Pareto Bank ASA

Welcome, everyone. Welcome to the third quarter of the third quarter. We start with the main features in the accounting. After that, the CFO of the bank, Vegard Toverud, will give us more details. Then I will comment on business areas and market views. As usual, we will answer questions at the end. For those of you who participate digitally, you can send questions to the meeting chat. In Q3, Pareto Bank received a net profit of 176.8 million kroner. The net profit was 13% and was lower than our long-term investment of 15%. Net income was 287.2 million kvartals, 26 million less than in the same period last year. The main reason for the decline in the net income was a lower loan volume. The sum of the loan ended at a snowy 19 billion kroner at the beginning of the quarter. That was 266 million kroner down from the half-year shift. As expected, we received loan exemptions and had fewer new credit commitments. Sum of deductions and taking out loans was a total of 15.1 million. The model-based deductions were down by 10 million, primarily due to a lower loan volume. the individual deductions increased by 16.6 million. These were mainly within housing development. It was also found to have lost the corresponding 8.5 million in the third quarter. In this picture, we show the development in central and key figures for the last five quarters. It is natural to focus on the net income. It was 287 million in the third quarter, and was down by 26 million compared to the third quarter last year, and down by 32 million compared to the second quarter this year. We received, as expected, benefits on business and offshore, and at the same time we had fewer new credit commitments. The loss percentage was 0.08% of average net income. This is about the same level as in the second quarter, and lower than the previous three quarters. Nevertheless, and in light of an increasingly difficult new housing market, we must expect that mortgages and losses in the next few quarters will be at a level that is higher than what it has been historically for Pareto Bank. A lower net income, as a result of a lower loan volume, of course has an effect on the result. The result in the third quarter was shown here at 176.8 million. It is marginally up from the same period last year, and it is down from the second quarter this year. Expenditure volume was down in Q2 and Q3 this year, and that is what we now see the effects of on net income and results. The profitability in the third quarter was 13%. It is now lower than the same period last year, and lower than the second quarter this year. The profitability in the second quarter this year was an artificial high. We explained this in connection with the fact that we proposed a part-year plan for that quarter. Then we got a small increase in the cost percentage. This was also due to a lower volume of payments. The operating costs in nominal kroner is somewhat lower in the third quarter than in the first and second quarter of the year, and slightly higher from the same period last year. Pareto Bank is very solid at the quarter change. We have a pure core capital coverage of 21.3%. The increase from the half-year shift is due to a decrease in volume and a good profitability. At the moment, we have a lot of growth capacity. You've had a look, and Vegard will go into more detail.

Thank you. As mentioned earlier, we have a reduction in net interest rates in relation to the corresponding quarter of last year of 26 million. This is largely due to the volume of expenses, but also some pressure on margins, which I will get back to on the next page. On other revenues, we account for a total of 6.5 million in loss of value in the quarter. The biggest explanation for this is our fixed interest rates. When we lower the interest rates on fixed interest rates, we get a loss of value on our existing fixed interest rates. At the same time, we also have a 4 million profit on interest savings in the quarter, where we swap from fixed interest on our fixed interest income to flowing interest. So we have 4 million that will partially compensate for the reduction in interest netto. We also have a high rate compensation for our currency swaps. This contributes to the level of responsibility we've seen in the previous quarters. On the cost side, the cost per quarter is only 2.6%- compared to the corresponding period last year. Underlying cost inflation is higher. The year-to-date number, 8%, is more of an indication of where we are. A little of the reason that the costs are down compared to the previous quarter is our surplus order. We have 8.8 million in surplus division, which we book in the quarter. That's down from 9 million in the corresponding period last year, and down from 11.6 in Q2. So in spite of good cost control, the cost income increases up to 19.4, and that follows the reduction in the top line. The losses for the quarter are 15 million, which is down from 31 million last year, and we will get back to that later. But as mentioned, it is model-based reduction that affects this quarter as well as the previous one. In total, our profitability ends at 13%, and we have an EPS of 2.13, which is a bit up from the period last year, when the loan was founded. If we look at the slide that may be most important for the quarter, which explains the change in net income between the previous quarter and this quarter, we see that the largest component is growth. If we go back to the previous quarter, our volume was down by 7.7% at the end of the quarter compared to the start of the quarter. At the same time, the average volume in the quarter was only down by 1.4%. In this quarter, it is a bit the opposite. The balance at the end of the quarter is down by 1.4%, while the average loan volume in the course of the quarter is down by 6.9%. We get the effect of the balance change we had in Q2. If we look at lending volume and fee income there, it is a total of 46 million. If we look at a 7% or 6.9% reduction compared to last year, it explains around 36 million. We commented on the fee income in Q2 that it was slightly higher, and that it varies from quarter to quarter. This quarter, the interest income that we book on the interest net will go back and explain the majority of the corresponding reduction. We try to adjust the balance to the reduction in the loan volume. Therefore, the reduction in interest the reduction in market funding, and also the increased income on the liquidity portfolio, which in total is 19 million, is seen against the effect of reduced volume. The remaining effect, in addition to an extra day of interest, is what goes on margin. In total, we have a reduction of SEK 7 million per quarter, as a result of pressure on the margins. Here, lower interest rates are allocated to the foreign side, but it is more likely that the pressure will come on the foreign side, which we will show in the next slide. And remember that the compensation we get on the fixed interest rate for our floaters does not come on the net interest rate, but comes as a profit on other income. If we look at the margins, the exit margins are relatively stable, and our income margins are under pressure. We swap the cost of fixed interest rates, but we fix them with three months of continuous lag, which means that in a period with repricing, as we have now, we will get lag effects on our interest rates below. On both the foreign side and the investment side, we have had the effect of interest rates changes that were announced in August. And we have announced further interest rates changes, like most other banks, which will also affect the interest rates in Q4. If we look at the losses, the loss rate in the quarter is low, but is driven, as in the previous quarter, by the reduction in exposure and therefore the reduction in model investments. If we look at the investment in Trinn 3, it's 16.6 million, which is net. and lower than the level of around 30 million that we have seen earlier in the quarter. This is due to the entry of a number of exposures in Trinn 3. So if we look at what we take in new deposits on Trinn 3 investments, they are around the same level as in previous quarters. I think it's okay to notice, since we now have two quarters with lower losses, without necessarily seeing the same trend in the underlying development. There will be variation here from quarter to quarter. If we look at the volumes, the volumes in section 3 are somewhat lower in the quarter. At the same time, the volume in section 2 is increasing by 180 million. Despite this, the return to section 2 engagements is somewhat lower. This is because we have a lower risk of what is in section 2 this quarter than in the previous quarter. We have also made some minor adjustments to our macro scenarios. The most important one is that we have seen a slightly lower development in housing prices in the long term. In total, the macro adjustments amount to 2.3 million in the quarter. Finally, we can take some details on the development in pure core capital or capital coverage. We have good profitability in the quarter and it builds 40 points. In addition, the reduction in volume and calculation basis is another 70 points. We reduce a little on our liquidity portfolio, which contributes further with around 10 points. And then we have some other smaller effects that in total make up 20 base points. We are then in total at 21.3 percent in pure core capital, approximately over our requirement of 16.3. If we look at the leverage ratio, we are up to 18.0% from 17.0% last quarter.

