Jyske Bank A/S ($JYSK)

Hi, everyone. Thank you for joining us on Eke Bank's conference call for the financial results for the first quarter of 2026. This is Simon Hagbart from Investor Relations speaking. With me, I have Jyske Bank's CEO, Lars Morch; and CFO, Birger Nielsen. Lars and Birger will walk you through our prepared remarks. Afterwards, we will open up for questions. I will now hand over to Lars.

Thank you, Simon, and I would also like to welcome you to our conference call for the first quarter of 2026. We made a solid start to 2026, delivering earnings per share of DKK 17. Results were impacted by challenging financial markets, but our underlying performance continued to show good progress supported by high activity disciplined cost management and strong credit quality, while we maintained a clear focus on customers, customer relationships and strategy execution. Credit quality remained very solid in the quarter. Loan impairment charges were at a low level, while we prudently built significant post-model adjustment buffers in response to elevated geopolitical uncertainty. The Danish economy remains fundamentally sound and our customers' financial situation is generally robust, although geopolitical uncertainty is elevated. Our capital position also remains robust. At the end of the quarter, our CET1 ratio stood at 15.9% adjusted for expected payouts. This is well above our target level of 15%. Finally, we continue to make progress on our strategic priorities, including AI. Over the recent years, we've established a solid foundation. And in 2026, our focus is on scaling solutions that have already demonstrated value across advisory services, customer interaction and internal processes. Overall, we've ended the 2026 in a healthy position, well equipped to navigate the current environment while continuing to build long-term value. With that, I'll let you Birger walk through our financial results.

Thank you, Lars. And the footprint in Q1 is solid, a very solid underlying performance. As we heard, business volumes are up, activity levels are good. We see strong credit quality, and we have had a disciplined cost management. So we are fully on track with the development in the group. If you look at the left-hand side, you can see our earnings per share is at DKK 17 and exclusive of value adjustments and the investment portfolio, there was a growth of earnings per share of 4% over the year, so steady going. Looking in the middle, net profit of DKK 1,049 million in the quarter and looking at the NII, it is flattish quarter-over-quarter from the lending and deposit activities. And as fully expected, we see a drop due to the tax-related one-offs in Q4. Net fee and commission income on a steadily upward trend, driven by asset management activities and especially pension and insurance activities. And the core expenses are flattish year-over-year. So we've been able to offset the inflation trend via our cost initiatives. And if we look at employee costs, they are only up 1% despite salary increases of around 2.5%, driven by lower FTEs of around 1% over the year. On the right-hand side, asset under management dropped 1% or DKK 3 billion in the quarter, but that still includes net inflow of new customers even in the latest quarter in Q1 of '26. Deposits has shown an upward trend and has been lifted by 5% over the last 2 quarters. We've seen inflow of money market deposits, but also from personal customers. And finally, the lending is trending upwards steadily quarter-by-quarter. Mortgage -- the mortgage book is up 1%. Bank loans are down 1%, primarily driven by lower exposures from volatile public entities, but also due to transfer of bank loans to the mortgage balance. Looking at our outlook for '26, it's unchanged. We still believe to deliver within the range of DKK 71 to DKK as we announced after the release of the annual reports for '25.

Thank you, Birger. If we take a look at the personal customer momentum, we still have a strong and improved momentum on the mortgage loans. And we see again a quarter where we are growing and with even higher growth than the preceding quarters. We have a good momentum here. We have a solid product portfolio, good pricing and an organization that is strong in handling personal customers. So we're happy that we've seen this turnaround, and we are happy to see it stick. Also, we are happy about the momentum that we have in the pension insurance commissions, you see the green line on your right-hand side here, that is the growth that we've seen in the pension and insurance commission since 2021. And we see that it now is 13% of the net fee and commission income in the first quarter of 2026. And you see the combined growth here in net fee and commission income in the black line. So a strong development in general in net fee and commission income and in particular, in pension and insurance commissions. Simon?

