Morrow Bank ASA (MOBA) Earnings Call Transcript & Summary

Hello, and welcome to this studio broadcast. With us today, we have Morrow Bank that is going to give us a strategy update. And afterwards, there will be a Q&A. So if you have any questions to the company, you can submit them to the form to the right. And with that said, I hand over the word to you, guys.

Thank you very much, and welcome also from our side to this strategy update for Morrow Bank today. We have named or called the strategy update delivering superior earnings growth. And hopefully, we'll be able to demonstrate exactly that point as we go through the presentation. And as we heard, we will go through the presentation first and then open up, obviously, for a Q&A session at the end of that. Clicking ahead, maybe say a few words first about the presenters of today, Eirik and myself. Eirik, why don't you go ahead?

Yes. Hello. My name is Eirik Holtedahl. I'm the CFO of the company. I've been with the company since 2017, '18 and in this position since 2022. In all, I've been 25 years in the industry.

All right. Thank you. My name is Oyvind Oanes. I'm the CEO of the bank. I've been with the bank for 4 years now as CEO, but also as Eirik been for many, many years in the space, I guess, we're coming up to 25, 26 years in retail banking and consumer finance and fintech. So I think both of us have enough experience in this space to know what we're talking about. Now, for those of you new to Morrow Bank, we thought we would do a bit of a recap on sort of Morrow Bank at a glance. We are a Nordic consumer finance specialist. We focus on consumer finance only. We're a fully digital bank established in 2014, so some 11 years ago. We've been listed on the stock exchange in Oslo since the end of 2017. A fully Norwegian bank today, operating out of Oslo into -- also into Sweden and Norway. And if we look at our loan book today of around NOK 17 billion, that actually is more than 80% by now outside of Norway with Finland being the largest country, followed by Sweden and then actually Norway as the smallest part of the lending book today. As we will demonstrate through the presentation today, we have spent the last 3, 4 years building a very scalable banking platform, and we've also grown the business significantly over the last few years. One of the reasons why we're here in Stockholm today is that we are about to become a Swedish bank. We will be converting to a Swedish bank as of 2nd of January next year. This has been a fairly long process. We applied for a Swedish banking license about a year ago. Back in April this year, we got okay from the from the FSA of Sweden to become a Swedish bank, and we have established a subsidiary of our Norwegian bank that holds that Swedish banking license today. So basically, what we're doing now is that we will do a cross-border merger of the Norwegian bank, Morrow Bank ASA and the Swedish subsidiary, Morrow Bank AB, in a cross-border merger where the Swedish entity will be the surviving entity and will continue as a Swedish bank based on that Swedish banking license as of January. At the same time, we will also change this listing venue from the stock exchange in Oslo to the main market of NASDAQ Stockholm as of the 9th of January. That's when we will ring the bell on NASDAQ here in Stockholm. Now, there are many reasons why we have chosen to become a Swedish bank. First of all, Sweden and Stockholm is definitely more of a hub for challenger banks, niche banks, consumer finance specialists, fintechs than what Oslo is. So we want to be part of sort of the space here, both from a competence point of view, investor appetite or understanding of the space. The capital market is more attractive for the players like us also here in Stockholm. And obviously, also, as we point out to -- on this page, we want to secure a level playing field with our Swedish peers. When we compete in the Nordic market today, we're typically up against other Swedish banks, other Swedish niche banks that have a slightly more favorable regulatory regime than what we have as a Norwegian bank based on a Norwegian banking license. Once we become a Swedish bank, we will secure what we call level playing field with the other niche banks in the sector in the Nordics and therefore, also increase our competitiveness on the Nordic market. As part of this, as we become a Swedish bank and also then manage to lower our capital base as we will become a Swedish bank with Swedish banking regulations, lower capital requirements, we will -- we see that we will be freeing up, up to NOK 1 billion in excess capital that we can deploy for further growth, either organically as we will hear about, or even also look at inorganic growth. We have a target to become also an industry consolidator with abilities and capabilities based on our scalable banking platforms to also go in and acquire portfolios, should that be available. We did announce yesterday that we have acquired another Swedish portfolio. Just yesterday, we agreed, and we will come back to a bit more details on that acquisition a little further into the presentation. Now, I think I've alluded to most of this already. We are a consumer finance specialist. We provide consumer loans and credit cards and also savings products that fund that business across these 3 markets: Norway, Sweden and Finland. Our customers are definitely creditworthy individuals. They have slightly above average income. Our average loan is about NOK 150,000, NOK 160,000. 