Oma Säästöpankki Oyj (OMASP) Earnings Call Transcript

Very good morning, and welcome to Oma Savings Bank's Half Year Results Presentation Webcast. My name is Pirjetta Soikkeli, and I'm Head of Communications at Oma Savings Bank. Today, we will start the event with the presentation of our CEO, Karri Alameri. After that, we will continue with the Q&A session. [Operator Instructions] With that, Karri, please welcome on stage. Good morning, and welcome to our half year financial results presentation.

Good morning, and welcome to our half year financial results presentation. Our results for January-June were in line with our expectations. We continue to execute the strategy of growth we announced in January and at the same time, systematically advancing our processes, process efficiency initiatives as planned. Comparable profit before tax remained at the previous year's level, amounting to EUR 23.6 million. The volume of new loans granted during January to June increased by nearly 42% compared with the corresponding period, while net fee and commission income grew by approximately 7%. Impairment losses on financial assets decreased. However, the weak state of Finnish economy earlier this year and particularly the subdued real estate market continue to be reflected in the level of nonperforming exposures. Our capital adequacy has continued to strengthen, and our own funds remain well above the requirements for total own funds. In my view, the public tender offer announced in early July by S-Bank for OmaSp's entire share capital demonstrates the market's confidence in our strategy and business development as well as the long-term commitment on -- of our employees. Our business operations will continue as normal for the time being. Let's now take a closer look at our performance in the first half of the year. Let's start with income. Comparable operating income amounted to EUR 102.2 million in January to June, a decline of approximately 14% compared with the previous year. In Q2, comparable operating income was EUR 52 million, which is approximately 12% lower than a year earlier. Net interest income decreased by approximately 21% during the first half to EUR 72.1 million. The decline in net interest income was mainly attributable to relatively low market interest rates and the contraction of the loan portfolio. It is important to note that the decline in net interest income has leveled off, with the net interest income in Q2 remaining broadly in line with Q1. During January to June, the average margin of the loan portfolio remained largely unchanged. Our results for January-June were in line with our expectations. Let's start -- continue with income. Comparable operating income amounted to EUR 102 million in January to June, a decline of approximately 14% compared with the previous year. In Q2, comparable operating income was EUR 52 million, which is approximately 12% lower than a year earlier. Net interest income decreased by approximately 21% during the first half to EUR 72.1 million. The decline in net interest income was mainly attributable to relatively low market interest rates and a contraction of the loan portfolio. It is important to note that the decline in net interest income has leveled off, with the net interest income in Q2 remaining broadly in line with Q1. During January to June, the average margin of the loan portfolio remained largely unchanged. Let's now look at the development of the fee income. Net fee income and commission income increased by approximately 7% during the reporting period, amounting to EUR 26.6 million in January to June and EUR 13.2 million in the second quarter. In January to June, fee income from cards and payment services increased by more than 8% compared with the corresponding period and amounted to EUR 19.3 million, while fund management fees increased by approximately 8% year-on-year to EUR 4.3 million. However, fee income from lending declined by 6.6% to EUR 4.4 million. Having said that, fee income from intermediary businesses, such as commission on loan protection insurance increased by 6% to EUR 1.4 million. Then let's now turn to expenses. Comparable operating expenses increased to EUR 63.2 million during January to June. Personnel expenses increased by approximately 11% to EUR 32.9 million. At the end of the reporting period, we had 662 employees, 77 of whom are on fixed-term contracts, primarily summer trainees. In Q2, expenses increased by 16.7% compared with the corresponding period in previous year, reaching EUR 36 million. The increase was primarily attributable to an administrative penalty of EUR 0.4 million imposed by the Finnish Financial Supervisory Authority for the deficiencies related to the maintenance of insider lists during years 2021 and '22. We also made an expense provision of EUR 2.5 million relating to potential administrative sanction concerning credit risk management, governance and control systems as well as reporting of large exposures during the period from December 2022 to February 2025. If we take a look at the loans, the volume of new loans granted during the first half increased by nearly 42% compared with the corresponding period, amounting to EUR 459 million. During the second quarter, the volume of new loans granted increased by nearly 7% compared with the previous quarter. The loan portfolio before expected credit losses remained broadly at the level of the previous quarter. At the end of June, the total loan portfolio amounted to EUR 5.8 billion. The average size of loan granted over the past 12 months increased to approximately EUR 223,000. The residential mortgage portfolio declined by approximately 2% over the past 12 months and the business customer loan portfolio by approximately 11%. These are mainly driven by the generally weak economic conditions earlier this year and the measures taken in the controlled winding down portfolio. At the end of June, the controlled winding down portfolio amounted to EUR 170 million. Let's now turn to the nonperforming exposures. The weak state of the Finnish economy earlier