And then on value adjustments, which were at a quite low level in the first quarter of 2026. This was primarily driven by spread widening of callable Danish mortgage bonds as well as negative returns on bank shares, partly reversing the strong development we saw in 2025. We saw a limited negative contribution from asset and liability management in Q1 However, this impact was significantly lower than historically given the level of rate movements in the quarter, reflecting the fact that we have reduced interest rate sensitivity of value adjustments. It is also worth noting that bank shares can still lead to some volatility from time to time, but they have historically generated attractive returns, particularly given their relatively low capital consumption. Additionally, we might add that we have seen some degree of reversal so far in Q2. Most importantly, the underlying contribution driven by customer activity remains strong and stable in Q1.

Thank you, Simon. As mentioned by Birger, we have had a strong development also in our credit quality, and we see the general quality has not weakened, quite the contrary, if we look at our own numbers. On the other hand, we've also seen an increased risk of inflation and oil price increases that could come into the economy. So even though we basically see a strengthened book, we feel it's prudent to put aside another DKK 160 million for post-model adjustments to cover the potential risks.

And looking at the geopolitical uncertainty and the Iranian war that has led to higher oil prices and potentially higher inflation, we now see that the market expects higher policy rates around 2 to 3 rate hikes during the next quarters. And it has also lifted the forward curve, as you can see in the graph, slightly below 1% in '26, but also higher levels in '26 and '27 and in '28. So in the market's perception now, there is some permanent effect expected long term on inflation. And talking about the interest rates and sensitivity, we have based this graph on our reflections and experiences over the last several years. And year 1 is now expected to deliver DKK 700 million of uplift due to a 100 basis points parallel shift of interest rates and the long-term effect is another DKK 200 million due to the lag effect from higher returns from the fixed rate hedging instruments.

And then we thought it was relevant to give you a view of where we are in terms of implementing benefits from AI. Today, we have the stage of pilots and proof of concepts where we've already seen tangible use cases, including handling of customer requests, AI-generated company profiles and automated task trades. The next step is scaling what works, deploying these solutions more broadly to support productivity, efficiency, more consistent customer interactions across the bank. And by 2028, our ambition is to move beyond individual tasks with AI embedded across the end-to-end workflows and enabling more proactive data-driven customer advice.

Thank you, Lars, and thank you, Birger. We will now open up for questions.

[Operator Instructions] And the first question in line comes from Martin Birk from SEB. I think your line is mute. You should be able to unmute it now, Martin.

Yes, I think so. I hope you can hear me. First question goes on your guidance. What kind of interest rates do you have in there? And what would it take for you to include rate hikes in your guidance?

I think it's fair to assume that we haven't changed dramatically on our overall guidance from the start of the year, but it is fair to say that interest rate expectations have gone up, and there are also expectations for some policy rate hikes in Denmark if things pan out as the market currently assumes. Consensus is currently at DKK 8.8 billion for the year. And I think if you were to include the upcoming rate hikes, you would probably end up somewhere above that.

Okay. And what are your expectations for the first 25 bps because they're going to generate you significantly more NII than...

I think we updated interest rate sensitivity reflects the current level of interest rates. So that would also -- but I mean, that is a full percentage point. So I get your point that the first 25 basis points could potentially have a slightly larger effect.

Okay. So you basically need to see the guidance upgrades -- or sorry, the rate hikes before you're willing to include it?

It could be that it didn't change or it is possible for us to have that in the current interval of DKK 4.3 billion to DKK 5.1 billion. So it's not necessarily something that is going to lead to a guidance upgrade.

Okay. All right. Then next question comes back to loan losses. There was another big Nordic bank out reversing its management judgment in entirety in connection with this Q1 reporting season. Lars, you mentioned that credit quality has never been stronger and still you add to your management judgment. Any thoughts on that?

Yes. Thank you, Martin. Not to the first part regarding another bank. But regarding our own figures, what I said was our credit quality is strong on individual customers, we have reversals this quarter. And we see in our numbers that, generally speaking, our book is a little bit stronger by the end of Q1 than it was by the end of last year. So that's 100% correct, understood. On the other hand, we also see potential risks, oil price increases, transportation cost increases, interest rate level changes that could impact part of our book. It's not that we've seen any particular customer or any industries at the moment being hit by this, but simple calculations on the impact on economy means that it is likely that, that can lead to some level of increased losses in the banks. So you're right, we're standing here with, on the one hand, strong credit quality on our current customer base and by the end of the first quarter. On the other hand, there are some uncertainties, and we've decided to take provisions for that.

