TF Bank AB (publ)

Hello and welcome to today's broadcast with TF Bank. The CEO Joakim Jansson and CFO Mikael Meumütten will present the second quarter for 2024. After the presentation, a Q&A will be held. You can call and ask a question. Press star 9 to raise your hand and then star 6 to activate your sound when you get the word. It is also possible to send in written questions in the form to the right. With that said, I leave the words to you.

Thank you very much. Good morning everyone. We can now summarize a quarter where the growth level in the bank has been controlled to ensure a good credit quality. This in combination with the fact that the customer has spent a little less than normal. A normal result of the conjecture resulted in growth of 4% in local currency. If you sum up the activities of the quarter, we get a final operational result of 158 million kronor, which is 29% better than the corresponding period the previous year. The conversion of the bank continues. The credit card becomes an increasingly dominant business line. Even geographically, a change occurs when a larger part of the business is run outside of the Nordic and Baltic countries. Above all, it is in the credit card and e-commerce segment that drives the EPS growth at the concern level. It is especially exciting that the revenues grow faster than the costs and the K-I rate continues to improve. The business model scales well. During the quarter, we have seen a continued stabilization of the credit quality. What you have to keep in mind when analyzing the credit loss rate in TF Bank is that we are under strong change, and have been so for several years. We are growing rapidly. We are also changing the shape, both in the form of business and geographical mix. And then it turns out that the credit card has a higher margin, but also a higher credit loss level. During the second quarter of the year, we launched a credit card in Spain. Let's turn to page 3. The organic growth of the quarter in local currencies is 4%, -on-year is 18%. The credit card, TF Bank's growth engine, grew by 12% during the quarter and 63% -on-year. E-commerce decreased by 2% during the quarter in local currencies and -on-year by 2%. This should be seen in the light of a seasonal pattern where it calmed down during the first half of the year, but above all because the activities in Poland and Baltic are in runoff. Consumer lending does not grow during the quarter in local currencies, but increased by 1% -on-year. Let's turn to page 4. If we look at the market, we can start with Germany and Austria, which geographically is the core of the growing part of the bank's credit card business. We continue to see a strong demand on the TF Bank's credit card, and we expect a strong volume growth during the coming quarter. We now have over 250,000 active customers in the portfolio. In the German market, we are also preparing to launch Avarda's credit offer during Q3, which is launched in Nordic traders. Everything is now technically in place, and this will give us an entry into the German market, but we also see that it is a strength for our sales in the Nordic market, because Germany is an attractive market for Nordic e-commerce. In Norway, the credit card business is growing well, and we have previously radiate Apple and Google Pay. We now see that this often makes us the preferred card in the stock market. In the Nordic market, we have full focus on our business in e-commerce in Avarda, where we consider ourselves unique by being an excellent, flexible white-label alternative, and that gives us success in the market. In the Nordic market, we also focus on maintaining the profitability and credit quality in the consumer loan business, when funding and risk costs have increased. We have continued to keep the volumes in the consumer loan in the Nordic market to monitor the credit quality more closely. The same profitability focus is applied to Estonia, Latvia and Lithuania. In all three Baltic countries, the credit quality is relatively stable. We are working to optimize the portfolio to maintain the strong results. As mentioned, we have established a credit card in Spain during the quarter, and the next step in our geographical expansion is to test the Italian market, which we plan to do during the year. Now I turn to page 5. We can look at segment by segment, starting with credit cards. We continue to grow in the form of new credit cards. In Germany, the number of credit cards with 56% is growing, and the segmental portfolio is now over 6 billion. We also see an improved K-level segment, which shows that the business is getting better. In this case, when we grow so much, the end is very important to us. As I have described earlier, we have launched Apple Pay and Google Pay. At the end of the quarter, we have also introduced Cash to Account, which increases the attractiveness of our business even more. It gives the potential to increase the benefit in our credit card business. We have also launched products in Spain and are preparing to launch products in Italy during the year. We can wait until page 6. Within the e-commerce segment, we see the effect of the stock still having a calm period throughout the quarter. We see that the effort we have had to reset the business is still visible in the result calculation, and the profitability is therefore strong, despite the fact that the stock has a tough period. As I said earlier, we are preparing to launch Avada Kedavra in the German market during the next quarter. Technically, everything is in place. We are primarily focusing on Nordic traders, and we are softened by this challenge in the German market. But we also believe that this will be a strength for our business in the Nordic market. In the Baltic, new business from the beginning of the year will be paused, and earlier, the business is on the run-off. This contributes to a lower growth in the segment. I will turn to page 8. Within the consumer lending segment, we have, as I said, the goal of keeping the growth rate down, with the focus on defending the margins. As I already presented in connection with Q4, we made a tactical decision last summer to bring down the rate most clearly for Sweden, where we paused the resale completely. But also for other markets, we have been restrictive to monitor the credit quality and margins. Now, with the phase of the hand, when the worst is over, we can see that e-commerce, which is our other segment, which we are running in the Nordic, has seen higher credit loss levels during the last quarter. We cannot control the growth rate in this regard, given that it is a partnership with our traders. With that said, and with this analysis, it is possible to say that it was probably the right decision to slow down the consumption loans last year. With that said, we have seen a stabilization in marginals in several markets, and also an improvement in the credit quality segment, and that applies to all markets. Now I will hand over to Mikael for the presentation.

