Aktia Pankki Oyj (AKTIA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Aktia's Q2 results briefing. My name is Oscar Timitarha. I'm the Head of Investor Relations at Aktia, and I will be the moderator for this event. Earlier this morning, we published our Q2 results, a very strong quarter for Aktia. Aktia's CEO, Anssi Huhta, and CFO, Sakari Jervala, will soon walk us through the results. And as always, after the presentations, we're happy to answer your questions. If you are following us online, please write your questions in the comments field. Now let's get down to business. 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. This quarter marks the beginning of a very special year for Aktia, and we are celebrating 200 years since the first account opened in the Helsinki Savings Bank. Aktia delivered a strong second quarter, and I'm generally proud of what we have achieved together. Comparable operating profit reached EUR 33.7 million, up 67% year-on-year. This result reflects solid underlying business performance, supported by the impact of the new ECL model. All our businesses contributed. Net commission income increased by 7% to EUR 32.5 million, driven by higher fund income. Net interest income turned upwards and reached EUR 33.1 million, up 3% from the previous quarter. Life insurance delivered an excellent result, with net income increasing by 75% to EUR 14.1 million. Credit losses decreased by EUR 10 million, while EUR 8.1 million came from the transition to the new ECL model. The underlying development was also positive. Both individual and model-based credit losses declined. Our loan portfolio remained high quality. Assets under management reached a new record of EUR 18.1 billion, supported by EUR 376 million net subscriptions. So again, strong performance and support from the favorable market conditions. Our ENPS also reached an all-time high, plus 35%. For me, this quarter is particularly meaningful. It shows that the choices we have made, the focus we have created, and the work we have done together are delivering results. Strong performance, clear momentum and a team I'm very proud to lead. Compared with the previous quarters, the second quarter of 2026 was indeed exceptionally strong, operationally the strongest ever. As I pointed out a moment ago, the difference is, to some extent, explained by the one-off effect of the model changes. The quarter would have been very strong even without these one-off effects. Our business areas are performing well and delivering results. As you know, we closely monitor trends in our assets under management and net sales of our investment products. We are now reporting the fifth consecutive quarter of positive net subscriptions. For the second quarter, net sales were EUR 376 million. In fact, the entire first half of the year has been characterized by strong net sales totaling over EUR 600 million, something which unfortunately was somewhat overshadowed by the market turbulence during the first quarter. Overall, assets under management have increased by more than EUR 2 billion in 1 year. The role of international sales is being strengthened through our focus on sales and new partners. Through our 6 partners, primarily in German-speaking Europe, but also, for example, in the U.K. and Benelux countries, we are seeing increasing activity and new business coming in. Net sales in the second quarter exceeded EUR 130 million, and we are continuing to strengthen our presence in these markets. Let's move on to our business areas and the implementation of our strategy. I suppose you have probably all seen this image before, but I'd like to use it to remind you of the change we have made in the way we understand, view and manage our business operations. Our business model has 2 distinct pillars. We have the capital-light Life and Wealth business with a strong growth potential. And we have the stable but more capital-intensive banking business. These 2 areas complement each other well. We see our capital-light Life and Wealth as a clear growth engine in the future. Importantly, growth initiatives in the capital-light business have a clear positive impact to our ROE. Over the past quarters, we have made tangible progress executing our strategy. The strongest momentum is clearly with Life and Wealth, where we have contributed our growth investments. We are seeing now a concrete proof that our strategic choices are delivering results. Assets under management have surpassed EUR 18 billion, but the number itself is only part of the story. What matters is the quality of the growth. Our focus is not simply gather more assets, but to grow in areas that create sustainable profitability and long-term shareholder value. This is the way we continue to prioritize high-value products, active wealth management and international institutional mandates. Not all assets are equal. Same mandates generate significantly stronger economics than others. And our ambition is profitable growth, not growth for its own sake. Within Life and Wealth, the development has been particularly encouraging. Investment-linked insurance continues to reach new record levels alongside increasing assets under management, demonstrating the strength of our integrated customer offering. Internationally, our strategy is working. Demand for our fixed income expertise is growing. International AUM and net inflows are rising, and we are now taking the next steps to strengthen our presence in Central Europe. At the same time, banking continues to provide a strong profitable foundation that enables our growth investments. Our loan portfolio remains healthy. Credit quality is solid and credit losses continue to develop favorably. Strong growth in leasing, higher purchase and factoring has successfully offset weaker mortgage loan activity, while our updated credit risk models have strengthened our quality of balance sheet. Perhaps most importantly, banking is much more than lending business. It's our largest customer platform and one of the strongest distribution channels for Life and Wealth. Together, these 2 engines create something that is increasingly unique in the Nordic market: a stable, highly profitable banking business, funding scalable, capital-light wealth and life platform with significant long-term growth potential. Next, a few words about momentum. This program has done exactly what it was designed to do. It sharpened our strategic focus, accelerated execution and embedded growth initiatives in our day-to-day business. We have, therefore, already moved beyond the project phase. Momentum is no longer a separate program. It's simply how we operate. We exceeded our first year target by delivering a EUR 13 million run rate improvement against EUR 7 million targets, putting us well ahead of plan. As the program has now become business as usual, we will no longer report momentum separately. More importantly, the results speak for themselves. Net commission income growth has reached our 5% target, and we remain firmly on track to exceed EUR 20 billion in assets under management by the end of 2027. Two sustainability points for Q2. Firstly, we will continue voluntary CSRD reporting. For Aktia, this is about trust, transparency and comparability, even if the formal obligations change. Secondly, we have submitted our science-based climate targets for SBTi validation. By 2030, we will target a 33% reduction in Scope 1 and Scope 2 emissions. We also target 58% of relevant clients and investments having approved SBTi targets, up from 37% at the end of 2025. This supports credibility, international growth and long-term competitiveness. To sum up, our second quarter result was extremely strong. The net interest income trend turned upward. We reported strong net commission income and net income from life insurance. Our assets under management reached an all-time high level. International sales developed well, and we saw the first significant deals resulting from our new partnerships. We have a healthy loan book with good asset quality and low credit losses and an all-time high ENPS. 