Aprila Bank ASA (APRILA) Q4 FY2025 Earnings Call Transcript & Summary

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

I am Espen Engelberg, CFO of Aprila Bank.

Welcome to our Q4 presentation. I will start by presenting the highlights of the quarter, then Espen will present the key figures in more detail. And finally, I will conclude by presenting our priorities and the guidance for 2026. This is a prerecorded webcast, and we're not doing a live Q&A session today. So if you have any questions during or after the presentation, please send them to [email protected], and we will respond in due course. The questions and our answers will be published on our Q&A website. First, a quick recap of Aprila. Aprila is a digital bank providing credit to small- and medium-sized businesses, a large and significantly underserved market. We have built a highly scalable banking platform that today serves around 5,700 customers and is designed to serve a significantly larger customer base. Credit decisions are based on our own proprietary credit models. And now with more than 7 years of data, these models have become increasingly accurate. To the customer, Aprila represents speed, convenience and accessibility, which is captured in our Norwegian tagline, [Foreign Language]. So that sets the scene. Now let's look at the Q4 numbers. We delivered another record-breaking quarterly pretax profit, reaching nearly NOK 19 million in the fourth quarter. The results reflect strong and improving underlying profitability with a return on equity of 20.9% for the quarter and 20.6% for the full year. The Q4 result is driven by disciplined credit management over time, which has resulted in improved delinquency rates and lower loan losses. Considering our relatively small scale and our solid capital position, delivering a return on equity above 20% demonstrates the strength of our strategy and the promising outlook for capital productivity. Turning to lending and total income growth. Gross lending increased 34% year-on-year and 6% in the quarter. Total income is up 21% year-on-year and 4% in the quarter, reflecting that we're also gradually reducing the yield on our lending book. In connection with the release of our Q3 results, we announced that we have decided to pursue a redomiciliation and that we have shortlisted Liechtenstein and Sweden as potential new domiciles. Liechtenstein is our preferred option. We are in an active dialogue with the financial market authority in Liechtenstein, and the discussions are progressing according to plan. Subject to a positive outcome of these discussions, our plan is to submit a license application during the first half of 2026. Based on our estimates, a redomiciliation would reduce Aprila's CET1 requirement by 30% to 40%, making this a proactive move to safeguard Aprila's long-term competitiveness, both in Norway and in other European markets. With that overview, I will now present 4 high-level financial slides before handing over to Espen, who will walk you through our capital position and other key details. Starting with gross lending. At the end of the fourth quarter, gross lending was up 34% year-on-year and 6% quarter-on-quarter. We saw a strong demand early in the quarter, some softening in November and then a clear rebound in December. That December momentum has carried into the first quarter. In January, gross lending increased by NOK 37 million, corresponding to an annualized growth rate above 30%. Moving on to yield levels. As we continue to attract and onboard larger lower-risk customers, we're seeing a gradual and controlled decline in our lending yield. In Q4, our lending yield was 24.2% 220 basis points lower than the same period last year. This is an expected development fully aligned with our strategic focus on scaling up with slightly larger ticket sizes while maintaining solid margins. Our liquidity portfolio continued to perform well, delivering an annualized return of 4.5% in the quarter. Funding costs remained stable at 4.8%, but is expected to decline going forward following the interest rate reductions implemented in Q4. Now let's look at how this translates to total income. Total income reached NOK 63.7 million in Q4. This represents an income growth of 21% year-on-year and 4% in the quarter. In terms of composition, our income remains dominated by net interest income, which accounted for 88% of total income in the quarter. Net fee and commission income accounted for 8% and net gains on financial instruments accounted for the remaining 4%. Now let's look at how this translates to profit and return on equity over time. Over the past 12 months, total income adjusted for one-offs amounted to NOK 241 million, representing 15% growth compared to the prior 12 months period ending in Q4 last year. As shown in the middle chart, the combined ratio of costs and losses to total income has declined from 80% to 70% over the same period. This reflects continued cost discipline and improving credit quality. Over the past year, improvements in credit quality, in particular, have been a key driver of our profitability expansion. As a result, underlying pretax profit has increased from NOK 42 million at the end of Q4 '24 to NOK 71 million at the end of Q4 '25. Correspondingly, underlying return on equity has now surpassed 20%. We expect ROE to continue to improve over time, although not at the same pace we have seen over the past 5 quarters. The pace of further ROE improvements will largely depend on our growth and the development in the credit quality of our portfolio. So to sum up, over the past year, profitability has expanded meaningfully, driven by solid income growth and improved credit quality. Looking ahead, we expect to continue delivering double-digit income growth and for ROE to keep improving over time, though at a more moderate pace than in the most recent quarters. With that, I'll hand over to Espen, who will walk you through the financials in more detail.

