Pareto Bank ASA

Hello everyone. Welcome to the second quarter of the year. We start with the main attraction in the accounting. After that, the CEO of the bank, Vegard Tovre, will give us more details. Then I will give a status on our business areas and comment on market views. As usual, we will answer questions at the end. For those of you who participate digitally, just send questions in the chat to the meeting. Pareto Bank received a tax return of NOK 207 million in Q2. The result was a self-inflation after taxes of 15.1%, in line with the bank's long-term interest rate of 15%. The net income increased to 319 million, and the total net profit ended at 19.2 billion. After high activity and strong growth last year and into the first quarter, we had a decline in the volume of payments in the second quarter. The average volume of payments in the second quarter was around 1% lower than in the first quarter. The decline was due to the lack of new credit commitments and a large volume of loan exemptions. We are now experiencing increased insecurity, a decrease in risk and investment will and therefore activity among customers, and the new housing market is still weak with low demand, and few new projects are being launched. We are a project bank, and we are dependent on activity for growth. The sum of deductions and loss of outlay ended at 17.1 million in the second quarter. The individual deductions amounted to a total of 31.3 million, and are still primarily within housing development. As I said, this market is still weak, and we repeat the message that it takes time to work through the demanding projects. We must therefore assume that in the next quarter we will also be able to see declines and losses abroad at a higher level than what has been normal for Pareto Bank. In the second quarter, we expect capital coverage for the first time after CRR 3. The introduction of CRR 3 has had a positive effect on the bank's capital position, and Vegard will come back with details about this. Here you can see the development in central key figures for the last five quarters. The self-inflation after tax was 15.1% in the second quarter, in line with the long-term profitability ambition, and up from the first quarter and the same period last year. The strengthened profitability was mainly due to lower net sales. Sum of deductions and outloans was 0.09% of net and outloan. That is down compared to the four quarters we are comparing. However, the individual deductions were 31.3 million. That was about the same level as for the last quarters. We got an increase in net capital coverage. It ended at 19.9% by the half-year shift. The increase is due to retained surplus, a lower loan volume, and the introduction of CRR 3. By the half-year shift, Pareto Bank is very solid and has a large growth capacity. Operational efficiency is still good, expressed by a cost percentage of less than 18.3%. I'll give you a quick overview of the forecast for the second quarter, and then Vegard will come up with more details.

