POP Bank Group Investor Presentation April 2018
Executive Summary Group Alliance POP Bank Group is a Finnish financial group that offers retail banking services to private customers, small companies and agricultural and forestry clients, as well as non-life insurance services to private customers. POP Bank Group consists of 26 cooperative POP Banks, POP Bank Alliance Coop, central credit institution Bonum Bank Plc and online insurance company Finnish P&C Insurance Ltd (branded POP Insurance). POP Banks formed the amalgamation of POP Banks in December 2015. History Cooperative banks themselves are over 100 years old and are owned by the members of the cooperative. POP Banks emphasize the development of the customer experience, and take pride in having the most satisfied customers in Nordic region and the best customer service in Finland. Financials POP Bank Group has a strong financial position and the capital adequacy is among the best bank groups in Finland. Rating S&P Global has affirmed a rating BBB to Bonum Bank Plc with stable outlook. Year 2018 The 2018 result of POP Bank Group is expected to be smaller than the 2017 result, due to the challenging interest rate environment and the investments demanded by the Group s strategic development measures. 2
Events 2017 Strategy The POP Bank Group s strategy is to increase growth and profitability. The strategy will be executed through local and digital presence to retain the best customer satisfaction. Waiver The Finnish FSA granted POP Banks the exemptions laid down in the Amalgamation Act in January and thereby the central organization can: Exempt member credit institutions from own funds requirements and large exposures limits as in CRR parts 2-4 Implemented in February 2017: intra-group exposures treated with 0 % risk weight in capital adequacy calculations. Includes all loans and CET1-holdings within POP Bank Group. Implemented in February 2017: exposures between Bonum Bank and POP Banks exempted from large exposures limits Exempt member credit institutions from liquidity requirements as in CRR part 6 Implemented in November 2017. Bonum Bank is responsible for managing the amalgamation s liquidity coverage requirement. Insurance The number of customers in the Insurance company exceeded 100 000 in April. CEO Pekka Lemettinen commenced as CEO for POP Bank Alliance Coop in January. 3
Key Indicators of the POP Bank Group 2017 (EUR 1000) 1 Jan-31 Dec 2017 1 Jan-31 Dec 2016 1 Jan-31 Dec 2015* Net sales 137 529 137 449 126 963 Net interes income 62 469 62 417 61 237 % of net sales 45,4 % 45,4 % 48,2 % Profit before tax 19 488 16 958 12 023 % of net sales 14,2 % 12,3 % 9,5 % Total operating income 118 885 114 851 103 292 Total operating expenses excl. amortisation -86 890-85 733-80 474 Cost to income ratio 73,1 % 74,6 % 77,9 % Balance sheet total 4 275 838 4 229 417 4 071 635 Equity capital 485 649 463 021 423 716 Return on assets, ROA % 0,4 % 0,2 % 0,2 % Return on equity, ROE % 3,3 % 2,3 % 2,1 % Equity ratio, % 11,4 % 10,9 % 10,4 % Common equity Tier 1 capital ratio, (CET1) % 20,9 % 20,9 % 20,2 % Capital adequacy ratio, (TC) % 21,2 % 21,3 % 20,8 % Impairment losses on loans and other receivables -4 991-6 731-4 961 * The figures are based on additional financial information disclosed for the period preceding the commencement of the operations of the amalgamation of POP Banks on 31 December 2015. 4
POP Bank Group and Amalgamation
POP Bank Group Development 6
Best Customer Satisfaction POP Banks have the most satisfied customers in the Nordic countries 2011-2013, 2015-2017 (EPSI Rating) EPSI Rating 2011-2017 85 80 POP Bank 75 70 Bank A Bank B Bank C Bank D Bank E Bank F 65 60 2011 2012 2013 2014 2015 2016 2017 7
Customers of the Group In recent years the amount of customers in the banking sector has been quite stable according to the strategic decisions made by the Group. The growth has focused in the insurance business customers. Cross-selling potential is large: number of common customers is about 10.000 customers 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000 8 0 2011 2012 2013 2014 2015 2016 2017 POP Banks POP Insurance
POP Bank Group, Amalgamation of POP Banks and Joint Liability 9
