Aprila Bank ASA (APRILA) Earnings Call Transcript & Summary

Hello, everyone. I am Kjetil Barli, CEO of Aprila Bank.

And I'm Espen Engelberg, CFO of Aprila Bank.

Welcome to Aprila Bank's First Quarter Presentation. So I will start by presenting the highlights of the quarter, Espen will present the financials in more detail and then I will conclude by presenting our top priorities and reiterate our guiding for 2025. So we're not doing a live Q&A session this time. So if you have any questions during or after the presentation, please send them to the provided e-mail address and we will respond in due course. First, a quick recap on Aprila. Aprila is a digital bank that provides credit to a large and underserved market of small and medium-sized businesses. We have built a highly scalable banking platform that today serves more than 5,000 businesses and is designed to serve a significantly larger customer base. We use our own proprietary credit models to predict outcomes and price risk. And now with around 7 years of history, these models have become very accurate. To the customer, Aprila represents speed, convenience and accessibility or as we say in our Norwegian tagline [Foreign Language]. Now let's have a look at the numbers from the first quarter. So we delivered an all-time high nominal lending growth of NOK 143 million in the quarter. This represents a growth rate of 26% year-on-year and 13% in the quarter. Total income increased 16% year-on-year and 7% in the quarter. We also delivered an all-time high pretax profit of NOK 14 million, beating the second quarter last year by NOK 50,000. Loan losses amounted to NOK 11.6 million, a level we are very satisfied with. Return on equity was 18.5% in the quarter and 16% over the past 12 months. We have a solid capital position with a CET1 ratio of 29.2%, 7 percentage points above the overall capital requirement. We expect FSA to perform a new SREP this year, which we hope will result in more appropriate Pillar 2 requirements. Now I will present the most important high level numbers on 5 slides before I leave the floor to Espen to explain the financials in more detail. Starting with the first key driver of income, gross lending. At the end of the first quarter, gross lending had grown 26% year-on-year and 13% quarter-on-quarter. In 2024, we completed a set of initiatives intended to accelerate growth. We increased the maximum credit limit from NOK 5 million to NOK 15 million in the second quarter and further to NOK 25 million in the fourth quarter. We launched company guarantees in the third quarter. We launched down payment loans in the fourth quarter. And during the year, we increased the sales team from 2 to 6 members. We believe that these initiatives combined with a positive macro sentiment in the first half of the quarter have had a positive impact on the growth in the first quarter. We hope to continue in the same pace, but we have seen a slowdown in lending growth in the second quarter and believe that this is caused by increased macro uncertainty. Over to the second key driver of income, yield. We delivered a lending yield of 26.3% in Q1. Going forward, we expect lending yield to continue to trend downwards in a controlled manner caused by the shift towards larger customers with lower credit risk. Our liquidity portfolio delivered an annualized return of 4.5% in the quarter and funding cost was 4.8%. The combination of our income earning assets, the deposit balance and the yield levels I just presented translated into a total income of NOK 56.7 million in the first quarter. This represents a growth of 16% year-on-year and 7% in the quarter. Now let's look at how this translates to profit and return on equity over time. Over the last 12 months, total income adjusted for one-offs in Q4 last year amounted to NOK 218 million. This represents a growth of 24% when compared to the 12-month period that ended in the first quarter last year. In the chart in the middle we can see that over the same period, the sum of costs and losses relative to total income has declined from 83% to 77%. In turn, this translates to an underlying pretax profit increase from NOK 30 million at the end of Q1 last year to NOK 51 million at the end of Q1 this year. This represents a return on equity of 17.5%, a number we believe will continue to improve going forward. How much? Depends, first and foremost, on how fast we grow. We had a solid capital position at the end of the first quarter with a CET1 ratio of 29.2%. The bank's overall capital requirement is 22.3%. So although we think our capital requirements are too high, we still have a solid headroom for further growth. We have continued to use retail classification and look forward to get more clarity on the topic hopefully this year. Without retail classification, our capital ratio would have been 24.5% at the end of Q1. Now Espen, can you take us through the financials in more detail?

Yes. Thank you, Kjetil. I will gladly do so. Starting with the upper left chart, we had 5,395 unique customers at the end of the quarter. Moving to the middle chart on the top row, gross lending increased by NOK 143 million, the highest quarterly growth we've ever seen. This brings total gross lending just above NOK 1.2 billion. In the upper right chart, total income for the quarter amounted to NOK 56.7 million, representing a year-on-year growth of 16%. Looking at the lower left chart, the cost/income ratio came in at 55%, which is 1 percentage point lower than Q1 last year. Next, loan loss came in at annualized 4% of gross lending. And finally, profit before and after tax came in at an all-time high of NOK 14.1 million equal to an annualized return on equity of 18.5%. To summarize this, we are delivering strong key figures in the first quarter. Gross lending surpassed NOK 1.2 billion and total income is up 16% compared to last year. At the same time, we are keeping our costs and losses under control resulting in a solid return on equity of 18.5%. In short, we are not just growing, we are growing with solid profits. Looking closer at our credit line product. We ended the quarter with 5,085 accounts. We added a net 51 new accounts during the quarter. Moving to the lower left chart, the average balance per account at quarter end was NOK 227,000 while the average drawdown reached NOK 268,000 as shown in the lower right chart. These figures reflect our continued focus on attracting larger customers. And we have started to move towards the small and medium segment in businesses as we now offer credit limit up to NOK 25 million and down payment loans up to NOK 10 million. And looking closer to our newest product offering, downpayment loans, we launched in the beginning of Q4 last year. We ended the quarter with 203 accounts as we added 129 net new accounts in the first quarter. The average balance per account at the end of the quarter was NOK 253,000 and most customers select a 5-year downpayment plan. As shown in the chart on the right, our gross loan exposure across industries indicates a healthy and improving level of diversification in this product. We are closely following the development of this product and continue to make small targeted adjustment to drive the growth in balances. We booked loan losses of NOK 11.6 million in the quarter, of which NOK 7.1 million in loan loss provisions and NOK 4.5 million in net realized losses. In the upper right chart, we see that the overall ratio of overdue claims to total claims increased from 9.2% to 11.5% in the quarter. While it may look like a notable increase, this is simply the result of a technical reclassification. There has been no actual worsening in the underlying credit performance and we see no cause for concern. We do still have a healthy loan book. That concludes the presentation of the key figures from the first quarter. Kjetil, over to you for the final part of the presentation.

Thank you, Espen. So I will present our key priorities and reiterate our guiding for 2025. Our top priority for 2025 is to accelerate growth. We will continue to improve our offering to larger customers. We intend to streamline our sales processes and we will continue to optimize our loan origination model, the model that decides what customers to approve, how much they can borrow and at what price. The #2 priority is to strengthen competitive advantage. Our key focus under this priority is to enhance the automation of core customer processes such as onboarding, renewals and requests for limit or loan increases. In addition, we will continue to optimize our credit models and to streamline the customer experience. On the #3 priority, to improve long-term profitability, we will continue to automate internal processes focusing on frequent tasks that are performed manually today where we can free up capacity through automation and we will continue to improve the accuracy of our marketing spend. Now to the guiding. In 2025, we still expect to deliver a total income run rate at year-end of NOK 260 million to NOK 270 million, a cost/income of around 52% and around 6,000 customers on credit line and downpayment loan at year-end. So that wraps up our presentation of Aprila Bank's quarterly results. If you have any follow-up questions, please don't hesitate to reach out to us on the provided email address. So thank you for joining us today. We appreciate your time and interest and look forward to keeping you updated next quarter. Until then, take care and have a great day.