Thank you, Tyrell. If you look at net interest rates, they increased by 16 million compared to the corresponding quarter last year. This is through foreign loan activity and foreign loan volume. Compared to the previous quarter, the increase is 4 million kroner, of which 3 million is one more day of rent. The outlay volume in the quarter compared to the previous quarter is on average 1.4 percent, but at the end of the quarter we are down 7.7 percent compared to the end of Q1. This is something I will come back to on the next page. In this quarter, we are accounting for 5.3 million in value changes. Reduced credit claims in the liquidity portfolio amount to 9.9 million. The answer was 8 million last year. This is more than a boost for some lower values on our own established obligations and on our own fixed interest rates, which we have as an incentive. In addition, it can be good to note that we have gone out of a swap agreement in the quarter, and this results in an excess of 4 million in positive market-to-market profit. We have a high interest compensation also in this quarter, but very much in line with the previous quarter, and this is interest compensation that we get on the currency swaps, which we talked a little about in relation to the Q1 result. The cost per quarter is up 11.7% compared to the corresponding quarter last year. The number of years in Q2 is stable, but up 1.7% compared to last year. The return on variable profit in the quarter is 11.6, which is something up from the 9.8 we had in Q2 last year. This is related to the profitability in the quarter. The cost rate is 18.3%, as Tiril mentioned, and this is in line with the previous quarter. The losses in the quarter are 17 million, which is down from 37 million last quarter, and the big driver for profitability preparation in the quarter. The individual losses are on the same level, while the model-based losses are down due to lower growth, or negative growth, and some MX changes. In total, we end up with an EPS last quarter of 2.44 kroner, which is an increase of 13.5 percent compared to last year. If we look at the interest rates in detail, they are up compared to last quarter, with 3.6 million. That is marginally more than one day of interest, which we have here at 2.7 million. If we look at our average balance in Q2 in relation to the average balance in Q1, it was down by 1.4 million. This contributes negatively to 6.4 million. But as we have seen at the end of last quarter, we are down by 7.7%. So we have to be able to expect pressure on the net income in Q3. We also have relatively high FI or GBI revenues that we book in the interest rate net in the quarter, and these will be able to vary and swing from quarter to quarter. So also at this point we can get a little less contribution next quarter. In spite of a decline in the balance sheet on revenue, the average revenue in the quarter was 3% higher, which gives us a negative contribution of 4.4 million kroner. These 4 million negative and lower volume on the foreign side must then be compared to the 4.7 million we have in increased income on the liquidity portfolio, since we instead place our money in the liquidity portfolio. If we look at the margins, they are relatively stable. We have a small increase in external margins, but here we have to add that this is also linked to the gains, which are a bit higher in the quarter. So at the starting point, we think of them as more flat developments. We also see continuous pressure on the interest side, but relatively flat in the quarter. We, like other banks, have announced interest rates on both interest and loan. It will be exciting to follow up on the competition picture in the future, and how it will affect these margins. If we look at the loss cost, the loss cost in the quarter is low, but is driven by lower model investments. If we look at the individual investments we make in Trinn 3, they are estimated at 31.3 million, roughly the same as 29.4 million in Q1, and the same level as in Q4. We have previously pointed out that it can take some longer time to work through all the difficult engagements, and we repeat that again. If we look at the volume increase in Trinn 3, it increased by 93 million, or almost 10%. We therefore continue to increase our revenues in Trinn 3, more than the volume development, and therefore increase the degree of revenue even more. The Trinn 2 volumes are in total down, and if we look at Trinn 2 and Trinn 3 together, as we do on this slide, it is a relatively flat development from quarter to quarter. And we do not see any losses in this quarter either. In the quarter, we have introduced a new risk classification model, without this having had any mathematical effect. This is, however, a very exciting summer lecture for those who like to read notes in this quarter. We are very well capitalized. If we look at the change in pure core capital from last quarter, then the income in the quarter increases our pure core capital by 0.3 percent points. The reduction we have in loans and thus the reduction in the calculation basis, makes that we increase pure core capital by another 1.1 percent. In Q2, EBA published its final report on how to look at ADC. This clarifies the rule for us, and in total, when we look at all the changes, we have a positive effect that explains most of the remaining 1.4 percent points. We get this positive effect largely from operational risk, which is lower. We also have lower risk values on what is ready-to-use for rental. This means higher risk values on the development of business, and a higher conversion factor on loan payments. We have therefore now a historically high margin for our capital goal, which is relatively unchanged at 16.3%. We also have a presently high leverage ratio, now at 17.0%, up from 16.6% last quarter. And with that, I thought I would give the floor back to Tyril, who will talk about the different areas and the prospects for the future.

