Avanza Bank Holding AB (publ)

Welcome to the Aranda Bank interim report January to September 2025 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. I would now like to hand the conference over to your first speaker today, Gustav Unger, CEO, please go ahead.

Thank you and good morning and welcome everyone to the presentation of Avanza's Q3 report. My name is Gustav Unger. I'm the CEO of Avanza. And with me here in the room today, I have Carolina from HIR and Adnan, who is our interim CFO and also our chief technology officer, Fredrik Broman. Especially welcome to you, Fredrik. Thank you. Today, I will start off by summarizing the quarter and go through the financials. After that, I will hand over to Fredrik, who will give a briefing of our tech and the ongoing cloud journey. Starting with some key highlights from Q3, the business model with multiple revenue streams have been showing its best side with strong contribution from both trading and interest-related income. And we are proud to be reporting a strong operating result, actually matching our previous record for a single quarter. Our customers had a much calmer market environment to navigate, and their net buying of securities nearly doubled since Q2. It has been a productive quarter here at Avanza. On the pension side, we initiated a collaboration with LifePlant. which broadens our pension offering with a comprehensive personal and independent pension advisory service. The acquisition of Sigma stocks finalized and the work with creating Sweden's best and most modern discretionary mandate product intensified. Now we're working in close collaboration with the private banking customers that have showed interest in the product, developing it together with them. On the theme of private banking, Jacob Smith joined as head of private and investment banking, meaning I now have a nearly complete management team, only missing the new CFO Jonas that will join by the turn of the year. We also launched several features for the stock market enthusiasts, including digital trading on the London Stock Exchange, new and improved portfolio analysis, and AI-generated report summaries on the stock pages. Looking forward, a lot speaks for brighter times ahead for the Swedish economy, although we are only seeing small signs of this in our numbers so far. During the autumn, the government presented an even more expansionary budget than last year, and the Riksbank has announced another policy rate cut Hopefully, this is what is needed for the Swedish economy to finally take off. Regardless, it is good for the household to get more money in their pockets. They are still cautious and have so far not accelerated either consumption or long-term savings this year. The latest savings market statistics show that cash savings were more than twice as high during the second quarter this year compared to Q2 last year. And the flow into funds in that quarter decreased by 2 thirds. This aligns well with our theory that customers' money has largely remained in their salary accounts. However, we are seeing small signs of a turn in the right direction. We have welcomed 41,000 new customers in the quarter, reaching a total of over 2.2 million customers, which is fantastic. We're also seeing a cautiously positive trend in the net inflows, which have strengthened since Q2, although we're still pacing slower than our ambition. Our savings capital is back above 1 trillion Swedish and has increased by 10% so far in 2025. We are truly seeing our business model at its best this year. Operating income is at its second highest ever for a single quarter, and increased by 8% compared to Q2, driven by higher brokerage, FX, and fund commissions. Looking at the nine-month period, operating income increased by 18%, driven by all income streams except for the NII that decreased slightly. Our costs are seasonally low in Q3 and therefore decreased by 8% since last quarter. Altogether, this adds up to a strong operating profit of 818 million matching our previous record for a single quarter. Return on equity for the quarter was strong at 45% and EPS at 4.37 Swedish krona. If we take a closer look at the revenues, both trading and interest related income streams were contributing strongly as healthy part of the income mix. Trading activity held up well in line with the latter part of Q2, despite the lower volatility in the market. On top of this, there were 8.5 more trading days in Q3, which provided an extra boost to the turnover and the number of trades. The number of brokerage-generating customers also increased. Looking at the brokerage margin, it was steady at 11.4 pips, same as in Q2, This despite the higher share of the brokerage generated by the standard segment and a substantial increase in the share of foreign turnover from 23 to 28%. The positive margin effect from this was offset by a higher turnover per trade, especially in the fixed fee brokerage class, which gives a lower income per trade. The aversion we saw to US stocks in the spring turned out