60% of our customers own their own home. And to qualify for a loan with the bank, we don't accept any customers that have any sort of payment remarks, and you do need to have a permanent employment to become a customer at Mor Bank. A little bit about the market. As I said, we operate today out of Oslo, but we do also do most of our business now in -- actually already in Sweden and Finland. Looking at these 3 markets together, the market for unsecured credit that is, is roughly NOK 600 billion big. So it's a large market across these 3 countries. And as I already said, our loan book is now around NOK 17 billion, which then corresponds to, give or take, 2.5% to 3% market share in this space in the Nordics, which, again, if you turn that around, that gives ample room for further growth and taking market share across this market. Going a bit further into sort of some of the operational track record. As I said already, the bank started back in 2014, listed in 2017, so about 8 years ago, had a loan book back at that time of around NOK 3.5 billion, grew nicely until sort of pandemic time and then went a bit sideways until we came in, in -- at the end of 2021, start of 2022, laid a new strategy for the bank and sort of generated what we call a restart of the bank where we brought in new management. We exited some unprofitable products. We simplified, future-proofed our tech platform, worked a lot in terms of automating processes and also streamlining the organization to build this scalable and cost-efficient platform while growing the business to now NOK 17 billion. So it's been quite a journey, as we will see also in a few pages, in the last 3, 4 years as we've grown the bank from sort of NOK 8-ish billion when we started the turnaround process to now doubling that loan book to NOK 17 billion. During this time, we have also guided a bit on sort of our goals. We've been out and communicated. In the very start, we said we would want to grow our loan book by about 50% by end of 2024. We lifted that -- we met that target actually a year ahead of time and then lifted our target now to become or to be around 10% annual growth. We maintained that market -- that target and actually adjusted that somewhat when we came out with the Q3 numbers last week to say that we would -- we're looking at, at least 10% annual organic growth as we look forward. We've also guided quite a bit in terms of return targets and profitability. And the last target that we set for ourselves communicated last week was that we should achieve a return on target equity of around 17% by end of next year, 2026. And that's obviously driven by the fact that we are growing the business, and we are becoming now a Swedish banking -- Swedish bank with a Swedish banking license, and we'll be able to lower the capital requirements. I guess, the takeaway from this page is that we have guided quite a bit, and we've delivered mostly ahead of plan on that target. So there's definitely, call it, proof in the pudding in terms of what we're guiding on and what we've been able to deliver over the last 3, 4 years. Now, one of the pages or the KPIs that we're extremely proud of is also when we look at earnings growth. So when we look at how much we've been able also to grow and improve the bottom line over this period since we started the turnaround of the bank in 2022. And if you look at the average -- the sort of CAGR average growth of our earnings, we're looking at a 55% CAGR earnings growth over the period. Comparing that to our peers in the market of 9%, that is obviously what the heading also says here, quite a superior earnings growth over that period, again, driven by the fact that we have doubled the loan book, while significantly taking out cost and half the cost/income ratio down to 25%. And on top of that, we have also been able to acquire some portfolios without adding cost to our cost base. Last but not least, before I hand over to Eirik, well, I guess I have one more page, more sort of operational KPIs. Looking at the loan growth, as I said, 27% CAGR growth over the last 3 years compared to 16% average in the market. Cost/income ratio now down at 25% versus a mid-30s peer level. Return on equity, we reported 12% for Q3. That would have been 15%-ish as a Swedish bank, whereas what we look at in terms of peers in the market, that is pretty much spot on, but we're targeting on growing that as we move forward. Price book, price earnings, more for you itself to reflect on whether this still is a cheap stock to look into or not. I lost the presentation.

[Technical Difficulty] Our apologies for this. There seems to be some technical problems here.

