Pareto Bank ASA

Welcome, everyone. Welcome to the first quarter of the first quarter. We start with the main features in the forecast, and then the CFO of the bank, Vegard Toverud, will give us the details in the forecast. Then I will comment on our business areas and market views. We will gladly answer questions at the end. For those of you who participate digitally, you can send questions to the chat. Pareto Bank received a result after tax of 178.5 million in the first quarter. This amounted to a self-tax after tax of 13.5%. The net income increased to 315 million, and the total loan was up from 151 million to 20.9 billion. In the first quarter, the average volume of expenses was 4% higher than in the fourth quarter, after a strong growth at the end of the year. As a result of high activity and growth in the fourth quarter, we started 2025 with a high focus on capital and a strict customer priority. We continue our long-term work by building a broad network and a robust customer portfolio in Sweden. In the first quarter, the exposure was somewhat up after strong growth throughout 2024. In the first quarter, the sum of deductions and loans was 37.1 million. The individual deductions ended at 29.4 million,----and were mainly for financing housing development. As previously mentioned, it takes time to work out---the difficult projects. Individual deductions and taking out loans will only be at a higher level in the next few quarters than what has been normal for Pareto Bank. The new housing market is still difficult, and after the change of year, the general market interest has also increased. In the next picture, we show the development in central key figures for the last five quarters. We see that in the first quarter, the GDP drop ended at 13.5%, up from 12.2% in the fourth quarter. The increased profitability was due to lower loss rates. And then we see that the total losses were 0.18% of net and loan. This is a level we are of course not satisfied with. Nevertheless, it is worth noting that in spite of an annualized loss cost of over 70 basis points, the net tax return for self-inflation ended at 13.5%. We had a very high growth in the fourth quarter, which led to a decline in net capital coverage to 17.2% at the end of the year. We had a strong capital focus in the first quarter, and net capital coverage ended at about the same level, at 17.1% at the beginning of March. The operational efficiency was still good, expressed by a cost percentage of less than 18.5% in the first quarter. You have had a quick overview of the forecast. Vegard will give us more details.

Thank you. Yes. If we start with interest rates, they increased by 15.6 million compared to the corresponding quarter last year. This is due to the strong outlay growth and activity we had last year. Compared to last quarter, there is an increase of 4 million driven by a higher outlay balance. The margins were relatively stable, but the interest rates are then affected by both volume and margin associated with a fixed interest rate campaign that we have run in Q1, which I will come back to. Our revenues increased by over a billion in the quarter. In total, we account for 12.6 million in value gains. Reduced credit claims in our liquidity portfolio, on our obligations, gave a profit of 4.5 million. In the corresponding quarter last year, the loss was 5.7 million. So that explains the big change compared to Q1 last year. In addition, we have a slightly higher compensation, interest compensation, on our currency swaps, and we have received 1 million in spending from our ownership in equity credit in the quarter. The costs are up by 10.6% compared to the corresponding quarter last year. In the quarter, we had a reduction of 1 year, but we have raised 2.4 years compared to Q1 last year. Variable profit now in the quarter is 9.1 million. Last year it was 9.7. and the reason it is slightly lower is due to the loss rates. The cost is 18.5%, which is very much in line with 18.4% in the corresponding quarter last year. The losses come in at 37 million, which is down from 55 million last quarter, but an increase in relation to Q1 in 2024. The individual loan losses are just under 30 million. It is roughly the same level as both in Q4 and Q3. The bank stated only 100,000 in losses in the quarter, and this is linked to an engagement that has now been resolved. EPS-wise, we end up at 2.16 kroner. That is in line with last year, but then up from the quarter. If we look in detail at the development in interest rates, it is the growth that is the biggest positive contribution. we have some reduction in margin. It is a combination of sinking market interest rates, some changes in the treatment of peak interest rates, and some other effects that sum up to 7.7 million. The activity-driven fees, as a result of the high activity in Q4, increased the interest rate netto by 7.1. And then, as I said, we collected a lot of income. This surplus liquidity and deposit volume is collected, where we have taken the income that we have not borrowed and put it in the obligation portfolio, liquidity portfolio. All in all, it gives a negative contribution of 9 million now in the quarter. We also pay marginally more on the income. This means that we lose 2 million more. And then there are two lower interest rates in Q1 compared to Q4, which means that we get 5 million less in interest income, and nothing else. If we look at the margins over time, they are relatively stable on the outside loan side, while we continue to see the current pressure that we experience on the inside loan side, and now in the quarter reinforced by the fixed interest campaign we ran. If we look at the loss costs, the loss in the quarter is still high, but in line with what we communicated also at the previous quarter's announcement. Fortunately, we see a decline in the quarter in Trinn 3. Although this, of course, can swing from quarter to quarter. The decline was 198 million. In spite of that, we increase the deductions to Trinn 3 volume under 30 million, or 15%. This means that we have a higher ratio to RIN 3 volumes than we had last quarter. We do this because we think it's right. As mentioned earlier, it takes time to work through the problem engagements. I think it's okay to underline that again. The individual losses of 29 million are, as I said, in line with the 31 million we had in the previous quarter. And it is only 100,000 that we see in losses, which is the result of an engagement that has already been initiated. The capital, if you look at pure core capital, was relatively stable from last quarter, down by 5 points, as the income compensates for the increased growth. We talked about the capital goal at the previous quarter presentation. And in the aftermath of that, the board, in connection with the annual report, set our capital goal to 16.3% in line with the supply expectation. This means that despite the fact that the pure core capital percentage is relatively unchanged, our buffer to the requirement has increased significantly throughout the quarter. The bank will continue to keep a buffer above the requirement, but the buffer can also not be too high if we are to reach our raw ambition of 15%. Next quarter we will report to CRR 3. And there is still uncertainty around how CRR 3 will hit the bank. Technical standards are not completed. But we continue to believe that in the end, the effects will be neutral to something positive for our pure nuclear capital.

