Fellow Bank Plc's Half-Year Report 1-6 2022

FELLOW BANK PLC STOCK EXCHANGE RELEASE 25.8.2022 AT 10:00 AM EEST

Banking operations successfully launched – the result was clearly loss-making, as expected  

• Launching banking operations and merger with Evli Bank were operationally excellent. Digital banking services have received a positive response from customers.
• Loan portfolio increased during the period to EUR 114.5 million (18.1).
• Profit before taxes EUR -7.4 million (0.5) was negative as expected due to the non-recurring costs related to the investments required by the credit institution's operations, the frontloaded costs caused by the strong growth of the loan portfolio and new customer acquisition.
• Capital adequacy was at a good level: Total capital ratio was 19.4 percent.

The data for the comparison periods are Fellow Finance group's IFRS figures. Due to the merger and business model change implemented in April 2022, the figures for 2021 are not comparable.

* The calculation principles of alternative performance measures are presented in Appendix A.

A new Finnish digital bank that makes everyday life easier

Fellow Bank Plc (“Fellow Bank”) is a new Finnish digital bank that makes everyday life easier. Fellow Bank serves private individuals and small and medium-sized enterprises, as well as savers seeking competitive interest income for their deposits.

Fellow Bank was formed through the merger of Evli Bank Plc’s banking company (“Evli Bank”) and Fellow Finance Plc (“Fellow Finance”) on 2 April 2022. Before the merger, Evli Plc (“Evli”), a new group focusing on asset management, was separated from Evli Bank through a partial demerger.  More information about the arrangement is provided in a stock exchange release issued by Evli Bank on 25 March 2022.

Evli Bank was the legal acquirer in the merger. In IFRS reporting, the arrangement is treated as a reverse acquisition in which Fellow Finance is the accounting acquirer and Evli Bank is the accounting acquiree. In this half-year report, income statement, balance sheet, cash flow statement and notes for 2021 and 1 January to 1 April 2022 are related to the Fellow Finance Group. The figures comply with the IFRS and the presentation is subsequently revised in accordance with the regulations and guidelines issued by the Financial Supervisory Authority for the financial reporting of credit institutions. In this half year report, the comparison period for income statement figures is H1 2021 and for balance sheet figures 31.12.2021.

At the time of the merger, Evli Bank's business mainly consisted of receiving and managing deposits (deposit portfolio 1.4.2022: EUR 244.0 million) and, to lesser extent, lending (loan portfolio 1.4.2022: EUR 5.3 million). At the time of the merger, Evli Bank’s assets and liabilities were as follows:

At the time of the merger, Evli Bank's assets consisted mainly of cash and cash equivalents and Liabilities to the public and public sector entities. The result before taxes of Evli Bank's banking business from January 1 to April 1, 2022 was EUR -0.5 million. The table below shows the summary income statement of the banking operations in question for the beginning of the year before the merger. However, due to the IFRS reverse acquisition, the result in question is not included in the H1 2022 result of the Fellow Bank group.

The company’s business model changed significantly after the merger. Consequently, the figures from the time before the merger are not comparable. The company stopped issuing new peer-to-peer loans and crowdfunding loans in March 2022. However, the company continues to manage its existing peer-to-peer loan portfolio. Under the new business model, loans are granted from Fellow Bank’s balance sheet.

Financial targets and outlook for 2022

In 2022, Fellow Bank is building a foundation for growth and profitability in the coming years.

Fellow Bank is seeking strong growth in its loan portfolio by investing in customer acquisition and converting its peer-to-peer loan and crowdfunding portfolio to be funded from the bank’s balance sheet. Lending growth is supported by improved competitiveness as a result of lower financial expenses, as well as more comprehensive services for customers and new digital service channels.

The bank’s loan portfolio is expected to be at least EUR 150 million at the end of 2022. In order to secure growth, we have initiated actions aimed at strengthening equity during the fall of 2022.

The result for 2022 is estimated to be clearly negative due to the non-recurring costs related to the completed corporate reorganization, the investments required by the credit institution's operations and the frontloaded costs caused by the strong growth of the loan portfolio related to new customer acquisition and loan loss provisions.

Loss for the second half of 2022 is estimated to be clearly smaller than H1 2022 as a result of the increase in loan portfolio and the cost savings implemented by the company. In addition, the non-recurring costs related to the business arrangement were mainly realised during the first half of the year.

Teemu Nyholm, CEO: Banking operations successfully launched – the result was clearly loss-making, as expected

In April 2022, we launched banking operations when Fellow Finance merged with the company that continued Evli Bank’s banking business. We are pleased to announce that Fellow Bank’s operations were launched highly successfully and that the bank has been well received among our customers.

As expected, our profit before taxes was clearly loss-making (EUR -7.4 million) due to non-recurring costs related to the start-up of banking operations, higher personnel expenses and other fixed costs as a result of banking operations, and customer acquisition costs and front-loaded credit loss provisions arising from the strong growth of the loan portfolio. Realized credit losses were on a moderate level.

