Cembra Money Bank AG (CMBN) Earnings Call Transcript & Summary

Good morning, everyone. Great to be here for the presentation of our full year results for 2025. As usual, here with our CFO, Pascal Perritaz, our CRO, Volker Gloe, and look forward to walking you through the presentation. And then as always, we'll take your questions. Let me start with the key messages we have for you this morning. First, with continued focus on delivering on our transformation and executing our strategic programs, we have yet again been able to increase net income to -- for the year to CHF 180 million. Second, our efficiency drive continues to deliver with CHF 19 million of cost savings. We're at the upper end of the guidance that we provided. In a volatile global economy and interest rate climate and a somewhat less predictable macro environment, we have successfully defended our net interest margin and held the line on loss performance with well-calibrated volume, price risk management across our product lines. This active portfolio management has led to selective growth across our products. As you know, we're optimizing for profitability. The slowdown in personal loans has thus largely been offset through growth with a bias towards secured assets in less risky segments. Given this overall strong performance and capitalization, we're pleased to announce a proposed dividend increase to -- of 8% to CHF 4.60 and extraordinary dividend of CHF 1. Finally, with revenue growth expected in line with GDP and further significant cost savings, we continue to pace towards our financial targets and expect a 2026 ROE of around 15%. Let me give you the highlights of last year's performance. Net income up 5%, as explained, with net revenues and net financing receivables lower, reflecting focus on profitability, further significant improvements in cost/income ratio to 45.2% and 43% in the second half. Loss performance came in at 1.1%, in line with the guidance and ROE at 13.7%. This resulted in very strong Tier 1 capital ratio of 17.6%. And with that, the proposal of an ordinary dividend of CHF 4.60 and extraordinary dividend of CHF 1. As we zoom in on the specific segments in the markets, as already mentioned, lending in 2025 reflected the continued shift into more secured business and payments, solid with growth in credit card assets. By product, this means in personal loans, we continued our approach with growth on better performing, more profitable segments and degrowth in less-performing segments. This approach is delivering as planned with very solid new vintage risk metrics and more on this later from Volker. We have also held our market share in a contracting market in the second half. Auto continued to grow nicely. Our new leasing platform has further strengthened our proposition and net financing receivables were up 3%. Cards assets also up slightly, driven by our own proposition and co-brand partnerships and buy now pay later core activities were up. As you see in financing volumes, billing volumes down due to the portfolio consolidations we already explained and articulated. So overall, and in the mix across products with a bias towards secured assets, we continue to hold very solid positions in our markets. A few items to highlight operationally aligned with our dual transformation objectives, as you know, both efficiency as well as generating increased customer value. On the business and operating model simplification, we've aligned our distribution network into regional centers, consolidating our presence and enabling full service capabilities in high-visibility locations across the country. We've also driven infrastructure consolidation forward meaningfully. This is an important element of our efficiency programs, retiring and decommissioning numerous major systems and apps and in-sourcing others to drive further simplification and business model resilience. We discussed the auto platform in the summer. We're extremely pleased here, with significant tangible efficiency increases, higher automation as well as faster and simpler processing for our partners. Our app with now over 600,000 enrollments evolves increasingly into a comprehensive integrated platform for our users. We now serve card, auto and loan customers through this app and continue to launch value-added services and products on a regular basis. We're also excited about our new and enhanced loyalty proposition for the Certo! credit card family. This is a unique program in Switzerland with a comprehensive loyalty ecosystem that allows merchants to connect with targeted customer segments and offers enhanced and seamlessly accessible and visible benefits for our customers. We've already signed up over 30 retail partners and plan to add more as we go along. So with that, let me hand over to Pascal to go through the financials in more detail.

