Good morning, everyone, and welcome to the first quarter results call for Morrow Bank. My name is Øyvind Oanes. I'm the CEO of the bank, and with me, as always, Eirik Holtedahl, the bank's CFO. As usual, we will go through a short presentation before we open up for questions. If you have a question, you can, as usual, hold up your hand when we get to that section, or send us your question on the chat, or even send us an email if you prefer. All right, with that, let's move into the presentation. Moving to this page first, a quick recap for those of you new to the case. Morrow Bank is a centralised, fully digital Nordic niche bank with a focus on consumer lending.
We offer a range of consumer loans and credit cards, as well as deposits or savings products to creditworthy individuals across Norway, Sweden, and Finland. In total, the market for unsecured lending in these 3 countries is around NOK 600 billion, of which we currently have about 2.5% market share. Turning now to page 4, we can report that we have delivered another solid quarter with pre-tax profits of NOK 83 million. That's up 43% year on year. Overall, the balance growth was a little softer in the first quarter, as it often is, but we saw growth in both Finland and Sweden. The total loan book now sums up to NOK 15.4 billion, with more than 80% now outside of Norway.
We have made a few adjustments to our products in the quarter and will launch a refinancing offer in Norway in the second quarter that should help accelerate the growth in the second half of the year. Looking at the main KPIs, we're happy to report a very competitive underlying cost-income ratio of around 24% and a solid loan loss ratio of 4.3% for the quarter. Now, actually down to the range we have communicated as a target in the previous reports. Ultimately, as a result of improving performance, we continue to see profitability going in the right direction. We reported return on target equity of 10.7% for the quarter, and the bank paid its first dividend after the completed turnaround. Probably the biggest news actually happened on the first day after the quarter when the Swedish FSA granted us a Swedish banking license.
Turning to the next page, we can now tick off one more box on our high-level roadmap to become a Swedish bank. As a recap, it was our fully owned Swedish subsidiary that applied for and now has obtained the Swedish banking license. In the next phase, we will seek to merge the current Norwegian Morrow Bank with the Swedish subsidiary in a cross-border merger. The Swedish entity then will hold the Swedish banking license, will become the surviving entity of this merger, and the Swedish Morrow Bank will then start operating. The merger plan was approved by the bank's board last week, and an invitation to an extraordinary general meeting to vote on the plan will follow shortly. In addition to the actual merger process, we will also transfer the listing of the bank from Oslo to Nasdaq Stockholm's main market.
We're targeting to complete both processes, merger and the relisting, in January at the latest. All current shareholders will receive detailed information about the change of listing venue in due time. Turning to page 5, and this is a page we've shown in previous calls, we remain confident around our communicated year-end 2026 targets. That is growing the loan book organically by about 5% per year to above NOK 17 billion, and driving cost-income further down towards 23%, and delivering a stable and solid loan loss ratio in the range of 4-4.5%. Based on the clear path now to becoming a Swedish bank, we have now increased our return on target equity target from previously 12-14% to 15-17% based on the estimated Swedish capital requirements. We're obviously happy with the strong progress at the bank and comfortable with our targets.
Before handing over to Eirik to review the financial results in more detail, I wanted to come back to this slide benchmarking us to our Nordic peers. As you can see, we continue to outperform on the key drivers that we have had full focus on over the past few years: growth and efficiency. As for profitability, we continue to move up the list, and with our revised midterm return targets, we should be able to compete with the best, something we expect the markets to value. Now over to you, Eirik.
Thank you, Øyvind. With this, I will go into a bit deeper details on the financial performance. As always, we start with the loan balance, which is the driver for the bank's development. In the fourth quarter, we saw a small increase in our loan book. This is a fact that the first quarter usually tends to be soft for consumer finance, and this year also being the case. We also undertook a few product adjustments to remain compliant with our products in the markets we are in, and that had a small impact on our development. Quite importantly, the FX has impacted us. It seems a bit distant now, but the Norwegian kroner was actually quite strong during the first quarter, and as a fact, that also impacted our loan balance development.
