Inge Reinertsen: Group CFO, and also Morten Forgaard, Head of Investor Relations. Together we will give you a brief presentation of the highlights from Q3, and also we will be open for questions from the audience. Starting with one of the news this quarter, that we are sharpening our focus on the core operations. We have completed the sale of Regnskapspartner, our accounting company, reducing our ownership from 100% down to 45%, and also with an option to reduce the stake. This gives us a gain of NOK 80 million in Q3. We do this as we want to sharpen the focus even more on what we regard as our core. That means the core banking business and also our real estate brokerage. Just a quick, brief look at the macro.
Inge Reinertsen: Unemployment rate remains low, inflation is on its way down, but still beyond the ambition of 2%, but it is coming down. Also, wage growth is on its way down, but very important, we have had real wage growth now for 3 years, which makes the financial situation for the households very benign. Also, housing prices ticking up and is also expected to have a moderate growth for the upcoming years. Altogether, this should be a benign environment for running a profitable bank. We measure PMIs 3 times a year in our main market area, and as you can see, for almost all of the regions, we are in a positive terrain, although expectations are a bit lower compared to the recent quarter. Of course, this is a combination of the geopolitical uncertainty and also a bit increased unemployment rate, although it is still on a very low level.
Inge Reinertsen: 2 years from the merger in between SR-Bank and SpareBank 1 Sørøst-Norge, we have almost realized the ambition on the operational efficiency on mergers, arising from the personnel synergies, operational synergies, and funding synergies. As this shows, we are 87%, and we are very much on our path for realizing these synergies up to the full potential. Financial targets remain unchanged this quarter. Our long-term target on return on equity is beyond 14%, and also with a strong solvency, a strong capital distribution to our owners in the combination of cash dividend and also share buyback, and with an ambition of less than 35% cost-to-income ratio. During the last years, we have become a very well diversified bank in the southern part of Norway.
Inge Reinertsen: We have approximately 50 branches, and we have a very strong distribution power arising from the combination of our physical presence with our branches and also state-of-the-art internet banking services. Altogether, this also is the explanation why we experience a steady growth, although we have come through a period with substantial reshaping of the organization due to realize the, or to gain the personnel synergy. So I am very satisfied with the fact that we have a growth that is beyond market growth, even though we have had this period of post-merger efforts to gain efficiency. If you look at the main figures, we deliver a 13.2% return on equity this quarter. If we exclude the goodwill arise from the merger, it is equal to 14.2%, as commented on.
Inge Reinertsen: The lending growth is strong, both within the quarter and also if you look at the annual growth rate now, it is 7% in the retail market, which is well beyond the market growth, and also a strong 6% growth within the corporate market. The common equity Tier 1 ratio stands at 17.70%, which is equal to 99 basis points beyond the requirement from the Norwegian financial authorities. Impairments remain low on 8 basis points, NOK 30 million in collective impairments and NOK 51 million in individual losses. This really shows strong credit quality. The cost-to-income ratio this quarter is even below the ambition of 35% and stands at 34.8%. This gives the total earnings per share of NOK 4.5, which is stronger than the recent quarter.
Inge Reinertsen: With these highlights, I will give the word to Eirik Monsen, who will give us some more details on some of the topics in the P&L. Go ahead, Eirik.
Eirik Børve Monsen: Thank you, Inge. We have pre-tax profit in Q3 of NOK 2,177,000,000. It is an improvement from Q2, also an improvement from Q3 last year. We have increase in net interest income and adjusted for one-offs and seasonal effects, we also have a good development on net income commissions and other income. We have good development on operating expenses, and also, as Inge said, low impairments. When it comes to net interest income, growth of 4.2% QOQ. We have an interest increase on the retail side with effect beginning of this quarter, which explains the margin increase, combined with also slightly better margin on deposits on the corporate side. Slightly on the negative effect on some increase in the margin on the corporate lending side. Increased or very good growth on lending, both on corporate and retail explains the volume increase.
Eirik Børve Monsen: Also volume increase and higher NIBOR in the quarter explain the increased cost on the treasury side. Then we have higher interest rates, which means increased equity effect and also one more interest day in Q3. We have good lending growth and good deposits increase, as mentioned, starting with retail, 12 months growth around 7%, which is well above the market growth, which in the same period was on 4.6%. Also on the deposit side, we have a good growth, 6.7% last 12 months is one percentage point better than the market growth. When it comes to corporate lending volume, very good increase also in this quarter as in Q2. Quarterly growth of 2%, which gives us 6.5% 12-month growth, which is also well above the market growth in the same period, which was on 4.8%.
Eirik Børve Monsen: Good development on deposits side as well. Adjusted for public deposits, we have an increase of 9.5 percentage points, and we are happy to see that we have been able to build down the public deposits during Q3, which also means that we have been able to issue more of the certificate program in Europe with cheaper financing, which will also have an effect in the time to come. Next, commission and other income. QOQ, the changes are explained by seasonal effects, by vacation. Summer vacation, it means more use of debit and credit cards and also real estate. You have a vacation time with less activity. When you compare year on year, we see that we have good development in all products except from others.
