Aktia Pankki Oyj ($AKTIA)

Good morning, everyone, and welcome to Aktia's Q1 Results Briefing. My name is Oscar Taimitarha. I'm the Head of Aktia's Investor Relations, and I will be the moderator for this event today. Earlier this morning, we published our Q1 report. The results were somewhat mixed. The underlying business operations and the implementation of the strategy developed as expected, but the results were weighed down by changes in market values, especially in the life insurance business. Aktia's CEO, Anssi Huhta; and CFO, Sakari Jarvela, will soon walk us through the results. And as always, after the presentations, we are happy to answer your questions. If you are following us online, please write your questions in the comments field. So let's get the show started. Please welcome Anssi Huhta.

Thank you, Oscar, and welcome also on my behalf. My name is Anssi Huhta, CEO of Aktia. Together with our CFO, Sakari Jarvela, I will take you through the highlights and results of the first quarter. The quarter marks the beginning of a very special year for Aktia. In 2026, we celebrate 200 years since the first account was opened at Helsinki Savings Bank with the deposit of 16 shillings into account #1. We also marked 35 years since several savings banks along the Finnish coast joined forces and became Aktia. So this is a year of history, but also a year of ambition. For us, 200 years is not only about looking back; it's also about looking forward. It reminds us that our task is renew, to grow and create value for our customers, shareholders and society also in the years ahead. With that, let me turn into the first quarter and start with a few key highlights. During the first quarter of 2026, markets were again clearly volatile, driven by the external factors such as geopolitical developments and rising inflation expectations. For Aktia, the main negative impact came through the market values, especially in the investment portfolio of our life insurance business. This reduced life insurance net income and the group result. It's important to underline that this was primary market-driven. Our underlying business remained stable and developed according to our expectations. Net interest income decreased as expected as lower interest rates continued to flow through the loan book. We expect the net interest income development to level off later this year. Net commission income developed positively, supported by good momentum in asset management and increased by 5% year-on-year. Credit losses decreased by 41% to EUR 1.7 million, which is more in line with our historical level. We also announced earlier today a model-based expected credit losses will decrease in the second quarter following the implementation of more accurate model. On cost side, we continue to invest in IT, which is visible in both IT costs and depreciations. At the same time, the staff costs developed as planned and remained well under control. So despite market volatility and continued challenges in economic situation in Finland, our message is clear. The negative impact in our quarter was mainly market-driven, while the underlying business remained stable and our strategic execution continued with a good momentum. Within the Life & Wealth, we increased our focus in sales and distribution. We are developing a hybrid model to optimize the use of our -- both our own sales force and partners. And in international asset management, we announced several new significant partnerships in Europe. To strengthen and execute them further, we have reinforced the group management team with a strong focus on business areas and customer operations. This was announced a week ago, and to be precise, after the end of the first quarter. Our purpose is clear: to strengthen strategy execution, sharpen business ownership and bring our customers even closer to group level decision-making. And finally, our eNPS increased to plus 35 from 28. This is a clear step forward, and we are super happy about it. As I said, changes in the market values weighed on result and comparable operating profit for the quarter, and it was 35% lower than last year. It's important to note that we expect recovery after the market disruptions in the first quarter. We already see signs of market stabilization and more normal interest rate curve. This is also reflected in our full year 2026 outlook, which remains largely unchanged. And Sakari will come back to this in more detail. Let's move on to our business areas and strategy. To remind us what we have discussed when the Q4 results were published, I would like to highlight this slide. Our business model has 2 distinct pillars. We have a capital-light Life & Wealth business, including life insurance and asset management and with a strong growth potential, alongside a stable but more capital-intensive Banking business. These 2 areas complement each other well while benefiting from separate governance, target setting and performance monitoring. We see our capital-light Life & Wealth as a clear growth engine in the future. We made a good progress in implementing our strategic choices during the quarter, especially within Life & Wealth, where our main growth investments are focused. In Life & Wealth, the key priority is clear: strong sales, stronger distribution and stronger international reach. We are developing a hybrid model where we combine our sales force with selected high-quality partners. We are also strengthening our international capabilities through targeted recruitments. The group recorded positive net inflows of more than EUR 250 million in the international sales, asset under management, and our emerging market debt funds continue to grow, supported by positive net inflows. As you know, our international growth efforts are mainly focused on our emerging market strategies. This is an area where Aktia has a long-standing expertise and where sustainability analysis is not an add-on, but an integrated part of our investment process. During the first quarter, we also established and broadened cooperation with 3 external sales partners. XO. Capital Partners strengthens our presence in the German-speaking markets, Germany, Austria and Liechtenstein. Hermod Capital support us in the U.K. with a focus on institutional and wholesale investors. And with Oceanside Capital Partners, we are expanding our existing cooperations in Netherlands, also to Belgium and Luxembourg. This work is already starting to show results. In the first quarter, the first institutional investor from the Netherlands invested in Aktia fixed-income products. In insurance side, the development of [ Aktia Yrittajaturv ] is also progressing well. The number of insurance agents has increased by more than 30%, supporting our ambition to grow insurance sales to businesses and entrepreneurs. In Banking, growth continued in higher purchase leasing and working capital solutions and the portfolio now exceeded EUR 0.5 billion. And at the same time, the quality of the loan portfolio remained good and the credit losses have returned to more normal level. And finally, in March, we launched a new payment card. During the spring, all Mastercards will be phased out and replaced by new Visa cards. As part of the renewal, Aktia will be the first bank in Finland to introduce metal Visa cards for premium and private banking customers. So across the both engines, Life & Wealth and Banking, execution is moving forward. We are growing where we have chosen to grow, investing in the right capabilities and building stronger Aktia for the future. If you look more closely at the AUM trend, the underlying development is encouraging. Over the past 12 months, AUM has increased by just under EUR 1 billion. The first quarter was challenging and market values declined. Despite this, strong sales and good demand for our products kept AUM broadly stable compared to year-end. It's also worth noting that before the market decline, our gross AUM temporarily exceeded EUR 17 billion. So while the market created headwinds, our commercial momentum remains strong. To sum up, first quarter result was weighed down by changes in market values, driven by significant market volatility, following geopolitical developments. At the same time, we've already seen the signs of market stabilization and recovery after the disruption seen in the first quarter. Despite the volatility, we stayed focused and disciplined executing of our own strategy and implementing strategic choices we have made. Several new significant partnerships in Europe are a good example of this progress. Our net inflows for the quarter exceeded EUR 257 million and net commission income developed solidly. In our loan portfolio, asset quality remained good and credit losses were significantly lower than last year. So the market volatility clearly moved our numbers in the quarter, but it has not changed our direction. We continue to execute it. We continue to build the momentum, and we look ahead with confidence. With that, I will now hand over to Sakari for the financial overview.