highly temporary. The interest for foreign trading is clearly back and our FX income increased by 34% compared to Q2. This is good since our customers' portfolios still have too much exposure to Sweden to be considered well diversified and the trend of increased foreign trading should therefore continue. The fund business has developed nicely and net fund commissions increased driven by higher fund capital. The share of index funds increased by 1.1 percent in the quarter to 49.7 percent. Despite this, the fund margin was stable at 25 bps on average and at 24.8 bps on September 30th. We have seen a big interest for global index funds, which are generally priced slightly higher than Swedish exposure. Other income decreased as a result of lower income from Avanza Markets and higher commission. If we zoom in on the net interest side, we are once again seeing resilience to lower market rates. The Riksbank cut the policy rate in late June, which impacted the return on the surplus liquidity, although the full effect is delayed as we have up to three months interest rate duration in the bond portfolio. Looking at the lending side, the mortgage is directly tied to the policy rate and the rate was cut by 25 basis points in late June. We also decided to cut the margin lending rate by 34 basis points. This had a positive effect on the attractiveness of our offering, and the effect from lower interest rates was largely mitigated by higher volumes. The average rate for internally financed lending decreased to 3.01% from 3.27%. On the interest cost side, our interest rate expenses for deposits decreased as a result of lower deposit rates, despite increased volumes on the savings account, especially by the end of the quarter. The volume increase was largely a result of our external savings accounts partners lowering their deposit rates. The average annualized rate on deposit decreased from 91 to 80 bps while the amount of customers' deposits in interest-bearing accounts increased to 54% at the end of Q3, which can be compared to 51% at the end of Q2. In September, the Riksbank announced another policy rate cut of 25 bps, which took effect October 1st. With regard to this, we decided to cut the savings account rate by 20 basis points The reason we're not fully passing through the policy rate cut is to position ourselves with a slightly more attractive rate in the process of discontinuing the collaboration with external savings accounts. Also on interest costs, earlier this year, the Riksbank decided that all banks must deposit a portion of their deposit base to 0% interest rate by 31st October 2025. For Avanza, this means that 225 million Swedish will be deposited. This lost interest income will be reported as an interest expense. Basically, this is a confiscation by the Riksbank. Altogether, we still have a healthy net interest income contribution to the income mix, and the Riksbank is now estimating a stable policy rate. for a foreseeable future if the outlook for inflation and economic activity remains intact. Moving on to costs. The personal costs are seasonally low in Q3 due to summer vacations, while the operating expenses were 8% lower than Q2. This year, vacation leave was higher compared to 2024, while the positive effect was even bigger. With last year's Q3 report, we announced strategic priorities up and including 2030. Our growth ambitions are high, and initiatives in both pensions and private banking are intensified during the second half of the year. At the same time, the cloud journey is proceeding according to plan, and we're moving closer to our goal of having started development in the cloud environment before the year ends. Avanza is firing on all cylinders, and therefore the cost guidance of 11% increases for the full year of 2025 stands. As you can see, we remain well capitalized, and we audited the figures this quarter, meaning that the profit has been included in own funds. We have a prudent margin both to the leverage ratio, including P2G, and the total requirement, including risk-based P2R. even though our deposit volumes on balance sheet have increased some compared to Q2, largely driven by the closing down of our external savings accounts. We can handle increased deposits of 40 billion before reaching the LR guidance. In September, the Swedish FSA announced the results from their supervisory review and evaluation process of Avanza, the so-called SREP process. The Pillar 2 guidance on the leverage ratio remains at 0.5%, and the total leverage ratio requirement thereby still amounts to 3.5%. The risk-based Pillar 2 requirement, either P2R, was reduced from 5.71% to 5.02%, which decreases advance of total risk-based requirements from 18.21% to 17.52%. In other words, the leverage ratio requirement remains governing for Avanza's capitalization. And since the margins to the risk-based capital requirements are now even higher, the likelihood of that changing is even lower. With that, I will now hand over to Fredrik for a briefing of the tech and cloud journey.

