Morrow Bank AB (MORROW) Earnings Call Transcript & Summary

Welcome, investors out there. The Nordic Consumer Finance Bank, Morrow Bank, earlier this morning reported the results of the Second Quarter of 2026. Investors following the channel know that there has been a lot of activities and strategic deals lately. You can ask your questions for the Q&A in the live chat. I'm happy to present the Morrow Bank top executives, managers, CEO, Oyvind Oanes; and CFO, Eirik Holtedahl. Welcome.

Thank you.

Thank you.

Oyvind, a growth of 70% in the second quarter. What's the view of the quarter in brief?

It's a strong quarter underlying if we look at pretty much all the KPIs and with the growth as we will show throughout the presentation. And it's also an exciting quarter, as you alluded to, with the large acquisition of MedMera Bank that -- that was basically closed first day of the next quarter, but obviously, was a key topic in Q2.

With that, please go ahead and present, and I'll see you for the Q&A.

Thank you, and welcome also from our side. We will go through a presentation here, as usual, and open up for questions at the end. I will start by going through some of the highlights of the quarter, and we already touched upon some of these points. We've seen a very strong year-on-year loan book growth of 19%. We're looking at the quarter isolated, that's roughly 2% growth in the quarter, and our gross lending book now stands at SEK 18 billion. As you can see on the graph on the right-hand side of this slide, it's fairly evenly now distributed across the 3 markets on which we operate. Looking all the way down then to profit before tax, we could report a strong quarter with profit at SEK 100 million. That's up 17% versus second quarter last year. As I said, the quarter was also very much around the acquisition of MedMera Bank. And we spent a lot of efforts, obviously, throughout the quarter, and we'll talk about that in a minute of meeting all the conditions, especially all the regulatory conditions to be able to close that acquisition on 1st of July. And this is a very important acquisition, obviously, for the bank as it increases the size of the bank by around 65%. So when we report Q3, the SEK 18 billion number that you see on this page will be around SEK 30 billion if we put the 2 banks balance sheets together. We also worked quite hard on obviously securing the financing of the deal, and we successfully raised more than SEK 1 billion in a combination of rights issue, additional Tier 1 and Tier 2 that enabled us to, as I said, close the acquisition by the end of the quarter. We also continue to run the underlying business, obviously, in the second quarter in a very strong way. That included also offloading some NPLs in Sweden, where we could sell off around SEK 440 million in NPLs that came out of our numbers in April. And last but not least, if you look across sort of the other KPIs on the bottom side of this page, you would, in addition to the strong loan book growth, see that we continue to deliver strong cost income and particularly strong development as we will also talk about later in the presentation on the credit quality when looking at the loan loss ratio here on this page of 3% -- 3.5% reported for the quarter. That's down from 4.3% in Q2 2025. Last but not least, earnings per share came in at strong SEK 31 -- at SEK 0.31 in the quarter. And as you would hear later in the quarter, we have also stated our ambition to more than double the EPS when we look into the end of 2028. Now moving on to the next page. This is a bit of a recap potentially for those of you new to the case, just a little bit of an overview of what Morrow Bank does. We provide flexible consumer credit products across 3 markets in the Nordics, Sweden, Norway and Finland. That comprises loans, credit cards and also various savings accounts and savings products. The target market is creditworthy consumers, individuals. We see that our typical customer would have slightly above average annual income. The average loan amount that we give out is around SEK 160,000. And it's very important to also say that we're looking at a near prime or a prime type of segment. So we see that 60% of our customers roughly own their own home, and you can't have any sort of payment remarks and you need to be in permanent employment to qualify for a loan at Morrow Bank. The market we address is large. When we look at unsecured credit across those 3 markets, Norway, Sweden and Finland, that is roughly SEK 600 billion large. As I said, with the inclusion of MedMera Bank, we're going to be at around SEK 30 billion, which means that we have now a market share of around 5%. So there's still more room to grow, we believe, in these markets. Now talking about growth, just bringing back this slide as well that sort of puts this into a longer-term perspective, potentially also something for you that look at the case for the first time. I think the most important thing to talk about on this page is that we've labeled it here on the page as well. We did a bit of a restart if we look 4, 5 years back, where the bank had gone somewhat sideways through the pandemic years. We put in place a completely new management. We exited unprofitable products. We simplified our tech platform, automated a lot of processes, and we've executed quite some M&A since then. And also earlier this year, we redomiciled the bank from Norway to Sweden. And obviously, when you see at the growth here represented by gross loans, you would see that we have more than doubled the lending book since the restart, so to speak. And that's important to also understand that the acquisition now of MedMera Bank is a, call it, a natural continuation of that strategy, where we now leverage that scalable platform that we've built over the last few years to also do another large acquisition in this case. That would, as I alluded to on the previous page, increase the lending book of the bank by around 65%, taking us up to around SEK 30 billion. Now when we grow, we have grown, obviously, volume, and that's good. But more importantly, we've also been able to demonstrate strong growth when we look at the earnings. Here, you would see our CAGR earnings per share development over that same period, where you can see that we have delivered a 38% CAGR over the period on earnings. obviously, very strong. The fact that we now deliver also a strong second quarter just continues to deliver on this trend. And as I already said, it's driven by strong growth in the lending book. It's driven also obviously by the fact that we have conducted now 4 acquisitions in the period. Cost/income ratio has been a big driver, obviously, taking the cost levels dramatically down in the bank from a cost/income ratio above 40% to now below 28% as we report this morning for Q2, demonstrating again the scalability. Now comparing that to our peers, and you would see the peers at the bottom of this page, it is a significantly better performance than what we have seen in the market. So that's obviously something that we are very happy to report. Now I think we always need to talk a little bit about the macro environment. There's a lot going on in the world at the moment on the sort of global scene. What we continue to see, though, is that we see a fairly robust and stable macro environment in the Nordics and the outlook for the KPIs that are more important for us to monitor