Good morning, everyone, and welcome. My name is Sakari Jarvela, and I'm happy to present the financial results for the first quarter 2026. As Anssi already explained, the first quarter financial result was mixed with some very reassuring elements, but the actual end result looking weaker than it actually is. We reported comparable operating profit of EUR 18.7 million for the first quarter, down 35% from the year before, and 21% from Q4 '25. The main driver for the weak financial result was our life insurance business and more specifically, the runoff portfolio of with-profit insurance liabilities. I will come back to details, but following this, the net income from life insurance decreased to EUR 1.1 million compared to EUR 6.5 million in the same quarter last year. Net interest income was EUR 3.1 million lower than in the previous year, which is according to our expectations and reflects the higher interest rates in the comparison quarter, Q1 2025. Net commission income development was very positive, increasing by EUR 1.5 million or 5% year-on-year, mainly due to higher income from funds and structured products. Operating expenses increased 6% compared to last year as higher depreciation from earlier investments is coming through, and we also see inflation in salaries and IT expenses. The weak results also led to overall weak key financial ratios for Q1 with return on equity below 10% and high cost-to-income ratio of 69%. It is very important to point out that we are not worried about the Q1 result as such. This is expected to be temporary and to recover during the remainder of the year. At the same time, it is also important to note that as we are all aware, we continue to experience heightened uncertainty and volatility geopolitically and also in the financial markets. This could affect Aktia's financial performance for the full year 2026. When we look at our operating income from segment perspective, we note, first of all, that banking operations still provide stability and solid financial base, although in Q1, the lower NII came through in the Banking segment result. We can see that asset management has performed steadily despite excessive market volatility, which we are very happy about. But let's then turn to look at the result for the life insurance business a bit more closely. To understand the cause for the weak Q1 result, we have chosen to show a more detailed income composition for the Aktia Life Insurance business unit divided into its 3 main product lines. As shown on the graph, these are risk life insurance, investment-linked savings products and the guaranteed return or with-profit portfolio. This portfolio is in runoff and has an investment portfolio attached to it to cover the very long-term future liabilities. The result from risk insurance had somewhat weaker start for the year than what we had hoped, but the underlying performance is solid, and we continue to invest heavily into future growth. The savings investment contract performance was also very good, showing steady growth in income, and we continue to see growth in underlying assets under management, which is close to record levels. Finally, the with-profit business produced a large negative result of minus EUR 4.3 million in the first quarter or EUR 6.3 million lower compared to the previous quarter. The primary reason for the negative result was a very unfavorable move in the shape of the interest rate curve at the end of March, with a sharp increase in the short- and medium-term rates where our assets are invested and a decline in the very long-term rates, which affects the present value of liabilities. This came on top of a general decline in asset values in almost all asset classes. The interest rate curve move was temporary. And once the curve returns to a more normal shape, the financial effect will be reversed. The last day of March turned out to be the day when the negative effect was close to its peak and a large part of the curve effect has already reversed during April. This is why we say that we are not overly worried about the weak financial result in Q1. The underlying business remains solid, and we have already seen a large part of the negative move reversed after the quarter end. The strong development of our net commission income continued with NCI amounting to EUR 32.3 million, 5% higher than Q1 last year. Given the volatile market conditions, we are very pleased with this result. Commissions from funds were once again the strongest component, which is important as this is one of our priority areas. Despite the market volatility, our AUM ended the quarter at EUR 16.6 billion, the same level as year-end, having peaked at a significantly higher level mid-quarter. Net interest income was EUR 32 million in the first quarter, EUR 3.1 million lower compared to the previous year. This was as expected and mainly due to a lower average interest rate level for our loan book. Looking back at last year 2025, the 12-month Euribor rate fell steadily for the first 4 months of the year before stabilizing in early May. As our mortgage portfolio is largely tied to the 12-month Euribor, this means that in Q1 this year, we still saw interest income coming down compared to last year. As we have guided before, we expect the net interest income to bottom out around the end of Q1 or early Q2. In terms of volume, the loan book remained at approximately the same level as at year-end, while the deposit stock was marginally lower. Total