Because if you look at Finland and Sweden only, and correct for the FX effects, you will see that we actually had an underlying growth of NOK 274 million. Year on year, our loan balance grew at a nice 26%, and going forward, we're undertaking new product launches this quarter, which will have an effect in this quarter, but more to come in the second half. Finally, we will still continue to explore portfolio opportunities should they arise. Going forward to our yield development, you can see here that our net loan deposit margin, i.e., the difference between the rate we pay on the deposits to the deposit clients and what we receive on our loans, was stable at 10.5%.
There was a small drop in our loan yield, and that was caused by the fact that we had a reference rate adjustment in Finland on the 1st of January, and that had a full quarter effect. We have mitigated that by undertaking cost reductions in the deposit yield throughout the quarter, but that has taken place throughout the quarter and hence do not have a full quarter impact. You can see that by the fact that the effective cost for our deposits was 3% for the quarter, but at the very end of the quarter, it was actually 2.7%. With that development in place, we are looking forward to see a certain margin expansion going forward. Now, combining the loan balance development and the yield and also some other items, you will see that the total income grew 16% year on year.
In the quarter, we were a bit impacted, and here we just, there was, for instance, the fact that the foreign exchange was not on our side. Also, we had a set of the drop in the reference rate and also lower interest income on liquidity. However, these were partially offset by one-offs we had in commission income. Going forward, we expect higher net interest margin. This is driven by the lower deposit rates we've seen and also when we foresee that the growth will come back. On the cost side, obviously, our Swedish expansion has an impact, and you can see that on the light green parts of the bars. We are happy to see that we're actually proceeding a bit faster than foreseen, i.e., we also got the banking license on the 1st of April.
As a consequence, we're also seeing that we are undertaking the cost faster. If you look at the underlying cost, you can see that this is a stable picture, and we also, as Øyvind said, we are happy to report an underlying cost-income of 24.4%. Going forward, we will still have one-off costs related to the re-domiciliation to Sweden and also including the listing on the Stockholm Stock Exchange. These are, as I'd like to point out, one-offs and will not affect our underlying cost base. On the loan side, we're happy to see that we now have another quarter of reduction in loan losses. This time, it was both nominal as well as in terms of loan loss ratio. The loan loss reduction is driven by a flattish loan balance as well as improving credit quality.
We have previously been guiding on that we would be at a range between 4-4.5% and expected that that would come in 2026. We're happy to see that we are already at that level, and going forward, we continue to be here, and it should be at this level. There will, from quarter to quarter, be fluctuations where it may go up and may go down, but for the time being, this is the level we expect to be at. Now, combining these elements of total income, costs, and loan losses, you'll see that we had a strong profit for this quarter as well, with a profit before tax of NOK 83 million and after tax of NOK 62 million. As the shareholders on this call know, we'd also paid a dividend a couple of weeks ago of NOK 40.4 per share.
Our return on target equity increased slightly, and as Øyvind showed here, we are now changing our guiding for the target equity for the fourth quarter in 2026 as a consequence of becoming a Swedish bank, while we go from 12-14% to 15-17%. Also, looking forward at the profitability, we should see an increase, and this is driven by the fact that we have strong margins, that our loan balance is set to grow, that we have cost controls, and also that our loan losses are contained at where we'd like them to be. Finally, a word on our solidity. We have a strong balance sheet. You can see that by the fact that we have a good headroom now to the minimum requirements.
These are still Norwegian requirements, but to the minimum CT1 requirements, which is at 12.1%, we have a 4.7% margin to our total capital, to our CT1 ratio of 16.8%. There are more details in the appendix on the capital situation, but the underlying message here is that we are still solidly, we still have a strong balance, and we are solidly capitalized. Also, what is interesting is what happened just after balance sheet date, and that was that CRR3 became effective on the 1st of April. For us, this implied a quite certain capital relief because our operational risk exposure was reduced from NOK 15.6 billion to NOK 0.6 billion, and then the ensuing capital requirements will go down around 12% of that amount. This implies that on the 1st of April, we now have a headroom of our CT1 requirement of NOK 700 million or NOK 470 million against the target.
