Horace Mann Educators Corp

NYSE:HMN

Good morning, ladies and gentlemen. It's a pleasure for me to go through the quarterly presentation for SpareBank 1 Østlandet. And I would like to highlight the picture here on the front. This picture is of Therese Johaug, Olympian in Norwegian cross-country skiing. And it's actually 30 years in 2024. It was 30 years since we had the Olympics here, the Winter Olympics in Norway. And it's also 1994, that was the last time we had the return on equity that we see now for the 2024. So it's actually a good celebration that we are delivering the highest net result and also the highest return on equity that we've seen in 30 years for the group. So thank you for all our customers. I just wanted to open with that before I dig into the figures.

And the fourth quarter was an eventful quarter. A lot happened during October, November and December. And obviously, the merger with Totens SpareBank was one of the main events. But let's start on the top. Yes, the return on equity was 11.5%. That was on the soft side compared to the previous quarters. However, it's affected by both increased costs. A lot of those are extraordinary costs, which I'll come back to, but also high loan loss provisions for the quarter, also coming back to that. But overall, the underlying business sentiment and the development in our core banking operations is really good. And that is represented in a good growth in net interest income, up 1.6% and also, we have a loan growth, particularly in the personal banking area, has been really solid in the quarter. And if we look on the business side, it's definitely also a solid quarter, particularly on the margin picture.

The development in commission income has been the particularly strong area also in the fourth quarter. And this is an area where we are particularly happy with the progress on savings, insurance commissions, but also on the real estate agents, which are at an all-time high for 2024 and also delivered a good fourth quarter, which usually is a soft quarter. Costs are high in the quarter, mainly driven by the merger costs, inclusion costs and integration costs and also the fact that we have now included 82 more FTEs in our bank now in the fourth quarter, the Totens' employees coming in. And if we compare to the same quarter last year, we are actually more than 170 more people coming from Siffer, coming from Totens and also in customer-oriented business in the banking area.

And in addition to more employees, we also have extraordinary write-downs and provisions in subsidiaries, just shy of NOK 40 million, which also impacted negatively, but it's a one-off in the quarter. Impairment charges, as mentioned, higher in this quarter compared to normal results. It's the same as we saw in the third quarter. It's related to one known customer, which is the main reason for high loan loss costs. And excluding those, we would have been around NOK 50 million in the quarter, which is more normal according to our business. But overall, a net interest margin, which is 231 basis points. That's up from 215 last quarter and also from the previous high of 227 in the previous quarters before that in 2024. So overall, solid results, but rather soft on the cost side, which I already mentioned.

And 2024 comes out, as I mentioned, the best year in 30 years when it comes to return on equity. 15.8% is high for us. And it's also the underlying business momentum. And even if we take away the merger effect from the Fremtind and Agder merger that hit our results in the third quarter in a very positive way, we are around 14.4% on the underlying return on equity, and that is including absorbing all the additional extraordinary costs that has occurred related to the merger. So we are very satisfied with this and also the fact that we are delivering very high returns in ways of dividends to both our customers and our owners. And the owners will actually receive NOK 10.3 per equity certificate that they own, which is equivalent to around 60% of the net results.

If we look at the financial targets, yes, we have delivered in 2024 according to the updated revised targets that we set in the August 2024. Profitability above 13% is a long-term target, and this is something we really delivered on and also the solidity is on a comfortable level. And even though we delivered well on the 2024 targets, it's really important that we are focusing ahead of us. How can we achieve also increased profitability going forward. And 13% is what we aimed at as a long-term goal. It's going to consist of 3 elements that we will work on. First is on the income side. We will continue to work on delivering really great customer value and implement and develop new solutions and also the broad way of delivering services to our customers is going to be really in focus going forward.

Of course, cost focus is important. Yes, we have increased number of employees, but we are going to really focus on how we can simplify and further develop our internal efficiency going forward. And asset and liability management, a good balance sheet is important to have the right amount of equity is also going to support us in delivering increased profitability. And around us in the Østlandet area of Norway, there is still a challenging macroeconomic environment for most of our customers. Around mid-2024, we saw an increased optimism by both households and companies, while the newest survey that we did in late November, we saw that's declining slightly. So there are more uncertainty on how the development will be. So slightly more pessimist still compared to the optimists in this region. However, bankruptcies are now at the level like pre-pandemic and also unemployment is low in this region, and we know that our customers, the business customers, they have more challenge on getting enough employees rather than unemployment for them.