Thank you very much, Gustav. And good morning, everybody. So my name is Fredrik Broman. I joined Avanza team. a little bit more than a year ago, August 2024 as CTO. So as you know, Avanza is one of the best known brands in Sweden. Customers love the product and the company has a reputation of being one of the best employers in the country. I always had a personal interest in savings and savings products and had the advantages of looking at Avanza from the outside, from the inception, continuously pushing the boundaries for what good looks like in this industry. And that has always been very impressive to me. So when Gustav offered me the opportunity to join the team and that very exciting journey, I did not hesitate to accept. It was a very easy decision. I'm happy so that I joined. It's been a fantastic year so far. What do I bring? I think that I've had quite a few years in FinTech already and also been working with the stockbroker previously, so I think I bring quite a lot of experience from fast-paced tech companies together with a solid understanding of the industry and also understand what it means to operate tech in a highly regulated environment. So something about what I see and what impresses me the most. There are two bits to that. Avanza stands on a very strong tech platform. My predecessors have worked very hard to create a homogeneous tech stack with few components, standardizing tech and processes to a very high degree. And that makes us fast. Few components means less overhead. It means that people easily can move between teams and jobs because they recognize the tech stack wherever they go throughout the company. We can make changes in one place that all teams can benefit from, whether it's upgrades to specific bits of technology or if we have to roll out quick security updates. We can do it in one place and make it happen instantaneously across the platform. And it also means that all the investments we do in the platform benefit everybody. So the investments we do in central teams, making sure that we gradually upgrade our tech platform, the entire company benefits. Obviously, it's a quite high performing platform. We have a lot of customers averaging 450,000 daily active users. It's very high intensity in transaction volume. We have a very large portion of the trades on Nasdaq and First North, which means that we need to be on our toes to make sure that performance and reliability is top notch. But I can also see that the architecture is where it should be. The company has spent quite a lot of time and investments making sure that we stay on top of things and using best practices as they evolve in the industry. We have a modern microservice architecture already in place. It's easy for teams to deploy changes. We do many changes every day from different teams to the system and without our customer noticing. We have structured A-B testing, making sure that we can try different versions of the product to different customer segments and trying out new features to see how customers react and what the effects actually are before we decide which way to go. And the data platform is very modern and very strong. We have had quite a long investment in making sure that we can deliver data throughout the system to teams and to stakeholders to measure how we do, making sure we can track KPIs and making sure that our decisions and the way we operate the platform is data driven. That's on the tech side, but you don't get far if you don't also have a very strong team. Avanza has a very strong tech culture. That's part of the inception. I mean, if you're a company that tries to do something completely different and you do it with tech, that's built into the walls of how you operate. It's been like that for 25 years and it's still the case. But also the strong customer focus. I think that's quite unique to other places I've been. Even though customer focus always has to be strong in successful companies, this is something that is very present in my teams. There's always a discussion around how we can improve things for the customer. What is the next step? How do we get that feature a little bit better, a little bit smarter? How can we take the next step in making things better? And you can always hear the discussion focusing around, it's not the tech that matters, it's how do we make sure that the customer benefits the most from what we do. The strong brand also attracts talent. I'm in the fortunate position to see quite steady inflow of very strong candidates when we open up new positions. This is quite different from other places I've been at, which is a very fortunate position to be in and something that we would like to protect, obviously. But also when people join, they stay. We have a very high employee NPS. People like working here and they enjoy the job they do. They enjoy the culture, they enjoy the way we operate. And we have a very low attrition rate. People stay for a long time. Something about how we operate. Obviously, the core operating unit, as with other tech companies, is a team. We group teams together into something we call areas, and we have 10 of those at the moment. Five of those areas are within my domain, and five of them are in the product domain. However, there's a very close collaboration, obviously, because you can't quite separate the product part from the tech part. They go very closely hand in hand. The purpose of a team is that they're expert within the domain and they are giving a specific problem or a set of problems to solve for. And they start according to that need. So depending on what kind of team and what kind of problem they're asked to work with, we're going to staff the team differently. But typically, there are front-end developers, back-end developers, QA, UX, engineering managers, the product owner, but sometimes we also have people from other parts of the organization joining the team as product specialists if there are specific areas of expertise that are needed to better understand for how to build the product. We're asking teams to be responsible end-to-end, and what does that mean? It means that they look at the problem, they are responsible for the solution, they implement it, roll it out, and then maintain it. So we don't have any handovers. We make sure that the people working on the problem, they stay within that context so that they can improve on the solution over time. And one of the benefits of having an area, obviously, is that we can look at it from a bigger picture perspective that, all right, we don't sub-optimize in a specific team, but we can make sure that the teams