impairment of credits and other commitments was EUR 1.2 million lower than in the previous year due to lower model-based ECL. The impairments booked through P&L were EUR 1.7 million in the quarter. This is equivalent to annualized net credit losses of 8 basis points from the total loan book, which is relatively low and reflects the very high quality of our loan book. So as we have guided, the expected losses have reverted back to more normal levels after the 2025 year being affected by a one single problem case. I would also like to point out that credit losses in the second quarter are expected to be affected positively by the new ECL expected credit loss models, but I will come back to this shortly. Comparable operating expenses were 6% higher compared to the same quarter last year. Costs are impacted by some timing effects within the year, but we do expect costs to track higher during this year compared to 2025. Comparable personnel costs were at the same level as the previous year as lower headcount balanced against contractual salary increases. IT expenses increased by EUR 900,000, mainly supporting the continued investments in IT infrastructure, AI and data security. Depreciation increased by EUR 0.7 million, reflecting the higher investments into core platforms in the previous years, which we now -- which now have been completed. Other operating expenses were also higher, partly due to timing effect from certain larger cost items affecting the first quarter. Then we have 2 important model changes affecting us in Q2, which we have already announced and would like to discuss already here. First, we told earlier during Q1 that we will introduce updated internal ratings-based IRB models for retail exposures in the calculation of capital adequacy. The Finnish FSA has preliminary announced that it will approve the adoption of the updated IRB models. However, the FIN-FSA decision will include capital requirement add-ons that will increase our risk-weighted assets and is estimated to have a negative effect on slightly above 1 percentage point on the CET1 ratio. The IRB models are expected to be taken into use during the second quarter '26. Secondly, we announced this morning that we are also developing new expected credit loss or ECL models, which we expect to implement also during the second quarter. The ECL calculation is an accounting adjustment used to calculate provisions for expected losses through our P&L. The new model gives a more accurate picture of the expected credit losses arising from our current loan portfolio and is based on the latest available data. The new ECL model is, according to our current best estimates, expected to decrease the total carrying value of impairments by approximately EUR 7 million to EUR 10 million. This would mean that we will book a positive one-off effect impacting our comparable operating profit of the same amount, EUR 7 million to EUR 10 million. These bookings are expected to happen during the second quarter. I would like to stress that the models are still undergoing final validation and approval processes. The actual financial effect will also depend on the exact credit portfolio at the time of implementation, which may differ from the estimates we have today. However, given that the effect on our operating profit is likely to be significant, we decided to release this information already now, but are still giving out a relatively wide range of EUR 7 million to EUR 10 million. The CET1 ratio increased by 0.2% from the year-end to 12.8%, slightly above our target range of 2% to 4% above the regulatory minimum. However, as just discussed, we expect a negative one-off effect during Q2 of slightly more than 1 percentage point from implementing the new IRB, and partly also the ECL models. On the funding side, we were very active in the bond markets during the first quarter, making a very successful 7-year covered bond issuance in early February priced at 25 basis points above mid-swaps. We also executed another important transaction, issuing a new EUR 80 million additional Tier 1 instrument right at the end of the quarter. This replaces the existing EUR 60 million AT1, which will now be called during the second quarter. Our liquidity position is currently solid. So in the immediate future, we are monitoring some preferred private placement market transactions, but do not have any larger funding needs at the moment. As for outlook for full year 2026, we are reiterating our guidance that we expect comparable operating profit to remain approximately at the same level as in 2025. In giving this guidance, we are weighing, on one hand, the large positive impact we expect from implementing the new ECL model, and market volatility and uncertainty on the other. We do maintain that our underlying operational performance remains stable, and we expect the Q1 weakness to be temporary, with earnings improving towards the end of this year. However, there remains heightened uncertainty related to both financial market conditions and Finnish macro economy, which might affect Aktia's performance and growth during the rest of the 2026. Hence, we do not consider it appropriate to adjust our '26 guidance at this point in time. We will review our guidance throughout the year as more data becomes available. This completes our review for the first quarter results. Thank you for listening, and we're now happy to answer your questions. The Q&A session will be moderated by Oscar. Thank you.

