Pareto Bank Asa · OSL:PARB
Pareto Bank Asa — Q2 2020 Earnings Presentation
43 slides from Pareto Bank Asa's earnings presentation, Jul 1, 2020
Slide 1: Pareto Bank Financial Results Second Quarter 2020
PARETO BANK Financial Results Second Quarter 2020
Slide 2: Table of Contents
TABLE OF CONTENTS 1 HIGHLIGHTS 2 FINANCIALS 3 BUSINESS AREAS 4 AMBITIONS
Slide 3: Second Quarter 2020 Highlights
SECOND QUARTER 2020 HIGHLIGHTS 1 Profit after tax NOK 127.9m (NOK 86.7m). 2 Return on equity after tax 15.7 % (13.0 %). Net interest income of NOK 183.8m (NOK 164.4m). Maintaining lending margin in a 3 low interest rate environment. Growth in lending to both new and existing customers. Lending grew
Slide 4: Key Figures
KEY FIGURES Profit after tax Return on Equity CET1 ratio NOKm Excluding AT1 capital and interest Standard model 127.9 15.7% 18.5 % 17.8 % 17.5 % 13.0% 86.7 8.8% 71.0 Q2-19 Q1-20 Q2-20 Q2-19 Q1-20 Q2-20 30.06.2019 31.03.2020 30.06.2020 Net interest income (NOKm) Cost/income ratio Loss ratio NOKm Quar
Slide 5: Covid-19 Update
COVID-19 UPDATE 1 Normalization of operations. Employees returning from home offices in two alternating shifts. Close follow-up of existing customers and lending under the state-guaranteed SME loan program 2 have been priorities. 13 existing customers corresponding to NOK 372m have been granted loan
Slide 6: Lending Growth Higher Than Expected
LENDING GROWTH HIGHER THAN EXPECTED Lending to customers LENDING GROWTH IN Q2-20 NOKm Strong pipeline within all business areas 14,500 14,235 combined with state-guaranteed SME loans to 14,000 support existing customers have led to higher 13,503 than expected lending growth in Q2-20. 13,500 13,191 1
Slide 7: Table of Contents
TABLE OF CONTENTS 1 HIGHLIGHTS 2 FINANCIALS 3 BUSINESS AREAS 4 AMBITIONS
Slide 8: Income Statement
INCOME STATEMENT P&L (NOKm) Q2-20 Q2-19 H1-20 H1-19 Lending growth of NOK 732m contributed to Net interest income 183.8 164.4 367.7 327.0 growth in net interest income. Lower market Net other operating income 23.9 0.9 7.0 7.1 rates put pressure on deposit margins and Total net income 207.7 165.2 374
Slide 9: Development in Net Interest Margin
DEVELOPMENT IN NET INTEREST MARGIN Net interest margin Percent interest income including amortizations and fees over 3M Nibor; Cost of deposits of average volumes over average 3M Nibor in period 5.8 % 5.9 % 6.4 % 6.1 % 5.7 % 5.7 % 5.5 % 5.9 % 5.9 % 5.9 % 5.8 5.9 5.7 % 5.6 % 5.5 % 5.7 5.6 % % 5.7 % %
Slide 10: Lending and Deposit Rate Adjustments
LENDING AND DEPOSIT RATE ADJUSTMENTS Average lending rate Interest rate income excluding fees as a percentage of average lending • Lending rate cuts in two rounds on an individual basis to customers coming into effect in May and June. 0 • Deposit rate reduced by 0.20 percentage points for 6.20% corp
Slide 11: Market Financing
MARKET FINANCING Credit spreads on Pareto Bank senior debt • Credit spreads on senior debt shot up in March Basis points over 3M Nibor due to Covid-19. A vicious cycle of increased collateral requirements triggered a sell-off. 250 • Central banks have poured liquidity into markets 224 March by cutti
Slide 12: Quarterly Change in Net Interest Income
QUARTERLY CHANGE IN NET INTEREST INCOME Net interest income Changes in net interest income (NOK 1,000) 8,892 Q1-20 8,526 Q2-20 190,000 183,941 183,802 149 180,000 11,132 5,111 1,029 434 170,000 160,000 150,000 140,000 130,000 120,000 Lending Lending Fee Deposit Deposit Market Surplus volume rate inc
Slide 13: Covid-19 and IFRS 9
COVID-19 AND IFRS 9 MAIN COMPONENTS OF IFRS 9 MODEL Credit exposure by stage • Review of risk classifications. • Migration of existing commitments from stage 1 to stage 2 or 3. NOK million • Changes in macroeconomic scenarios and their probabilities. • Individual write-downs in stage 3. Stage 3 NOK
Slide 14: Quality of Loan Portfolio
QUALITY OF LOAN PORTFOLIO Impairments and losses according to IFRS 9 Impairments and losses on loans & guarantees NOKm NOKm • Unchanged impairments overall. Impairments and losses • Change in risk classification on selected NOK -0.1m commitments. 98.4 98.3 • Somewhat increased volume in stage 2. 40.