Great, then I will give an update on the business areas and tell you a little about market views. I start as usual with this overview picture. The total credit exposure was at the half-year shift of 24.6 billion. The distribution of the various business areas is shown here. Housing development is the largest with 45% and then follows the company with 27% of total credit exposure. We have already commented on the decline in the loan volume in the second quarter. In this picture, we show the development in credit exposure- from quarter to quarter, per business area. After a strong and good activity and growth last year, in 2024,- we started the first quarter with capital discipline. In the first quarter, we got an exposure growth of almost 800 million,- We also had a decline in exposure in the second quarter of 1.6 billion. We can see here how the development has been from quarter to quarter. We have expected a decline in ship financing and also in business units. We had a strong deal flow in the business area through the first quarter and into the second quarter. Here we had some leverage, and we got more loan exemptions than we expected in the second quarter. This explains the decline in this area. We also had a decline in the category we call residential. Here we had a strong growth in exposure in the first quarter. This growth was linked to financing of townhouses, where the purpose was to establish housing laws for sale of properties. This is in Oslo, and these properties are selling rapidly, which means that the loans are being deregulated at a rapid pace in the bank, and this explains the decline in this category in the second quarter. And then we got a small growth on our core area, a growth of 100 million in the second quarter. In the last 12 months, the exposure is up by around 770 million. At the same time, we have had a decline in the volume of loans, and that came in the second quarter. So we are now experiencing some different developments in credit exposure and in loan volume. And the difference is linked to what we call unused credit frames. Sum credit exposure consists of a sum of payments, a sum of unused credit frames and guarantees. For us, this is primarily about building credits. When we choose a building credit, the entire loan amount or credit goes into Sum Kreditexponering. Then the building credit is opened first when the bank's conditions for opening are in place, where the most important thing is the prerequisites. When the loan opens, the loan is gradually raised in line with construction at the construction site, and then it materializes into foreign growth. This is the explanation of the difference between exposure and foreign loan, which is a typical approach to project financing. We see this more clearly now than we have done before. Then I will link some comments specifically to each area, and I start with housing. Here we also got an increase in the volume, in the volume of exposure to 100 million within housing development, and then we got this decline in residential or finished housing as explained. For the third quarter, we expect flat exposure development and some decrease in the volume of expenses. The area for growth in housing development is still relatively large. There is a market with low demand for new homes and few projects that are being started. The growth is also affected by when running projects are completed and belonging loans are included in the bank. This affects the growth, and as I mentioned earlier, we see that it takes some time before the customer meets the bank's requirements for pre-sale. This means that the pull under the building loan takes time compared to a good market. the interest rate cut in June can have a positive effect on activity. We do not think we will have any particular impact on that in the third quarter. Here we had some volume declines in the first quarter, and we expect that the weak development continues. There is very low transaction activity, and in spite of the interest rate cut in June, the prospects for long interest rates are still high. We have low risk appetite and low demand for the moment. Here we got a decline that showed from 7.1 billion to 6.6 billion. We have had and have a strong deal flow in this area, but got some stagnation in the second quarter, and we also got more loan exemptions than expected in the second quarter. We expect a flat development in the area in the third quarter, where we are also familiar with several loan exemptions in the quarter ahead of us. We also experience some lower risk-investment willingness due to a generally high market anxiety. And finally, shipping financing. Here we got, as expected, a decline in exposure, and that is linked to loan exemptions, withdrawals, and also a deal flow that is weak, especially on shipping. We do not have good access to loans that meet our quality requirements. And within offshore, the competition has increased in the last few quarters. When it comes to market development in offshore segments, this is still good, driven by a robust demand, but it is clear that a further drop in the oil price will have a negative effect. And within shipping, there are uncertain views. The introduction of 12 possible trade wars and an increased geopolitical worry are involved in having a negative impact on these segments. We now experience some lower activity as a result of increased general uncertainty. The new housing market is still weak. At the same time, a cut in interest in June could have a positive effect on activity, but we think it will take some time. We continue the long-term work of building a robust portfolio in Sweden, and see good long-term opportunities in that market. In summary, this means that we are waiting for a relatively flat development in the credit exposure in the third quarter, and some decline in the volume of loans. Vi er langsiktige, vi bygger sten på sten, og vi prioriterer alltid lønnsomhet og kvalitet foran vekst. Så da har dere fått en gjennomgang av tallene, og litt mer oppdatert informasjon på markedene våre. Så da er vi klare for spørsmål, Vegard. Vi kan jo starte i salen.

Yes. I thought I would start on the interest net, Vegard. You mentioned that there will be some pressure on it in Q3, and then I understood that you mentioned 1.6 billion down, and then you are going to go flat, maybe a little down on the loan rate side in Q3. If you just do simple math on it, you would say that the interest rate will go down quite a bit if the interest rate is the same as the 1.6 billion euro rate earlier. Should we just quantify that a bit, if possible? Are we talking about 20 million? You don't have to say the number, but are we around there, or is it too high to believe that, and just that effect?

Yes, here you have to be allowed to put the lines under the answer itself. But if we take the starting point in the numbers we have talked about now, then we have a decrease of 1.4% if we look at the average. And if we look at what we end the quarter with in terms of spending in relation to the average, then it is a decrease of another 3.3%. And then you see in the notes on interest rates, we have broken interest rates, so if we just take out loan interest rates and reduce them by 3.3% and say that we are flat on out loans in the third quarter, as a starting point for the figure, then you would take out 17 million from the interest rate income side. But at the same time, we want to either place it in liquidity portfolios or reduce the loan costs, so the 17 million is in a way a very small amount that does not get you goals. So if we take the starting point in our interest net, If you do the same on the interest rate net, you get a reduction of around 10 million in the quarter. If everything else is the same, the outlay in the third quarter is where we ended the second quarter, without any other change.