Thank you very much. If we turn to page 9, we can first look at our real estate revenues. We can see that they rose to 595 million during the second quarter, which is 24% higher than the previous quarter, 2023. The main driving force behind the increase is the growth of the loan portfolio in the credit cards segment. I also want us to look at our financial costs. We can see that they have plummeted during the second quarter, and the absolute number of interest rates is somewhat lower than in the first quarter. If we look at our credit losses, they rose to 202 million during the second quarter. The credit loss level increased marginally to 4.2, which is explained by the mix effect, since the growing credit cards segment has a higher credit loss level than the previous segment. As Joakim mentioned, we have an improved credit quality in the last quarter, which I will also return to a little later in the presentation. If we look at our risk adjusted revenues, we see a continued increase and a stable risk adjusted marginally in the last year. We can add that to the next page. Here we can look at the company's moving costs. We can see that they increased by 18% to 235 million during the second quarter. I would like to mention that the quarter's costs are affected by higher credit volumes and more employees in the bank, but despite the increased costs, our revenues grow faster, which makes our -i-data improved to 39.5%. This is mainly due to the scale of the credit cards segment. As you can see in the diagram, the -i-data for the credit cards segment has dropped to 36% in the last quarter. The corresponding period, 2023, increased the credit card -i-data to 41.5%. I should also say that some of this improvement was due to a slightly lower direct market share. If we look at our largest segment, consumer lending, we see that the -i-data has increased by a little to 33%, which is mainly due to increased costs for central functions in the bank. If we look at our third segment, e-commerce solutions, we can see that the -i-data has decreased to 58% in Q2, and the costs have been stable in the last quarter. This means that we have also had an improved margin of income, which makes the -i-data have a positive effect on the box segment. If we continue to scroll, as Joakim mentioned, we can see that our moving results are strong. We increased by 29% to 158 million in the second quarter, and the driving force behind the growth in profit is mainly increased moving revenue from the growth of the loan portfolio within the credit card segment. If we look further at the profitability of the bank, it has been stable during Q2, and the withdrawal of its own capital increased by 22.5%, and the profit per share increased by 5.43 kr. We can move on to the next page. If we look at our segment, we first look at credit cards. We see that the moving result is 52 million kr. in Q2, which is 105% higher than the previous quarter in 2023. Here, above all, it is higher revenue from the growing loan portfolio and the scale distribution, which gives a lower -i-data and contributes to the segment's withdrawal of allocated own capital by 20% in the quarter. I can also mention that the calendar effect has had an impact on the loan portfolio which makes about 5-6 million euros affect the loan portfolio positively in July. This was in contrast to what happened in April this year. As Joakim mentioned, we have improved the loan portfolio in Spain and we are also planning a launch in Italy in the coming quarter. At the margin, this segment's profitability is somewhat burdened in the form that the costs come before the revenues. If we move on and look at the e-commerce solution segment, we see that we had a moving result of 22 million in the second quarter, which is a total of 33% higher than the previous quarter in 2023. Here, the margin of