Slide 15: Capital
CAPITAL Core equity tier 1 ratio (CET1 ratio) Key comments 17.4 % 18.5 % 17.5 % CET1 Min. • Strong solidity which exceeds both the minimum 16.1 % Requirement capital requirement of 14.2 % and requirement 14.2 % before the reduction of the countercyclical capital Pillar 2 buffer of 16.2 % including a
Slide 16: Quarterly Change in CET1
QUARTERLY CHANGE IN CET1 CET1 Captial Ratio* Q1-20 18.5 % Q2-20 0.4 % 17.5 % 0.8 % 0.3 % 0.3 % 10.00% CET1 31.03 Lending growth Growth off-balance Surplus liquidity 50 % retained CET1 30.06 exposure earnings Off-balance Lending to Surplus Retained exposure to customers liquidity profits** customers
Slide 17: Table of Contents
TABLE OF CONTENTS 1 HIGHLIGHTS 2 FINANCIALS 3 BUSINESS AREAS 4 AMBITIONS
Slide 18: 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 Land acquisition financing estate developer bank Property construction Real for Eastern Norway facilities 71% NOKm 50-100 estate and larger Norwegian Commercial propert
Slide 19: Exposure per Business Area
EXPOSURE PER BUSINESS AREA NOKm gross exposure* 7,499 7,178 7,007 6,834 6,644 5,044 5,012 4,880 4,725 4,320 4,059 3,551 3,316 3,143 3,093 834 782 889 1,017 699 Residential property Commercial property Corporate Shipping Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 PAGE 19 Notes: *Corporate financing exposure inclu
Slide 20: Residential Property | Credit Update
RESIDENTIAL PROPERTY | CREDIT UPDATE 67% 42% Real estate credit exposure Σ = NOK 12,511m Key comments residential property NOKm of gross exposure • 165 customers with average commitment of NOK 45m. • 35 % residental exposure in Oslo, 53 % in Viken. Land without houses 1,401 41 customers • Positive d
Slide 21: Commercial Property | Credit Update
COMMERCIAL PROPERTY | CREDIT UPDATE 67% 28% Real estate collateral exposure Σ = NOK 12,511m Key comments commercial property NOKm of gross exposure • 117 customers with average commitment of NOK 43m. • 37 % commercial property exposure in Oslo and 19 % in Land without houses 1,401 41 customers Rogal
Slide 22: Corporate | Credit Update
CORPORATE | CREDIT UPDATE 23% 67% Corporate financing exposure Σ = NOK 4,059m* Key comments NOKm of gross exposure • 81 consolidated corporate customers with average 3% 2% Investment loans commitment of NOK 44m. 8% Working capital • 59 consolidated securities financing customers with 8% facilities a
Slide 23: Shipping | Credit Update
6% 8% SHIPPING | CREDIT UPDATE Key comments Shipping credit exposure & loan to value Σ = NOK 1,017m LTV * Share NOKm • 17 customers and 29 vessels. • Largest exposure USD 21.6m and average commitment Chemicals 328 45% 32% size USD 5.5m. • Only shipping, no offshore exposure. Industrial 231 56% 23% •
Slide 24: Table of Contents
TABLE OF CONTENTS 1 HIGHLIGHTS 2 FINANCIALS 3 BUSINESS AREAS 4 AMBITIONS
Slide 25: Market Activity
MARKET ACTIVITY 67% • A more restrictive credit practice was introduced in March. • Close follow-up of Watch List and existing customers with focus on liquidity is still our main priority. • Sales activity is picking up. Markets are improving. • Deal flow is stronger than expected within all busines
Slide 26: Market Outlook
MARKET OUTLOOK 67% RESIDENTIAL PROPERTY CORPORATE • Housing prices have recovered and started to increase. Low • Several customers are reporting that markets are interest rates seem to outweigh the rise in unemployment. improving, and that revenue is coming back. • Activity in the newbuild market is
Slide 27: Maintaining Long-Term Ambitions
MAINTAINING LONG-TERM AMBITIONS LONG-TERM STATUS AMBITION YTD Long-term ROE ambition set aside in 2020. RETURN ON EQUITY Profitability in Q2 supported by lending growth, 15.0 % 12.3 % stable lending margin and unchanged impairments. Strong solidity despite growth. Exceeding 17.7 % ADEQUACY CAPITAL r
Slide 28: Appendix
(Pareto bank
Slide 29: Largest Shareholders as of 30 June 2020
LARGEST SHAREHOLDERS AS OF 30 JUNE 2020 # Investor 30.06.2020 # of shares % total • The Company has 69,851,730 1 Pareto AS 13,423,610 19.22 % shares outstanding. One class of 2 AF Capital Management AS 6,943,049 9.94 % shares where each share carries 3 Hjellegjerde Invest AS 2,800,000 4.01 % 4 K11 I