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 second quarter and the first half of 2026. As Anssi already said, we're extremely pleased to report excellent second quarter results with comparable operating profit of EUR 43.7 million, one of the highest quarterly profits in Aktia's history. Starting from the net interest income, as we had indicated in previous quarters, the declining trend turned in the second quarter as the reported NII grew 3% compared to the first quarter. Overall, we reported EUR 33.1 million NII in the second quarter and EUR 65.1 million in the first half, which is still below last year, but the quarterly trend is now increasing. Both the loan book and deposit stock decreased slightly during the quarter. Net commission income growth of 7% compared to the same period last year is one of the highlights of the quarter, something we are very proud of as it signals that we are delivering in one of the core parts of our strategy. In the Life Insurance business, we reported exceptionally high net income of EUR 14.1 million in the quarter as the effects from the shifting interest rate curve and overall market turmoil corrected from a very weak first quarter. Looking at the first half in total, we reported net income from life insurance of EUR 15.1 million, which is 4% ahead of last year. The one large individual impact that contributed to the close-to-record comparable operating profit comes from the implementation of the new expected credit loss model. This generated EUR 8.1 million profit impact during the quarter, in line with what we had already announced in April. Another one-off item worth paying attention to is the approximately EUR 1 million gain we booked from reorganizing our liquidity portfolio shown in the other income line. On the capital side, our CET1 ratio was 12%, down 0.8% from the previous quarter. This decrease was due to the new IRB models being taken into use, again, in line with what we had already announced before. From a segment perspective, all our 3 business units grew top line in the quarter compared to last year, with solid quarters from both banking and Asset Management segments. So we're truly firing on all cylinders in our business. Then, turning to Life Insurance, we spent a lot of time and effort in our Q1 call to explain why the weak result in Aktia Liv was not something we were particularly concerned about. Now we are happy to be able to confirm this in actual numbers, as the net income from life insurance in Q2 was at an exceptional level. The largest part of this excellent result derives from the recovery in the with-profit portfolio from the very weak Q1, driven by a correction in the valuations of both the investment portfolio assets and the discounted value of the liabilities. We can never rule out other similar periods of volatility during the rest of the year. But barring that, we could say that after the H1 result, our with-profit portfolio is now back at a normalized level. The risk life insurance business also had a solid quarter following a slightly weaker Q1. This is one of our core strategic focus areas, so we are obviously very happy to see that. The unit-linked business also had another good quarter with AUM again reaching a new record level. So Q2 delivered a very strong recovery for our life insurance business, but not just that, but also a very strong underlying performance. The development of net commission income in the quarter was really, as I said, one of the highlights. In total, NCI grew by 7% year-on-year. And within this, the mutual funds and asset management were the driver, growing by over 9%. The strength of this result is further underlined by the fact that we have an ongoing restructuring project in our cards offering, which generated some transition costs weighing on the result. Our lending fees grew year-on-year, but also from the last quarter, although activity in the loan market in general is still not at the very high level. Net commission income growing by over 5% is one of our key financial targets, and we are very, very happy to be on that trajectory. As mentioned earlier, in Q2, we did witness a turn in the net interest income as the quarterly NII grew from the previous quarter, having declined for 9 quarters in a row following the lower interest rates. Our loan book was stable in the quarter, and deposit stock declined very slightly. This downward movement in deposits was, however, a result of certain larger corporate deposits converting into AUM. Household deposits in turn increased slightly. We expect the NII dynamic going forward to remain positive as the interest rate increase we have seen in 2026 will work its way through the interest income. As we have stated before, we do undertake standard hedging measures for the deposit side, which means that any market rate moves will come through with a lag, so the full effect of the higher rates will only be felt fully next year. On the cost side, we had a rather uneventful quarter with a planned moderate 3% increase in operating costs compared to last year. Our personnel costs are very well in check, considering the collective agreements for salary increases in the sector and also relative to our peers. IT costs are increasing as we continue to invest in data and AI capabilities, and the previous year's higher CapEx shows a slightly increasing depreciation charge. As explained in detail in our Q1 presentation, during the quarter, we had 2 important model implementations. First, we implemented our new IRB models in June, which affected both our risk-weighted assets and also our capital. The final impact from the new models on our CET1 capital ratio was slightly over 1%, in line with what we had guided in Q1. And secondly, we also implemented our new ECL model in June, which decreased the expected credit loss provisions by EUR 8.1 million, again in line with the EUR 7 million to EUR 10 million guidance we gave in Q1. This impact was recognized on our P&L as already discussed. Looking at the credit loss provisions in more detail, we can see the impact of the new ECL model in declining impairment for the loan book in all 3 stages of the impairment cycle. Disregarding the impact from the new model, it is important to note that our ECL provisions continue to be at a low level, highlighting the health of our balance sheet. Finally, just noting that the relatively large number in the quarter for realized losses, which have already been written off and removed from the impairments, primarily consists of a large case, which was provisioned during 2025. CET1 ratio at the end of the quarter was 12%, down from 12.8% in the previous quarter, but well within the upper part of our target range of 2% to 4% above the regulatory minimum. As previously discussed, the new IRB models affected the ratio negatively by slightly over 1%, while minor restructuring of the holdings in our liquidity portfolio had a positive effect. According to our capital policy, we would like our capitalization to be at a level that is prudent but efficient. So even after the slight drop in the CET1, we are pleased with where we are with our capitalization level right now. On the funding side, we have no large needs in the near future after the successful refinancings earlier in the year, but we continue to monitor the senior preferred private placement market for any refinancing needs. Aktia Life Insurance has a Tier 2 instrument, for which it has applied for a permit to call with a plan to replace and refinance the note in due course. So we are following that market as well. Then moving on to the outlook for the rest of the year. Our guidance is that the comparable operating profit is expected to be approximately at the same level or slightly higher than the EUR 106 million in 2025. We reported EUR 62.4 million operating profit for the first half, which included relatively large positive one-off items, the new ECL model in particular. Our current expectation is that the underlying performance in the second half of the year should be roughly similar to the first. In giving our guidance, we recognize the volatile nature of our life insurance business, which at times may have a meaningful impact on our results if market conditions change, as we saw during Q1 this year. Hence, at this point of the year, we are still reaffirming our guidance, but are adding a further note that the result could be slightly higher than last year. Again, we will review our guidance throughout the year as more data becomes available. This completes our review for the second quarter results. So thank you for listening, and we're now happy to take answers to your questions. So the Q&A session will be moderated by Oscar. Thank you.