Then I will give you an update on business areas and tell you a little about market views. I start as usual with a overview picture. The total credit exposure was 26.5 billion at the beginning of March. Housing development is still the largest area, accounts for over 40%, and the snow is 11 billion. And then there is company financing with 7.1 billion and 27% of the total. Then we have finished housing with, as shown here, 14 percent, 3.7 billion, economy, 11 percent, 2.8 billion, and finally shipping financing with 7 percent of the total exposure and 1.8 billion. In this picture, we show the growth in exposure from quarter to quarter. Our growth rate last year was higher than ever. This gave strong growth, especially in the fourth quarter. This led to us starting 2025 with a high focus on capital and priority of customers. However, and as expected, we got an exposure increase in both housing development and finished housing for sale and rental. In housing development, the exposure was up by around 1 billion, and in finished housing, the exposure increased by 350 million. we got some volume in terms of business units, business areas and shipping financing. This was due to this focus on capital as well as loan relief and repayment of loans. I'll link some comments to each area. I'll start with housing. Here, the total exposure was 14.6 billion,---divided between mortgages, building loans--and what we call residential. We got growth in both areas, as you can see from the figure. The room for growth in housing development in the future is still relatively large. There are few start-ups and low activity in this market. Our net growth is also affected by the completion of projects and the incoming loan relief in the bank. We expect a couple of big reliefs in the second quarter. All in all, we believe in moderate growth in exposure, and a low growth in expenses in the second quarter. We still see a high entrepreneur risk. It is perhaps the sector in the Norwegian economy that is most directly affected. There is low activity, thin margins at the starting point, and there has been a strong cost growth. We follow the entrepreneurs we have in the ongoing projects closely, and of course make thorough assessments in connection with new projects we give credits to. In the long term, we think there will be a change in the market when the price difference between new and used houses decreases, and also with a drop in interest rates. In the business sector, the exposure was 2.8 billion at the beginning of March, and we had some drop in volume in the quarter. That was expected. The outlook for the interest rate cut has declined, and long interest rates have risen. This means that the expected increased activity in the transaction market is withdrawing in time. We still have a low appetite for the area, and we see a weak volume development within the industry in the second quarter. Then the business area. Here we had record high activity and growth in the fourth quarter, and then we got some decline in exposure in the first quarter. This was due to the fact that we received a handful of larger loan exemptions. In the future, we expect even demand and activity, and then we also see some loan exemptions in the second quarter, so we expect a flat volume ahead of the half-year shift in the business area. Finally, Shipping Offshore. Here it was the total exposure of 1.8 billion per quarter shift, and the distribution of the different market segments is shown in the figure. In total, we believe in a flat to weak falling volume in the second quarter. The competition in offshore has increased. This also hinders our growth prospects. The offshore market as such is doing well, driven by good demand and low supply-side growth. And a potentially lower age price could lead to lower demand for tonnage in the long run. When it comes to shipping, we have a low appetite for the moment, and we also see a slightly reduced demand. Most of the segments are high in the market cycle for the moment. The shipping market in general could be affected by trade wars, if it really takes place, and lower global economic growth. So, in summary, flat to falling volume in this area before the half-year shift. As we all know, the general market demand has increased, and higher uncertainty can lead to a slowdown in investments, and it can dampen the demand after financing. So far, we have not experienced this specifically with some of our customers. We are long-term, building rock on rock, and that has created value and also given a good total return to our shareholders. We have two long-term ambitions, which is to create a one-capital transfer after tax of 15%, and to share an exchange rate of at least 50% of the annual surplus. On April 14, we paid an exchange rate of 4.15 kroner per share, corresponding to 50% of the surplus for 2024. So with that, we have gone through the quarterly report for the first quarter. And then we are ready to answer questions. And we have both questions, perhaps in the chat and in the room. We can see if there are any in the room first. There is one.