Thank you, Holger, and good morning, everyone. I'm pleased to report a strong financial performance for the full year 2025. The net income increased by 5% to CHF 179.6 million demonstrates the resilience of our business model and the continued benefits of our transformation program. With that, let me go through the P&L. The increase in net income was primarily driven by lower operating expense and continued solid risk performance. The net revenue decreased by 2% to CHF 542 million, reflecting the selective growth in receivables in lending and lower interest income in cards following the regulatory change in maximum interest rates. The net interest income decreased slightly by 2% with the impact of this lower pricing on assets as well as reduced interest income from cash and securities, partially offset by lower interest expense. We successfully defended our net interest margin at 5.5%. Commission and fees income amounted to CHF 170 million and remained broadly stable across all revenue streams. The consolidations of the BNPL portfolio and the runoff of the Cumulus credit card migrations portfolio were both successfully completed in 2025. Provisions for losses remained stable at CHF 74 million, resulting in a loss ratio of 1.1%, and Volker will further comment soon. Operating expense decreased by 7% to CHF 245 million, and this is mainly driven by the efficiency gains from our strategic transformations, including the completed infrastructure consolidations and continuous progress automation. As a result of this decrease in operating expense, the cost/income improved by 2.9 percentage points to 45.2% compared to 48.1% in 2024. Let's now talk about the net financing receivables and the yield development. The net financing receivable declined slightly by 1%, precisely 0.6%, to CHF 6.6 billion, and this is reflecting our active portfolio management and the focus on our high-quality assets as part of our Cembra DNA. The auto lease and loans mainly secured business grew by 3%, supported by the increased used car penetrations and the successful rollout of our new leasing platform. The personal loans declined by 6% due to the selective underwriting and pricing to maintain risk-adjusted. Credit cards grew by 1% with stable customer engagement and the continued rollout digital features like Scan2Pay, installment-to-pay or our newly launched loyalty program. Risk-adjusted pricing across auto and personal loans contributed positively to yield stability through the year in lending. Card yield was impacted mainly by the change in maximum interest rates. Let's now talk for provisions for losses, and I would like to hand over to Volker, our Chief Risk.

Yes. Thank you, Pascal. Loss provisions for '25 came in at CHF 73.6 million. The loss rate stayed stable at 1.1%, so very much comparable with the long-term trend, in line with our expectations and also the guidance that we provided for 2025 when we have been speaking about a loss rate of around 1%. Numbers in '25 continue to be impacted by the past changes in accounting estimates. We've been explaining the need to synchronize collections and write-off procedures before and its purpose to allow for more collections activities to finalize before writing off an asset. As expected, the effect -- so the positive effect on losses has been more prominent in the first half of the year than the second half. It has also influenced the portfolio quality metrics throughout the year as shown in the numbers on the 30-plus delinquencies and NPL, a computation of how normalized numbers look, you can see on the upper right of this page. While reported NPL numbers are going up, they are mainly driven by this aforementioned synchronization effect and its mechanics. When taking out this effect, numbers are about stable, though there are certainly some product-specific variations. As this synchronization effect now is tapering off, we expect going forward more stability in reported numbers and not only in the adjusted figures. Generally, we stay very prudent in our risk taking in '25 and have been selective in what areas we wanted to grow and where we, in the current environment, rather stay cautious. And we continue to calibrate our strategies in this triangle of risk, price, volumes for hitting the right balance for optimizing profitability. This is then also reflected in our new business quality, where the portion of good quality CR1 and CR2 volumes, especially CR1, is increasing. Our deliberate focus on leasing volumes is impacting this development. While specifically on personal loans, we kept our cautious approach for ensuring an overall strong portfolio quality. As we feel comfortable with the current risk/reward level, we started to adapt our policies to allow for more, though obviously still controlled growth going forward. We do that through data analytics, more granular segmentation, and it allows us to reenter segments that we deliberately excluded before. This seems justified when looking into the vintage write-off performance, where we see that the recent changes and prudent policies are paying off, as illustrated on the bottom left, where the latest vintage, the very short curve, is certainly among the best ones. When it comes to outlook, I mean, the current environment might create some difficulties to come with exact predictions for the future. Nonetheless, currently, we would not see any reason why loss performance for '26 would materially deviate from '25. In other words, or simple words, our expectation is that losses for 2026 would again come in at an around 1% loss rate level. And with that, I hand it then back to Pascal.

