Morning, everyone, and welcome to the Artea Bank Investor Webinar. Thank you for joining us today and for your continued interest in Artea Bank as we close out another transformational year. Today's call will be led by our Chief Executive Officer, Vytautas Sinius, and our Chief Financial Officer, Tomas Varenbergas. My name is Tautvydas Mėdžius, and I will be moderating the Q&A session after the presentation. With that, I would like to hand it over to Vytautas to highlight key financial and strategic achievements in 2025. Over to you, Vytautas.
Thank you, Hello, everyone, dear investors, and thank you for your interest in our group results for Q4 and for the full year 2025. Let's begin with key findings and strategic highlights. On the right-hand side, you can see the major figures from last year’s performance. The year was intense, with many internal and external activities, and we are pleased to report a net profit of EUR 60.7 million. This is slightly below our internal budget but close to it. The year had some challenges, which made hitting targets difficult. Adjusted net profit stands at approximately EUR 73 million, generating an adjusted return on equity of 12.4%.
Cost of Risk remained below expectations at 0.13%, and the CET1 ratio is strong at 16.6%. Regarding financial performance, net fee and commission income grew approximately 6%, primarily driven by asset management, the renovation business, and strong capital markets activity. Cost normalization is underway. In 2025, we had substantial one-offs, mainly from the Core Banking activity and rebranding costs, which were fully executed last year. These were partially offset by early savings in Q4 through our cost optimization program. We are proud of our asset quality.
Loan portfolio growth was modest, but the quality of our portfolio remains very strong. This contributes to our robust capital base, which remains solid. Therefore, we expect a record-high profit distribution of 70%, which we will discuss shortly. Regarding strategic milestones and innovation, as many of you know, we completed our rebranding, establishing a new umbrella brand for the entire group. Clients and investors are already familiar with it, and we are strengthening our brand across our markets.
The Core Banking program is progressing well. We are in the second year of the program and moving toward completion. Many activities have already been resolved, and extensive testing is ongoing, with a launch expected in the second half of 2026. We continue to advance the modernization of the banking sector in Lithuania. We are proud to announce that EIB has selected us as the provider of a new EUR 625 million fund, further strengthening our position in this sector.
On the debt capital market, it was another strong year, with approximately EUR 240 million in corporate bond origination. We are strengthening our position in this field. Additionally, our investment products were successfully launched in Q4, including the new first quarterly coupon retail bond fund and the Global Equity Index Plus fund on the equity side. For further details, please refer to the annexes. One notable metric to highlight is GDP development.
It was a strong year in 2025, with total GDP growth of 2.7%. A strong last quarter contributed positively to the full-year growth. Expectations for 2026 are also strong, at around 3.2%. As you can see, Lithuania’s economic development, both historically and looking forward, remains quite strong compared to the average of EU countries. Inflation last year was slightly higher at 3.4%. For 2026, expectations are around 3.1%, still remaining relatively high.
We still expect that some of this will also be driven by the second pillar reform. Previously, in 2025, inflation was driven by food price increases, higher service prices, and excise duties — these were the main drivers. However, wage growth was faster, and therefore purchasing power remains strong, which also leads to higher sentiment. As you can see on the right-hand graph, consumer optimism remains quite strong compared both within the Baltics and with the rest of Europe. In summary, last year was strong for the Lithuanian economy, and we see a similar situation continuing in 2026 and potentially in 2027. Let's touch briefly on modernization funds.
We won the mandate for the third fund already, and it is the largest one so far, meaning we are quite knowledgeable and experienced in managing it. As I mentioned, the fund size is EUR 625 million, which could cover close to 850 multi-apartment buildings. Previous funds totaled EUR 475 million. This fund will be the largest and will take time to deploy. We expect that only toward the end of this year we will start practically using the funds. It will take several years to utilize the full capacity in the market. It is a good product for both us and investors.
Low risk, since it's based on the type of utility payment for the households. It's well generating both interest income and recurring fees for Artea Bank. It's worth mentioning that this is also our contribution to the climate goals in Lithuania and Artea Bank as well, with this continuous program. Let's move to the one more topic, which is important for investors. With already making some information at the previous slide, I would like to elaborate a bit more, that our management intends to propose a record high of 70% capital distribution for the last year's profit.