this year and particularly the subdued real estate market was reflected in the level of nonperforming exposures, especially in the older loan portfolio. The increase in nonperforming exposures was primarily among retail customers and companies operating in the real estate sector. At the end of June, nonperforming exposures amounted to EUR 548 million, which represents 9.4% of the total loan portfolio. The increase was particularly concentrated among retail customers. At the same time, the volume of new nonperforming loans has been declining, for other nonperforming loans. However, collection processes continue to take a long time, particularly due to the lengthy realization period for real estate collateral. In line with the plan we adopted at the end of 2025, we are continuing with our systematic efforts to reduce nonperforming loans. This year, we are particularly focusing on enhancing early-stage collection measures while continuously evaluating opportunities to reduce nonperforming exposures through various restructuring arrangements. Then we take a look on impairment losses on financial assets. Net impairment losses on financial assets decreased during January to June compared with the corresponding period, amounting to EUR 14.9 million, of which EUR 7.5 million was recognized in second quarter. During the first half of the year, expected credit losses decreased compared with the corresponding period, amounting to EUR 13.7 million. During the second quarter, expected credit losses of EUR 6.6 million were recognized, the majority of which related to business customers. Net realized credit losses decreased compared with the corresponding period and amounted to EUR 1.2 million during January-June compared with EUR 3.9 million a year earlier. OmaSp's financial position remains strong. Our capital adequacy continued to strengthen during the second quarter. At the end of June, the total capital ratio stood at 19.4%, and the accumulated equity amounting to EUR 623 million. Risk-weighted assets declined to below EUR 3 billion, primarily as a result of the reduction in total exposures. The group's own funds amounted to EUR 582 million, exceeding the total own funds requirement by EUR 170 million. Our capital adequacy and liquidity position, therefore, remain very strong. In January, we introduced our updated strategy and financial targets for the period 2026, 2029. This slide provides an overview of our progress against those financial targets at the end of June. As I have noted before, our most demanding target is to achieve a comparable return of equity of over 14%. Reaching this target requires a combination of actions across the bank. Looking ahead to the end of the strategy period in 2029, achieving these targets will primarily require us to improve earnings with a particular focus on accelerating the growth of fee and commission income, reduce costs and optimize our capital allocation. As of the end of June, cost growth remains to be the main factor putting pressure on our return on equity. In terms of our other financial targets, we are progressing as planned. The outlook for the financial year remains unchanged. However, we specified the assumptions as the tender offer announced in early July for all shares in the company may affect the company's business operations. While the growth in the company's cost base has slowed compared with the previous financial year, the tender offer process may give rise to additional unforeseen expenses. We are expecting comparable profit before taxes for 2026 to decline slightly compared with the previous year. On July 9, S-Bank announced a cash tender offer to acquire all shares in OmaSp. According to S-Bank, the combination of the 2 companies would create a larger and a more competitive banking group with enhanced capabilities to provide high-quality services to its customers while meeting the banking sector's increasing regulatory and technological requirements. The Board of Directors of OmaSp recommends that the company's shareholders accept the offer. The offer price is EUR 17.20 per share, representing a premium of 47% over the closing price on July 8. Shareholders representing approximately 59.9% of the shares in OmaSp have already irrevocably undertaken to accept the tender offer. The tender offer is currently expected to be completed during the fourth quarter of 2026. To conclude, I would like to highlight the following. In line with our strategy, we have achieved broad-based growth in net fee and commission income, driven in particularly by higher fund management fees, stronger fee income from cards and payment services, and we will continue our systematic efforts to increase the fee income and deepen customer relationships across households and growing businesses. The volume of new lending increased significantly. We are continuing to work systematically to grow our market share in our selected customer segments. Impairment losses decreased, although the weak economic environment earlier this year was reflected in nonperforming exposures. We will continue our efforts to reduce nonperforming loans in accordance with our plan. The tender offer announced by S-Bank on 9th July is currently expected to be completed during the fourth quarter of 2026. OmaSp's business operations are continuing as normal for the time being. We continue to serve our customers just as before with a personal approach and a professional expertise.

Thank you, Karri. We will now move on to the Q&A session. [Operator Instructions] So, operator, we are now ready to take the questions.

[Operator Instructions] There are no questions at this time. So, I hand the conference back to the speakers for any closing comments.

All right. Sorry. Yes. I would like to thank our audience for being here with us today and also remind you that we will release our third quarter interim report on 5th of November, and we look forward to you joining us again then. And we are here for you. Would you have any further questions, please revert to us. Thank you for being with us today. Bye now.

Bye.