Thank you, Anssi and Sakari. Welcome back on stage. So now we're happy to answer your questions. And I think we'll start with Antti Saari from OP here, who is here on site. Antti?

Firstly, I would like to ask you about your premium banking clients. According to your comments and asset management development, it's performing quite nicely, but still your mortgage lending is declining. And to me, it seems that perhaps you're slightly losing market share in that. So how do these come together?

That's a fact that our market share is a little bit dropping. But at the same time, we need to remember that Aktia has sharpened the focus on where we are aiming our resources and what kind of customers we would really like to have. And obviously, we have targeted premium and private banking type of customers, and we have the clear focus, and that target group is slightly or relatively smaller than the whole society, so to speak. So we are aiming at that target group, and that has an effect on our mortgage lending.

So in your target area, the lending is growing?

In the target area, it's growing. And especially in private banking, the growth has been extremely good during the past, I don't know, 4, 5 quarters; we are doing relatively well.

Then the second question: looking at the 29 targets that you published some time ago, when you published them, they seemed ridiculously high to me. But looking at your performance in Asset Management right now, they seem reasonable and perhaps achievable if you continue like this. So how would you describe your net flow in Asset Management? Is it according to your targets? Or are you actually even running above your internal targets at the moment?

We are running according to our targets, so to speak. So we have this EUR 20 billion target for the Momentum program. And as you said, it's achievable at the moment; it looks like that. And we have been extremely successful, especially in the wealth management side. So according to our targets, it's achievable. So that's the case.

Then one more question. Asset Management has been performing nicely, as mentioned. But what's your biggest area to improve in Asset Management at the moment? There must always be something to improve.

We are improving at the moment, and the positive lead to our international sales. So it's moving in the right direction. We are achieving our goals at the moment. But obviously, we have high expectations for international sales. So we are putting a lot of effort into that at the moment.

Maybe if I can just add one thing. Not to dampen, but it's important to note that we also, in asset management, have taken some decisions about what we don't do. So there are certain areas, especially in the closed-end fund side, where we expect the AUM to decline from those parts, and then we expect to replace it from others. So net sales at this slope in the growth is probably not going to happen, but the growth we expected to see and are still positive on reaching the targets, absolutely.

Thank you. And then we have a question from Thomas Kaita from Nordea regarding the AUM and NCI. So the question is, your AUM grew by 15%, but asset management net commissions only by 7%. What is the reason for this? Sakari, would you like to start?

Well, I think purely mathematically, if we sell the whole income or the full year income has not really come from the net sales, let's say, during this year, but only half. So if you would halve the growth of AUM, and you probably are at the right ballpark, and then we are growing probably even a little bit faster in a way, the NCI would tell. Yes. That's the case.