There's also a healthy activity level in the housing market that has really now developed well during the last part of 2024. Increased demand for loans and is particularly related to household. On the credit area for our market area for the business segment is on the soft side with an annual growth rate now at only 1.3% and while the household has improved. The activity has also continued into 2025 on a high level, and the number of new requests for a loan has almost doubled from the same period last year. And back to our core business in our bank, the retail market, as mentioned, strong growth. Yes, the figures now are also affected by the Totens portfolio. So the increase of 17% is, of course, including that portfolio. But the underlying development is also strong. It's up close to 7% in the annual growth rate for SpareBank 1 Østlandet old portfolio, and that is really a strong development.

It's also a strong development in commission income across the whole region. And that is going to be even more important going forward because with the low interest rate environment, we need to sharpen a focus on other income lines. And commissions is something that we are delivering really well already. If you compare us to the other banks in our alliance, SpareBank 1 alliance relative to our business capital, we are the best one as of now but we've actually been for some time. And it's related to, of course, good sales. There's been some increased price adjustments in insurances, but also it's helped by low claims due to less natural disasters and so on in 2024 compared to previous years. But overall, this is an area that we are really delivering strong, and I'm very proud to say that we are delivering full value to our customers on a broad scale of services. We are also merging our 3 real estate broking companies into one during 2025. And that is to strengthen and focus our activity under one brand instead of under 3 and really looking forward to the progress on that.

And I have to mention that 2024 was the really best year ever on net real estate commissions and activity level has continued also into 2025 in a very good way. The alliance is important for us. And to deliver really great digital solutions, we are combining efforts together with SpareBank 1, other banks in our alliance. And it's really happy news we received in the fall when our mobile bank was scored or priced as the best one in the market, and that is really cool. And in addition to having this alliance platform where we deliver really good value products together, we're also combining with strengthening our own development capacity to deliver really state-of-the-art solutions differentiating us and also to meet customer expectations going forward. So a combination of having a great alliance working together, but also looking at our own resources relating to development is going to help us really create a finance house for the future for our customers.

Short on the corporate market, it has been a flattish development in the last quarter in our SpareBank 1 Østlandet portfolio. So the increase there is related to the Totens portfolio getting in through the merger. We have worked on repricing a lot of our engagement, and we are focusing on high-quality in our credit processes and use time on that now the latest quarters, in particular, also to get to know the new acquired portfolio. So the margin is very healthy development, and it's also a strong underlying Totens portfolio. And back to the bankruptcies we saw, it's not really visible in our portfolio. It's a very strong and solid loan portfolio with net positive migrations overall. I mentioned Totens SpareBank merger a couple of times already. And yes, we have really had a good start of our integration process.

We merged the 1st of November legally, and now we are focusing on integration, getting these people all to know each other well. And it's really happy to hear that we have a good process here and a high degree of satisfaction after the merger among the previous Totens employees. Survey was done just recently, just confirming that we are really going in the right direction. And we are focusing on strengthening our bank on that the Mjøsa side -- sorry, the Oppland side of our region, where Totens main area for their development. And we are now opening a customer service center in Gjøvik, big city next to Mjøsa, and that is going according to even better or faster than planned, hoping to get 15 new employees into that area, hopefully, before summer already. And we are also looking to how we can co-locate the other employees in Gjøvik area during the coming year.

The technical merger is planned for early 2026, and we are in the next couple of months now detailing those plans. So we will not have any details on the potential cost for this in this presentation that we'll have to come back on when we have done the detailed planning and have more insight into how that will affect us. And the CRR-3 effects, our CFO, Geir-Egil, will go -- will come into a little bit later. But our aim is to be a regional really great savings bank for the Eastern part of Norway. And yes, the eastern part is quite large. And in October, we also launched a new office in Drammen. Drammen is a large city, the fastest-growing city around the Oslo large area. And it's a really important strategic move for us. We already have customers in Drammen area before, but now we are able to attract even more in a fast-growing environment. And so far, the results after 3 months of business has really shown good results.

So I will soon finish off with my part before Geir-Egil goes into the details. But I have to say I'm really happy that we are now proposing to deliver a dividend to our customers and gift to the society at actually above NOK 500 million, but NOK 470 million of those are related to the customer dividends. We believe this is a really great way to pay back to the customers as part of a good society delivering activity. And this is for a normal customer who has maybe NOK 4 million in loan will get equivalent to around NOK 10,000 back in April in this type of dividend. So that's really, really cool, we think. So we hope we will be able to continue that. So with that, I will give the word to our CFO, Geir-Egil Bolstad, will go into the details on the financial figures. Thank you.

Hello, everyone. And then it's my pleasure to take you through the different parts of the financial accounts for the fourth quarter of 2024 and also leave some comments on the whole year of 2024. Starting out with this more of an illustration, I would say, comparing the net income in the fourth quarter with the third quarter this year and also with the comparable quarter back in 2023. Two takeaways is that compared with the previous quarter in 2024, we have a reduction in the net income and that is more or less totally explained by the additional finance income we had related to the merger with insurance companies back in the third quarter. That was a one-off. The other part is really the effects of the merger with Totens SpareBank, which you can see both in the improved income side, but also in the increased cost side. If we compare with the same quarter 12 months back, you will see that the fourth quarter in 2024 saw quite an improvement in the net income totaling over NOK 700 million.