revenue has been significantly improved in the last year and the positive trend has continued in Q2. However, the decrease in revenue is somewhat in absolute numbers compared to the first quarter, which is a somewhat lower loan portfolio. If we look at the segment's credit loss level, as Joakim mentioned, we can see that we increased it to .3% in Q2, and it is mainly credit quality in Sweden and Finland that has been weak in the last quarter. Here, of course, we are actively working with different solutions to turn the trends and strengthen the credit quality over time. But despite increased credit losses, the segment's allocated own capital has been improved to 23% in Q2, which depends on the improved revenue margin that I mentioned earlier. If we move on to the next page, we look at consumer lending as a segment. We can see that we have a moving result of 83 million in Q2, which is 4% higher than the previous quarter. As I mentioned earlier, the segment's credit rate has increased somewhat due to increased costs for central functions in the bank. I also want to mention that the last quarter of consumer lending is also negatively affected by the increase in financing costs, but under Q2 there has been a certain stabilization. But more positively, as Joakim mentioned, the credit loss level has decreased and we see a little better credit quality in several markets in the segment. The risk-adjusted margin is therefore stable, if we compare it with the corresponding quarter of 2023, and the segment's allocated own capital has therefore been able to maintain a 24% increase even under Q2. If we move on, we can see that the bank's financing and liquidity have increased. We continue to have a diversified loan geographically. The launch of new loan products in Spain, Ireland and the Netherlands in the end of the fourth quarter has been successful and generated new loans of about 2.7 billion, which the share has increased in the Netherlands. During the quarter we have also increased the number of fixed interest loans to 57% in the unit. As I mentioned earlier, our allocated liquidity reserves have now returned to more normalized levels and increased to 20% of the loan balance during the quarter. As you know, more parts of our liquidity reserves are previously placed in state-owned growths with a short-term run-time of up to six months. We can zoom in. And we can look at our capital relations. We can also see that these have been stable since the year-end. At the beginning of the quarter, the capital relations of the capital were increased by 12%, the capital relations were increased by .5% and the total capital relations were increased by 15.6%. I would like to mention that all capital relations have a safe and regulatory balance. At the beginning of the second quarter, our capital base has been affected by 92 million related to the capital management rulebook, which requires a higher reservation button for the fallen funds compared to the registration. And since we have sold a part of our fallen funds to the third party, the potential greater effects of the rulebook are a few years ahead in time for our part. But we are also investigating different alternatives to handle the effects of this rulebook. In the short term, however, I see that the increase in the amount of capital base will be somewhat less than the amount of capital that we will be able to handle in the coming quarter. I would also like to mention that since we have previously had emissions of primary capital and supplementary capital instruments in 2023, we have a relatively optimized capital situation. And during the third quarter, we plan to solve the supplementary capital instrument of 100 million and at the same time imitate new instruments of somewhere between 2 to 250 million. And with that, I leave it back to you Joakim. Thank you.

