Pareto Bank ASA

Welcome everyone. Welcome to a review of the second quarter's shareholding. We start with the main features of the stock market before the CFO, Erling Mork, will give us more details. Then I will give an update on our trading areas and market views. If you would like to answer questions, then at the end, and for those of you who participate digitally, it is only to send questions into the chat to the meeting. So first of all, the main features of the part-year plan. In the second quarter, Pareto Bank received a result after tax of 178.2 million. The quarter's result is the best in the bank's history. The result was a 14.2% self-inflation after tax. The activity was good in the second quarter. The sum of the loan increased from 657 million to 19.6 billion. The growth came from financing housing development, offshore and businesses. The interest rate was also high. We chose loans for a volume of 5.9 billion in the second quarter. The foreign loan growth came towards the end of the quarter. That gave a stable net income of 303 million,- -...compared to the first quarter. The total sum of loans was 26 million. The individual loans were 26.7 million,- -...and are linked to a number of investments in housing development. The model-based deductions were reduced by 2.9 million. We base some more positive views on the Norwegian economy and the new housing market at this time compared to the start of the first quarter. In this picture, we compare the central key figures. We compare Q2 this year with the same period last year- and Q1 this year. The result for Q2 this year was 178.2 million. The increase in the result from Q2 last year- is due, among other things, to the growth in expenses. The unemployment growth was over 1 billion in the last 12 months. At the same time, the net interest margin was stable and was around 4.6%. In Q2, the operating costs were around 56 million. It is about the same level as in Q1. It is 4.6 million higher than in Q2 last year. The increase in costs is due to both a larger discount and investments in solutions for better business support. However, the operational efficiency is high, expressed with a cost percentage of less than 17.8%. Summary deductions and losses amounted to 26 million. That amounted to 0.14% of net and out loans. In comparison, deductions and losses amounted to 13 million in Q2 last year. That amounted to 0.07% of net and out loans. In Q1 this year, summary deductions and losses amounted to 15 million. That amounted to 0.08%. In the second quarter, the net tax was raised by 14.2% versus a 15% return on investment. In September, we raised more capital in order to secure capacity for foreign exchange growth. It takes some time to put this capital into work, and that also explains the level of tax. We see that pure core capital coverage is now at 17.9%. That's a decline from the beginning of March. It was at 18.2%. The decline is due to the strong exchange rate growth in the second quarter. That was quickly the main attraction in the second quarter. Erling will now give us more details.