POP Bank Group Satisfied customers, profitable and well-capitalized bank business and rapidly growing new-era insurance business. Banking Business 2017 EUR 3.6bn deposits EUR 3.4bn loans EUR 19.5m profit before tax 20,9% CET1 ratio 21.2% total capital ratio 250 000 customers 2016 EUR 3.5bn deposits EUR 3.2bn loans EUR 29.8m profit before tax 20.9% CET1 ratio 21.3% total capital ratio 249 900 customers Insurance Business 2017 EUR 35m insurance premium EUR 9.7m net income EUR -0.7m operating loss EUR 10.8m operating expenses 75 % loss ratio 104 400 customers 2016 EUR 33m insurance premium EUR 8.1m net income EUR -3.3m operating loss EUR 11.3m operating expenses 77 % loss ratio 91 700 customers POP Bank Group (Banking, Insurance, other functions) 2017 EUR 4.3bn balance sheet EUR 19.5m profit before tax 2016 EUR 4.2bn balance sheet EUR 17.0m profit before tax 10
The Amalgamation of POP Banks Amalgamation Responsibilities POP Banks established an amalgamation, as defined in the Act on the Amalgamation of Deposit Banks (599/2010), on 31 December 2015. As the central institution, POP Bank Alliance Coop is obliged to supervise and instruct the member banks according to the Act. Responsibilities include (among others): Risk Management Corporate Governance Liquidity and Capital Adequacy Internal Auditing Joint Liability POP Bank Alliance Coop (the central institution) and all member banks (26 POP Banks and Bonum Bank) are jointly liable for each others debt. In the case of insolvency of the POP Bank Alliance Coop, the member banks have unlimited liability to pay the debts of POP Bank Alliance Coop. Capital Ratio POP Bank Alliance Coop is, as the central institution, responsible for the group s joint capital ratio. Obligation If a member bank fails to meet its obligations, a creditor may demand payment from POP Bank Alliance Coop. Other member banks are obliged to participate in the central institution s supporting actions. 11
POP Bank Group Strategy Accelerating Digital Transformation 2018-2020 0 One POP Group: New organisation and corporate culture, driving group level synergies, banks to centralize functions, back office and robotics 1 2 Vahinkosuhde Internal Sisäinen Bank providing pankki centralised liquidity management and fund rising Flexible and more independent IT 78% (72%) 201 Acquiring ACH Finland ltd and transforming it to POP Banks central bank Bonum Bank plc. 3 4 5 Best Customer Satisfaction: easy to deal with, relevant and competent, trusted 2004 2012 Digital presence: Building up Digital Office and expand to large cities; banking, insurance and cards into Aktia POP Mortgage Mobile; channel Bank joint neutral venture user experience. Establishing modern online insurance together with Aktia, POP Banks and company Finnish P&C Insurance ltd for Savings banks. household customers. New products and value added partners 6 Profitability and Growth: Cost and capital efficiency, simplification of products, data and processes 12
POP Bank Group Rating BBB/A-2 S&P Global: Rating BBB / A-2 with stable outlook Finnish banks (anchor rating) A- Capital & Earnings (very strong) +2 Strong capital adequacy Expected RAC to improve further Liquidity & Funding (average and adequate) 0 Sound customer deposit funding Risk position (moderate) -1 Concentration in Finland Offset by sound collateralization Business position (weak) - 2 Only in Finnish retail & SME sectors Weak position in growth centers Non-life insurance business still small Additional: New group structure, relatively low earnings -1 POP Bank Group credit rating BBB (stable) 13
Group Balance 31st December 2017 Total Assets Total Liabilities and Equity 4 000 000 4 000 000 3 500 000 3 500 000 3 000 000 2 500 000 2 000 000 Other Assets Non-life insurance Assets Investment Assets 3 000 000 2 500 000 2 000 000 Other Liabilities Supplementary cooperative capital Debt securities issued to the public Non-life insurance Liabilities 1 500 000 1 000 000 500 000 Receivables from credit institutions Receivables from customers Cash 1 500 000 1 000 000 500 000 Liabilities to credit institutions Liabilities to customers Total equity 0 2017 0 2017 14
Banking Segment
POP Bank Customers POP Banks operate throughout Finland Customers are typically concentrated around POP Banks head offices. Focus on increasing customer potential in growth centres. 16