That's very well understood, Vegard. And then I think a little about the capital side. Almost 20% here now. Q3 is where you win the most capital. What do you think about exchanges and how do you think about that towards the end of the year? Is the plan for Q4 that the growth should come up again? How should we think about that?

I think we have to wear long-term glasses. We are a project bank, and the volume can change. It's the first time we've seen such a big variation, as we've seen from Q1 to Q2. But we have to wear long-term glasses, and activity is of course crucial for growth. Furthermore, it's okay to remember that we have a long-term ambition in Sweden about having capacity for growth there. At the same time, our main goal is to deliver these 15% in tax evasion, and that means that we allocate the capital. So the board will, in a way, consider at some point whether to allocate surplus capital, which our exchange policy opens up for. But again, it must be balanced, and you must also be long-term, and not just think from quarter to quarter.

That leads me to my last question. Could you give us an update on Sweden? What is the status there versus Norway?

We had this special entry into the second quarter, where we had strong capital discipline in the first quarter, and that was due to all business areas, and that means that the activity was taken down, and then it is taken up again. Specifically, in terms of volume, there is a weak increase in the second quarter when it comes to Sweden, and we see good activity there in the long term, and then we believe in a careful growth in the second half of the year in that area. We now experience that the other banks are a little more screwed up than they were last year, but that can change a little. But in the long run, we have a lot of faith in the opportunities in the market, and again, we build stone by stone, as we have consistently done, and allow ourselves to control the ambition of good profitability and allow ourselves not to stress.

Thank you.

Herman Sahl from Pareto Securities. I have a few questions. First of all, regarding the investment coverage, since the volume is so low, it is now over 70%. And a little outflow from large customers in the company. Was that what was expected seasonally? And we expect that you are satisfied with the nominal volume you have on the intake as well. And can you comment a little on what you have announced, or make a big move on pricing there now? Because you have relatively, or in a historical context, quite a lot of long inputs that you have aimed for now. So what do you do with the short inputs on pricing and so on, when it is so high?

Yes. I'll start at the top of the list of questions. I think we still have too much information. We always have to balance our funding in relation to foreign needs. But P&T, we are also liquid. You see that on our LCR, which is perhaps Norway's highest at the moment. So we are not completely optimal in relation to compensation. When it comes to price changes, we have proposed price changes. We have a price list on our website that is fully accessible. You can also check the history on the financial portal. There you can see the changes we have made. We are also following the competition picture in the future. I said it would be exciting to follow up on the competition picture. This applies to both the foreign side and the investment side. For our part, who do not have so many salary accounts from private individuals, we are more dependent on how the competitive image moves on the savings side. It will be exciting to see in the future how the dynamics in that market will be.

And then on the increases in the individual revenues, pretty much at 31 million, pretty much as it has been in the last quarter. Then it looked like the business segment, a little increase there, also a little lower on ownership in step 3. Is the typical company exposure also linked to ownership?

Generally speaking, it is on ownership, and especially on ownership development, that we have the largest number of problem engagements. At the company, we generally have very few problem engagements, so it becomes very individual on the few challenges we have there. So there are no trends that we can read from the numbers in the quarter.

On the annual works, the two that you are going to work with in Q3, can you tell us what kind of annual works there are, and if there are elements of in-sourcing in the assignments?

We can say exactly what it is. We are increasing the time for business financing with one person, because it is a large portfolio now, which both requires good customer follow-up in the running, and to always have a good and sales capacity, then it is right to strengthen that team. And then we employ one person on business support IT. And we haven't done that for many years, so that team goes from two to three people. This person will work a lot with the power line and improve how we use the Tieto Evri platform to support our loan process from A to O. We are now a bigger bank than ever, and it is important for us to take advantage of the technology we pay for, and we need to standardize and simplify a number of reporting tasks where we can, and there we have a potential, but we also need the competence to solve that potential.

Last but not least, it will also have a special responsibility to build a good system solution in Sweden.

Yes.

Thank you. Can we see if there is anything in the chat in the summer heat? It's too warm out there. I think so. Are there any more questions in the room? Then we thank you for the meeting here and the meeting for those who have participated digitally on perhaps the most beautiful, warmest day of the summer. And then we wish you all a good