When we look forward, I can summarize a little of what we have already mentioned. We continue the conversion of the bank, where credit cards and e-commerce are increasingly dominant business lines. After the launch of the credit card in Spain, we are looking forward to testing the market in Italy and also really launch Avada in Germany. This also means that a geographical change in the bank occurs, where a larger part of the trade occurs in the Nordic region. The TFBank is today much more of a European credit card and payment platform and much less of a Nordic construction loan institute. We also continue to develop our European loan platform. In the half-time of the year, we can note that 2024 has started strong. We now see a tendency to stabilize or even improve the credit quality. We also see early tendencies to a stronger production date and what we are well prepared for. As Mikael mentioned, the TFBank-capital relationship has been stable. As he also mentioned, we are working with different solutions to reduce the negative effects of the so-called backstop regulatory framework. Among other things, we see the possibility of establishing a so-called specialized debt restructuring in connection with the changed capital technology regulatory framework that will take effect in January 1st next year. In general, I would like to mention that the volumes of the credit cards have been strong during the introduction of the third quarter and the loan portfolio is expected to pass our financial goal in short by 20 billion. We plan to launch new financial goals during the second half of 2024. With that said, we can move on to Q&A.

Thank you very much for the presentation. As I said, it's time for Q&A. Call us if you have a question. Press the star 9 to raise your hand and then the

Q&A

button. Thank you very much. Thank you. We have in Norway also been relatively stable. We see improvements, just like in Sweden and Finland. I would say that we see improvements Then they have come to a bit of a time difference.

If we focus a little on the credit losses and think a little about how they will develop in the future, just to understand the moving parts, if we were to plan to halve the loan growth on the credit cards, if we were to plan to halve the loan growth on the credit cards, what would happen with the credit plus ratio? Should it also be halved or something else that should be in mind?

I can answer that, Emil. Initially, the ratio will go down, as many parts of the network loss network today consists of the 9 effects of the future credit losses, but it is actually temporary. Then it should now reasonably come up to the normalized levels, which are somewhere around -6% as we have said for a longer time from a unit of economics. So you get a short-sighted effect, of course. Alright.

What do the German regulators say about the consumer crisis right now? Do they have any views on the interest rates or how much or little secured loans the population has?

As I have seen, there is no such discussion at all. But you should know that Germany is a market that is 20 years after Sweden when it comes to credit cards and generally loans as well. So it is not a dominant element in the social economy, as it is primarily in the US and the UK, and has also become more and more in the Nordics. So they are not really there, I would say, here and now. There are a lot of discussions, however, in Germany related to digitalization and digitalization of society that affects our business. I would say that Germany is struggling to get the other countries in Europe to get a grip on it, because they notice that foreign banks, relative to Germany, are better at it. They have a competitive advantage there, and they need to stimulate the entire society to become more digitalized. And of course we see that as a rather positive digital rising.

Alright, interesting. Now I understand that it is very early, but how is the credit card launch in Denmark and Spain

going so far? In Denmark we have no credit card launch, but in Spain, however, it is very, very early. We have an incredible number of cards out there. And you should know that the first half of the year when we work with a card company, it is to calibrate our business case and fine-calibrate our entire process. So we have less than a thousand cards out there. So it is not possible to read anything about it yet. However, it confirms a lot of the parameters we have put into our business case. So we have to do some calibration and so on. You have to remember that it was 2018 that we launched the credit card in Germany, and it took off three or four years later. So we have an incredible long-term view of what we do.

Okay, that is understood. If we look at capital generation in the future, will there be enough capital to be used to restore all the capital you generate? Or do you think that it will be appropriate to return the payments to manage the capital budget?

As I said earlier, we are very small in the German market, and we are growing fast there. So we see that we will be able to continue in the near future. However, when we establish a business in Spain and test in Italy, we are thinking about 2027, 2028, 2029. And that is to be able to maintain a high growth rate over time. So we have to be able to keep up. So the test bank has always worked. So we do nothing but what we have done before. And it is also the work that ensures that we can maintain a high growth rate over time. But over the next few years, we will not see any problems. But we need to make investments in the future, which we are doing now in the new market.

Okay, understood. One last question. You also talked a little about how you will handle the NPL growth rules. What alternatives do you see, except for the one you mentioned in the report, with the NPL companies?

There are several different alternatives. But we also see a expectation in the market that it will grow, which means that the normal activities in the market will recover. We also see on the purchasing side that there is an intensive restructuring, which is necessary. But when that is done, there will be completely different parameters. Then there will be such STRs on the ground that have a completely different funding level than existing players, which also makes the market change fundamentally. And that will be strong next year. There are already some players who have that kind of activity. Hoist is one of them, who can be in the starting groups. There will be new players with all probability. Then there are solutions to create so-called SPWs that can be done. So it's always from straight sales to SPWs to the new ones. And then the market comes to life again. I have good hopes that it will be real on this market during the coming two years. Therefore, it is good that we have been in the market for a long time and can sell everything. So that our negative effects are further ahead.