Thank you, Volker. Let's talk about operating expense. As mentioned before, the operating expense decreased by 7%, and this is reflecting our strong cost discipline and the benefits from the efficiency initiatives. 10% reductions in personnel costs, compensation and benefits. And this is supported by the continued FTE optimizations, mainly due to the automation initiatives and the optimization of our operating models, lower depreciation driven by completions of amortization of some intangible assets related to past acquisitions and over legacy assets. And we have seen as well as some lower marketing and professional services expense due to the tight spending discipline. This effect resulted in a cost/income ratio, as mentioned before, 45.2%. I'm particularly pleased with the second half of the year, a cost/income ratio below 43% as of -- precisely as of 42.9%. On the next page, the ongoing technology initiatives, including the infrastructure consolidations, automation, reduced amortization of further legacy assets and continued disciplined expense management will contribute to the 2026 OpEx reductions between CHF 15 million to CHF 20 million. With the expense trend and the actions triggered over the last 2 years, it puts us firmly on track to reduce our cost base by this amount, CHF 15 million to CHF 20 million in 2026, reaching 39% to 41% for the full year 2026, respectively, further improvement towards the 39% target cost/income ratio. Balance sheet. Our balance sheet remains robust. Net financing receivables slightly lower at CHF 6.6 billion with the portfolio quality improving with the continued shift towards secured and higher quality assets, as mentioned earlier. Funding increased modestly, driven by continued growth in retail deposits. The shareholder equity increased by 5%, reflecting the net income partially offset by the CHF 125 million dividend. Funding. We further strengthened and diversified our funding base. The retail deposit continued to grow following the successful product redesign, savings product. In 2025, we successfully launched 2 auto covered bonds issuance of each CHF 150 million, and this is adding a low-cost and flexible funding tools to our funding mix. And the end of period, the funding cost improved to 1.33%, continuing the trend of lower funding expense supported by the easing of the interest rate environment. Liquidity metrics remained strong with LCR at 744% and NSFR at 116%. Let's talk capital. Our capital positions remain strong with a Tier 1 capital ratio of 17.6%, above our midterm target of 17%. The risk-weighted assets increased by 3%. This is mainly due to the adoption of the FINMA Basel III final standards, reducing the Tier 1 by 0.6 percentage points as we communicated previously. Reflecting both on one side on the strong financial performance and the confidence in our future earnings power, we will propose an increased ordinary dividend of 8% to CHF 4.60 per share and an extra dividend or special dividend of CHF 1 per share, leading to the 17.6% Tier 1 capital ratio mentioned before. Our capital policy remains unchanged, balancing organic growth, disciplined acquisitions and M&A and the return of excess capital to shareholders. We expect the Tier 1 ratio -- Tier 1 capital ratio to be at around 17% by year-end 2026 and dividend growing at least in line with sustainable earnings growth. With a consistent strategy execution, disciplined risk management and strong operational delivery, we entered 2026 with solid momentum. With that, I would like to hand over to you, Holger.