Here's a suggestion. Why don't I just say a couple of things to that slide, and then we move on if there's a problem specifically with that slide. I mean, one of the things that, obviously, we monitor quite a bit and we talk quite a bit about as well is sort of the macroeconomic outlook for our business. And typically, we would look at, as most businesses, on what's happening to unemployment, what's happening to GDP growth, what's happening to inflation. Those are sort of the KPIs, potentially also together with interest rate level, that impact sort of the way we look at the world and our own business. And I think the key takeaway from this page is, basically after a period where those metrics have gone sort of a bit up and down, we now see a stable to improving macroeconomic outlook, which then also supports our positive outlook for our business as we look forward. And now, there's a problem again.

Yes. This presentation is available on our website, ir.morrowbank.com. So you can find the slides there. We're getting hit some, but it seems to be that the graphs are not fully in place. But I'll try to explain a bit here. What's very important here is growth, and the way we measure our growth is to grow our loan balance. And essentially, if you look when the -- if you can see the graph later on, you will see that we have doubled our loan balance from 2021 -- 2022 until today. Over this time period, it's gone from NOK 8.5 billion to NOK 17 billion. And along with that, that's more or less a full doubling of our loan book. And along with that, we've we have also -- the total income has also followed along. Now, as Oyvind has explained about, this is a large market, and we think that there is room for further -- considerable further growth. We have now set as ambition that we will grow our loan balance in 2028 to up to about NOK 24 billion. That is a little bit over 10% growth rate per year. And -- but given our growth pace and the way we see the market, we think that, that is fully sustainable. There's also a couple of other things affecting that. Now, last -- this month, we did sell a portfolio of nonperforming consumer loans in Finland of EUR 72 million. That's NOK 840 million. That sounds -- that counts as negative. But at the same time, also yesterday, we agreed with Moank to -- thank you, there's -- back again -- to acquire a portfolio of performing Swedish consumer loans of NOK 640 million, which we also add in. And that growth, which we typically label inorganic growth, will come on top of the NOK 19 million to NOK 24 million. So, at the end of this year, we'll obviously be actually quite close to the NOK 19 million we're talking about next year. And it's difficult to say when there will be a portfolio or similar opportunity for available for sale, but we will always be on the lookout, and we will always be interested in examining these further and potentially acquiring them. That being said, it's important to have a focus on cost, as in any business. And as you can see here, this is the development of our cost from 2022 until today. In 2022, we were at about NOK 94 million in cost. Today, we're at NOK 95 million. But you need to take into account here that we have now doubled the loan book size, and also NOK 8 million of these are related to one-offs for our relocation to Sweden. We have costs in relation to getting the Swedish banking license to setting up a Swedish organization and also to list on NASDAQ. And that is part of these one-offs, which will disappear once we are established in Sweden. And as you can see, the underlying, that is the dark colored part of the bars, they are evolving quite slowly. And as a result, you can see the cost-to-income ratio, which is a line there with the percentages on, is declining slowly. Now, at this quarter, without the one-offs, we are at 25%. We expect at the end of the next year to be at 23% and have a long-term ambition of being at 22%. Now, going over to the risk picture. This is consumer finance. Unsecured loans and credit losses are a vital part of our business. We will always have credit losses. If we don't have some credit losses, we're leaving a lot of business on the table. You can see, here for the last 3 years, we've been at a nominal level, about around NOK 165 million in these 3 quarters, as you've seen here. But at the same time, our loan balances increased considerably. And you can, therefore, calculate the loan loss ratio, which is expressed by the blue line and which this quarter ended at 3.9%. We have previously been guiding on that it should be in the range of 4.5% to 4%. Here, we obviously landed a little bit below our guiding. And from that, we take that we demonstrated that actually we are managing the credit risk in a quite satisfactory way. This is based on the fact that we have a larger loan book that helps. We have more data, which produce better scorecards and models. And also, we have a better follow-up on nonperforming loans. Going forward, we say that for 2026, we will be at 4% to 4.5%, perhaps in the lower range. And the ambition for 2028 is to be around 4%. Now, if you combine these 3 things such as loan balance, along with total income growth, loan -- steady and low cost development, as well as managed loan losses, you get this picture that you see here of profit development. And you can see here on the 4 quarters that it's going steadily ending up now in the -- in the third quarter of '25 at NOK 94 million before tax, or NOK 73 million after. This translates into a return on target equity -- the target equity is the equity we need to hold as defined by the regulator, plus a buffer of 2%. This ended up at a return on target equity of 13%. This is based on Norwegian requirements. Once we -- if we have been in Sweden now, the according number would have been 15%, as Oyvind demonstrated earlier. We will be in Sweden as of January. So if you look at our ambition for -- or the target for the end of 2026, we will be at 17%, where 2% will come from moving to Sweden and another 2% will come in from continuous improvement over the coming year. Our ambition for 2028 is to be at 20%, and we will achieve that by growth and scale. And as you can see there, the -- we think that the drivers are in place for a profit development to justify that level. So therefore, we're using this slide here to sum up our long-term ambitions. First to our left, you can see here that based on our demonstrated growth capabilities, and we're here only talking about organic growth, we foresee a loan balance in 2028 of NOK 24 billion. On top of that, should there be any further inorganic opportunities such as M&A or portfolio acquisitions like that we've recently done, the level will obviously be higher. We will continue our cost-efficient operations, and given that further efficiencies and larger scale will drive our cost-income ratio down towards 22% in 2028. And you can see that from the development of the graphs. Finally, also the loan losses, we also expect to decline further the loan loss ratio and thereby ending at this 4% in 2028. And again, here, you can see if you combine all these factors together, you will see that mathematically, we end up at 20% in 2028. And with that, I leave the word back to Oyvind.