This comes in addition to what will be freed once we become a Swedish bank. We would like to reiterate that our dividend policy is to distribute the excess capital that we are not spending on growth to our shareholders. With that, I will leave the word back to Øyvind.
Thank you, Eirik, for that summary of the numbers. Looking a bit ahead, we're working on a range of growth drivers that should start to yield results in the next couple of quarters. As a basis, we have built a scalable banking platform, as now demonstrated. We are introducing some new products and product improvements that, together with improved analytical marketing and CRM capabilities, should see us increase organic growth as we move forward. We will continue to explore inorganic growth opportunities in parallel. The overall approach, though, remains with clear focus on quality and profitability. To the last slide of this morning's presentation, trying to sum up the key takeaways, we have demonstrated that we now have a very cost-efficient and scalable banking platform, enabling us to deliver solid results over time.
As returns are improving, we are generating excess capital and paid our first dividend since the turnaround. We have been granted a Swedish banking license, ensuring us level playing field with Nordic peers when we become a Swedish bank around year-end. This, together with continuous operational improvements and growth, gives us good comfort when we increase our midterm return on target equity targets to 15-17%, and stating our long-term ambition to move that beyond 20%. With that, thanks for listening to the presentation, and we will now open up for questions. As a reminder, you can raise your question or ask your question by raising your hand. Henning is here helping us to manage that. We will open up for you to post your question, or you can write us a question in the chat or alternatively by email.
Eirik, come along, and both of us will try and answer your questions as good as we can.
Yes, we have questions from the participants. First out is Jan Erik Gjerland from ABG. Please unmute your microphone and ask a question, Jan-Erik.
Thank you. Can you hear me now?
Loud and clear.
Very good. Very good. Firstly, you seem to have a very good strong headroom when you now are a Norwegian bank already from the 1st of April with the lower or changed market risks and operational risk. Could you shed some more light into where the headroom could be and where your sort of future target will be as a Swedish bank? That is more interesting than any headroom to any requirement. We see that your Swedish peers are at a high level, but not at 20, of course. Is 15 or 14 or 16 something you have been playing with, or how would you look at it?
I would tend to look at our Swedish peers. We will be in their range, and there you can see probably an overall capital requirement of 12-14% depending on what kind of margin you put in. You can see that the CET1 requirement will be below 10%. This is just looking at our Swedish peers, and we do not really expect that we would have any worse conditions than they have. From that perspective, you can also calculate the headroom we will then be getting.
How easy is it to get this new sort of freed-up money to play? Is it easy to get new lending, new loans there, or is it more easy to pay it out to shareholders? How should we think about your sort of exploiting this excess capital or the new opportunity you get when you become a Swedish bank?
That's a very good question, Jan-Erik. As I think we've talked about and demonstrated on multiple previous calls, our target is to grow organically by 5%. If we can see that there's a market for growing organically more than that, we'll obviously push for that. In parallel, we are going to be looking even more actively at potential portfolio acquisitions if something is out there and available and relevant and profitable, similar to what we did last year.
Ultimately, we will take a look with the board and see how we distribute that excess capital that obviously will be released at some stage when we become a Swedish bank to see how much of that we potentially have the opportunity to reinvest into both organic or inorganic opportunities, but obviously also returning some of that to our shareholders in form of dividend and potentially also an extraordinary dividend payment as we move into next year.
Okay, very clear. Just one more thing on the net interest income and one on the cost. You said that this is sort of a slow start to the year or that's the normal start of the year, but it looks like you're looking a little bit more into Norway again with this REFI product. Is that something we should think about playing a good magnitude during 2025 and into 2026, or is that something that could come into play already from the second quarter when they launch it?