Thank you. Herman Salt from Pareto Securities. You mentioned that you have to prioritize capital in the quarter. There is a strong focus on how you prioritize your capital. It is at 17.1 marginally. In the end, you have taken down long-term capital goals and applied the Swedish capital requirements. When you prioritize like this, do you feel that there are more you would like to say yes to, that you have to prioritize away because of capital?

The situation now is different from what it was at the beginning of the year. As you are aware, the capital goal has been lowered. But we had to have a strong priority through the first quarter. And that means that we also had to prioritize existing customers and say no to some transactions. It is like that to run a project bank in between, that the volume can swing a little, and we got a very strong growth right at the peak of the fourth quarter, which might normally have spread over a slightly larger period, which made us have a higher capital focus in a period, and that is an obligation and an important task when running a bank, that you always make sure that you have a good buffer in relation to the goal. Would you like to add anything else?

We see that this is a measure that we have implemented in Q1, and that the situation looks completely different in Q2. We increased our expenses by 151 million, and the exposure value is considerably higher, also in Q1, in spite of these measures.

So the exposure is up to 800 million in the first quarter.

And since you want to have a buffer for this long-term goal, is that buffer as big as the new goal and the old goal? I may not know exactly how big the buffer is, but has it moved down similarly?

We have an extra insecurity in relation to CRR 3, which makes it difficult to move very close to the demand. At the same time, our expectation is that CRR 3 in the quarter will also give a neutral to no positive effect. So we... It could potentially have a slightly higher buffer, but to a potentially lower requirement, if you start speculating.

When CRR 3 is settled, and especially when it comes to housing development, which is important for us, we might be able to keep a slightly lower buffer than in a transition period.

But it is important that we are conservative, given the information we have, and that we are dynamic, as the bank historically has been to adapt.

And on the degree of offset in step 3, it seems that there is some migration from step 3 to 1. Can you tell us a little bit about the type of exponents?

Generally speaking, there are some major commitments that apply to Plan 1, which has not done this before, where several of them were in quarantine in the previous quarter.

Thank you. Of course, it's what you think is reasonable. But are you more comfortable with the higher degree of assessment than you were last quarter?

We always try to set the rate level we think is right. We thought the rate level we had last quarter was right, and we think the rate level we have now is right. But everything else is the same, we have higher rates in relation to the same nominal kroner for kroner in step 3. We think it's just as correct. But from a macro, incomprehensible perspective, we have a higher degree of assessment. Thank you.

Any other questions from the audience? We'll send you something in the chat.

Nothing in the chat so far.

No one is burning with anything? That's the question, yes.

This is Kolberg from Kolberg Motors. Can you say something about the possibilities and the level of ambition in the Swedish market?

Yes, we have been present in the Swedish market for over 10 years. We started by following Norwegian customers to Sweden, built an experience and saw that there is a need for our way of running with project financing that is not so well covered in the Swedish market, so it's a little short background. The exposure has now increased to 2 billion 835 million, and we had a strong growth throughout last year. our ambition is to build this stone by stone, as we have done in Norway. We are proud that we are entering a new market, and there are other rules to use such an expression. We have a subsidiary permit, we have an office there now, with three people who have long experience from here, and who now work over there. Financially, we want every credit we make in Sweden to have a one-capital deposit of more than 15%, and we have not set a volume goal. It is profitability, the right customers, the good quality that is decisive, and not a volume goal in itself. That is the journey we have embarked on, which we think is exciting. We think there are good opportunities in Sweden.

The market is 50% bigger there than here.

It's a much larger market. Yes, and the banking structure is attractive for us. You have the big ones with attractive conditions. The big customers. And there are few specialist banks that make it exciting. It's also a market that... enjoy the fact that the interest rate is going down, and there is a little more transaction activity, activity in general. So it gives us a leg to stand on that can be beneficial.

Are the Swedish markets as interesting as the Norwegian?

What can I say? There's a reason we're doing this. We think it's interesting. Norway is our home market. But we have ambitions in Sweden and think it's an exciting market. It could also be in the business sector, but we have to take it step by step.

Thank you. I would like to add an additional comment. When we in the quarter have changed the capital goal, the change is that we use Swedish buffer requirements in Sweden. When we price loans in the market, there is no change for the Norwegian operation. While the Swedish operation, where we have built 2.8 billion in foreign loans, we have done it on Norwegian capital demands. In the future, you can possibly build more, if we get more volume, on Swedish capital demands.

Good. No further questions in the chat.

We are very clear and clear.

Quiet, yes. Okay, then I think we round off. Thank you for coming and thank you for good questions.