The split would be a 50% proposition for the dividends, and the rest, 20% goes for buybacks. Again, we will use actively both instruments of distributing profit. The capacity of the capital we treat is sufficient, and after the repayment of such a profit side, we see that we will be in compliance with all requirements. This is, of course, subject to AGM approval and buybacks for also the regulatory approval. But I think we have a good track record already of delivering those instruments. With that, we're happy to compare with us with our peers. The larger Baltic issuers, and we see that our Total Shareholder Return stats at really solid and high 6.9% level.
With that, I will be glad to pass the word to Tomas, who will continue with the financial results of Artea Bankas Group.
Good morning, everyone. I'm happy to take over our today's webinar, and we'll continue to walk you through our financial performance in 2025 and Q4. Starting with the highlights, that will be more deeply covered, the most important topics will be covered in the following slides. In general, our net interest income in Q4 and in 2025 was highly influenced by the low base, rating environment, and specifically in Q4, our increased funding base. The market funding that we have attract, impacted slightly negative development. On fees, we do have a very good performance in Q4. In Q4, it increased by 8%, and looking on year-on-year basis, we have 6% increase.
Our Artea fees-generating segments are doing very well. Operating expenses, I would say that recurring operating expenses are under control. We do have 2 quarters already with no cost increase. Of course, we undergoing investment period, and our one-offs depends on our strategic initiatives, and it lasted during the last year, and it will be a case for this year as well. We have achieved EUR 12.3 million of net profit in Q4. Full year figure stands at EUR 60.7 million, so it's 7% below the target that we have set in the beginning of 2025.
Well, we are growing and implementing the strategic initiatives, and we believe that we will be back on the track on profitability that we are set in our strategic objectives. Looking on our balance sheet. Development, so last year was a little bit different from the years that the bank had in a couple years ago. The loan book growth was slower than our funding side. Loan book grew by 8%, while deposits by 17% of the total funding base, more than 20%. The case behind that is, well, strategically, we need to balance more our loan-to-deposit ratio.
It peaked almost at 105%, and in 2 quarters, we managed to bring it back to 94%-95%, and we believe that at that level, we can further grow our assets and liabilities in parallel. Moving forward to the net interest income. In Q4, we arrived at 2.5% NIM. The biggest influence of the decline came from our market funding. We took a chance to issue Eurobonds and, well, we are fully funded from the wholesale market for this year, as the funding was invested in securities and government bonds, so the yield is lower.
Effectively, that brought our NIM at 2.5%. We do see that the asset yield to remain at the current level. The Euribor already started slightly to increase, so all the repricing on the asset side already is in place. With a proactive management of the cost of funding, we will be able to come back to the above 2.5% of net interest margin. Going to the loan portfolio, it increased by 8%. The main growth areas was corporate and mortgage segments, as you see in the bottom right hand side, all of our core segments was growing.
You do see good momentum in mortgages. We do see good opportunities arising in the corporate financing, and we are entering, I would say, new segments. Could mention one example in Q4, that we just financed renewable energy project, so it's on energy storage. A new projects that have been brought into Lithuanian market, well, the size of the potential of that segment, we see pretty high for the bank. As I said, the growth, lower growth was mainly impacted by our strategic focus to balance more our loan-to-deposit ratio.
Moving to the net fee and commission income, performance good. These segments are growing, those supported by asset management, capital markets, renovation. Asset management was also supported by very good performance on our financial markets. Worth to mention that from the first of January, our clients can withdraw funds from the second pillar funds. Looking to the January statistics, we do see that in the market, 20% of the clients chooses this option to withdraw. What is good about our client base, withdrawals are slightly lower, nevertheless, we do see a high clients activity and well, our net fee and commission income will be affected.
We are working closely with these clients, and, well, we do have wide product offering, either it's third pillar funds, either our term deposit product or capital markets solutions. We believe that the clients stay, will stay with the bank, but in different products. Daily banking slightly decreased during 2025, but mainly that was attributable to the, our rebranding and one-off cost that we had to bear in order to rebrand. Let's move to the operating expenses. I said already 2 quarters in a row that our recurring expenses are flat or even declining, as was the case in Q4.