Thank you, Eirik. Trying to sum up a bit, but let's start by showing you this page here. As we've demonstrated throughout the presentation so far, you would have seen that we have built a very, very scalable banking platform. As we've seen, we've grown the book from -- the lending book from NOK 8.5 billion to NOK 17 billion. We've seen a great organic growth. In the last quarter, we reported organic growth of around NOK 1 billion. On top of that, we do see also that the platform that we have established, the scalable platform, can also do inorganic growth. We can easily go out there and acquire portfolios, should they become available, and add that to the organic growth. For those of you who have followed us for a while, you may remember that we acquired 2 portfolios here in Sweden about a year ago. We acquired the consumer lending portfolio from Qliro, a Swedish player, and also from Lunar Bank. What we just announced in yesterday, in fact, was our third acquisition of a performing portfolio, where we acquired the consumer lending book from Moank, a Swedish operator. In total, we've then been able to add to the organic growth and inorganic growth totaling around SEK 3 billion, again, demonstrating that, one, on top of the organic growth that we are able to drive with our banking platform, we can also go after inorganic opportunity when they become available. Now, as we've already said a few times here, we're about to become a Swedish bank, level playing field, Swedish regulatory requirements, and we're looking at freeing up, up to NOK 1 billion in capital. So we'll have quite a lot of excess capital to deploy over the next few years. Now, our priority for that capital will always be to drive further organic growth. And as you've seen from Eirik's presentation or Eirik's slides here, we do have a plan to continue to grow organically over the next 2 years and grow our book up until NOK 24 billion. But if we deploy that extra NOK 1 billion that we released now in capital to further growth on top of that, either through accelerated organic growth or by buying portfolios, as we just demonstrated also yesterday that we can do, we could grow that number to another -- with another NOK 5 billion to about NOK 29 billion over that planning period. Doing the math then, basically looking at a cost-efficient platform where we add volume without adding significant cost, you could see that we would also then get an uplift on our return targets, and we could potentially guide on a 23% return on target equity, should we be able to deploy all that excess capital to both organic or inorganic growth over the planning horizon until end of 2028. So, that is basically our priority now, moving the bank through the cross-border merger to Sweden, listing on Stockholm main market on Stockholm NASDAQ on the 9th of January, and then continue to grow the business and deploying all that excess capital that we will be freeing up as we go forward. Before we open up for questions then, let me just try and go through sort of the summary of the presentation. Morrow Bank is a pure-play Nordic consumer finance player. We operate across Norway, Sweden and Finland. We have built a highly scalable banking platform over the last 3, 4 years, where we've doubled the loan book and taken out significant cost. We have delivered superior earnings growth as we saw a CAGR growth of 55% over that period of 3, 4 years. We have lifted our ambitions around growth, now targeting to grow at least 10% a year organically. And last but not least, and also as demonstrated with the purchase we did yesterday, we are also continuing to pursue accretive inorganic opportunities, should they become available. And with that, I think we're through the presentation. Again, apologies for some hiccups on the technical side. That happens sometimes. I think you got the message. We are also obviously always available offline if you want to reach out to us if something wasn't clear. But I think now, we do open up for questions, and I know there's a few questions already.