Thank you, Anssi and Sakari, and welcome back on stage. So now we're happy to answer your questions. And you can -- as I said, you can still post questions through the comment field and online. And of course, you here on site are very welcome to ask any questions. And we'll start with this one. Anssi, you were talking about international sales and what we're doing in Europe. So could you comment, which are the next steps in international sales? What will happen next?

Next steps are basically that we are utilizing those partnerships that we have already started. So putting a lot of effort internally and also externally to use them more heavily. And basically, that means more customer meetings with our existing clients in Europe and also acquiring new clients. So activity by ourselves, and [ with ] our new partners. So that's the next step, what we are doing and being present in the market.

Okay. And I guess that we have some questions here. Antti Saari from OP. I think you're first with your hand, please.

Okay. How would you describe the behavior of your clients now once the conflict in Middle East started? Have you seen significant changes?

What do you mean our clients? Corporate clients or private individuals or...

Both, please.

So client activity is slower in the market at the moment. That's -- mortgages are moving really slow. Mortgage market is -- it's a slow one. And obviously, corporates are more careful to make their investments at the moment. But still, there is growing activity, especially in the higher end of premium banking individuals, premium banking clients, there is a high activity at the moment regardless of the market situation, but that's currently what's happening with the clients. And in asset and wealth management side, we haven't seen any -- like a negative impact from the market in the activity levels. Obviously, the market situation has had an impact to the values of the assets. But otherwise, market activity in the premium and private banking customers is still high.

Okay. Then markets are now expecting some interest rate hikes from ECB. So would you describe that the effects of hikes to your net interest income are pretty similar as last time when rates were going up? Or has something changed in between these couple of years, for example, hedging positions or so?

Yes. Sakari, would you like to...

Maybe I can take it. I think our hedging position is probably a little bit different, but we still are hedged. So we feel the impact from increasing rates primarily in the second year. So I would say that, of course, the rate increase is positive on us in the NII, but we will feel it mainly in 2027, if it continues.

And with a similar magnitude as last time?

I would -- nothing has changed in our portfolio in a meaningful way. So I suppose that's a decent assumption.

And then let's continue with Jaakko Tyrvainen from SEB.

I mean the question is -- Jaakko from SEB. Sakari, your presentation already covered largely my first question, but based on the market moves during the course of May, can we assume that most of the headwinds you experienced in the first quarter have already been recovered?

It's difficult to say if most have and how permanent it is. But like I said, a meaningful part has already reversed. Like I said, the main impact came from the interest rate curve. So we have a typical steeper position. So we invest our assets in the shorter terms or below 15 years and liabilities are very long in 20, 30, 40-plus years. And what happened is that -- the worst possible situation for that kind of strategy. So short terms went up, curve flattened and even the very long rates went down. So the liabilities became more expensive and assets cheaper. And now when you can already see, you can go look at the curve, and it looks very different than it looked at the turn of March and April. So the answer is yes. But of course, we don't want to -- market is volatile and the curve moves daily. So we don't want to be overly optimistic in the short term. But if we go back to more normal curve, there's nothing cumulative in this effect. It's valuation effects. So they come back in a way immediately as well.