That answers all the questions I had. Thank you very much. Thank you.

Thank you very much for the questions. The next questioner who gets the word is Richard Strand from Norrea.

Hello, can I come

in? Yes. Thank you very much. I came in a little late on the call. I apologize if there are any questions that you have already answered. I thought we would continue to talk about the credit card. It grew 63% last year and now accounts for 38% of total loans. How can you say something about the growth in relative numbers or absolute numbers in the coming years? Do you see more platitudes or should we expect a higher relative growth?

We follow the risk-based marginals. We are allocating capital twice a week. It has been so for many years that we see high potential in the credit card business. I think the number of credit cards had grown by 50% in Germany. This quarter it was 56-57%. It is a kind of indication that we are increasing our growth rate in the number of credit cards. There should be a connection between the number of credit cards and volume growth over time. But it will take a while because we are working with low and grow. But it is a indication of what growth rate should be over time. However, if we talk about volume growth, we have a larger base. We have to look at our growth rate in Euro and CETN will increase over time but will fight against a larger base. I usually do that when I look at it.

You have also a very high growth rate in the Norwegian market. You have been in a slumber for a few years. How do you see the growth potential?

What we see in the Norwegian market is that we have become a really high credit card. That is because we have Apple and Google Pay. Which all big banks do not have. Then you become the preferred card. Then the spending on our card goes up in Norway. Then you are a little more credit-savvy than in the other Nordic markets. It drives volume growth. We also see that the solutions we have now, which is not rocket research, but we have not had before, as Kerstruakant, but it will also drive a change in the value of our cards. From that perspective, we see a positive development in the Norwegian market. But we have had a momentum right now of Apple and Google Pay. It is Apple Pay that the Norwegians love. It is Apple Pay that matters.

Thank you very much. Then if we switch over to consumer credit. You have been careful for a long time now in several markets. But in the beginning you were more optimistic, because it did not start to decrease. And that consumers may get less pressure from inflation and so on.

From that perspective, there is hope that the market will return to reasonable risk-based margins. We allocate our capital on what we see as the best potential. And that makes it a tough competition for the EU. You have to be above 22% to compete. And the Nordic markets are not always there. We have a break in Sweden, we will be able to get going again later. It depends on how things develop.

But no big changes in the last quarter? No, we see

that the market is improving. It is not further away, but closer. But it is a question of when it will be.

Then a final question on my side about OPEC. You have many interesting opportunities in other European countries. Do you see any need for an investment

We work with that our revenues should grow faster than the costs. And that we get scalability in our business. And that is the growth journey with a focus on our investment opportunities. So from that perspective, TEP Bank has been identified by scalability. And that we have run a business where we use our existing profit to reinvest in the business without making the shareholders disappointed. And we will continue to do that. Of course, our investment tax can increase over time in nominal terms, but it is because we will be a larger bank. Thank you,

that was all for me.

Thank you for the questions. We have received a written question. How do you see the distribution of the loan book when you are done with the transformation both in terms of volumes and revenue?

It is impossible to answer. This transformation is going on every quarter all the time. And in that way it never ends. We just follow the risk-based marginals that lead us. But of course, if you look at the market structurally, you can think that there will be a higher profitability in the market outside of Norden over time. And also that there will be higher profitability in the credit card and other segments over time. And with that, this development will continue. But who knows how the development will look like in a year or two. Then maybe it will turn around and we will continue to follow the risk-based marginals. There is no end to that. It is an ongoing process that is about delivering a higher risk-based distribution as a way for our shareholders to be able to ensure a good growth. So that the currency and the currency will grow over time.

I understand. Thank you very much. Those were all the questions we had here today. I leave the floor for a final comment to you.

I would like to wish everyone who has listened in a happy summer. Hopefully it will be both sun and ice cream for everyone. And on the re-listen, I hope, during our next quarterly report, that it will be September, each September, in October.