I will now dig into the different line items and try to explain as I go, some merger effects, but also leave some comments on the underlying development. Starting out with net interest income. As you will see, the interest-bearing balance sheet has increased quite a bit and is reflected in the net interest income and also to a certain extent in the commission fees from the covered bond companies. Also contributing to an increase in the net interest income or real net interest income of some 14.5%. If we exclude the merger effects, we still see a 1.3% increase in the net interest income and the commission fees from the covered bond companies compared with the last quarter. And also one final point to make is that the net interest income as a percentage, the net interest margin saw a good increase the last quarter to a big extent explained by the effects of the merger with Totens SpareBank, a bank that historically has had higher interest margin than the old SpareBank 1 Østlandet.

The commission income is touching on an all-time high on a total level and line by line is a broad-based improvement compared to last quarter. Starting off with the commission income from the credit card, it's usually high compared with the season. Usually, we see the highest numbers in the second and the third quarter. But this year, we saw the highest income fees in the fourth quarter, mainly unrelated also to the merger. Payment services, almost touching NOK 100 million contribution this quarter, all-time high, seasonally strong quarter, as always, in the fourth quarter. So strong numbers there and with a very good improvement over last year, also taking into account merger-related effects. Commissions from insurance, a strong quarter, underlying growth or pro forma effect also not taking into account the merger, an increase in commission fees on insurance of 19% compared with fourth quarter in 2023.

Also on the savings side, it's mainly driven by the former SpareBank 1 Østlandet operation saw an increase of some 40%, not at absolute high numbers, but still a very impressive performance increase when compared to last year, driven by more efficient and self-service type of digital solution, but also with an increased focus on the advisory side on savings in the bank. So also an increased focus going forward. The real estate brokerage firms saw a good performance increase compared with the fourth quarter in 2023, a bit down compared to the third quarter in 2024, but that are usual seasonal effects. So being a fourth quarter, unusually strong. Income from accounting services, more or less flat, taking into account that we merge into our accounting firm by the start of the year, a new subsidiary with 40 employees, taking that into account, more or less a flat development.

Going into other operating income, an underlying strengthening of the contributions, where we saw a reclassification by the start of the year of some NOK 20 million on an ongoing basis in that line items. So all in all, a very strong commission income quarter with good development both from the previous quarter, but also from the same quarter last year. The subsidiaries, our leasing company, SpareBank 1 Finans Østlandet, a bit down from the previous quarter, but we have to take into account a one-off on the cost side, about NOK 8 million of debt collection fees that has been reimbursed to the customers. Taking that into account, more or less stable from the previous quarter, seeing a healthy growth on the lending, so with a good outlook on the company.

Totens Boligkreditt was a subsidiary, a covered bond company wholly owned by Totens SpareBank that was merged into the group in the fourth quarter, a small company with a total balance of some NOK 2.5 billion in housing real estate lending. That company is in runoff, and you would expect it to be off the books during 2025 with the mortgages transferred to the parent bank and also the debt obligations. The real estate companies, EiendomsMegler 1 Innlandet, a small deficit. The company took a NOK 5 million goodwill write-down in the fourth quarter. The real estate agent in Oslo Akershus posted NOK 3 million in merger-related costs during the fourth quarter. So accounting for those effects, the underlying was more or less 0, which is as we normally see in a more seasonally weak fourth quarter.

Finally, our accounting company, SpareBank ForretningsPartner, they had a NOK 25 million write-down on goodwill this quarter and also severance pay of some NOK 3 million. Taking that into account, the development is more or less sideway, but still with negative numbers. So it's a high attention company from the group management and the Board of Directors with measures being taken. Our joint ventures posted good results with a contribution of NOK 106 million. The big difference comparing to the same quarter a year ago was the contribution from the SpareBank 1 Group. The improvement there was about NOK 95 million with an improvement across the board, but especially in the debt collection company, Kredinor and also in the Fremtind insurance company. Other joint ventures with a stable development since both the previous quarter and the comparable quarter last year. So that was the explanation of the joint ventures of NOK 106 million.

On other net financials, we have a small dividend contribution of NOK 14 million and also the net profit of mark-to-market items of some NOK 19 million. A bit on the loss side, but again, these are mark-to-market effects, taking into account interest rate FX and spread developments. All in all, a strong line on net financials this quarter. Operating expenses, I have to shed some light on that because it's quite an increase compared to last quarter. Of course, the main driver being that we took on board 82 new colleagues from Totens SpareBank, but also comparing with the same quarter a year ago, we have seen a strengthening of operation in the all parent bank in addition to 14 new employees in the accountancy company at the beginning of 2024. So that goes a long way of explaining the increased personnel costs. I have to mention, though, also the opening of new branch offices in Drammen that is an offensive -- or a move to get into a new market.