is also showing a fairly positive trend. Now obviously, growth, when we see growth in the market, that also drives demand for our products or the products that our products finance is probably the more right thing to put it. And we continue to see growth across the 3 markets also in the outlook, which we obviously like. Interest rates ticking a little bit up in 2026, but the outlook here is that, that will start to come down again. The inflation is pretty much under control still across the market. So we believe that the outlook here for interest rates is still that will continue to go down again past 2026. Again, an important and key driver for our type of business. But maybe the most important drivers that we always look at is obviously unemployment. And you would see from the graph on this page that we have a positive outlook on unemployment. Unemployment obviously means that the customers' payment behavior and payment capacity remains strong and that will continue to trend downward. So if I sum up this page, the sort of 3 key KPIs when it comes to the macroeconomic environment that we monitor because they can potentially have the biggest impact on our business. They continue to perform strongly, and the outlook here is stable to positive. Now the other big thing, obviously, that happened in the quarter in addition to sort of the underlying strong performance of Morrow Bank was, of course, the acquisition of MedMera Bank. And we've talked quite a bit about that also at the previous report and in various investor discussions before the summer, but I think it's important for us to just recap a bit around that acquisition as well. Now putting it a bit in the context, we have done some -- this is not our first acquisition. We have done some acquisitions over the past couple of years. We have the 3 first ones that you see here, Qliro, Lunar and Moank, those were pure performing loan portfolio acquisitions. So we acquired loan portfolios totaling around SEK 3 billion over the 18 months. And then we added now -- we're adding MedMera to that equation with a strong actually SEK 12 billion gross loan volume at the end of Q2. So again, acquisitions is part of our strategy, and we are continuing to execute on that strategy as we communicated over the many last quarters. How -- putting that a bit into context. And for those of you who have followed us for a while, you would know that we moved the bank from Norway to Sweden. Key driver for that was to ensure level playing field, especially around the regulatory environment. And that basically means, again, around sort of the capital requirements that the bank holds. And as we move the bank from Norway to Sweden at the beginning of January, we managed to free up quite some capital and hold some excess capital. And we communicated that the intention with that capital was to deploy it into accretive M&A if we could find good targets. Now the good thing is that we found a good target fairly quickly. And already in March, we announced the acquisition of MedMera Bank. That is a direct positive consequences of us being able to move the bank from Norway to Sweden and freeing up that capital. And just a couple of words on that transaction as well. We believe it was a very competitive, strong price that we were able to achieve for a bank that actually performs very well. So a price book of 1.06 for a well-run and well-performing bank in the market, we believe, is a strong good price. The acquisition, as I said, successfully closed on 1st of July, so not really in the quarter, but the first day in Q3. And we were able to do so based on the fact that we also ran some quite successful financing projects and processes back in June, where we issued new shares to the seller, Kooperativa Forenin, Coop. They now hold around 10% of our share, as you might have seen. In addition, we also went out with a structured rights issue, where we raised close to SEK 600 million. That was significantly oversubscribed. I believe it was 130 something percent oversubscribed. So happy with the interest in that project. And last but not least, also raised both AT1 and Tier 2 at very attractive prices, actually record low prices for the bank in the market. So the whole sort of financing process went very well, and we're very happy that we could close all those projects and finally then take over the bank on 1st of July. Now what are we -- basically, what are we getting now with MedMera Bank? We're getting a well-run and well-performing bank, as you would see on this page and the numbers here. We will add around 65% to our loan book size. We report now around SEK 18 billion. MedMera stood at around SEK 12 billion at the end of the quarter, so taking us to around SEK 30 billion that would position us as the third largest consumer lender niche bank in the Nordics. We will continue to run MedMera brand separately from Morrow, currently also the whole bank separately in a group structure. And we believe that there are a lot of opportunities in continuing to support both brands actually 3 brands with the core brand and build a strong multi-brand strategy as we go forward. So basically, continuing Morrow Bank, continuing with MedMera Bank value proposition as well as Coop and building a broader reach in the market based on that. That was also very much part of the strategy and the rationale for buying the bank in the first place. Looking at cost/income, both banks performed well. But obviously, when you take 2 banks and 2 organizations and 2 systems and process and put that together, as we communicated before, we definitely will be looking at taking out some synergies over time and work that cost/income ratio down towards 20% by the end of 2028, as communicated when we announced the transaction. Looking at the loss profile of the 2 banks, you would see quite a difference here where you see that we reported for the first half year now quarter, I alluded to that earlier. For the quarter, we reported a loan loss ratio of 3.5%. For the first half year together, that amounts to 3.9% for Morrow and the similar number for MedMera Bank would be 2.1%. Now that also, again, demonstrates that we are targeting and operating in slightly different segments. We've sort of said earlier that MedMera Bank targeting potentially a more prime consumer loan segment where we are more of a near-prime brand. basically positioning the 2 banks or the 2 brands slightly differently on, call it, the risk curve. That is something that we very much aim to continue to be part of the multi-brand strategy as we go forward, position the brands into slightly different segments. Obviously, when we put these 2 banks together with all the data and all the customers and the analytics capacity of the 2 banks, we do believe that over time, we will see not only mathematically when putting the 2 banks together, but also when operating a larger platform with more data, et cetera, we will see that the risk levels of the combined bank, obviously, will come down. Last but not least, looking at profit before tax. First half, we reported SEK 187 million. MedMera also reported equally a very strong first half year and delivered SEK 122 million in profit before tax. That gives us quite some confidence around the EPS target that we communicated when we announced the transaction to more than double that EPS by end of 2028. Now over to you, Erik, to take us through some of the financials.