I think the sort of volume from that product is something we're going to see ramping up into the second half of the year. We're going to be launching this, working hard on that now to get that launched before the summer. Second half is probably where we see the most impact of it. The reason is we talked about Sweden and Finland as our growth markets, and they will continue to be our growth markets. We're not going completely away from the Norwegian market either, and we see that there is a market opportunity around refinancing. There's a need for that product. Also, as Eirik has shown, we've actually seen a balance reduction in Norway over the past few years because of too much churn, really. The churn typically goes to refinancing at other banks.
With us now being able to provide that product and that value proposition to our customers, we obviously target both new volume, but also reduced churn with that product as we basically have a refinancing offer also to our own customers.
Okay, and finally on cost, then personnel cost was a little bit higher than we thought. Is it any restructuring cost or anything special there, or is it new hires that sort of this is the new sort of starting point for our estimates?
The cost that you're seeing here is that we have basically these are incentive programs for management and employees and also the fact that we're increasing the staff a little bit in preparation for our move to Sweden. There is no restructuring going on.
Okay, so it's more a sort of a touch-up in this quarter because of these bonus programs, etc., incentive program, and not a recurring level.
Correct. Yes.
Okay. Perfect. Thanks a lot for my time.
Thank you.
Thank you.
We have received a question in the chat, but this has already been answered in the questions from Jan-Erik, so I don't think it's necessary to read it up. No more questions so far.
Again, as a reminder, if you have a question, hold up your hand or write your question directly in the chat, and we'll obviously do our best to answer.
Helmut Saal, you want to ask a question, please unmute your microphone and ask your questions, please.
Yes, thank you. Could you discuss a bit what you see, or do you see any development in sort of inorganic growth opportunities, portfolios you find interesting, and also just on what you see on the NPL side, how is the buyers acting in your view currently?
Yeah, thank you, Helmut. Let me try and shed some light on that, and Eirik, feel free to jump in. On the portfolios, there are, and I think especially in Sweden, there are pockets of portfolios that we are looking at. At the moment, we're not in an active process, but what we do see is from time to time, there are things coming to the market, and we're obviously doing our best to get involved in those processes. It's difficult to say anything more about that, Helmut, but we're going to be actively looking for opportunities to do more portfolio purchases.
We saw with the 2 acquisitions we made in the third quarter last year that it has a very positive impact to the bank's results, as well as demonstrated that we can easily take on board those types of portfolios without necessarily adding any cost to our cost base and then demonstrating the scalability of the platform. Now that we have this scalability, we're obviously very eager to see if we can get into some processes around buying portfolios if and when that should emerge. On the NPL side, I guess what I can say is we're constantly obviously looking at the market for buying and selling NPLs. We're also constantly out there talking to the, call it the usual suspects who typically would be in the market for buying NPLs.
What we experience is that market is still somewhat disrupted, not completely back to where it has been. I think there are multiple drivers for that. I think what we experience as well is with the current uncertainty around macroeconomics, interest rates, where are they going to go, there's probably a little setback in terms of, let's call it, appetite for buying, although we managed to actually make a sale that we announced now in April of our Finnish credit card NPL portfolio, so we're happy with that. Going forward, it's difficult. I think it's difficult to project anything at this stage, but I think the macroeconomic environment and interest rate and where interest rates are going, obviously impacting the funding for these buyers, is going to play a big role. We're constantly monitoring and talking to the various players in the field.
Hope that answered your question, Helmut.
Yeah, very clear. Thank you.
No more questions so far.
All right. As always, if you do not want to ask your question right now, feel free to send us your question by email to ir@morrowbank.com. Give us a call. We are always happy to discuss and to answer questions you might have. If there are no more questions today on this call, I guess it remains for Eirik and myself to just say thank you again for calling in this morning. Have a good day, and we will talk at the next milestone. Thank you.