Eirik Børve Monsen: Others is, as we explained in Q2, related to SpareBank 1 Boligkreditt and Næringskreditt, which we received in the merger with part of Sørøst-Norge. We are now working on getting out of these two companies. We have reduced exposure significantly during the last 12 months, which also means that we have less income from these two companies. Adjusted for this, our SpareBank 1 Boligkreditt and Næringskreditt, we have a year-on-year growth on commission and other income of 7.6 percentage points, which is slightly above lending growth and is on the level where it should be. Income from ownership interests are slightly down QOQ and year on year. The main contributor as always, SpareBank 1 Gruppen, which again is more or less 100% Fremtind.
Eirik Børve Monsen: When it comes to income from financial instruments, we have the one-off gain related to the sale of Forretningspartner in this quarter of NOK 80 million. Value change derivatives and shares, one third is increase in value of shares, which is mainly related to Haakon's Sparebank, and the rest is derivatives, which is a positive development on basis swaps and other derivatives. We are on track with synergies. As already mentioned, operational synergies was completed in Q2, as we mentioned last quarter. Personnel synergies well on track still with one quarter to go to take out 150 full-time employees. As we have stated earlier, we have now 80 full-time employees left to take out in Q4. We have also been able to catch up on the funding synergies in Q3.
Eirik Børve Monsen: As I mentioned, because of reduced public deposits and then been able to issue more on the certificate program. Operating expenses, very good developments QOQ and year on year. Having said that, QOQ also mentioned that Q3 we have some seasonal effect, vacation time, summer vacation, less people working and a little bit less cost in that period. When we look at year on year and adjusted for merger expenses of one-offs last year, we see that we still have a decrease of 2.3% on the cost base from last year to this year. Included in these numbers, we have a high salary increase in the last 12 months of 4.3%. We also have high increase in prices in general, and we also have the growth that you have seen in the last 12 months.
Eirik Børve Monsen: Low impairments, as already mentioned, NOK 85 million or eight basis points. Year to date, we have just below NOK 200 million or equal to six basis points, which is well below the guiding we have on between 12 and 15 basis points on a more like normalized impairments. 54 of these impairments in the quarter is related to specific engagements and almost 100% in the corporate segment. We have a strong capital one ratio, 17.7%, which gives us a buffer down to the minimum requirement of 99 basis points. As you probably remember, we started another share buyback program in mid-August. By the end of last week, we had bought back 0.56%. So we are slightly more than half the way in this share buyback program. As we also have mentioned earlier, the regulator requires that we adjust the CET1 capital ratio with effect upfront.
Eirik Børve Monsen: In the 17.7% CET1 capital ratio, we already have taken out 45 basis points related to this share buyback program. We have a solid liquidity position. Then I give the word back to you, Inge.
Inge Reinertsen: Thank you. To summarize this, we have an ambition to be industry leading with an equity target above 14%. We are already and should be even more cost efficient. We are disciplined and comfortable when it comes to risk management and also efficient on capital management with a strong distribution to our owners. We are very occupied with maintaining the position as not only a relationship banking, but a modern relationship banking, which means that we should be even better in combining a state-of-the-art internet bank with the personal, the human touch and the personalized service. Altogether, this should be underpinning the ambition of being one of the definite best banks in Norway. With these words, I believe that concludes the presentation. Then we are more than happy to answer the questions from the audience.
Inge Reinertsen: Please just raise your hand and we will do our best to answer. Please. There we have a hand.
Morten Forgaard: Thomas Svendsen.
Inge Reinertsen: Thomas Svendsen. Please, Thomas.
Thomas Svendsen: Yes. Hi, good afternoon. So, yeah, question to your risk-weighted assets. It seems to increase much less than your lending growth QoQ and sort of supporting the CET1 ratio.
Inge Reinertsen: Yeah. We are very concerned or focused on increased quality of our lending portfolio. So of course, we are occupied with remaining margin, but for every new engagement, we want to refine the portfolio. So that also shows that we are able to reduce the underlying risk within our portfolio. So to my knowledge, there hasn't been any kind of changing in the risk weights as such. So this kind of illustrates a positive migration of the portfolio.
Thomas Svendsen: Okay, understood. Second question just on the dividend and the capital policy. Should we assume that you think it will be a good idea to increase the nominal dividend versus last year, or is that not an important point?
Inge Reinertsen: I don't think we will give any specific guiding, but as mentioned from Eirik, we are well above the capital requirement, and that is already with the share buyback program of 1% deducted from the common equity Tier 1 ratio. So we are very well positioned for the combination of a profitable growth, cash dividend, and also to consider even more buybacks. We will not give a guiding on this one, but we will comment when we take the steps to decide how to distribute capital. But the position is undoubtedly strong.
Thomas Svendsen: Okay. Thank you. That was my questions.
Morten Forgaard: Thank you, Thomas. Then I believe Mr. Roy Tilley will be next. Please, Roy.
Roy Tilley: Hi, Inge. Can you hear me?
Inge Reinertsen: Yes, now we can hear you.
Roy Tilley: Yeah, okay.