Thank you, Oyvind. Let's dig a bit deeper into Morrow Bank, and this is Morrow Bank only. As Oyvind said, we took over MedMera Bank on the 1st of July, meaning third quarter. Hence, the second quarter will be Morrow Bank on a solo basis. Now the loan balance growth was good year-on-year. Actually, we increased it 19%. If you -- this was mainly driven, as you can see here by the growth in the Norwegian market, the lower orange part of the bar where -- and that is actually our refinancing product, which has been around for 1 year and which has proven quite successful, and that's also showing up in our loan growth. Overall, on a quarter-on-quarter basis, the development was flat, but you need to take into account, we sold an NPL portfolio of SEK 440 million, which was offloaded in April. Hence, the underlying growth was 2% quarter-on-quarter. And as always, as we keep reiterating and also repeating and also demonstrate, we're always looking out for opportunities to buy portfolios or companies if they are interesting and accretive for us. Going a bit further into the margin outlook. You can see that there is a small margin compression compared to 1 year ago. This has -- is attributable that there's a small decrease in the yield going down from 13.5% to 13.2% and also a small increase in the deposit rates going up by 20 bps. The latter is driven by the fact that we, in the quarter now or in this year, we have been increasing our deposit rate basically to increase our liquidity so that we would be in the position to take over MedMera Bank and also meet the regulatory requirements. But if you look at it on -- compared to last quarter, the figures are not here, but they're available on our IR site. You can also see that actually there's -- the NIM has increased by 0.1 percentage point quarter-on-quarter. And if you -- but what's important here is to look at also at the risk-adjusted margin. We're not seeing that in this picture, but as Oyvind has shown here, we have a decrease, and we will show on later slides, we have a decrease in the loan losses, which are quite significant. And by that, you can see that our risk-adjusted margin increases, be it either quarter-on-quarter or year-on-year. Going forward, our NIM will be somewhat lower. That's also when we take in the Morrow Bank, MedMera Bank has lower loan losses, but they also have a lower yield, and that will also weigh in on our blended yield when we go forward and start to consolidate. But our risk-adjusted margin are lower, both in -- definitely in MedMera, but also we're seeing a decreasing trend and hence, our risk-adjusted margin will remain strong. On the total income side, we're seeing a steady upwards uptick. This is driven, of course, by the larger loan book, which we talked about, which I demonstrated a bit earlier. But it's also -- there's -- but it's not fully covered by the growth in interest income because, as I said, there's a small compression on the net interest margin. In the second quarter, we also had some additional one-offs in relation to other income. You can see that it's SEK 36 million. Those are related to some insurance and card scheme one-offs. They will not be repeated in the third quarter, but we nevertheless, will see that we have lower commission expenses going forward, and hence, there will be an expansion not compared to Q2, but compared to previous quarters on our other income. And of course, we will be growing our loan balance. Now on the cost side, you can see here that there is an increase, and that is not to -- we're not trying to hide that fact. We are recording a SEK 10 million one-off. Those are chiefly related to the MedMera acquisition as such. Also some small leftovers to call it that from the transition to Sweden. But what's also important to understand is that now we're becoming a larger bank. Yes, we have demonstrated scalability, but now we're adding 65% on our loan book. And hence, we are now starting to strengthen, let's call it, the overall structure of the bank in order to be able to service and run this considerably larger bank. And that is also -- these -- we are -- we have already started to undertake these investments, and those are contributing to the fact that the underlying cost picture is increasing. But -- we are -- as we will be growing our loan book, we will be increasing our top line. We're maintaining that we will have around a 20% cost/income ratio when we have concluded the acquisition and integration of MedMera Bank. But then we're talking towards 2028 before that -- before that will fully materialize. But we are clearly on that path. On the nice side here, and that's also what Oyvind spoke about, we're seeing a very nice development in our loan loss ratios. We have previously been guiding between 4.5% to 4%. We've been then saying it probably will be closer to 4%. But we had -- the second quarter developed quite benignly, and we ended at 3.5%. That is measured in relation to the gross loan balance to be clear about that. It's also quite interesting to see that the nominal loss loan loss cost is -- is virtually flat for all these 3 quarters. But at the same time, as we demonstrated earlier, we have grown the loan balance by 19%. And hence, if we had maintained last year's -- we maintained last year's loan loss rates at this loan balance, we would have had SEK 36 million more in loan losses, and that more than covers the increase in cost, just to put that into perspective. Also, just to mention is the NPL sale here, which reduces our NPL ratio, meaning that our book is, let's say, cleaner, more healthy. And going forward, when we add in MedMera Bank, they have a different risk profile. They have lower loan losses, and we will then have a broader customer base. We will be -- with lower risk and which also will be more diversified, which should entail that our loan losses will be -- or loan loss will be -- or credit risk will be lower in the time to come. Finally, adding these elements together, total income growing, cost, yes, going up a little bit, but loan losses reducing much more than cost, you can see that we now landed at a profit before tax of SEK 100 million flat. This is equivalent to a return on equity of 11.9%. But what we like to measure the return on target equity and which I will also come back to because we are -- we were at the end of the second quarter, overcapitalized. If you remove that fact, we had actually a return on target equity of 16%, which is actually demonstrating that we are on a good path to achieve our 20% target for 2028. The profit after tax for the quarter was SEK 78 million or an earnings per share of SEK 0.31. And as always here, we maintain that we expect to double our EPS and that the return on target equity will increase. A word on the capital structure. You can see here that our overall capital ratio has decreased compared to year-on-year, going from 17.9% to 16.2%. This is the CET1 ratio. This is because we are actually growing our loan balance faster than we have been growing our profits. But that being said, our -- if you look at our requirements, they are decreased. The requirements on the left-hand side were those in Norway. The requirements on the right-hand side now in the second quarter are those that we have currently in Sweden, they are now at 9.5% before management buffers, et cetera. But we have a healthy 6.7% headroom towards that. And you will see now that we are utilizing this headroom in the third quarter to buy MedMera Bank. I'm not going to go into details of the acquisition. Oyvind did that, but we are -- we have the AT1 and the Tier 2. We also had the rights issue at SEK 592 million before cost, which was undertaken on the 1st of July, just after the balance sheet date. But by that, with the acquisition of MedMera and these capital increases, you can see that now in Q3, we are very close to achieving our target capital structure, meaning that we will have not much excess capital, just a comfortable buffer, but not more than that. And as always, we will be continuing to produce profits given that this development continues and that we will also -- we will therefore generate capital for further expansion going forward. With that, I'll leave the word back to you, Oyvind.