Great, Pascal. Thank you. So let me walk you through our strategy execution scorecard here on this next page. As you know, 4 strategic programs built on our DNA. Some of these I mentioned already, but prudent risk management continues to deliver, particularly against a less predictable macro environment. Our funding position is strong with an extended toolkit, as Pascal just explained. We're pleased with our progress in operational excellence, leading to continued improvements in the cost/income ratio on the back of almost CHF 20 million cost reduction in 2025. On the commercial side, we're accelerating product and service innovation. We're excited about the new loyalty proposition as explained. We've added new partners, and we see good growth in our partnership with TWINT. Last but not least, we're proud of the work our teams do every day and the recognition such as being recognized by Great Place to Work as one of the best workplaces. You can see the KPI we track on the right, both for 2025 and also for the strategic cycle to date as we're now in the final year, of course, of that cycle and really mostly on track across growth, capital, cost income losses and others and continued trend towards the target corridor such as an ROE. So let me bring this together in our outlook for the last year of this cycle, again, along our defined programs. First, you can expect us to continue our careful calibration of risk, volume, price as it relates to originations mix between secured and unsecured business, balance sheet and non-balance sheet income as well as growth across our products. It's a proven concept for us. Second, we will continue to drive automation and simplification across the company with a focus on personal loans and continued consistent decommissioning of legacy systems. We've mentioned the related cost reductions for the year. Commercially, we're looking to leverage the cashgate expansion and product initiatives such as embedded finance and personal loans and continued benefits from our auto platform for profitable growth in the lending business and the range of new services launched, the new loyalty program and partnership penetration to drive growth in payments, mostly through commission and fees. On the culture side, we're driving the organizational alignment with the new customer and growth division to embed customer centricity even deeper in our operating model to deliver against these initiatives mentioned. Last, we're excited about defining the strategy and key programs for the coming strategic cycle as we take Cembra into its next chapter. And we're planning to have an update for you on this towards the end of the year in the fourth quarter. What this implies for 2026? We expect continued resilient performance with net revenues growing in line with GDP, stable net interest margin, further significant improvement in the cost/income ratio, stable loss performance and strong capital, overall delivering an ROE of around 15%. This implies substantially all KPI we set out around 4 years ago to land at or within range of the objectives we communicated at the time, including cumulative EPS growth, before we head into the next strategic cycle, including further performance improvements going forward. Now a few words about the change in our Management Board. And it is with sincere appreciation that we marked the conclusion of Pascal's tenure here at Cembra. Over the past 8 years, he's played a pivotal role in strengthening our financial position, reinforcing our capital discipline, supporting the consistent execution of our strategy. On a personal note, I have greatly valued our partnership. and the trustful collaboration that we've built. Together with this outstanding team, we've achieved a great deal since we've worked together. Pascal leaves Cembra in a strong position and his contribution will have a lasting impact. I'd like to thank him sincerely for his commitment and leadership and wish him, of course, all the best for the future. At the same time, I'm very pleased to welcome Christoph Glaser as our new CFO effective March 1. Christoph brings more than 2 decades of experience in finance, risk and operations across international and listed organizations with deep expertise in consumer finance and lending. So he combines strong and broad technical competence with leadership experience and strategic perspective. Given this, he is a strong addition to our leadership team as we continue to execute our strategy and drive the next phase of Cembra's development. With that, thank you for listening to the presentation, and we look forward to your questions now.

Our first question comes from Máté Nemes from UBS.

I have three questions, please. The first one is on risk. We are seeing a quite clear and material intra-year swing in the loss rate, first half around 0.9%; second half, about 1.25%. Could you elaborate what drove this or confirm that my understanding is correct? Is this mainly related to the synchronization of collection and write-off procedures? And if so, is the second half loss rate indicative of what we can expect on a run rate basis without any further management, i.e., how do we get back to the 1% -- roughly 1% level from here onwards? That's the first question. The second question is costs. Clearly, another round of ambitious cost savings planned for 2026, CHF 15 million to CHF 20 million. And it seems like the bulk of that is coming from strategic initiatives benefits. If you could elaborate on what exactly is included here, that would be helpful. And the last question is on NII and more specifically the margin. I think you're expecting a stable margin. We can clearly see declining funding costs. But at the same time, on the asset side, the now lower interest rate cap clearly means you have to reprice some of your personal loans. Could you give us an approximate bridge in 2026 as to the margin? And if you could also highlight how much of your personal loan portfolio is currently at rates above the regulatory limit?

Thanks, Máté. And let me hand over to Volker for the first question, and Pascal will take the next two.

Yes, Máté, you're absolutely right in your observation. So first half loss rate was at 0.9% and second half at 1.2%. And this difference between first half and second half is driven by the synchronization effect. That's an activity that we started to execute in Q4 '24 already, and that has been benefiting the first half more than the second half because we have now reached a kind of new equilibrium basically. What I want to add to that is that we also in the past have been seeing always -- it kind of sends a bit of seasonality between the first half and the second half. So typically, the second half is slightly worse than the first half, which probably comes a bit on top. I think generally, obviously, when it comes now to looking ahead, we do not manage the loss rate in isolation. We manage in this triangle for profitability. I mean we are now guiding for a loss rate in '26 of around 1% level. And I think we can get there. We will get there by actually managing this triangle.

Pascal?