Depreciation and amortization, I mentioned the write-downs in total of goodwill of NOK 25 million and NOK 5 million, totaling NOK 30 million. ICT expenses, some related to joint development within the SpareBank 1 alliance. So that you will probably hear from the other banks as well. In addition, also running IT expenses from continuing IT operations in Totens SpareBank. These are expenses that will run until the technical merger, somewhere in the start of 2026. Other costs to comment on are the merger costs, NOK 15 million this quarter, bringing the total for 2024 to NOK 47 million.

With that, I will move on. I will skip that one. The loan loss provisions coming in at NOK 122 million. Of these, an increase in model-based loss provisions of NOK 18 million comparable to previous quarters. An increase in the individual loan loss provisions is driven by one single customer, well known from previous quarter, which has now been finally restructured and further loan losses is not probable. In addition, of the net write-offs, NOK 13 million of those NOK 33 million is from a previous problem loan. So except from 2 known problem loans, the underlying is pretty much stable or on a portfolio basis, also a bit reduced compared to previous quarters.

When taking on board the portfolio from Totens SpareBank, the stage composition is more or less stable, but we see that when we had a thorough investigation, especially on the corporate portfolio from Totens SpareBank, we saw some needs to strengthen both the loan loss provisions in Stage 3, but also we had the migration manually of some volume into Stage 3. That goes to explain around NOK 800 million of increased Stage 3 lending, implying that for the rest of the bank, we have actually seen a small decrease in Stage 3 exposures throughout the fourth quarter. Some statistics on the quality of the credit portfolios, again, then on the portfolio level. We see that retail customers with interest-only mortgage payment is stable from previous quarters. The drawdown on credit facilities on the corporate side is stable. And we also see that the LTV on the commercial real estate is developing sideways. One nice observation is that the mortgages that are sent to debt collection, the volume has decreased, and it seems to be a shift down in the trend. So a positive there on the portfolio level.

Finally, a bit on capital requirements. The CET given the suggested payouts is coming in at 16.8% compared with regulatory requirement, including the Pillar 2 guidance at 16.1%, giving a deliberate headroom for growth opportunities, but also possible migrations that could come throughout the quarters. As mentioned on previous slide, we have no indications on the portfolio level, but the management and the Board is comfortable at having a certain surplus for growth and credit purposes.

Before moving on to a deep dive to the payments and dividends, a little look into the expected effects of new capital requirement regulation. The CRR-3 is expected to come into effect during 2025. Our impact studies have estimated a negative effect on the minimum risk weight levels on the IRB residential mortgage portfolio, an isolated effect of negative 0.5% in the CET. Other CRR-3 effects in total are expected to come in at the opposite positive, totaling 0.5 percentage point on the CET1. In addition, we have the expected positive effect of the standard portfolio acquired from Totens SpareBank on the residential mortgages of some 0.3% contribution to the CET1 ratio.

So the sum of the parts indicates that we will have a somewhat positive effect of the changes to the regulatory requirements going forward. Again, then emphasizing also the quality of the CET1 capital ratio by year-end. And that also forms the basis for the proposed dividend to owners, of course, but also the suggested customer dividend and gifts and donations back to the community. According to the ownership ratio, the owners will receive both to the dividends and to the future dividend equalization fund, some NOK 2.3 billion, whereas the primary capital will receive NOK 949 million, of which a bit over NOK 0.5 billion will be distributed to customer dividends, gifts and donations, as mentioned.

The payment per equity certificate is suggested from the Board of Directors to the Supervisory Board to be NOK 10.30, NOK 10.3, implying also that to the larger shareholders of the bank, the foundations in the Hedmark County and also the foundation on the parts of the old Oppland county will receive more than NOK 600 million and more than NOK 120 million, respectively, that they will pass on as gifts and donations to their local communities.

So all in all, we will see quite a lot of customer dividend and payment to our foundations, more than NOK 1.2 billion paying back to customers and society through the sharing of the profits of the bank. So with that, I will conclude the presentation. Summing up, as Klara-Lise started out, it's been the highest return on equity in 2024 since the 1994. If you remember the Olympics, you should probably made a point of that. We see a good growth in net interest income, but also in total lending. We see a very healthy broad-based growth in commission income. We have some concerns about growth in costs, but they have natural explanations with the merger, both in the accounting company and with Totens SpareBank. And finally, the impairment charges are a bit on the high side. But as I have explained, these are related mainly to one larger and well-known problem customer. So with that, I would like to thank you for listening in. Thank you, and bye-bye.