The overall operating expenses development is dependent on one-off expenses, so it's increased year-on-year, but it depends on the pace of our Core Banking platform change. That's investment for the future. Currently, our cost of income, including the one-offs, is elevated, but with strict recurring cost management, what was already the case in the second part of 2025, and what we're gonna continue during this year. As an example, very strict hiring process. We are working on changing our organizational structure. We do look into our distribution channels and what can be done in order to make it more efficient.
Plenty of initiatives in place to forward to optimize our recurring expenses, but could bring us into our desired cost-to-income below 45% in the long term. Let's move to the asset quality. We are very happy on developments in this field. Given the strong macro situation, disciplined underwriting, good performance on our client base, our Cost of Risk stood at 13 basis points. We do have some elevations in particularly mortgage segments, but primarily it's due to that during the last year many methodological changes was implemented, and it shouldn't be expected such kind of a Cost of Risk for that segment going into 2026.
According to our budgeted level, mortgages, Cost of Risk should stand close to 1 basis point for this year, again, due to very good macro situation in the country. We did had a slight increase of Stage 3 loans in Q4, but primarily it was of one exposure that was classified into Stage 3. In the beginning of the year, we came back to kind of a 2.5 or so level that was seen throughout the 2025 year. On funding side, that was well, a high focus area for the bank especially during the second half of 2025. Our funding base increased by more than 20%. Deposits grew by 17%.
We do have good inflows, either it's in demand deposits or in term deposits. Cost of funding didn't decrease much in Q4, primarily due to our additional issued demands in Q4. Going forward, we do see a room on our cost funding to improve, especially given the, I would say, liquidity event in the country with the second pillar funds withdrawals, that should lead to pretty sizable amounts of cash to settle into the current accounts in private clients segment. On the capital levels are very solid.
Given the lower growth rate, so which was not fully utilized as expected, for the increase of our loan portfolio, the ratios are very comfortable and worth to emphasize that it's still without inclusion of the profit of the last year profit that could lead another 100 basis points to a 100 basis points higher level. That's in a lower growth, indeed, on our proposition for the higher distribution to the shareholders. As we look into the best ways how to utilize the capital, which is locked in the bank. As one year ended and another started, as always, we provide updated guidance.
We believe that our ambition to become a national champion in Lithuania remains unchanged, and we do commit to that. Given the financial performance and some strategic corrections in terms of lower growth and bringing our loan-to-deposit ratio below 100%, we do see that financial projections should be updated, and that's the case. Nevertheless, we do see that the growth trajectory for this year and the next 3 years in the area of 11% and 13% is a good, at a good rate and a good rate to achieve profitable growth, what is the most important, and at that growth level, we can protect our margins.
Deposit growth, it will match our loan book growth. For this year, we expect a little bit lower growth because we attracted and we funded ourselves during the end of the last year. Our revenue will get operational leverage with completion of our Core Banking change. The growth will come more at a higher pace starting from 2027. Especially this growth could be influenced also by the second pillar funds. Operational leverage should come up with the completion of our Core Banking replatforming. On efficiency, we are undergoing investment phase, our costs are elevated.
With strict recurring cost management, and after the investment phase will end, we believe that in 1 or 1.5 year, our cost-to-income ratio will come back to below 45%. On profitability, well, our goal is unchanged. Above 17% long-term return is what we are targeting. Again, our current elevation is due to our investment phase that we do expect to end in 2026. Some of the still investments could be in 2027, as you see in the mid column, it's only the minor compared to what investments were made during the last year, and what I expected during 2026.
Our commitment on distributions unchanged, minimum 50% of the payout. That could be supplemented by additional share buybacks, so in the case that what's planned to propose for annual shareholders meeting. The final thing, the Total Shareholder Return. What was said in the beginning of 2024, that, well, we commit for at least 20% of return. After the two years, we do see that on average 25% was delivered to our shareholders. Well, we believe and we are committed that we can deliver that in upcoming years as well.
Thank you, Tomas. It truly has been another successful year for Artea Bank. Most importantly, we're serving our clients with excellence and delivering strong returns to our shareholders. I wanna wrap up today's webinar with a few key takeaways. Starting with the growth, our top line performance remains compelling. Our loan book expanded by 8%. Yes, admittedly, pace little bit slower compared to the last few years, our deposits increased at 17% rate, which is exceptionally high, and that was intentional. We're trying to expand our funding base, you know, accelerating deposit inflows and reinforcing our balance sheet. Tomas mentioned that, you know, we're focusing on rebalancing our loan-to-deposit ratio. Importantly to note that this has been achieved while executing some of the most important strategic initiatives in our history.
Rebranding, replatforming, revamping our distribution channels are all firmly on track. Second thing is we're very excited and happy with the momentum in our fee-generating business. Our net fees and commissions increased significantly this year, primarily due to successful performance in asset management and renovation, and, you know, we're very happy about it. We wanna have more fees and commissions in our income profile. It makes our revenue stream more diversified, our business profile more resilient. Moving on to credits. Asset quality remains pristine. That's primarily due to strong macroeconomic environment in Lithuania and our prudent underwriting. Rigorous risk management is part of our DNA and will remain one of our top priorities going forward. On the capital, our balance sheet remains a fortress. Our Common Equity Tier 1 ratio stands at 16.6%, significantly above regulatory requirements.
Very important to note that this does not include 2025 profit, which will take this ratio even to the higher level. We start in 2026 with a position of strength, and we're very excited to announce the record high distribution to our shareholders of 70%. 50% will come from dividends, and additional 20% will come from the buybacks. We remain very optimistic about the future, and we remain confident about our ability to serve clients well and continue delivering superior returns for our shareholders. This concludes our presentation today. We'll now switch to the Q&A session. I will ask everyone to limit themselves to key questions. If you have additional questions, or if any of your questions remain unanswered during this call, please feel free to email investor relations team, and we'll get back to you directly.
With that, we'll switch to first few questions. The first question is about Core Banking: What is the current status of this project? What are the key milestones we should be looking at it, and when are you planning the migration out?
Yes, thank you for the question. I can take it. The Core Banking program remains as a key project in our bank. All the team who are participating in this project are very closely focused on that, because it is an important endeavor in the bank history, and changing Core Banking systems is a big exercise. What is good as we move to the final phase, when we already made most of the developments, still, you know, remaining. We are producing a lot of different type of APIs to interconnect the systems, so the work is going as planned. We are now in active testing phase, and so it is a lot, it is a lot of evaluation of end-to-end process evaluation and testing.
Before the launching, we want to be sure that everything operates properly. As I mentioned, the system migration is planned in the 2nd half of this year, we still don't want to mention exact date, because we want to make sure that the preparation and testing is completed, and we have sufficient time to inform everybody, our clients, and to be fully prepared. As a good master to illustrate the development, that we already have changed in February, our card processor. We switched from one vendor to another one, who's provided more functionality needed for the future. That went smoothly without, you know, any major impact to the client, as it went as it planned.
This is a very good rehearsal of change that we're expecting. Of course, will be on a bigger scale, but knowing that a card processing and card business is a kind of, you know, blood flowing in organisms, so the same with the cards. Making that successful, it inspires us to continue, you know, firmly with the whole program and to complete it successfully.
Thank you, Vytautas. The next question is about a partnership with Žalgiris. How is this partnership performing against your expectations? Are there any additional updates on that front?
Yeah, thank you. It's a really emotional partnership with the strong brand of Žalgiris. Especially victories like yesterday against Olympiacos, it really inspires us to be in the same mood and in the same aspiration going for our targets. The cooperation goes obviously rather, really smooth. We have multiple brand integrations with Žalgiris, including our core branded cards and, as I mentioned, different type of other integrations. We will continue with Žalgiris further, and we see very good synergies working with this brand.
The next few questions come from EPSA. Good morning, Tomas. Maybe I'll read them together, because they are similar. Question 1: What is your outlook for the net interest margin in the coming quarters? Question 2: What is the interest rates and net interest margin embedded in your revised outlook for 2026 and 2028?
Thank you, Thomas, for the question. Good morning. For the next couple of quarters, we'd expect to be in close to the level that was in the end of the last year, so it's 2.5%. Gradually, we'd expect if with better cost of funding to go to 3% net interest margin. On the asset side, the repricing took place, and we do see already some, you know, pickup with increasing EURIBOR. On the cost of funding, we are undergoing kind of initiatives to improve conversion of our term deposits to the current accounts, that could help us to more effectively manage our funding profile.