Thank you, Máté. Second question is related to cost and ultimately the continued expected reductions of operating expense from CHF 15 million to CHF 20 million in 2026. And this is basically as the result of 4 specific activities, I would say 3 of them are highly strategic. The first one is obviously lower personnel costs expected resulting from the work we have done now over the last 1 to 2 years, meaning particularly the automation we have achieved in some of our processes and continuous optimizations of our operating models and service deliveries. The second one is we clearly expect in 2026 further efficiency gains in IT. So we have done a lot of work related to IT consolidations, decommissioning of infrastructure, which we also still continue to do in 2026. And we'll have a bit of less funding costs related to strategic initiatives. Obviously, we'll start in 2027 as this new strategic program for 2026, it's more the end of the strategy cycle. The third one is we will start to see a bit certainly less than what we have seen at this year, but continued reductions in depreciation and amortization expense from some software and intangible assets reaching the end of life in 2026. And the last one is, I think what we have demonstrated now for almost decades, this very disciplined approach on expense management, depending on how revenue was developed, we clearly proactively manage any discretionary costs. So with that and particularly the initiatives which are being implemented, what we have achieved in 2025, we are -- we firmly believe that the CHF 15 million to CHF 20 million is achievable. The last question is around the NIM. So we expect for 2026 a stable NIM, around the level that we have been in 2025. And given the strategy we have implemented over the last 1 to 2 years in the personal loans, we have more focus on high-quality assets by default, as we have a limited exposure now to contracts which are today priced at the max level.

That is very helpful. And Pascal, just wanted to thank you for the years of constructive collaboration and discussions we had on our earnings calls and other venues. I wish you the best in the next stage of your career. We'll clearly miss you dearly.

Thank you.

The next question comes from Daniel Regli from ZKB.

And obviously, I first would like to follow Máté. Also from my side, thanks a lot, Pascal, for the years of collaboration, and working together was always a pleasure. To my questions. First, quickly on the personal loans book. And obviously, we have seen another decline in H2, which was not that unexpected due to more restrictive lending. Can you maybe talk a little bit about how you have kind of released your lending policy again early this year and whether there was some kind of connection to the U.S. tariffs and expected short-time work in certain segments of Switzerland. And then secondly, a follow-up on the net interest margin. Can you maybe give us a little bit of guidance on the cost of financing side and how far you expect the cost of financing to go down this year?

Thanks, Daniel. Let me just start on the P loan side and then Volker over to you and Pascal on the NIM question. So the second half, there's a couple of dynamics here, right, Daniel. So firstly, as I mentioned, we held the share in the second half, which implies that the market sort of moved in a similar direction, right? I think this is something that you've seen from us frequently as a leader in the market. We typically set the tone in pricing. We set the tone in risk management and others and the market ends up following in a way. That's just to give you some context. Let me hand over to Volker, indeed, for the questions on the policy and the impact of what we see in the market.

Yes, Daniel, the -- I mean it's part actually of regular risk management to optimize underwriting procedures and adjust it to the macro environment that we are currently seeing. With that said, I mean, macro in Switzerland is obviously very resilient. So even if there would be swings, we wouldn't be hit by that immediately that would take some time to kind of eat into the portfolios. I mean when it comes to the releasing lending policies, the kind of adjustments that we have been doing, it's actually also part of regular risk management. We have been identifying segments that we have been exiting before because we wanted to be cautious. And now currently also with more granular segmentation, we feel comfortable that we can reenter these segments and by that support the growth, given that this is profitable growth. And that's kind of, again, back to this triangle where we try to find the right balance between risk, between the pricing and also the volumes to support growth in the business.

On NIM and particularly on the cost of funding or interest expense, first, I would like to reiterate the approach we have around first managing the net interest margin. So we have seen certainly some volatility in swaps rates. We have implemented as very clear the dynamic pricing. And depending on how these interest rates develop, we can -- we go up or down with the pricing with the target to calibrate the net interest margin around stable. If I look at now the interest expense, how they developed '24 to '25, 1.53% in '24, now 1.33%, we would expect a slightly reduction in 2026 as well.

[Operator Instructions] Gentlemen, there are no further questions. Mr. Laubenthal, back over to you for any closing remarks.

Excellent. Thank you. Well, look, thanks for dialing in, everyone, this morning and listening to our webcast here in terms of the earnings. I think good results, income at CHF 180 million. I think we're delivering on the key controllables in terms of cost loss. I think a good outlook for the remainder of the year, and we look forward to continuing the discussions with you. Thank you very much for listening in this morning.