Thank you, Tiril. Net rent revenues were 303 million for the second quarter and 603 million for the first half year. That means that we have received around 300 million per month in net rent revenues in the first half year. This has come from a stable loan volume, rent margin and rent level. When it comes to the second quarter, the average loan volume has been relatively flat with a combination of new loans and inflows, and we got a relatively large increase in loans at the end of June. This will give greater interest rates for the third quarter. The value changes were 8.1 million kroner, and this came from credit spreads on bonds in the bank's liquidity reserve, i.e. the bond portfolio, which were falling through the first half of the year. This trend has stopped a little in June, and the credit spreads have stabilized. Costs were 56.3 million kroner for the second quarter, 112 million for the first half of the year. It is a moderate increase from the previous year, and there will be a large amount of revenue for bonuses, and a certain amount of investment in support systems, including systems for AML and for data reporting. The deductions were 26 million kroner in the second quarter, and I will get back to this in more detail. So we got our best quarter result, the second quarter in a row, and thus our best half-year result ever. With a net capital transfer of 14.2 and 14.3%. Net income increased by 3.2 million kroner from Q1 to Q2, to a level of 303 million kroner. The biggest contribution here is a somewhat higher interest rate or interest rate level on average While we have a few other factors that go in the opposite direction. We have reduced the liquidity reserve somewhat, so we have received slightly lower interest rates from the liquidity reserve and the administration. And we have grown in fixed interest rates, so we have increased the interest rates somewhat. Thus, the interest margin for the outlay has increased to 5.7% from 5.5%. We see a small decline in the interest margin to 0.6%, and it maintains a stable net interest margin of 4.6%. The declines were 26 million in Q2. This was higher than it was in Q1 this year, but it was on a lower level than we saw in Q3 and Q4 last year. First and foremost, the views in the macro picture improved. There are better views for growth, and sales are rising in new housing projects. Thus, we have adjusted the probabilities in the macro model, in the transcription model, and that has, in an isolated way, given a reduction of transcriptions, model transcriptions, by 7.5 million. Then there are a couple of other factors that work in the opposite direction, risk classification changes and migration between trends, so that the net model-based transcriptions are reduced by 2.9 million kroner per quarter. The individual deductions increased by 26.7 million kroner, and here it is primarily investments in housing development that have been in the top three for some time. The deductions also include 5 million in so-called peak interest on an investment. In the second quarter, we saw an increase of 114 million kroner in the second quarter to 734 million kroner. This came from a few simple investments that came on the bank's watch list. Exponering in TIN 3 fell in the second quarter with 16 million to 836 million kroner. And here is the composition of TIN 3, or loans that are in misuse, about the same as it has been before. When it comes to capital coverage, the bank received a core capital coverage of 17.9% in the second quarter. The change from 18.2% in the first quarter came from foreign exchange growth and growth in frames, i.e. unused credit exposure, largely due to the opening of housing projects. I would like to say a little about this regulation, CRR 3. After the change of year, the implementation of the CRR3 regulation in Norway is expected. It is a new capital requirement regulation that gives a more granular addition to risk and weight. Banks that use the standard model generally expect to see an increase in net capital coverage due to these changes in risk and weight. Pareto Bank is waiting for a moderate improvement in pure core capital coverage, and that is due to a few things. One is a different method for reducing the capital demand for proportional risk, which is more adapted to smaller and larger banks. And then there is a more graded risk assessment on loans to business owners. Then there are a couple of other factors that work in the opposite direction, an increased risk and weight on the loan to SANG and on the development of the business unit. The technical standards for CRR 3 are not yet completed, so there is some uncertainty related to these estimates. Then Tiril will tell you more about our business areas.