Then I will give an update on business areas and tell you a little about market views. I start as usual with a overview picture. At the beginning of September, the total credit exposure was 23.5 billion. And the distribution in the different areas you see here. In the next picture, we show the development in credit exposure from quarter to quarter per business area. We had a good growth in exposure in the first quarter. It increased by 800 million. Then we got a decline in exposure in the second quarter, and it continued in the third quarter. The exposure was down by 1.1 billion. The volume decline came as expected from shipping financing and operations, and we also got, as expected, a flat development in volume on business units. Then we got an increase in exposure to 200 million in the category of finished housing, and then we got a decline in exposure to housing development of 1.3 billion. I will now elaborate on each area, starting with housing development. Here we got a decline in exposure of 1.3 billion when we look at the financing of housing construction and non-financed housing. When we released the forecast for half a year, we said that we were waiting for a decline in the volume of loans, and then we were waiting for a fairly flat development in credit exposure. The conclusion was different when it came to credit exposure. There was a decrease in the volume. There are three reasons for that. First, the opening of a handful of large construction loans was postponed. They were postponed to the fourth quarter, and some to the first quarter next year. Secondly, there was a large construction project in Oslo that was completed in the third quarter, while we were waiting for it to be completed in the fourth quarter. Finally, we had fewer new credit commitments in this area. The housing market is still very weak. The production of housing is low. There is a big price difference between new and used housing. This weakens the activity in this market. This also causes lower credit demand in the bank. We also now experience that it takes longer to meet our sales requirements, which should be in place before the building loan is opened. This means that opening and withdrawal under building loans are postponed. The speed of circulation in this portfolio is also high. It is difficult for us to predict exactly when a single project will be completed with the corresponding deregulation of financing in the bank. In summary, this means that for the fourth quarter, we still expect some decline in the volume of loans, and we are unsure of how the credit exposure will develop. So it is of course positive with interest rates both in June and September, and gradually it will have an effect on the housing market, but we do not think it will have any particularly strong effect for our part of activity in the fourth quarter. Transaction activity and investment will within the business sector is low, and in spite of interest rates in June and September, the prospects for long interest rates are high. This also means, for our part, low financing demand and low appetite. We expect a flat volume in the fourth quarter. In the third quarter, we saw a drop in volume. This was due to the materialization of the loan exemptions. We have a good deal flow in the company. We have also seen more loan exemptions in the coming year. This means that we think the volume will rise in the fourth quarter. Ship financing. We also had some volume losses. We have had higher competition on offshore. We have communicated that in the last few quarters. And there has also been low activity and investment in shipping. Now we see increased interest, better deal flow for this area, and therefore we expect some increase in volume in the fourth quarter. The offshore markets are doing well, there is good demand, low supply side growth, and of course a drop in the oil price can negatively affect market development. On shipping, it will also be so that increased geopolitical uncertainty can frame the market. There is also some high supply side growth in some of these segments. But collectively, we have increased interest and now expect some volume increase in this area towards the year shift. In summary, we see a stable development in credit exposure in the fourth quarter, with some decline in the volume of loans. The room for growth in housing development is currently quite large. We continue to work on building a robust portfolio in Sweden, where we have good activity at the moment, waiting for the volume to increase in the future. And as I said, we also see some volume growth or some volume increase in business and ship financing. At Pareto Bank, we are long-term, we build stone by stone, and we always prioritize profitability and quality over growth. So with that, you have gotten some insight into the forecast for the third quarter, and then we are ready to answer questions, both from the hall and possibly from the chat to the meeting. We can maybe start in the hall. If anyone has any questions?