Inge Reinertsen: Please, Roy.
Roy Tilley: Thank you. Thanks for taking my question. I guess it is kind of related to Thomas Svendsen's first question. Just on your corporate growth in the quarter, it seems to be a lot of commercial real estate primarily in the quarter. I was just wondering, because we are hearing a lot about tough competition on the lower risk commercial real estate. Just wondering how is the margin outlook on that sector, and where is this growth coming from? Is it existing clients, or are you taking new clients, and if so, where? Thank you.
Inge Reinertsen: The Norwegian corporate real estate market has performed relatively well compared to, for example, our neighboring country, Sweden. Our number one ambition is to grow with our existing customers. As you also commented on, we are always looking for low risk engagements to increase and thereby have a positive impact on our total risk-weighted assets. We do not have any kind of specific growth ambitions within each segment, and also divided into geographical areas. We are very committed that every new engagement, the growth should be additive to our ambition on at least 14% return on equity. You will also see some kind of volatility from quarter to quarter, which should not be regarded as a definite trend, but more of a natural volatility with respect to refining the portfolio even further.
Roy Tilley: Yeah. Thank you. On the general kind of competition within that market, I am assuming you are finding something that is profitable and again, that you are growing, but is it generally very competitive?
Inge Reinertsen: Yes. I believe you will never hear me say that, "Oh, we are very happy that now the competition is less fierce." We have competitors with the capacity to grow. Perhaps some of the smaller savings banks experience that the leeway that they had from reduced risk-weighted assets on the CRR3 now has come to an end. Altogether, the competition is fierce, and we have to fight on engagement to engagement. But very committed that if we are not able to make it additive, we will say no and instead have a stronger capital distribution to you as owners.
Roy Tilley: Yeah. Thank you.
Morten Forgaard: Thank you, Roy. Then I see Mr. Simen Aas. Please, Simen.
Simen Aas: Yes, guys. Thank you for taking my question. I just have one maybe a bit larger, big picture question here for you, Inge. As you might have noticed, some of your larger Nordic peers and also the largest bank in Norway has launched AI initiatives to both increase productivity and cost efficiency lately. Now you are closing in your announced synergies of NOK 550 million. This is just my suspicion, but I guess there is limited AI in that target. I might be wrong, but you could correct me if I am wrong. Could you give us any color on the way forward for the bank and what you are doing both internally and maybe also in the alliance on the AI side?
Inge Reinertsen: Yes. Thank you.
Simen Aas: That would be very helpful.
Inge Reinertsen: I will try to elaborate on that. As commented on, in our 150 full-time employees that arose from the merger, AI is not a very visible factor on that. It is more pure synergies from combining two large organizations. Of course, we have utilized AI for quite a long time. We have our chat robot. We have utilized AI on a lot of our production processes. Also, we will merge this more into our front processes. We have released now a new, what to say, lending system that you as a customer will experience a smoother process for 100% electronic grant of your loan. We will also utilize AI to build in more of the competence that usually have been provided by our counselors speaking to you in a physical meeting.
Inge Reinertsen: As you indicate, the next phase will, of course, need even more measures taken on efficiency. It will not be derived from the merger, but it will be derived from our ability to build in technology in our working processes. We have not launched a specific ambition when it comes to full-time employees, but that is work in progress, and we will make announcements when we are ready to do so. Also, this will be an ongoing discussion with the labor union, and this is a part of our culture that we stand shoulder by shoulder from the management to the union in order to make the right efficiency measures. Also, I believe what we have shown from the merger is that this cooperation is very important to our ability to deliver an overall efficiency or effectiveness in the organization.
Inge Reinertsen: Up to now, bank has been manual with a contribution from technology. Moving forward, it will be more Internet bank supported by people where it really contributes to the overall profitability. We have not finished our cost-efficient operations. We will go into a new phase, but still we have not launched the specific targets on that one.
Simen Aas: Okay. That is very clearing. Just maybe there was also a question there on, is this initiative and things that you are doing yourselves, or is it within the alliance, and how do you cooperate around those type of initiatives? Any color would be very helpful. Thank you.
Inge Reinertsen: Yeah. The alliance is important to us because we can jointly do the investments in technology, and we do not have to pay the entire bill ourselves. But the impact on these investments and the result when it comes to the P&L is very much linked towards our ability to take out full-time employees in the 12 alliance banks in our home field. So it is a combination of a joint effort to develop, but then it is up to the 12 different banks to show the ability to increase the efficiency in each of the 12 parent banks. Of course, with our size of our ability to benefit from economies of scale, we are very committed that we should, of course, be the very best to implement the technology and to take benefit from what the technology make us able to do when it comes to efficiency.
Simen Aas: Thank you. That is a very good answer. Yeah. I will leave it with that. Thank you.
Inge Reinertsen: Thank you, Simen. Any more questions from any of the other participants? I do not see any more hands, so I believe that concludes this session. Thank you very much for taking your time. At any time, if you have any follow-up questions, we will be more than happy to answer you either by mail or phone. So thank you very much, and have a good day. Bye-bye from us here in Oslo.