Okay. But Lars, do you think it's a fair observation to say that every time you see new risks, you add to this buffer. But when you see risk off, you don't really bring it down either.

Yes, not 100% fair maybe because if you look at the level of the buffer, it has been more or less the same for several years, but you've seen ups and downs. So we have been reversing also from this one.

And you don't think a fair question is why isn't this half of what you have right now?

Yes, I think it's a fair question, absolutely. And I understand the question, and you could have long discussions about what would be the right level of post-model adjustments. Let me say it this way, we felt that there were increased risk related to oil price and interest rates. And we think that we are at a very comfortable level now.

Okay. Then maybe a last question from my side. Would you make up the smoke coming out of the peace pipe from Finance Denmark last night?

Yes. I was just pleased with the message and think that Finance Denmark is doing a very good job. And just happy to see that there was a joint statement on these matters here.

And why do you think this has become such a big topic in local media?

I don't know.

Thank you Martin. Next question in line comes from Mathias Nielsen from Nordea.

So the first one, like now you put a slide on AI. I would say like if I were to be a bit critical, like there's not much numbers on that slide. So how much is the potential? Is there any structural reasons why Jyske Bank shouldn't be able to get the same out of it in relative terms as some of the other Nordic banks that have been now putting numbers on this? Do you see any structural fix there? That would be my first question.

I think combined, we'll probably have the same possibilities. They have some strengths in some areas, and we have strength in other areas, I believe. I think some of their strengths is probably the share size of the company, which probably makes it a little bit easier to get started, in terms of the resources that you can put into it. On the other hand, I think fast follower on this one in a much smaller and simpler organization, we should be able to keep up. We're doing quite a lot in this area and has actually been working for a couple of years on building teams, testing out, making sure we have technology, making sure that we have got rates also in place. So I think that we're keeping up quite well at the moment. And I think in terms of implementation, I don't see why we should be long behind.

Okay. So just to clarify, you see yourself as a fast follower. Was that the wording that you put on AI? That was the question on AI.

Yes. And Mathias, maybe to put a couple of more words on this. And there will probably be banks that get this right roughly, and there will be banks who are very late to the party. We think that our best opportunity is to be well equipped in terms of competencies, technology and so on and follow our own test cases and understand what is going on around the globe in terms of utilizing AI. And I think no bank can be first at everything, but you could be first or one of the first ones to really prove that it works. So that's basically how we see it. There are some test cases that we've chosen not to take, and that is because we think that this might actually be difficult to annoy the customers too much for the very small gains. Then let's see when some get it right and let's get it in here also without the cost of developing stuff that doesn't work and reinventing it and so on. So we actually think that we'll be part of the first half year, which is the banks that will succeed in this.

Yes. That was a great clarification on that one. So the next question is a bit on the -- this was another quarter with beats on the costs, but also another quarter where like bank lending growth was on the unimpressive side. How do you see the risk of you like cutting too much on the cost side and that actually leading to subdued growth? I guess, like when I look out of the window, like at least 2 of your peers and also relatively large peers are undergoing mergers at the moment, which should normally like leave some business up for grasp a bit more than normally maybe. So I was a bit surprised to see that the bank lending growth is still subdued. So do you have any comments around like cost versus growth and growth in general?

Yes. I think Jyske Bank needs to be in great shape now, midterm, long term. And we cannot afford to have too high a cost base in doing this. Also the competition aided by AI, you need to be able to have a lean and mean organization. And I think within the cost targets so far, we've been able to do also a lot of improvements internally, getting strong profiles in. So it's not just going down underlying with cost a couple of percentage a year. It's actually the change process is larger. And I feel that we are well equipped within the organization to fight with the resources that we have. Then in terms of the subdued lending development here, I think that was what you called it. I think combined, we have growth between bank and mortgage lending, we tilt towards the mortgage lending side in our growth. If you then look at the bank side, which I believe is the one that you're pointing at here, there are a couple of factors at play here. One of them is that when we acquired Handelsbanken, we got a lot of bank lending loans in for mortgages, and these are gradually moving to mortgage lending. Then in Q1, we've seen a subdued development when it came to public institutions, public sector customers, which we have a large share of. And it's not that we've been losing the customers. They have just been utilizing the credit facilities to a lesser extent. And then I think there's maybe one last thing, and that is we've probably been on the conservative side in terms of our credit processes and our lending here. Time will tell if that was a good move or we've been slightly too conservative. We still have to wait and see. We feel that we're very competitive in the market, and we feel that we're increasingly competitive. We are standing strong in personal banking at the moment in private banking, where we're also growing in C&I, whereas the SME business is a little bit at a standstill, not losing customers, not really winning customers at the same time. And I think that is where we've also been a bit conservative. So we're sticking to our strong customers, basically not losing a lot of customers, getting in a little bit of new customers, but not with large growth. We are very comfortable with the quality that we have now. And I also think in terms of pipeline, without promising you, I think it looks a little bit better than it has looked for some time now. So I think we have the machine that we could turn a little bit up here.