Strong Capital Position Compared to Competitors 2017 25,0 % 20,0 % 15,0 % 10,0 % 5,0 % 0,0 % Tier 1 capital ratio Leverage ratio POP Pankkiryhmä Oma Säästöpankki SP-ryhmä OP-ryhmä Nordea Group Hypoteekkiyhdistys Ålandsbanken Aktia 17
POP Bank Group Internal Bank Retail Banking Group Liquidity Mgmt & Funding Funding Sources POP Banks Payment accounts, deposits, collateral Loans, deposits, O/D limits Bonum Bank Bonds, CD s and other gross funding ECB Funding Markets Bank of Finland 18
Deposits and Loans of POP Banks Lendings million Deposits million 3 500 3 500 3 000 3 000 2 500 2 500 2 000 2 000 1 500 1 500 1 000 1 000 500 500 0 2011 2012 2013 2014 2015 2016 2017 0 2011 2012 2013 2014 2015 2016 2017 19
Low Risk and Diversified Loan Portfolio Loan portfolio is well diversified. Individual loan sizes are moderate due to the relatively small size of individual POP Banks. Loan portfolio structure: Private customers 67 % Agricultural customers 16 % SME s 17 % 0,50% 0,40% 0,30% 0,20% 0,10% 0,00% Annual impairment losses 2006 2008 2010 2012 2014* 2016* * POP Bank Group's Banking Segment Loan portfolio by Collaterals Loans over 90 days past due Residential mortgages 65.8 % Mortgages, other 29.3 % Financial collateral 0.6 % Guarantee 1.7 % Other collateral 0.7 % Non-collateralised 1.8 % Total 100 % 3,00% 2,50% 2,00% 1,50% 1,00% 0,50% 0,00% 2016/12 2017/02 2017/04 2017/06 2017/08 2017/10 2017/12 Data available only for POP Bank Group 20
Funding and Liquidity Position Q4 2017 LCR of the POP Bank Group was 149 % (31.12.2016: 220 %) Internal limit 110 % During 2017, POP Banks received a permission from the Finnish FSA to exempt single member banks from the LCR requirement. The Group s LCR requirement is managed by Bonum Bank More efficient use of liquid assets LCR portfolio liquid assets 327,9 million euros (31.12.2016: 450,3), of which Cash (Target2) 15,5 (15,2) % Level 1 assets of extremely high liquidity 84,5 (73,7) % Receivables from central governments 2,8 % Receivables from regional governments 78,5 % Covered bonds 3,1 % LCR liquid assets 327 Meur per 31.12.2017 78 % 3 % 16 % 3 % Cash (Target2) Government Regional governments 21
POP Bank Group Banking Segment - key figures 2017 Balance Sheet 4,3 bn Deposits 3,6 bn +1,4 % Credit Portfolio 3,3 bn +4,3 % Capital Adequacy -0,7 m Profit Before Tax 19,5 m Customers 250.000 Branches 85 Customer Rating Best (EPSI Rating)
Insurance Segment
POP Bank Group Insurance Segment - key figures 2017 Gross Premiums Written Loss Ratio Expense Ratio Profit/Loss 35,2M 75% 32% -0,7M Active Customers Active Policies Customer Retention Premium per Customer 104.400 158.500 66% 340 Personnel 120 Premium per Employee 290.000 Customers by Channel Online 48% Telesales 42% Ext. agents 10% Sales Market Share Motor Insurance 7% Uudet kumppanit
2012/10 2013/01 2013/04 2013/07 2013/10 2014/01 2014/04 2014/07 2014/10 2015/01 2015/04 2015/07 2015/10 2016/01 2016/04 2016/07 2016/10 2017/01 2017/04 2017/07 2017/10 2018/01 2018/04 2018/07 2018/10 2019/01 2019/04 2019/07 2019/10 POP Bank Group Insurance Segment financial development 2017 Combined ratio is expected to permanently fall under 100% as of end 2018. This will be achieved by improving profitability of both new business and existing portfolio and by increasing business volumes and performance. Realised 2012/10-2018/01 and expected 2018/02- development 200 % 180 % 160 % 140 % 120 % 100 % 80 % 60 % 40 % 20 % 0 % Expense ratio Number of active customers 2012-2020 180 000 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 Combined ratio 60,0 50,0 40,0 30,0 20,0 10,0 20,2 7,5 11,0 Loss ratio % 9,5 7,0 Expense ratio % 2,0 Combined ratio% 2012 N/A N/A N/A 2013 107 138 245 2014 94 50 144 2015 81 37 118 2016 77 34 111 2017 75 32 107 2018B 72 30 102 2019E 72 27 99 2020E 71 25 96 Capitalisation M 2012 2020 Total capital invested EUR 57,1 million Capital added Total capital invested (beginning of the year) 0 2012 2013 2014 2015 2016 2017 2018B 2019E 2020E 0,0-2012 2013 2014 2015 2016 2017 2018 2019 2020