together solve for large problems. and that we stay within what we need to do for the strategy, complete customer journeys, et cetera, et cetera. Team behaviors here at Avans are very similar to what I've seen at other fast tech companies. Agile processes are best practice here as in other places, and focusing on customer problems. We work at high speed, and we are able to make changes as needed. Most teams will push out new changes every day. Decisions are made on data, as already mentioned, and we do use experiments and customer interviews and surveys to gain customer insights to make sure that what we build and what we deploy actually makes sense for end customers and bring value. And we track progress using KPIs as a lot of other and most other tech companies would do as well. Right, so let's talk a little bit about the cloud journey. So earlier this year, as earlier communicated, we signed a deal with Google, making them our main provider for the Google platform. That was already an existing relationship. We had used them for our data platform for quite a long time, and we also used them for productivity tools. But now the relationship broadens to include more parts of their product offering and basically allowing us to start moving more of our software to the cloud. So why do we do this? I think that there are four main reasons, even though there might be other benefits as well. I think the most important one is that allow us to spend more time creating customer value. So it's on the theme of stop doing things that we don't have to do. And instead, we can spend that time and that effort on building what we are best at, which is good savings products and services for our customers. We think that even though the developer experience at Avanza today is modern and Good. We also have to spend time maintaining that. Instead, we can leverage on what Google has and allow us to ride on all their investments. And we can sort of use their productivity tools and the way that they write and deploy software into the cloud, allowing us to spend that time on other things. But it's also important to continue to attract talent. The cloud migration has been ongoing for quite some time and many, many years as part of how the industry wants to operate. And it's an expectation for newer generations that tooling and infrastructure and components are in the cloud. And it's a way for us to make sure that we stay relevant and can keep attracting talents over time. Scalability, obviously, it's not hard for us to scale in our current setup, but it means that we have to do work, right? We need to buy hardware, install it in our data centers, maintain and operate that, and make sure that we have enough scale for peak at all times in our data centers. With the cloud platform, an exercise of process from our side to make sure that we utilize enough capacity at any given time. So it's less of a matter of buying and operating and more of process making sure that we have the right capacity at the right time, which is obviously a big advantage. So how are we doing? Well, we are on track On budget and timeline, what we've said so far is that we're going to have one service in production before the end of the year, and we will make that target. And one service in this context means that we're going to have at least a little part of our savings offering in the bank, some computational part that we're currently doing on-prem. But it's worth mentioning that we already have several components in the cloud. I mentioned the data platform before that has been in the cloud for quite some time, but we also moved part of our infrastructure components already. Some of the networking components are now in the cloud. The content delivery network, basically pictures and text for the web and app are already in the cloud, et cetera. So even though the target is one service in production, that's not the only thing we're doing and not the only thing we're moving. What happens next is once we have a solid platform, which is what we're building at the moment, we will just start migrating at a controlled pace, service by service to the cloud. That's an exercise that we expect to take several years. And at the end of 2030, the plan is to have moved everything that is suited for the cloud. What does that mean? It means that there could be components that for some reasons are not well suited to run in the cloud, for example, for latency reasons. If there are parts of our trading platform that it makes sense that they still run in the data centers that is decision we will make and we will have a setup where the majority of our things run in the cloud and some parts will be left in the data centers for those reasons all right so i am as a cpu you cannot not say something about ai which is obviously the biggest trend in the industry at the moment not just in our industry but tech globally So what are we doing within AI? So I would say that we are exploring and selectively investing in AI. And we're doing so in three areas. Gustav already mentioned that we launched an AI feature in our product this quarter, which is a summary of the quarterly report from companies on the Swedish Stock Exchange. Basically, it's using our own existing data, summarizing it, making sure that people get the highlights from the quarterly reports. And this is probably a good example of how we will use AEI for the product offering initially, using existing data, existing products to and enhance them with AEI to see that, okay, how can we make this better? How can we use AEI to improve on existing features? Within my teams, we use AEI or generative AEI to write code, obviously also trend within the industry. We're exploring different pathways. We have quite a few teams using AEI already to produce code, and we're trying to integrate those kind of components more and more into our development pipelines. And lastly, and perhaps most importantly, one of the advantages of AI is that we can solve for operational problems a lot easier or maybe solve them at all in a way that wasn't possible before. Thinking about internal processes that are complex, that contain a lot of data where human interaction previously was needed. And we're looking through quite a lot of those and see, all right, with AI as a new tool, can we solve this in a better way and making us more efficient? One example of that is that we have an internal tool for our customer service people to quickly get answers to questions they get for customers, shorting the time from a question from a customer to how quickly we can respond. And that was all from my side.