Slide 30: The Share
THE SHARE Earnings per share Book equity per share NOK NOK 1.79 46.54 44.74 1.23 0.97 40.85 Q2-19 Q1-20 Q2-20 Q2-19 Q1-20 Q2-20 Price / Earnings Price / Book NOK, Share price 32.20 NOK, Share price 32.20 7.53x 7.29x 0.91x 4.49x 0.69x 0.63x Q2-19 Q1-20 Q2-20 Q2-19 Q1-20 Q2-20 PAGE 30
Slide 31: Quarterly Income Statement
QUARTERLY INCOME STATEMENT P&L (NOKm) Q2-20 Q1-20 Q4-19 Q3-19 Q2-19 Net interest income 183.8 183.9 180.5 173.0 164.4 Net other operating income 23.9 -16.9 7.6 -2.9 0.9 Total net income 207.7 167.1 188.2 170.1 165.2 Total operating expenses 38.1 33.1 36.1 32.2 34.7 Operating profit before impairment
Slide 32: Quarterly Balance Sheet
QUARTERLY BALANCE SHEET BS (NOKm) Q2-20 Q1-20 Q4-19 Q3-19 Q2-19 Loans to credit institutions 1,610 1,315 924 1,004 1,785 Loans to customers 14,235 13,503 13,161 13,191 12,539 Bonds and other securities 3,703 3,053 3,320 3,467 3,998 Shareholdings in associated companies 23 23 22 35 37 Other assets 75
Slide 33: Real Estate | Exposure
REAL ESTATE | EXPOSURE 67% Geographical residential property exposure (NOKm) Σ = NOK 8,864m Geographical commercial property exposure (NOKm) Σ = NOK 3,648m NOKm of gross exposure 3% 3% 6% 3% 4% 8% Viken Oslo 11% 37% Oslo Viken Trøndelag Rogaland 52% Vestfold & Telemark Vestfold & Telemark 35% Vestla
Slide 34: Margins and Interest Contribution
MARGINS AND INTEREST CONTRIBUTION Margins per business area Interest contribution per business area Estimated annualized margins including commissions, excluding NOKm, estimated interest contribution including commissions, excluding front front and back-end fees over 3M Nibor or similar rate and bac
Slide 35: Number of Customers
NUMBER OF CUSTOMERS Number of customers per business area Real Estate 282 Corporate 181 Retail 22 (Mortgages) Shipping 17 & Offshore PAGE 35
Slide 36: Funding
FUNDING Sources Deposits & senior debt NOKm, NOKm Percent customer deposits of net lending to customers Deposits 9,234 77% 77% 74% Senior debt 5,192 71% 65% 65% 65% T1 & T2 debt 470 62% 56% 5,192 Other debt 1,299 5,551 5,207 5,604 4,915 5,624 5,472 5,011 5,279 Equity capital 3,451 Key ratios Deposit
Slide 37: Customer Deposits
CUSTOMER DEPOSITS Deposits by product Deposits by type NOKm NOKm 1,225 Floating rate retail Depositors (#) 2,953 2,327 583 680 Amount (NOKm) 2,674 6,541 Floating rate corporate 2,819 Retail Corporate 2,886 Savings with restrictions 1,155 2,727 Deposits by size Fixed rate 3,253 NOKm 1,782 > NOK 20m 3
Slide 38: Market Funding
MARKET FUNDING Market funding maturities Credit spreads NOKm, net of own holdings Basis points over 3M Nibor 118 150 94 72 1,800 200 1,400 44 1,150 29 750 21 84 120 2020 2021 2022 2023 2024 2026 0,25 0,5 1 2 3 5 Senior Call on Subordinated Capital Years to Maturity Source: Nordic Bond Pricing PAGE 3
Slide 39: Surplus Liquidity
SURPLUS LIQUIDITY Bond portfolio Key comments Market value of bonds and funds comprising surplus liquidity • The bank’s liquidity is comprised of cash and highly liquid bonds 2% • High share of government & PSEs to reduce credit spread risk and increase 15% short-term liquidity 31% • Large share of
Slide 40: Commitments by Risk Classification
COMMITMENTS BY RISK CLASSIFICATION Risk classification Historical risk classification NOKm NOKm None / very low 6,113 55% 54% risk 6,329 51% 49% 49% 7,553 Low risk 9,623 40% 40% 38% 36% 36% 1,386 Moderate risk 1,524 102 Some risk 184 190 11% High risk 9% 10% 9% 77 7% 4 Very high risk Q2-19 Q3-19 Q4-
Slide 41: Commitments by Size
COMMITMENTS BY SIZE Commitment size per customer Distribution of commitments by size NOKm Percent of NOKm 818 < 10 3% 583 14% 5,073 < 10 10 - 50 5,435 5% 10 - 50 31% 3,909 50 - 100 50 - 100 4,892 8% 100 - 150 1,897 150 - 200 100 - 150 1,926 11% 200 - 250 797 > 250 150 - 200 1,482 28% 224 200 - 250 8
Slide 42: Reduced Minimum CET1 Requirements
REDUCED MINIMUM CET1 REQUIREMENTS COUNTERCYCLICAL BUFFER LOWERED 15.7 % The Department of Finance lowered the countercyclical 14.2% capital buffer (CCyB) from 2.5 % to 1.0 % to support banks’ ability to give loans to customers affected by Pillar 2, 3.2 % Covid-19. Pillar 2, 3.2 % Countercyclical Buf
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(Pareto bank