And the equities have recovered as well. Could you remind us what is the equity exposure in that portfolio?

It's very small. It's a couple of percentage points.

Good. Then on the strong net flows you had during the quarter, could you elaborate a bit more or details, which clients and product areas were driving this strong performance?

Fixed-income products, and both our markets, Germany, Netherlands and obviously, Finland was a big part of that change. So those markets are the -- fixed-income products, Germany, Netherlands and obviously, Finland.

Good. Then finally, from my side, you mentioned the entrepreneur insurance business. Could you elaborate a bit more on the potential you are seeing there in terms of cross-selling, i.e., how large share of your banking corporate customers are currently customers of the life business?

So we see -- I can say that we see a huge potential in that. And the cross- sell level is low-ish at the moment. So there is a big potential to us. And obviously, we see really big growth potential in that area. And that's one of the reasons why we are doubling down sales staff for that particular product area, and we are in the right direction at the moment.

And then Kasper Mellas from Inderes.

When you look at more frequent data, have you already seen NII margin to bottom kind of daily or weekly level? Or is it still possible that this will go down in Q2? You stated that it's -- you assume it's going to bottom at the latest in Q2, but if you look at the quarterly performance?

It's, of course, possible. But I think we just reaffirm what we've said. I mean, when we look at everything has been quite well behaved, and when we look at the monthly NII and our forecast, if there's no major changes, then we see stabilizing basically as we speak and then slowly up going forward.

Yes. All right. The strong sales in asset management among banking clients were not reflected in the fund report published by Finnish Investment Research. So my question is, did this new flow go into discretionary asset management? Or what was the reason?

There is the -- obviously, the national report doesn't cover the international sales. That's one of the things. And then there's a discretionary mandate, obviously. So there are a few reasons why it looks like that and those are the reasons.

Okay. But I guess, mainly discretionary since I'm looking at the banking customer, which probably...

You mean -- yes, discretionary mandates, yes.

And then, we have a question here online. [ Mikko Laaksonen ] asked, what exactly brought the investment performance down so dramatically in the insurance side? Actually, you -- I would say you [ almost ] answered it, but...

Yes. I think it is -- like I said, it's -- the main part of the investment portfolio is in fixed income in sort of assets with maturities less than 15 years, clearly affected by the short-term rate moves. And overall, I think if we looked at what happened in March, I think almost every single asset class -- normal asset class was down. So -- and reminding everybody that we have roughly EUR 450 million investment portfolio, the value change of which comes into our P&L. So overall, the values went down about 0.5%, which I think is a relatively small amount, given the size of the market move. So we are appropriately hedged. It's not only the investment side; it is also the liability side, I would like to point out, that created this effect.

And then Andreas Hakansson, SEB asks, does the capital impact from the IRB model updates impact your capital distribution plans?

We need to come back to that, yes. It's fundamentally a Board decision.

And then there was a small change in the calculation of earnings per share. Could you slightly elaborate on that?

Yes, I can. So in discussing with our auditors, we've decided to make a small change in how we calculate EPS. Before, it was done including the interest from -- let me take a step back. So the AT1 instruments that we have, they carry a coupon, which is not recognized in our P&L as an interest that goes into hybrid equity-like instrument. And EPS was calculated directly from the net income. Now when we issue a new one, we also discussed with our auditors and we changed. So now the EPS will be calculated from net income minus the AT1 coupons. So the EPS will go down marginally because of the AT1 coupons.

And then another question from Andreas Hakansson. How much dividend was accrued in Q1?

We do not add the quarterly results into CET1 capital. I think that's the only thing I can answer. So in a way, we don't accrue dividend or we don't accrue the income either into the CET1.

Okay. And then a question about the ECL model. So which were the essential changes or updates in the model?

We don't, of course, want to go into too much detail. We are still in sort of final stages of validating and also gaining the necessary approvals from auditors. But there are some specific assumptions, especially related to collateral of Stage 3 liabilities. So as far as -- which is backed by historical data. And obviously, this is driven by our second line, so our credit organization, and the validation will be obviously rigorous on -- based on historical data.

Of course. Thank you very much. Do we have any further questions here on site? Well, then I think that was the last question for today. So many thanks to all of you. And I mean, both those of you who have participated here on site and those who have followed us online. Well, I think it's time to say thank you, goodbye, and [Foreign Language].