Our loan portfolio developed as planned, increasing to EUR 114.5 million by the end of June. Our deposit portfolio remained stable and was EUR 223.4 million at the end of June. The bank’s liquidity position is strong and capital adequacy remained at a high level, standing at 19.4%.

Corporate customer business continued to grow steadily at a strong rate. Our competitiveness and visibility improved as a result of banking operations, and this was clearly reflected in corporate financing, where a large number of new customers started to use our financial services. After starting the banking operations, our financing volumes increased by 49% compared with the beginning of the year.

We also achieved our target for financing volumes and the number of new customers in terms of private customers. After starting the banking operations, our new lending increased by 35% compared with the beginning of the year.  Overall, our total number of customers exceeded 48,000 by the end of June.

Since the start of banking operations, we have created systematic processes for the bank's risk management. We are pleased to say, the bank’s credit loss levels remained at the estimated level. After the start-up of our banking operations, we systematically targeted lending at lower-risk customer relationships. Despite the increased macroeconomic uncertainties, we estimate the credit risk to develop moderately in our customer base because of the strong diversification of our loan portfolio and the nature of the financing we offer. The employment rate has continued to develop favourably, which supports good liquidity among our customers. In terms of the market risk and the interest rate risk, the bank’s risk position is low. The rising interest rate levels and market uncertainty do not have a material impact on the bank’s financial outlook.

Our strategic development projects have progressed as planned. In connection with the start-up of our banking operations, we launched new mobile and online banks, which received praise from our customers for their ease of use. Our customer satisfaction was measured in May and was at an excellent level (Net Promoter Score: 61).

We have continued to develop the bank’s digital service channels. At the beginning of July, we acquired Mobify Invoices Ltd, a company focusing on the development of a mobile app for personal financial management, to supplement the features of our mobile bank and strengthen our mobile development. 

We have also made progress in our other strategic projects to offer credit cards and payment transaction services to our customers. We will launch these services for our customers during the second half of the year, thereby complementing our service offering as a comprehensive digital bank.

Our e-commerce payment solution has been well received in the market. In August, we announced a significant distribution agreement with Paytrail Plc, Finland’s leading provider of electronic payment services, that will further expand our Fellow Invoice and Fellow Company Invoice payment method to more than 20,000 online stores. Moreover, in terms of corporate customers, we have made progress in projects to provide BaaS (banking as a service) services in cooperation with financial management companies. These projects support our strategy to use digital channels in acquiring new customers. 

In the summer, we started a goal-oriented cost savings programme to achieve significant savings in the bank’s fixed costs. We are aiming to further improve the operational efficiency of our bank created through the merger. Furthermore, in international markets, we decided to focus only on developing our operations in Denmark and Germany in the future. However, cost savings will not limit our opportunities to invest in the development of digital services, customer acquisition or risk management.

If we succeed in our strategic projects and the market conditions remain unchanged, we have good possibility to reach a positive monthly profit level during the first half of 2023. This requires reaching a loan portfolio of around EUR 180 million, taking into account the bank's estimated cost level and lending interest margin.

Growth of the bank’s balance sheet requires strengthening of equity as planned during the second half of the year. After the reporting period, we started actions aiming at the issue of a Tier 2 debenture in the early autumn. The issue of the debenture will strengthen our capital adequacy and enable the growth of our loan portfolio to continue during the autumn. Securing the growth will require further strengthening of equity during the second half of the year or H1 2023, but in the longer term, we aim to cover the increase in the capital requirement mainly with positive profit development. 

In our banking operations, we have succeeded in recruiting the necessary highly competent and motivated employees. We are pleased to announce that the merger has been highly successful also in terms of personnel, and the people who transferred from both companies to Fellow Bank have found common ground for a great team spirit. The scaling of our operations will not require a significant increase in the number of employees.

During the second half of the year, we will continue our strong growth, focusing on increasing our customer numbers and loan portfolio among both corporate and private customers. At the same time, we will complete our strategic projects in the development of digital banking services. In line with our strategy, our expanded service selection will enable us to provide our customers with easy-to-use digital banking services, combined with first-class customer service. Our growing loan portfolio and operational efficiency will improve profitability, and we will be able to demonstrate the effectiveness of our scalable business model during next year.

Further information

Teemu Nyholm: CEO, Fellow Bank Plc, teemu.nyholm@fellowpankki.fi, tel. +358 50 577 1028

Fellow Bank in brief

Fellow Bank Plc is a new Finnish digital bank that helps both personal and business customers to manage their day-to-day finances in a flexible and straightforward manner. For savers, we offer an attractive interest rate on deposits. Fellow Bank Plc is regulated by the Financial Supervisory Authority of Finland and listed on Nasdaq Helsinki’s main list (FELLOW). www.fellowbank.com

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