POP Bank Group Insurance Segment realised and expected development Company business is expected to turn profitable in 2018, after which net cash flows take care of further financing needs. Capital invested is expected to total EUR 57,1 million. Year 2012 2013 2014 2015 2016 2017 B2018 E2019 E2020 Gross Premiums Written M 0,7 15,6 24,6 30,4 34,6 35,2 43,9 48,8 53,9 Net Earned Premiums M -0,2 6,0 21,0 28,1 33,0 33,9 38,6 45,7 50,6 Net Claims Incurred M -0,3-6,4-19,7-22,9-25,3-25,4-27,7-32,9-35,9 Operating Expenses M -3,7-8,3-10,5-10,4-11,3-10,8-11,5-12,1-12,7 Profit/Loss M -4,7-8,8-9,2-5,2-3,3-0,8 0,3 1,8 3,3 Loss Ratio - 107 % 94 % 81 % 77 % 75 % 72 % 72 % 71 % Expense Ratio - 138 % 50 % 37 % 34 % 32 % 30 % 27 % 25 % Combined Ratio - 245 % 144 % 118 % 111 % 107 % 102 % 99 % 96 % Capitalisation M +20,2 +7,5 +11,0 +9,5 +7,0 +2,0 0,0 0,0 0,0 Total Capital Invested M 20,2 27,6 38,6 48,1 55,1 57,1 57,1 57,1 57,1 Improvements that have been pivotal in developing company perfomance and turning the business profitable: Building cost-efficient self-service channels such as state-of-art online store, My Service -account, and online claim notification capabilities Increasing level of automation in sales & marketing, customer service and claims handling Inhouse-developed tools for sales, customer service and claims handlish Automated processes through inhouse intergration bus Fully automated claims processing with high volume claims and rule engines with more complex claims Fully automated online sales processes High level automation with registration endorsements (MTPL insurances) Creating lean and agile in-house IT development capabilities Establishing a data-based and ROI-lead management system with customer-centric data warehouse Revising pricing and underwriting rules in key products Agile development and introduction of new products Several organisational restructuring to increase perfomance Fostering business-oriented and startup-minded corporate culture to maintain momentum in development
POP Bank Group Financial Information
POP Bank Group s Profit by Segments 2017 (EUR 1 000) Banking Insurance Segments total Net interest income 62 796-62 796 Net commissions and fees 28 676-28 676 Net trading income 304-304 Net investment income 13 656-13 656 Net income from non-life insurance - 9 712 9 712 Other operating income 3 424 389 3 813 Total operating income* 108 856 10 101 118 957 Personnel expenses -29 830-6 089-35 919 Other operating expenses -48 023-3 217-51 240 Depreciation, amortisation and impairment of property, plant and equipment and intangible assets -4 852-1 465-6 317 Total operating expenses -82 705-10 771-93 477 Impairment losses on loans and receivables -4 991 - -4 991 Profit before tax 21 160-670 20 489 Income tax expense -3 866-24 -3 889 Profit for the period 17 294-694 16 600 27
Contact Information Pekka Lemettinen, CEO, POP Bank Alliance Coop Email: pekka.lemettinen@poppankki.fi Tel: +358 40 5035 411 Timo Hulkko, Director, POP Bank Alliance Coop Email: timo.hulkko@poppankki.fi Tel: + 358 500 894 008 Kirsi Salo, CEO, Bonum Bank Plc Email: kirsi.salo@poppankki.fi Tel: +358 40 6500 411 Jukka Päärnilä, Treasury Manager, Bonum Bank Plc Email: jukka.paarnila@poppankki.fi Tel: +358 40 5787 712 28
Disclaimer This presentation was prepared by Bonum Bank Plc (the Bank ) and POP Bank Group (the Group ) representatives for use in investor relations. This presentation is not intended for retail customers. This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Bank, in any jurisdiction or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever All official financial information of the Group, including without limitation profit and loss statement, balance sheet, and annexes is available at the Group s public webpage www.poppankki.fi. This document is not official financial information of the Group. This presentation may contain forward-looking statements, which are subject to risks, uncertainties, and assumptions. This presentation is being presented solely for your information and is subject to change without notice. No representation or warranty, expressed or implied, is made and no reliance should be placed on the accuracy, actuality, fairness, or completeness of the information presented. The contents of this presentation may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose.