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 Second Quarter 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 top priorities and guidance for 2026. This is a prerecorded webcast, and 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 ir@aprila.no, and we will respond in due course. The questions and our answers will be published on our Q&A website. First, as always, a quick recap on 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 serves around 6,000 business customers today and is designed to serve a significantly larger customer base. Credit decisions are based on our own proprietary credit models with a data set now spanning more than 8 years. These models have become increasingly accurate. To the customer, Aprila represents speed, convenience and accessibility, which is captured in our Norwegian tagline with "Bedriftslån, enkelt og greit." That sets the scene. Now let's look at our performance in the second quarter. We delivered a pretax profit of NOK 31.1 million in Q2, up 78% year-on-year. This is equivalent to a return on equity of 31.1% in the quarter and 23.3% over the last 12 months. Adjusted for one-offs and holiday pay, underlying pretax profit came in at NOK 20.9 million, equivalent to a pretax return on equity of 21.2%. This is a pretax ROE, but nevertheless, with a CET1 ratio of 32%, delivering a return on equity at this level demonstrates a promising outlook for capital productivity. Turning to our growth. Gross lending increased 35% year-on-year and 7% in the quarter, reaching exactly NOK 1.7 billion. Total income increased 18% year-on-year and 8% in the quarter to NOK 70 million. This means that income growth accelerated compared to Q1 when we delivered a total income growth of 15% year-on-year and 2% quarter-on-quarter. The redomiciliation is progressing according to plan. On the 20th of May, we submitted a banking license application to FMA in Liechtenstein. The rationale remains unchanged: To safeguard Aprila's long-term competitiveness, both in Norway and in other European countries. The process is expected to take 12 months from the date of the submission of the application, which means that we expect the bank to be redomiciled to Liechtenstein by the end of the second quarter next year. 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 second quarter, gross lending was up 35% year-on-year and 7% quarter-on-quarter. In nominal terms, the lending book grew NOK 115 million in the quarter, reaching NOK 1.7 billion. For the first half of the year, gross lending growth amounted to NOK 263 million, which is a new all-time high. That said, the momentum weakened in June and growth has remained soft so far in the third quarter. We are monitoring this closely. Accelerating profitable lending growth remains our #1 strategic priority. Moving on to yield levels. As we continue to attract and onboard larger, lower-risk customers, the gradual and controlled decline in lending yield continues. In Q2, our lending yield was exactly 23%, 230 basis points lower than the same period last year and 40 basis points lower than in Q1. This is an expected development fully aligned with our strategic focus on scaling up with slightly larger ticket sizes while maintaining solid margins. The liquidity yield increased from 3.7% in Q1 to 4.3% in Q2. And funding costs edged down by 4 basis points to 4.5% with the deposit rate reduction implemented in January fully reflected. Now let's look at how this translates into total income. Total income reached NOK 70 million in Q2. This represents an income growth of 18% year-on-year and 8% in the quarter, an acceleration compared to Q1. The acceleration reflects the strong lending growth in recent quarters, gradually feeding into income. 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 5%. 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 260 million, representing 15% growth compared to the prior 12-month period that ended in Q2 last year. As shown in the middle chart, the combined ratio of costs and losses to total income has declined by 10 percentage points over the same period. This reflects continued cost discipline, but first and foremost, improving credit quality, which has been a key driver of our profitability expansion over the past year. As a result, underlying pretax profit has increased by 59% over the past year from NOK 55 million at the end of second quarter last year to NOK 87 million at the end of second quarter this year. Correspondingly, underlying return on equity has continued to improve and is now approaching 24% when measured over the last 12 months. We expect ROE to continue to improve over time, although not in the same pace as we have seen over the period we're looking at here. The pace of further ROE improvements will largely depend on income growth and the development in the credit quality of our lending book. So to sum up, over the past year, profitability has expanded meaningfully, driven by income growth and particularly improved credit quality. Looking ahead, we expect to continue delivering double-digit income growth and for ROE to keep improving over time, although at a more moderate pace than in recent quarters. With that, I'll hand over to Espen, who will walk you through our capital position and a more detailed review of the financials.

Thank you, Kjetil. Let's start with a look at our capital position. The year-to-date profit has now been reviewed by our auditor and included in CET1 capital, which has further strengthened our capital position. Our CET1 ratio was 32% at the end of the second quarter. In December, the FSA concluded the SREP 2025, where our Pillar 2 requirement was reduced from 4.8% to 3.7% and the Pillar 2 guidance was reduced from 1.5% to 1%. That means that the bank's overall capital requirement is 21.2%, and the FSA expects Aprila to maintain a total capital ratio above 22.2%. We, therefore, have significant headroom for further growth, provided that we can continue to use retail classification. As mentioned in our Q1 presentation, the EBA guideline on proportionate retail diversification methods entered into force on May 19, 2026. The guideline sets out a harmonized, balanced framework for assessing whether our retail portfolio is sufficiently diversified to qualify for a reduced retail risk weight under the standardized approach in the CRR. At the time of this recording, August 12, we do not yet know the FSA's position on the EBA guideline. If the FSA follow the guidelines, we expect the regulatory uncertainty around our retail classification to be resolved. If not, we will continue our current practice based on our own assessment of the CRR criteria while maintaining a dialogue with the FSA. We will provide an update once the FSA position is known. Without retail classification, our capital ratio would have been 26.8% at the end of the quarter. Let's go over to look at the key figures for the second quarter. Starting with customers. We ended the quarter with 6,124 unique customers, representing another strong increase from the previous quarter. On the cost efficiency, the cost/income ratio was 48%. The quarter was affected by 2 particular items: one, the cost related to redomiciliation project to Liechtenstein and amounted to NOK 3.6 million; and two, holiday pay that reduced salary expenses with NOK 6.6 million, which is a normal seasonal effect that recurs every June. The net effect of the items were NOK 3 million in lower expenses than in the ordinary quarter. Adjusted for this, cost/income was 53% in the second quarter. Turning to credit quality. Loan losses came in at annualized 1.3% of gross lending. We did recalibrate our PD model in the quarter that released NOK 7.3 million in loan loss provision. Excluding this, the loan losses would have landed at 3%, fully in line with our expectations. And finally, profit before and after tax was exceptionally strong and reached NOK 31.1 million, equal to an annualized return on equity of 31.1%. Adjusted for the particular items and one-off effects, underlying pretax profit was NOK 21 million, also a new record on an underlying basis. Aprila has now been profitable for 13 consecutive quarters and the underlying earning trend remains strong. We continue to combine solid credit quality with disciplined investments in further growth. This puts us in a strong position to deliver profitable growth and attractive returns. Looking closer at our main product, the credit line, we ended the quarter with 5,656 accounts. We added net 139 accounts during the quarter, representing growth of 3%. The portfolio remains well diversified across industries, as shown in the upper right chart. Diversification is an important part of our credit strategy and helps make the portfolio more resilient across different macroeconomic environments. At the same time, we continue to see a gradual increase in customer size. The average outstanding balance per account increased to NOK 280,000, while the average drawdown among customers using their credit line increased to NOK 334,000. This is a development we have expected as we increasingly serve larger customers, and we continue to see the increase as controlled. 84% of customer accounts has drawn on their credit line. Looking closer at down payment loan portfolio, we ended the quarter with 468 accounts, adding net 28 new accounts during the quarter. The portfolio continues to be well diversified across industries with limited concentration in any single sector. The average outstanding balance per account was NOK 244,000 at quarter end, slightly down from the previous quarter and broadly stable over time. Overall, we continue to see steady and controlled growth in the down payment loan portfolio. Now turning to loan losses. We booked loan losses of NOK 5.2 million in the quarter, of which NOK 5.2 million in net realized losses and 0 in loan loss provision. The quarter was positively affected by a NOK 7.3 million one-off reduction in loan loss allowances following a regular recalibration of our PD model. Excluding this, loan losses would have been NOK 12.4 million, equivalent to around 3% of gross lending on an annualized basis, which is in line with our expectations. Moving to the upper right chart, overall ratio of overdue claims to total claims increased from 10.8% to 11.2%, which is stable and no significant weakening in the underlying delinquencies profile. And the 2 lower charts confirm the picture of a great quarter for the bank. Losses as a share of gross income came in at 6% and losses in percent of gross loans came in at 1.3% annualized, well below the levels we've seen earlier in the cycle. Overall, credit quality remains stable and the loss model continued to perform as expected. That concludes the key figures for the quarter. Kjetil, over to you for the final part of the presentation.

Thank you, Espen. So I will now reiterate our key priorities and our guidance for 2026. As already indicated, our top priorities remain the same. Accelerating profitable growth continues to be our #1 priority. To support this, we're improving our offering to larger customers, streamlining our sales processes and optimizing loan origination. So far in 2026, we have delivered on this priority with an all-time high nominal gross lending growth of NOK 263 million in the first half of the year compared to NOK 190 million in the same period last year. Our second priority is to strengthen competitive advantage. Here, the focus remains on increasing automation across core customer processes while continuously evolving both our credit models and the customer experience. Today, we have more than 20 AI agents and workflows in use across the bank, from document analysis and KYC assessment to collection voice agents and agents that build, test and release our software. This illustrates how we leverage automation and AI to improve scalability and operational efficiency. In addition, we are migrating to a new core banking platform, which is expected to be in full use towards year-end, further strengthening the foundation for scale. Our third priority is to strengthen long-term profitability and capital efficiency. In 2026, a meaningful share of management capacity is dedicated to securing a new banking license with the objective of strengthening capital efficiency. As mentioned, we submitted a formal bank license application to FMA on the 20th of May, and we expect the bank to be redomiciled to Liechtenstein by the end of Q2 next year. Given the potential for lower capital requirements, we have also initiated work on capital structure optimization, and we will provide more details on this topic in due course. The results of our consistent focus on profitability and capital efficiency are already visible. Return on equity for the last 12 months reached 23.3% at the end of June, up from 16.5% a year ago. Now with these priorities as a backdrop, let's turn to our guidance. So for 2026, we are targeting a total income run rate of NOK 285 million to NOK 295 million in Q4 and a cost/income of around 52%. With a run rate of NOK 281 million at the end of Q2, I believe we are well positioned to reach the target. The flat development in cost/income during 2026 is primarily caused by one-offs related to the redomiciliation process and the one-off impairment related to the migration to the new core banking platform. Excluding these effects, we continue to expect operating leverage from increased scale and automation. As mentioned in the Q1 webcast, we decided to discontinue the guidance on the number of customer accounts as this metric is less representative now as our customer mix shifts towards larger customers. 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 next quarter. Until then, take care, and have a great day.