counterparty risk Political risk Risk soil Construction Risk of c
Slide 22: Residential Property: Business & Credit Process
RESIDENTIAL PROPERTY Business & credit process Regulatory Construction Land acquistion Pre-sale Ground works Construction Completion permits contracts PROJECT REVIEW AND KYC. Regulatory Contract assessment. Market assessment. Site inspection. Site inspection. Hand-over to end- Customer’s assessment.
Slide 23: Commercial Property
COMMERCIAL PROPERTY Credit update Commercial property exposure (NOKm) Total NOKm 4,671 • 113 customers with average commitment of NOK 41m. • 36 % commercial property exposure in Oslo and 19 % in Rogaland. • 71 % of commercial property exposure is to long-term cash-flow Commercial based commitments,
Slide 24: Project: Paradis 1972
RESIDENTIAL PROPERTY Project: Paradis 1972 • Lagårdsveien 78-80, Stavanger • Brødrene Jensen AS • Office, hospital, retail • Rehabilitation project • Rental agreements with among others Aleris, Stavanger Universitetssykehus, Stavanger Kommune, Coop Extra, Vitus Apotek, EVO • Completion Q3-2021 24
Slide 25: Table of Contents
TABLE OF CONTENTS Highlights Financials Business Areas Outlook & Ambitions 25
Slide 26: Status
STATUS • Stable portfolio quality. • Review of commitments in Q3-20 resulted in no material changes in risk classifications. • Close follow-up of customers remains the highest priority. • Continuing a stricter credit practice with a focus on liquidity. All customers to address potential consequences
Slide 27: Market Outlook: Residential Property
MARKET OUTLOOK Residential property • The newbuild market has picked up strongly after a complete standstill in March and April. • Sales are back to levels in line with previous years and the number of unsold newbuilds has fallen lately. • Regulation of newbuilds are slow, particularly in Oslo. This
Slide 28: Market Outlook: Commercial Property
MARKET OUTLOOK Commercial property • The office market in the greater Oslo area has held up well, but it may be hit by a new shutdown. • Long-term demand for office space may fall due to change in need for office space, but the picture is mixed. • Competition has increased as banks are capital rich
Slide 29: Market Outlook: Corporate
MARKET OUTLOOK Corporate • Improved market outlook within several • Good deal flow YTD. Higher competition in Q3- industries, while other industries have been hit 20 as banks are capital rich and interest rates are hard. low. Deal flow expected to be steady going forward. • Pareto Bank has a cautiou
Slide 30: Market Outlook: Shipping
MARKET OUTLOOK Shipping • Continued high uncertainty. Further shutdowns and restrictions will have negative effects on all segments. There is a risk of lower volumes in all trades. • Tank markets are expected to suffer from lower volumes and less demand for floating storage over the next 9 to12 mont
Slide 31: Consistent Profitability
CONSISTENT PROFITABILITY Adjusted for buildup of capital ROE as reported and ROE given today’s capital with constant gearing to lending volume * • Increased capital requirements have posed a challenge to 25% profitability. • Given today’s capitalization and adjusting for lending growth, 20% profitab
Slide 32: Maintaining Long Term Ambitions
MAINTAINING LONG TERM AMBITIONS Long term ambition Status YTD Long-term ROE ambition set aside in 2020. RETURN ON 15.0 % 12.3 % Profitability supported by lending growth, lower EQUITY funding costs and high portfolio quality. Strong solidity and loss-absorbing capacity. CAPITAL 17.7 % 17.3 % Exceedi
Slide 33: Appendix
APPENDIX (Pareto bank
Slide 34: Largest Shareholders
LARGEST SHAREHOLDERS As of 30 September 2020 Comments # Investor 30.09.2020 # of shares % total • The Company has 69,851,730 1 Pareto AS 13,423,610 19.22 % shares outstanding. One class 2 AF Capital Management AS 6,943,049 9.94 % of shares where each share 3 Hjellegjerde Invest AS 2,800,000 4.01 % c
Slide 35: The Share
THE SHARE Earnings per share (NOK) Book equity per share (NOK) 1.79 47.98 1.45 46.54 1.34 42.16 Q3-19 Q2-20 Q3-20 Q3-19 Q2-20 Q3-20 Price / Earnings Price / Book 7.01 0.89 6.73 0.81 0.69 4.49 Q3-19 Q2-20 Q3-20 Q3-19 Q2-20 Q3-20 35 Share price 32.20