Sure. Then my last question, it's on the current environment, like when you talk to your clients in the different segments, like what is the appetite for new lending and investments given the geopolitical uncertainty that we face at the moment? Is there any reflections from those meetings that you could share with us?

Yes. I think in general, hopes and optimism is not too bad around the corporate customers. And looking at the personal customers, you see they buy new houses and flats to a large extent. And there's -- I think and maybe also hope a little bit that there are an increased number of customers who would take a new look at their growth and development plans and investment plans altogether because they cannot sit and wait for 5 years. So basically, they would have to find some of the most attractive plans and probably we will see some lending on the back of this. I think we have more or less only good customer meetings at the moment. And we hope and I saw one of the Nordic banks was also saying that they also think that there's a little bit of increased need for investments.

And next question comes from Alexander Vilstrup-Jørgensen from DNB Carnegie.

If we just continue with the discussion of ordinary bank loans, when do you expect the offloading of mortgage-like bank loans to stop?

It depends. But what we have still is approximately DKK 20 billion of the Handelsbanken loans that are migrating still to mortgage loans. On the other hand, we also have a bank-funded product that is growing a bit. And so I don't see a massive change here going forward. And I don't see that, that would stick as a theme that we would discuss at great length in a year or 2.

Okay. So what about your new mortgage loans [Indiscernible]? How much do you expect it to add to future growth?

I was just in one of our branches this morning when we announced our results internally and had a 10-minutes chat to the people in the branch. And they have their hands over the head because basically, what they're saying is this is by far the best product in the market. It combines some of the positives of a bank-funded loan with the flexibility and so on. And on the other hand, it has strengthened the model of a mortgage company loan. So it's a really, really strong offering and our team is extremely motivated. I would like to see 1 or 2 months of data and customers flowing in to see how much it changes, but it's certainly a positive.

Okay. I was wondering, could you comment a bit more on your fixed rate hedging instruments I would just like to understand how you expect your hedge to impact net interest income going forward? What kind of assumptions do you pencil in?

Well, if you look at the portfolio of fixed rate instruments, we hedge the interest rate risk in the banking book and the maturity is approximately 3 years. And so there's a lag effect both when interest rates go up and when interest rates fall before you can take advantage of a normal interest rate curve where you can add to the portfolio assets that give higher returns than your funding cost. And so I think that's the reason why you see a lag effect from this on top of the year 1 effect immediately of DKK 700 million.

Okay. If we just turn back to AI, how do you see AI automation allowing for further cost reductions?

Well, we think that by 2028, we will have it implemented in a number of our most important and most time and cost-consuming workflows across the bank. We felt it's a little bit too early to give you figures because we want to be fairly firm on the figures that we give you. So it's a little bit too early to give you a figure. I would rather say that I think we have the foundation for doing a job among the banks that is doing the best jobs on this. I think we have enough resources to handle this. And I think on the other hand, we don't have a complexity that makes it too difficult for us. But we're also working on our data quality that should enable this. We are working on our organization and setup to make it easier to benefit from the technology. There will be a time where these things need to be tested before we put them in large-scale production. So I think it's a little bit too early to say what exact figure that we get out of this. But for certain things we will be more competitive, we'll be faster in responding to customers. And certainly, we'll be able to take out cost.

And it seems as if there are no further questions in line. So we would like to thank you for participating in today's conference call. A recording of the call will be made available on our IR website in the coming days. Please do not hesitate to contact us. If you have further questions, we appreciate your interest in Jyske Bank and wish you a nice day.