Thank you, Erik. Thank you. All right. So before summarizing the -- today's presentation and opening up for questions, we always like to do a bit of peer benchmarking where competitive people. Now looking across some of the key KPIs like loan growth, cost/income ratio and last but not least here, EPS growth, you would see that Morrow Bank over the period '22 to the last quarter, we continue to deliver strong numbers and continue to outperform the peer average. You will see the peers here at the bottom of the page. That's pretty much all the relevant niche banks that we compare ourselves to. So continue to deliver strong KPIs at Morrow Bank and continuing to outperform the peer average in the market. Price book and price earnings, you can read them yourselves and compare to peers. And hopefully, the investors are appreciating those 3 performance KPIs on the top here so that the 2 performance KPIs on the bottom continue also to move up. We will do our best to deliver and continue to deliver strong growth and strong KPIs at the bank. Now summarizing then the quarter. As I said, there are really 2 things that we are focused on, obviously, not taking our eyes off the ball on the underlying business. We have strengthened the profitability throughout the quarter with a profit before tax reported this morning of SEK 100 million. That is 17% up year-on-year. When looking at return on target equity, which we believe is the most relevant number to look at, we are dramatically up from -- or significantly up from around 12% at this period last year to now reported 16% for the quarter. Earnings per share came in, as Erik also said, at SEK 0.31. That's also an improvement, and we continue to see that earnings per share should improve as we go forward. The MedMera acquisition was completed. We've said that a couple of times, I think, throughout the presentation. The loan book increases by 65%, literally then the bank size, the size of the bank increases by 65%, taking us to a combined loan book of around SEK 30 billion and positioning ourselves as the third largest Nordic consumer finance bank. This was enabled -- the acquisition was enabled by actually doing quite some successful rights issue and issuing of bonds in June, as we've talked about at oversubscribed rights issue and record low pricing for both the AT1 and Tier 2. So also very successful and very happy with those processes. Taking a bit sort of outlook and view to the future, we continue to say that the return on target equity should go above 20%. We reported already 16% for this quarter. So we're confident with that target. Cost/income ratio, as Erik alluded to already, we haven't built in the synergies of MedMera Bank acquisition at all. That will come obviously, over the next couple of years. But when we look at sort of where that cost/income ratio should be beyond that, we are also confident that, that should come down towards 20% in the outlook, which will again take us to the last but not least, KPI or target here of more than doubling the EPS by end of 2028. So with that, I would say thank you for listening to the presentation, and we can open up for questions.