Slide 36: Quarterly Income Statement
QUARTERLY INCOME STATEMENT P&L (NOKm) Q3-20 Q2-20 Q1-20 Q4-19 Q3-19 Net interest income 188.2 183.8 183.9 180.5 173.0 Net other operating income -13.1 23.9 -16.9 7.6 -2.9 Total net income 175.2 207.7 167.1 188.2 170.1 Total operating expenses 32.4 38.1 33.1 36.1 32.2 Operating profit before 142.7 16
Slide 37: Quarterly Balance Sheet
QUARTERLY BALANCE SHEET BS (NOKm) Q3-20 Q2-20 Q1-20 Q4-19 Q3-19 Loans to credit institutions 1,938 1,610 1,315 924 1,004 Loans to customers 13,874 14,235 13,503 13,161 13,191 Bonds and other securities 4,395 3,703 3,053 3,320 3,467 Shareholdings in associated 23 23 23 22 35 companies Other assets 78
Slide 38: Real Estate Exposure
REAL ESTATE EXPOSURE Geographical residential property exposure Geographical commercial property exposure 4% 6% 3% 3% 5% 4% Oslo Viken 14% 36% Rogaland Oslo Trøndelag Viken 50% Vestland Vestfold og Telemark Vestfold og 36% Vestland Telemark Sweden & Other 19% Other 20% 38 NOKm of gross exposure. Tot
Slide 39: Corporate
CORPORATE Credit update Exposure by sector • 80 consolidated corporate customers with average • Exposure is diversified on products and industries. commitment of NOK 47m. • Credit quality has been stable in Q3-20. No further demand • 59 consolidated securities financing customers with average for st
Slide 40: Shipping
SHIPPING Credit update Exposure (NOKm) Total NOKm 978 • 17 customers and 30 vessels. Chemicals 306 LTV 44 % • Largest exposure USD 23.7m and average commitment sice USD 5.4m. Industrial 244 LTV 56 % • Only shipping, no offshore exposure. Bulk 145 LTV 53 % • Average LTV of the portfolio is 50 %. Prod
Slide 41: Margins and Interest Contribution
MARGINS AND INTEREST CONTRIBUTION Margins per business area Interest contribution per business area Estimated annualized margins including commissions, excluding front and back-end fees over 3M NOKm, estimated interest contribution including commissions, excluding front and back-end fees Nibor or si
Slide 42: Number of Customers
NUMBER OF CUSTOMERS per business area Real Estate 281 Corporate 180 Retail 17 (Mortgages) Shipping 17 & Offshore 42
Slide 43: Funding
FUNDING Sources Deposits & senior debt NOKm, Deposits 10,263 Percent customer deposits of net lending to customers Senior debt 4,956 76.9 % 74.3 % 74.0 % T1 & T2 debt 470 71.3 % 65.4 % 64.8 % 64.9 % 61.9 % Other debt 1,269 4956 5551 56.4 % 5192 5279 5604 Equity capital 3,351 5207 5624 5011 5472 Key
Slide 44: Customer Deposits
CUSTOMER DEPOSITS Deposits by product (NOKm) Deposits by size (NOKm) 646 Floating rate retail > NOK 20m 2,959 720 3,679 1,516 2,441 Floating rate corporate 624 NOK 10 - 20m 781 280 1,061 1,188 Savings with restrictions 3,081 NOK 5 - 10m 717 244 961 2,826 Fixed rate 3,310 NOK 2 - 5m 1,250 1,029 2,279
Slide 45: Market Funding
MARKET FUNDING Market funding maturities (NOKm) * Credit spreads (basis points) ** 94 150 72 55 200 120 1,500 1,239 34 710 750 750 24 18 2021 2022 2023 2024 2025 Senior Call on Subordinated Capital 0,25 0,5 1 2 3 5 *) Net of own holdings 45 **) Spread over 3M Nibor
Slide 46: Surplus Liquidity
SURPLUSS LIQUIDITY Bond portfolio Comments • Market value of bonds and funds comprising surplus 15% liquidity. 25% • The bank’s liquidity is comprised of cash and highly liquid bonds. • High share of government Government & PSEs & PSEs to reduce credit Covered bonds spread risk and increase Senior f
Slide 47: Commitments by Risk Classification
COMMITMENTS BY RISK CLASSIFICATION Risk classification (NOKm) Historical risk classification 5,960 57% None / very low risk 55% 54% 6,029 51% 49% 8,665 Low risk 9,678 40% 38% 36% 36% 35% 1,081 Moderate risk 1,164 25 Some risk 224 110 11% 10% High risk 9% 54 7% 7% 4 Very high risk Q3-19 Q4-19 Q1-20 Q
Slide 48: Commitments by Size
COMMITMENTS BY SIZE Commitment size per customer (NOKm) Distribution of commitments by size 833 3% < 10 12% 600 5,158 10 - 50 5,053 4% 3,686 29% < 10 50 - 100 5,533 10% 10 - 50 1,877 50 - 100 100 - 150 1,637 100 - 150 994 150 - 200 150 - 200 1,630 200 - 250 10% > 250 649 200 - 250 688 2,648 > 250 2,
Slide 49: Pareto Bank
( Pareto bank