Great, then I will give you an update on business areas and market views. We start with this overview picture. At the beginning of June, the bank had a total credit exposure of 23.8 billion. In this picture, you can see how the distribution is now. You can see that housing development is the largest area. Here, the exposure was 9.2 billion, or 39% of the total. Then there is corporate financing with 6.3 billion, which is 27% of the total. 3.2 billion, 14% of the total. Housing for rental or sale 3.2 billion, 13% of the total. And finally shipping financing with now 1.8 billion, equivalent to 8% of the total credit exposure. As already mentioned, the activity and growth was good in the second quarter. Here you can see how the exposure has changed from quarter to quarter per market area. You can see that we got a strong growth in terms of exposure to housing development. we also got a good increase in the area of business financing and shipping financing, while the exposure to businesses and finished housing for sale and rental was as expected stable. I will give you more details about each area. I will start with housing development. Here was the total credit exposure of 9.2 billion. It is divided between rental loans of around 3.9 billion and building loans of 5.3 billion. Exponement growth was 1 billion in Q2, and most of it came within the category of empty loans. Of course, we make a thorough assessment of all relevant risk conditions when we give this type of financing. We have a special focus on entrepreneur risk, liquidity risk and transfer risk. We have also taken care of the market and the saleability of the units in the project. On a general basis, I would say that the entrepreneur risk has increased in the last few quarters due to weakened profitability and activity in that industry. So we are at the moment extra careful with regard to the choice of entrepreneurs, make very thorough analyzes of the entrepreneur's ability to implement and economy, and of course also go through the entire project calculation. We still have a small number of commitments in steps 2 and 3 in this area. Here we follow the customers up closely, hyper dialogue between customer and bank, and also close follow-up from the bank's construction controller. We now see signs of a positive change in this market. We see that sales in ongoing projects are rising, and we also see that it is somewhat easier to meet pre-sale requirements in projects that are to be launched. The question of financing has, as shown, been raised. The interest rate seems to have reached. There is a stable outlook for the Norwegian economy. Employment is low, and most people experience a real wage growth this year. For the third quarter, we expect moderate growth in terms of housing development. Then we have two categories. One category that we call housing for lease or sale. Here was the exposure to 3.2 billion by the half-year shift. It is mentioned at the same level as at the beginning of March. When it comes to business, this exposure was also around 3.2 billion, and there was a marginal decline from the first quarter. A little more about business units. Here we also make thorough assessments of relevant risk factors and set the rate of reward individually in each single credit. We include value assessments from third parties, also make our own value assessments based on different assessment methods such as value calculations, yield calculations and square meter prices. We have a very small number of engagements in steps 2 and 3 in this area. These are customers with liquidity challenges, and we follow them closely. Then it seems as if the prices on the economy have now stabilized after a fall through 2023. The development is still uncertain. The interest rate level is high and there is a difference between buyers and sellers price expectations. We expect a relatively flat volume development in this area for the third quarter. Pareto Bank has 10 years of experience from the Swedish market. First by financing a couple of large Norwegian housing development customers with projects in Sweden, and then also by financing Swedish customers. Through this experience, we have seen that, as in Norway, the large Swedish banks concentrate on the large customers. There are some niche providers, but no one offers the type of specialized financing that we offer. This leaves an attractive offer for Pareto Bank. We achieve favorable risk-reward, i.e. lower loan payments and higher margins on outlay and higher fees. We also have a profitability ambition for this market, which is more than 15%. We have a long-term approach to gradually build up a diversified, solid and profitable foreign portfolio. We have not set a volume goal. And by the half-year shift, we have an exposure of a little over 2 billion towards Sweden. Since 2019, our activity in Sweden has increased, and since 2021, we have had a few customers responsible with a special focus on this market. In the first quarter, we have sent a request for the establishment of a subsidiary in Sweden, and this request was accepted by the Swedish Financial Inspection in the second quarter. We are planning to establish a subsidiary in the last six months. I have given a status for Eimdalen. I will tell you about the other two business areas. First, business financing. Here was the exposure to 6.3 billion by the half-year shift. We got a growth of 266 million, and the credit quality in this portfolio is stable. Pareto Bank is a supportive and professional financing partner for these companies. We meet them with a customer-oriented, competent and specialized team. There has been good access to businesses in the second quarter and we expect that to continue. We see long-term good opportunities in this market and expect moderate growth in the third quarter. And finally, ship financing. Here the activity and growth continue. Here we got an increase in exposure of 268 million in the second quarter to 1.8 billion. And for the moment we have the largest exposure within offshore and then followed by the bulk market. We are heading towards solid Norwegian reserves and towards the project market and finance modern tonnage. There is a stable, good quality in this portfolio, and an average loan amount now over half a year, based on updated ship values, is at 41%. Very comfortable. Some observations about the outlook in these markets. We are looking for a healthy dry bulk market. There is a low order book. There is some uncertainty related to the development of demand, as a result of lower growth in the world economy and in China. When it comes to the tank markets, we expect them to remain strong. There is a moderate supply side growth, and there is a good demand. At the moment, there is some higher activity and demand within the container market, as a result of the unrest in the Middle East. This has led to longer freight routes and more waiting in the port, so the activity has taken some form at the moment. And when it comes to offshore, the market outlook is good. There is high activity and low fleet growth. So we expect growth in the third quarter, which is moderate, within both shipping and offshore segments. In summary, we have a strong first half year. In fact, we deliver our best half-year result ever,- with 354 million. The foreign exchange rate has increased by around 1 billion. The growth rate is high, especially in the second quarter. In addition, the margin picture is quite stable,- with net profit margin of 4.6 percentage points. Sum of deductions is moderate in the first half year, with 41 million. The volume of commitments in the second and third trimester has also been relatively unchanged in the first half year. So we are long-term, building stone by stone, prioritizing quality and profitability in front of growth alone. And that has given results, illustrated here as the development in total rejection for shareholders in Pareto Bank since 2014. As you can see, our shareholders have on average received an annual return of 16.3% in these ten years, compared to an investor in DNB that has received 12%, and in Oslo Børs' main index 9.7%. With that, we are ready for any questions. It is in the middle of the joint meeting, so there are not so many questions. We can check the chat and see if anyone has sent in anything.

There have not been any questions yet. If anyone is watching live, there is a chance to send in a question. Are there any questions from the audience?

No, then we have answered the task well, Erling.

Yes, but then we get to let you out in the sun, I think.

Then all that remains is to wish you a good summer, and then I would like to say at the very end, an extra thank you to a fantastic Pareto Bank team who are involved in creating these values every day. Have a good summer.