Thank you so much for your presentation. As you mentioned, we have noticed some questions here. The first one is, Lea Bank paid out NOK 1.8 billion in dividends when moving to Sweden. How will you prefer growth over dividends going forward? Is the 30-50 dividend policy still valid?

Good question. As you've seen from -- I think we can jump back to this picture here that demonstrated quite nicely. Most important for us is organic growth. That is to continuously add loan balance to a steady income. The inorganic opportunities may be more sporadic, but we also like them. And as you can see here, if we just employ that extra NOK 1 billion we have fully, you can see that our return on equity increased to 23%. So we believe that there is most value creation for our shareholders to prioritize growth over dividends. But that being said, there are limits to how much we can grow organically, and inorganic opportunities are more random. So if we're not employing our capital fully, we will then distribute it to the shareholders.

The next question here is, what is the expected yield of the new portfolio? And how does it compare with Morrow Bank's existing book?

The yield is fairly similar to what we're having on our existing book. The risk is actually quite low in it because it's a portfolio that's been on the books with the seller now with Moank for some time, some of the loans. And hence, the first initial loss wave has been laid out. So from our perspective, it's a quite attractive portfolio, which will have attractive margins. And this should be at least in line with our existing performance. And also, if I may add, we added this at virtually 0 cost.

Is the portfolio acquisition a part of the targeted NOK 19 billion and NOK 24 billion in gross loans by year 2026 and year 2028? Or does it come in addition?

That comes in addition. That comes on top.

Can you give us some details to the NOK 1 billion in excess capital? This is headroom to requirement and not target, right?

Correct.

Let's see. With NOK 1 billion in excess capital and a CET1 target of 11%, you should theoretically be able to expand lending around NOK 9 billion. How much of that do you consider is realistic?

Well, NOK 9 billion is a little bit too high, but we think that we can -- we will be employing here up to NOK 5 billion to NOK 6 billion. There is also some further math that goes into this, but we can employ that, and that -- and how realistic it is to achieve that, that is -- that depends if there are opportunities that arise.

Do you have positive cost effects from using AI? And do you have an AI strategy?

Yes, we're actually -- that's a good question, and we get the AI question, obviously, more and more often. We do quite a few things on AI across the bank. But where we start to see some effect of that is particularly in sort of the front-end customer service where we're starting to deploy models that can read customer questions, demands, create answers, answer customers actually on the basic demands. So that's where we're already seeing some very interesting results. And obviously, in the day-to-day work across the bank, we do see that we start to use the different AI tools more and more, whether it's translation, whether it's reading through contracts, et cetera. So this is definitely something that we have a strategy on, but we also just -- I think we all see the positive effects of AI and just start to adopt it more and more as the way we work.

A question regarding the exchange of list here. What will be the future of the stock on Oslo market? Will it continue to trade on Oslo Bors?

No, is the answer to that. We'll stop trading on the Oslo Bors the last trading day of the year. And then, as I said, there will be a little gap until we then start trading on NASDAQ. So we will go off the Bors in Oslo.

Moank and others, is this a onetime portfolio transfer or any consideration on recurring transfer?

This is a onetime purchase from Moank. Should there be others, there will be unique onetime transfer each of them.

Let's see here if we have received any more questions here. Yes. We've got one more question here. Do you have potential for more M&A? Are there many other portfolios currently for sale?

We have potential, as we've demonstrated, and I think the slide here demonstrates as well, we do have -- I mean, ultimately, we do have excess capital to deploy. And should there be, let's say, larger M&A discussions with larger players, we would always be able to tap into the capital markets on top of that. So yes, there is room for it. There is appetite for it. And I think we've demonstrated as well that we can definitely be a player in the M&A space.

Thank you. That was all the questions we had.

Thank you very much.

Thank you.