The next question comes from IBM. Good morning, Vladislovas Is there anything new on the regulatory front? Maybe I'll take this question. There's several things. One is the ongoing Pillar II pension reform in Lithuania, which you might be aware of. You know, customers are given a choice to, and the window to exit the system, which was compulsory before that, so they gave it to you, a window to exit the system and withdraw the funds. What's happening at the moment, in industry, around 20% of the customers left the system already. The statistics at Nordea Bank are a little bit better than that, we're running below 20%.
Important to note that, these things usually, you know, the largest activity is in the first few weeks, and then withdrawals moderate significantly. We're converting a lot of these withdrawals into other products, such as deposits, current accounts, and, you know, third pillar pension funds, we're mitigating the impact. The other thing worth mentioning is that the mortgage regulation is changing a little bit. Starting from August this year in Lithuania, the down payment for the first-time buyers will go down from 15% to 10%, that will spur the demand for mortgage even further. We feel good about this product, the demand for it will continue increasing in our country. The next question comes from Andre, SEB Bank. Could you please provide more granularity on the slower loan book growth across all segments in Q4?
Was it a competition or the factors affecting you?
Yeah, thank you for the question. Yeah, colleagues already, as already mentioned that during the presentation. This is a complex impact. There were some competition elements where we were, you know, not too aggressive on the pricing and didn't want to go for the pricing course on some tickets. Therefore, some refinancing happened, but that was, you know, choice ours not to be too aggressive, as I mentioned. One of the reasons was balancing our loan-to-deposit ratio, which Thomas already mentioned in more detail, I will not repeat. I'm kind of confident with that our growth in the loan book will continue.
We gave in our projections that we're, well, I believe we will come back to the double digit growth in 2026 in all areas. We see rather positive for all main areas of our financing, both, you know, corporate lending, mortgages, consumer lending. Yeah, rather positive for this year. With this, you know, strong capital and liquidity base, I see that we will continue growing in line with the market.
Thank you, Vytautas. The second question from Andre. It's about the loan book growth in 2026. What are the preconditions to achieve our unit of 11% loan book growth in the next year?
I will take that question. Hi, Andre. Our deposits portfolio growth for this year is set at a lower rate than the loan book, because we pre-funded ourselves during the last year. To grow at 11%, 11%, we do not have, we do not see any risk, and we are confident to achieve that. We do see that a high demand for the credit in the country, either it's mortgages or corporates. Of course, some seasonality between the quarters could be, but in overall, 11% and loan growth together with a lower growth of deposits, it's what we are confident we can achieve.
The next question comes from Signet Bank. Good morning, Valters. Assuming no reversals, how Cost of Risk is expected to develop in 2026?
Yeah. Hi, Walters, I will take that question. Actually, our budgeted Cost of Risk level for 2026 is more or less similar what we have achieved during the last year. Well, given the macro situation in the country, we do believe and we are confident that we can end up at that level.
Thank you. The next question is from David: Why did you feel the need to strategically improve your loan-to-deposit ratio and strengthen the balance sheet resilience last year?
Yes, hi, David, , I will take that question. So we hit some, you know, the levels of the ratio itself as high. You know, to be at 105% on loan-to-deposit ratio, we believe it's a high level, so that's why we decided to bring that to 90s, mid-90s. And well, we always said that to be at 95% or 90% in loan-to-deposit ratio is what our long-term target level is.
The next question comes from Dallas: How come you're so cautious about 2026 guidance, but very bullish on 2027 and 2028? With big net profit growth in those two years?
Yes. Hi, Dallas. Actually, you know, the profit line development depends on the one-offs. This is the one thing. If we look into the adjusted ratios, the growth is not as significant as with the line to with the one-offs. We do believe with the end of the investment phase, that is expected to be end of this year or beginning of next year, our operational leverage will increase, and the investments that we are making now is the reason in order to bring the bank growing and to the level of the profitability that we committed to achieve for the shareholders, and it's above 17%.
Don't see any additional questions at this given moment. If you have any additional questions after this call, please feel free to email investor relations team and get back to you shortly after. We'll conclude our Q&A session. Thank you for dialing in today, and thank you for your continued interest in our story. We'll see you next quarter.