Thank you, Kjetil. Let's start with a look at our capital position. We maintain a very solid position with CET1 ratio of 32.2% at the end of the quarter. In December, the FSA concluded the SREP 2026, where our Pillar 2 requirement was reduced from 4.8% to 3.7% and Pillar 2 guidance was reduced from 1.5% to 1.0%. That means that the bank's overall capital requirement is 21.2%, and the FSA expects Aprila to maintain a capital ratio above 22.2%. So while we think our capital requirements are still too high, we maintain a solid headroom for further growth provided that we can continue to use retail classification as we believe we can. Without retail classification, our CET1 ratio would have been 27% at the end of the quarter. Let's go over to look at the key figures from the fourth quarter. Starting with the upper left chart, we ended the quarter with 5,712 unique customers, representing a steady increase from the previous quarter. In the upper right chart, the cost/income ratio was 58%, which is 3 percentage points lower than Q4 last year. Compared to the previous quarter, the ratio is up by 5 percentage points, mainly driven by planned extraordinary costs related to preparation for redomiciliation an in-depth external validation of our IFRS 9 loss model. The external validation is a planned and important investment, ensuring high-quality and robust models as the bank continues to scale. Excluding these extraordinary items, the cost/income ratio would have been 52% in the quarter, fully in line with the bank's underlying cost efficiency. Turning to credit quality. Loan losses came in at annualized 2.2% of gross lending. This is the lowest level since Q3 2019. This reflects strong credit discipline and robust models performing in line with expectations. And finally, profit before and after tax came in at NOK 18.6 million, equal to an annualized return on equity of 20.9%. This marks 4 consecutive quarters with record high profit, and we have been profitable for 11 straight quarters. Overall, Q4 reflects strong underlying performance with solid income growth, stable customer growth, and low credit losses. While planned extraordinary costs impacted the cost base for the quarter, Aprila continues to deliver, and we are well prepared to keep delivering attractive returns going forward. Looking closer at our main product, to the credit line, we ended the quarter with 5,334 accounts as we added net 93 new accounts in the quarter. Moving to the lower left chart. The average balance per account at quarter end was NOK 252,000, while the average draw-down reached NOK 304,000, as shown in the lower right chart. 83% of customer accounts has drawn on their credit line. We see a steady growth from both existing customers and new customers on the credit line product. Looking closer at the down payment loans, we ended the quarter with 378 customer accounts as we added 43 net new accounts in the period. The average balance per account at the end of the quarter was NOK 244,000. And here, we continue to see a steady controlled growth in the downpayment loan portfolio. Now let's look at loan losses. We booked loan losses of NOK 7.8 million in the quarter, of which NOK 2.6 million in loan loss provision and NOK 5.2 million in net realized losses. Moving to the upper right chart, overall ratio of overdue claims to total claims increased from 10.6% to 11.1%, and we see a slight increase in early-stage delinquencies, but no worsening in late-stage delinquencies. Overall, the credit quality remains stable. Our loan book performed really well. And as mentioned earlier, we have completed an external validation of our loan loss model, which confirmed that the model is robust and well calibrated. That concludes the presentation of the key figures from the fourth quarter. Kjetil, back to you for the final part of the presentation.

Thank you, Espen. So I will now present our key priorities and our guidance for 2026. Our top priorities remain the same. First, we continue to focus on accelerating profitable growth. To support this, we're improving our offering to larger customers, streamlining our sales processes and optimizing loan origination. In 2025, we delivered on this priority, achieving an all-time high nominal gross lending growth of NOK 366 million compared to NOK 163 million the year before. Our second priority is to strengthen competitive advantage. Here, the focus is on increasing automation across core customer processes while continuously evolving our credit models. One tangible example of progress is customer support. 85% of customer chats were solved by AI in Q4, up from 78% in the third quarter and 0 in the fourth quarter last year. Our third priority is to further strengthen long-term profitability and capital efficiency. In 2026, a meaningful share of management capacity will be dedicated to securing a new banking license with the objective of strengthening capital efficiency. We are in an advanced and active dialogue with the Financial Market Authority in Liechtenstein. And subject to a positive outcome, we expect to submit a formal license application during the first half of 2026. The process is expected to take 12 months from the date of the submission of the final application. Given the potential for lower capital requirements, we have initiated work on capital structure optimization, and we will provide further details in due course. With these priorities as the backdrop, let's turn to our guidance. First, a quick status on our 2025 guidance. Total income run rate in Q4 came in at NOK 253 million within the NOK 250 million to NOK 260 million range. Cost income was 52%, fully in line with expectations. We did come in below the target on the number of customer accounts. As our mix continues to shift towards larger customers, this metric has become less relevant than it was when customers were more uniform in size. Turning to 2026. For 2026, we expect to deliver a total income run rate of NOK 285 million to NOK 295 million in Q4 and a cost income of 52%. The cost income in 2026 will be impacted by one-off costs related to the redomiciliation process. We plan to revert with updated targets once we have more visibility on the outcome and timing of the redomiciliation process. 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 e-mail address. Thank you for joining us today. We appreciate your time and interest and look forward to keeping you updated in the...