Pareto Bank ASA

Welcome, everyone. Welcome to the fourth quarter of the year. We start with the main features in the accounting. After that, the bank CFO, Vegard Toverud, will give us more details. Finally, I will give a status on our business areas and tell you a little about market views. We are happy to answer questions. Finally, for those of you who participate digitally, you can send questions to the chat. Pareto Bank received a tax return of NOK 675.6 million for 2025. The result was a decrease of 2% from 2024, as a result of a reduction in the volume of loans by 9% year-on-year, and higher loss costs. Self-inflation after tax was 12.4% and was affected by both the loss costs and a strong solidity. Several of the bank's property customers are still experiencing demanding times. This also means that the loss cost ended at 0.89% of net payments last year against 0.65% the year before. In the fourth quarter, there was a large increase in the loss costs, and this was mainly due to several commitments within housing development. the operational efficiency was still high, expressed through a good cost percentage. This also means that in addition to good cost control, the costs are reduced because we have a model for surplus distribution that is directly linked to profitability. This means that lower self-inflation contributes to a lower bonus salary, and thus also reduced personnel costs. For the first time in the bank's history, the year's result was lowered compared to the previous year. The result was 2% lower in 2025 compared to 2024. We delivered 676 in the result last year, compared to 687 million in 2024. The annual results reflect the challenges that several of the bank's housing development customers still experience. On the basis of the decline in loan volume and the strong capitalization, the bank's board proposes an exchange rate of 8 kroner per share, corresponding to 98.4% of the result the shareholders arranged for last year. The proposed exchange is in line with the bank's exchange policy, and must share at least 50% of the annual results and surplus capital. Capital discipline is also important for us, and the exchange proposal also naturally follows this. At Pareto Bank, we are long-term and building stone by stone. This has created values since the establishment in 2008. Now, the corresponding 94.50 kroner per share is divided between an accumulated exchange rate per share of 26.90 kroner and recorded values per share of 67.60 kroner. Considering the exchange rate proposal for 2025, the accumulated exchange rate per share increases to 35, and the recorded values per share are reduced accordingly. Then the main attraction for the forecast in the fourth quarter. Result after tax was 119.7 million, and that amounted to an own capital after tax of 8.3%. In Q4, net income was 293 million kroner, and the total net income ended at 18.8 billion kroner. The total net income was down by 209 million kroner from Q3, as a result of expected loan exemptions in terms of housing development, business and shipping financing. In addition, we had access to fewer loans, which meets our requirements for profitability and risk. Nevertheless, it is worth noting that the average loan volume in the fourth quarter was up by 0.4% compared to the third quarter. We got a significant increase in the downloads in the fourth quarter. These made up a total of 105.5 million. The individual downloads increased to 70.9 million and were linked to several engagements within housing development. In addition, we found losses of 30.4 million, and the findings were mainly linked to one competition within housing development. With this, I have given you the main features of the annual and part-year activities for the fourth quarter, and then Vegard will give us more details. Thank you.

It is natural when we look at the key figures for the last five quarters to start with the debt losses. The debt losses are very high in the quarter, over 100 million, and on an analysed basis we are up to over 2%. This of course puts a big damper on profitability, and is the biggest explanation factor for the one-capital tax deduction of 8.3%. On the other side of the slide, we see a net income relative to the previous quarter. As mentioned, we have a cost order, which means that the bonus depends on the profitability generated by the bank. Since the loan losses in the quarter affect the profitability, this also reduces the operational costs. This comes in addition to the fact that you have a good cost control, and therefore the cost income drops to 17.2% in the quarter. If we look at the quarter up against the previous quarter, or against the fourth quarter last year, the net income is down by 18 million. This is primarily due to the reduction in the volume of loans, but also pressure on margins. Towards the previous quarter, we raised net and interest rates by 6 million. This is because we cut interest rates more than we have a reduction in interest rates. In total, we have reduced... Is there anything happening? Totalt sett så har vi redusert innskuddene våre med nesten 12% i forhold til forrige kvartal. Eller 1,5 milliarder.

Skal jeg hoppe selv? Ja.

Our provision revenues are at 3 million, against 6 million in the corresponding quarter last year, while the financial revenues are higher. They are largely related to the interest compensation on the FX swaps, which we have talked about earlier, and they are in line with the previous quarters in 2025. Our costs are down 3% compared to last year, and that is primarily due to the bonus order. In total, wages and staff costs are down 10% compared to Q4 last year. For the whole year, this also gives a low cost inflation, and we also get a relatively low cost income of 18.3 for the whole year. In total, we have an EPS for the quarter of 1.39. If we take a closer look at the interest rates, we have created a bridge that explains the change from last quarter to this quarter. We have increased activity, and in spite of the decrease in volume, we have an increase in exposure. This gives a small contribution to revenue revenues. We have an effect here of reduced intake volume, which we now see coming into the calculation. And we also have an effect of lower market funding, where we get the effect of not issuing a new obligation, and we let that go to the fore in the third quarter, as we talked about in the third quarter presentation. This also means that we have a lower liquidity portfolio and earn a little less on the surplus liquidity we have, but in total we still have 7.5 million in improvements in the quarter of balance adjustments that we do ourselves. So we talked last quarter about that we make adjustments, but when the loan volume falls so quickly, it will be difficult for us to adjust at the moment. But now we see the economic effects of the adjustments we make. it is worth noting that we still experience margin pressure. We have a decline in the margins on the foreign side of 11.5 million. We have also put down the interest rates on the investment side, but the total is still a bit negative for the bank. In total, we can say that interest rates and the fact that we have a 0.4% higher average income in the quarter goes up against that pressure, and that the improvement of around 5 million that we got compared to last quarter is due to the adjustments we have made to the balance sheet. Since this is a Q4, we can also take a step back and reflect on the development for the whole year. And if we look at the development for the whole year, we have an outlay decline of 9.4%. But the average volume in 2025 compared to 2024, we have some technical problems, is still up to 2.9%. Despite the decrease in volume in 2025, we have an increase in average volume in the course of 2025 compared to the corresponding average volume in 2024. This contributes to increasing our interest rates. At the same time, 11% increased revenue in 2025 compared to 2024, and this reduces net income. We have had a more reasonable market funding, and we have also had better return and a little more revenue liquidity. In total, we are a little up here, but then we see that we come to the end, where we get pressure on the interest rate, and on the interest rates, which offset a part of the total year. So even if we have reduced the volume of loans in the course of 2025, we get the effect of them throughout the year, as we have talked about earlier, in addition to this pressure that we also experience on the general market. Some of the same picture we see when we look at margins on outside loans and interest alone. Quarter by quarter, we maintain the margin roughly on the outside side, we have a little bit of pressure, while we have a small improvement on the interest side. The reason we have a total improvement in our margin is the balance adjustment we make. What affects the forecast to a large extent in the quarter is the loss costs. In both Q2 and Q3, we have had lower loss costs and lower than what we have experienced as the underlying risk and risk picture for some of our customers. In Q4, we have seen a significant increase in stage 3, and the individual losses follow this development. In addition, we have found 30.4 million in loan losses in the quarter, mainly linked to one engagement before housing development. In total in 2025, we have found 20 base points in losses. We have a small reduction in Trinn 2 volume, but we have 347 million or 36% increase in Trinn 3 volumes in the quarter. Trinn 3 volumes increase with 71 million, which is a direct consequence of this development. Our rate of return in Trinn 3 is now 26% versus 17% as we had in Q4 last year. In addition to the increase in Trinn 3, we also see that the loan credit risk is higher than it was a year ago. We have a very strong capital position. If we look at the changes from last quarter, I have put up the first income here with a star. That is if we had put 49% of the income, as we have done in the three previous quarters. So if we had continued with that in the quarter, we would have, in spite of the profitability that we have, down to 8.3 in Rohe, still built 24 basis points in pure core capital. In spite of the 209 million in decline in the output volume, we have an increase of 3.9% in exposure in the quarter. This adds up to around 0.5%. The board has proposed an exchange rate of 8 kroner per share, which is 98.4%. That's 132 points more in terms of revenues over the year and in terms of the hypothetical 49% for Q4. Then we have an odd point, which is related to the introduction of CRR 3. Here it becomes a bit technical, but for what is a loan to Sagn, we have put ourselves on a conservative interpretation earlier, since there has been uncertainty around the credit conversion factor. In the course of Q4, we have been able to confirm what it will be. It is more positive than what we have set the basis for, and that increases our capital debt by 45 points. Therefore, we end up including the board's exchange proposal at 20.2% in pure core capital. There is another thing that is updated in the quarter. We have strong growth in Sweden, where we have lower capital requirements than in Norway. The growth also comes from the engagement with higher risk objectives. Our collected capital requirements depend on what kind of capital requirements we have in Sweden and what kind of capital requirements we have in Norway, with the reciprocity we have. As a result, our capital requirements are reduced from 16.3 last quarter to 16.0 now in the quarter. So the buffer between what we have in capital and our capital requirements is 4.2 percent points by the end of the year. And that is a big buffer and gives us a lot of growth capacity in the future. If you look at the leverage ratio, we also have a very strong leverage ratio of 18.2 percent. The 18.2% is also included in the board's exchange proposal. If we look at the 18.2% over time, the bank has hardly ever been so solid. We have to go back to 2009, the start of the bank, before we had the corresponding high leverage ratio. In 2025, we deliver a one-capital transfer well below our ambition and not at a level where we want to be. This is largely explained by the loans, the 89 points Tiril mentioned earlier, but it is also a component of our capital position. So we have very good growth capacity, but we want to take that growth on our ambition at 15% in the future.

Super. As Vegard said, we have room for growth capacity, and that's a nice transition to the last point, where I will give you a status on commercial areas and tell you a little about market views. As usual, I start with an overview picture. By the end of the year, the total credit exposure was 24.2 billion. In spite of a lower growth rate in 2025 compared to 2024, the level was still high, with 14.7 billion through last year. In this picture, you can see the growth in exposure from quarter to quarter and per business area. After a decline in volume in the third quarter, we saw an increase in exposure to 916 million in the fourth quarter. The housing development was up by 441 million, while the exposure within the category of finished housing was unchanged. Then we got an increase within the industry. Here the exposure was up by 420 million, primarily in Sweden. On operations, the volume was flat, and on shipping financing, we got an increase of over 100 million. I will link some comments to each business area, and I will start with housing development. In the fourth quarter, we were uncertain about the development in exposure, and waited for a decrease in volume in this area. The conclusion was an increase in exposure of 441 million, while the output was down by 156 million. The exposure growth is explained by the fact that in the fourth quarter, several new building credits were required. The space for growth in this area is still large. The new housing market is weak. There is too much price difference between used and new housing. This means that the demand for new housing is low. This means that few projects are launched, so there is a low demand for financing. The turnover rate in the portfolio is also high, around 35% of the loan is paid annually. It is also difficult to precisely determine when the payments will come, because they are linked to the completion of the projects. Finally, in a weaker sales market, it takes longer for the builder to meet the bank's requirements for pre-sale. This means that opening and withdrawal under construction credits are pushed out in time. The sum of that makes us expect weak volume development and weak growth in the first quarter. In the fourth quarter, we got an increase in the exposure to the business sector, with 420 million, against expectations of a flat volume. The growth came mainly in Sweden. For the first quarter, we expect a flat to weak falling volume. There is still low transaction activity, and we expect low financing demand. Then we have the business area. Here the exposure was unchanged in the fourth quarter, against a expectation of weak growth. It was a good deal flow, but we got some more returns than we had expected, and that was due to the fact that companies we had financed were sold and the corresponding financing was then refunded. We expect a flat volume development in the first quarter. It is good activity, but there is also lower general credit demand from the companies. We saw this in the foreign investigation of Norges Bank, both before July and now, April 15. We also saw it in connection with the bank report for the third quarter. We expect a flat volume in this area in the first quarter. Finally, ship financing. We expected a small volume increase in the fourth quarter. Activity and deal flow have risen after the summer, but there is competition, and we expect a flat volume in the first quarter. When it comes to these markets, there is a healthy use of capacity within most shipping segments. Here geopolitical concern could have a negative impact, and in some segments there is increased supply of new tonnage. When it comes to offshore, demand is somewhat low in some regions, and the oil price is trending a bit downwards. A further drop will of course affect the level of investment. At the same time, there is little supply of new tonnage, so there is good balance in this market. On ship financing, we expect a flat volume in the first quarter. If we look at the bank as a whole, we can sum up and say that we expect a weak increase in exposure and a flat increase in foreign volume in the first quarter. At Pareto Bank, we have two long-term financial ambitions. With a 12.4% net capital deposit last year, we are a step below the 15% financial ambition. And of course, it is difficult to achieve when our main market, the new housing market, becomes weak. The loss level was, as we have seen, high last year, and we have to expect that in 2026, the loss costs will also be at a higher level than what has been normal for Pareto Bank historically. 15% suggest that the capital should be fully spent. Last year, we had less access to loans that meet our requirements for profitability and risk. The real estate market is weak, and the demand for loans is lower. We do what we can to strengthen the profitability. As Vegard has said, the volume of income has decreased. We have freed loans in the value-added market, and we have also reduced surplus liquidity through last year. This is part of strengthening the profitability, and with the exchange rate proposal from the government of 8 kroner per share, the government now also proposes to share surplus capital. Capital discipline is important for us, and the exchange proposal follows that. We're building rock on rock. Our main market is in a perfect storm, where several negative conditions have hit at the same time. We're long-term, and we're building a bank for both up and down times. And along the way, the share price will vary. This work requires a good bank account, thorough risk assessment, and the ability to be properly paid for manageable risk. It also requires that we learn from the difficult things, This with learning is important for us. It is something we work continuously and systematically with, so that we constantly become an even better and more robust bank. We have given you a review of both the fourth quarter and last year. We are ready for questions, both from the room and the chat. If anyone in the room has questions, we can start there. We have some from DNB.

Yes, Simenos, DNB Karnege. On loan losses, I'm just thinking about the reflections around that. Step 3 is going up a lot, there are a lot of deductions. Is it best guess that... It says over-normalized, but what is normalized and how should you think about it? And maybe there is something... You are a little exposed to loan growth in housing development. Is it too early for a comeback, or is it too early to say?

We can both answer, but I was saying that we expect that 2026 will be tough, also for housing development. When it comes to your last question, we think that we might get a change in the market in 2027. But that's not something we can say for sure, but that's how we're experiencing it right now. We do not guide on losses, and the loss estimates we come up with now are the best estimates we have based on the information we have now and what we know about the future. We have a loss rate of 89% net and out loan. If we go back to 2024, we were at 65%. In 2023, we were at 67% net and out loan. If we look at the average in the last 5 years, we are at 52 points. If we go back 10 years, 33, something like that. Just to say some levels. Something we will add, Vegard.

No, I think that's a good answer. It's difficult for us. We haven't made any mistakes. We have to look at it. The weather is roughly the same as it has been. We don't know where it will be, but we try to look at the future. The park is in continuous development. It has given some anchor points regarding its history. For a quarter like that, you can break it down a bit. As I mentioned, it's very volume driven. Let's take the 347 million and see the difference in what we had on average in Q3, which was 28%, and what was on average in Q2, which was 2%, and take the 26% and multiply that With the change in volume, it is around 90 million. And there is a technicality around these modifications, which is written in both notes and in one line in the text, for those who are especially interested. But it is 13.5 million in loss of value on changes that we have made in previous quarters. So then you end up at around that loss cost in total. But that's just an explanation. The reality is that the risk has become worse for several of the bank's customers, and we believe that 105.5 million is the right number to set off for that.

We have also said that tax incentives will be able to vary, given the type of business we run. We just have to assume that they will be able to change from quarter to quarter. The second quarter, and partly the third quarter, exposed the real risk, even if we tried to communicate it, because we also had a volume decline, which particularly affected the sum of deductions in the second quarter. So we got a reduction in model-based deductions in both quarters, even though the individual deductions were, for example, a little over 30 million in the second quarter. And they did that in the first quarter and in the fourth quarter a year before. So there are many conditions that can play into the net total.

My last question is about growth. I get the impression that it's a little up in the queue here, but if you look at it in the long run, in 2026 it will be a year where you see growth. Especially very positively surprised about the growth in Sweden. How much potential do you see there, if it's sluggish in Norway? Do you see more opportunities there that can offset the negative trend you see, especially on the property side in Norway? Two questions on that. How long can you grow in Sweden before investing in IT systems?

That's a good question. We have made additional investments in Sweden, and there are some investments ahead of us, among other things on systems. That's something we work very concretely with. But now it's a bit complicated, because Tieto, our main supplier at home, doesn't deliver the same system in Sweden. The problem is a bit complex, so we have to look at alternative suppliers. to conclude with what gives the best solution for us. So we are approaching an investment there, because there is also a risk of not being connected to Swedish infrastructure, and it also has to do with customer experience, a good customer experience. Back to the question about growth. We don't guide on growth. We guide on these 15% in one-capital-throwing after taxes. Every company we give should meet that requirement and also be within our policy. What we say about the first quarter is that it is a bit flat. Maybe slightly up on property. It is interesting to see. If you look at 2025 collectively, the volume has increased on property, while the company is a bit out of place, as opposed to what we often talk about. In Sweden, we delivered 1.2 billion in growth last year. Now we have passed 4 billion. We are very pleased with that. We see good opportunities. But again, we build rock on rock, as we have always done. We have respect for the fact that there are new customers for us and a different market. But we see good opportunities there. We are also intensifying our efforts in the business sector. We have a couple of business teams that are focusing more on Sweden. It gives us another leg to stand on. That has value for many reasons.

Thank you. That's all I had.

There are no questions in the chat.

There are only four of us here.

If possible, one last question. Will you guide on how much a time system costs when that time comes? Will it be capitalized, or will it be a one-time investment?

It's often a running operating cost in combination with an investment or a right to use that we want to write off. We have just discussed that, but I think it's natural that we say something about it being a significant investment.

What do you think, Vegard? I don't know if that's... We'll come back to that. I think the investment for us is hopefully less than other IT investments that are more popular to discuss today.

It's in time. And just to add to that, we use the time we need. It's an important decision for us, and it's better to use time to make thorough assessments. We work as we do today, so we're lucky to be able to control the risks or challenges, so we use good time to make the right decision.

We operate in Sweden with an IT system that we have today and works. And it doesn't work optimally. It's a very good question. We can do even better and give an even better user experience to all our customers in Sweden. And maybe even get more customers if we have a better IT system. So we have to lead that up to our goal and reach 15% of the goal.

That's good. Thank you.

Any more questions? No? Thank you for your patience. I don't like technical challenges, but we solved that. Thank you for coming.