Thank you so much, Oyvind and Erik. Let me start off. We have a bunch of questions from the viewers and investor community as well. What are the key value drivers from the MedMera acquisition?

I mean, as I said, MedMera is a very strong performing bank. So they pretty much have the same value drivers as we do. It is obviously growth. It is basically also the fact that they manage to have a good equation between the risk appetite and what they're looking at, at margins. So they have a good risk-adjusted margin management together with the growth. And for us, as we messed about this around the last few years, it's all about scale in this sector. And for us, taking over something that not only brings scale with 65% more volume, but also comes with a solid foundation, a well-run machinery that adds a lot of value to the group now.

All right. Maybe this is a question for Erik. Why is the current cost/income ratio temporary rather than structural?

It is, as I said earlier, we're investing in becoming a larger bank, and that is not for free. We need to have a broader platform now, general platform. We need to invest more in control functions, also in data management and the processing of that, and that does not come for free. That being said, it will be a little bit more elevated, but there is now a more, let's say, temporary cost. We're not calling them one-off, but we are spending some more. And we will, over time, of course, work hard to not to reduce that cost base in general. But basically, now it's a time of investment. And this is, of course, just to repeat it, we are adding 65% to our loan book.

Yes. And another subject that you touched upon, your net interest margin. On performing loans improved in this quarter. Is this level sustainable?

Yes. Largely, yes. We do see, however, a little bit of pressure on the funding cost side now going into the third quarter. The competition in the euro market is actually increasing. So we also need to follow that. We need to raise more liquidity because we are growing after the MedMera acquisition. So there will be a little bit of pressure going forward on the net interest margin, but we're not thinking that it will be considerable. Broadly, it should be at the levels we're seeing here, give or take a little bit.

And how sustainable is the improvement in credit quality?