APS Bank Plc

Earnings Release • Apr 25, 2024

Quarterly Financial Update – 1Q2024

25 April 2024 APSB63

APS Bank plc announces the publication of the financial results extracted from the Group and Bank unaudited management accounts for the quarter ended 31 March 2024, (also referred to as the "period", "1Q" or "3M") as presented to the Board of Directors on 25 April 2024.

Financial Performance

During the period under review, APS Bank plc registered a pre-tax profit of €5.0 million at Group level (1Q2023: €7.9 million) and €4.4 million at Bank level (1Q2023: €7.0 million). As anticipated, the interest rate environment already prevailing since the second half of 2023, coupled with the build-up in MREL, continued piling pressure on margins, with increases in administrative and compliance expenses resulting in lower returns compared to the same period last year.

• a) Net interest income for the quarter under review was €16.7 million, with interest receivable increasing by €4.5 million over 1Q2023. Correspondingly, with interest rates remaining high and amidst continued competitive pressures, interest payable more than doubled over 1Q2023, contracting total net interest income by €1.7 million. The anticipation of interest rates easing over the coming months is expected to result in more stable cost of funding and improved margins.
• b) Net fee and commission income of €2.4 million, up by 8.1% over the same period last year, reflects the growth in business, with the main commission streams being insurance, investments, cards and transactional banking.
• c) At Group level, other operating income fared lower compared to 2023, mainly due to the strong rebound from one of the Group's sub-funds which was not repeated in 1Q2024. At Bank level, figures marginally improved over last year, with other operating income being the main contributor to such increase.
• d) Net impairment losses of €1.3 million reflect credit charges on loans across the three IFRS 9 stages mostly on the local commercial book and international syndicated lending. The non performing loan (NPL) ratio positively crossed the 2% level, ending at 1.9% down from 2.2% in December 2023.
• e) Operating expenses amounted to €13.5 million, rising marginally by €0.7 million when compared to 1Q2023. Technology and regulatory costs together with inflationary pressures mainly contributed to this with a total aggregate increase of €0.5 million. Cost-to-income ratio for the period under review was of 69.9% (1Q2023: 59.9%).

Financial Position

The Group grew the balance sheet at a slower pace than 1Q2023, continuing with the emphasis on high credit underwriting standards, improving NPL ratios while prudently managing the loans/deposits mix.

• f) Total Group Assets/Liabilities grew by 1.8% during the 3M under review, reaching a total of €3.7 billion.
• g) The main contributors were the growth in loans and advances to customers and syndicated loans, which expanded by €28.8 million across the retail, mainly home loans, commercial and international syndicated loan books.
• h) Cash reserves at the Central Bank of Malta and loans and advances to banks followed with a total increase of €26.9 million, up by €16.8 million and €10.2 million respectively.
• i) Funding from customers grew by €52.6 million during 1Q2024, 90% of the increase being attributable to fixed term deposits.
• j) Equity closed the end of the first quarter of 2024 at €291.1 million, up by €3.7 million over December 2023.
• k) The Bank's CET1 ratio stood at 14.2% (31 December 2023: 14.6%) and the Capital Adequacy Ratio at 20.1% (31 December 2023: 20.6%).

CEO Marcel Cassar commented:

"Having reported consistent growth in revenues and profits over most financial periods in recent years, these first quarter results might look like a reversal of fortunes. But what we've been experiencing since last year, thanks to an environment of higher interest rates, was anticipated to show up in a compression of our interest margins. The strategy behind our business model remained pinned on not increasing home loan rates, offering lowest possible pricing on products that represent our social and green agenda, remaining competitive with our commercial lending while at the same time passing on interest rate increases to our depositors. During the quarter under review we also increased our ECL charge mainly to reflect higher uncertainty around an old (pre-2013) legacy NPL which will not be repeated in future financial periods.

As Malta continues to perform well, and the global economy shows signs of resilience supported by a more benign outlook on inflation, it is easy to overlook that there are some very rough seas out there, with many geopolitical hotspots that continue to fuel uncertainty. The Maltese banking system also continues to benefit from high levels of liquidity, which boosted profits and capital ratios in 2023 but are not necessarily contributing to an equitable transmission of interest rates across loans and deposits pricing. Despite the current pressure on our margins, we are taking the necessary corrective actions and are confident that our business model will deliver stronger, sustained returns over the medium to longer term. 1Q2024 has seen us rolling out products, services and technologies that are making APS Bank more the 'primary bank' for our customers. We are also confident of the traction generated by the investment in our transformation programme, equally our business strategy needs more scale to make that efficiency work and create value for all our stakeholders."

Unquote

Graziella Bray B.A., LL.D Company Secretary

STATEMENTS OF PROFIT OR LOSS (unaudited)

for the three months ended 31 March 2024

	The Group		The Bank
	Mar-24 €000	Mar-23 €000	Mar-24 €000	Mar-23 €000
Interest receivable and similar income:
On loans and advances and balances with
the Central Bank of Malta	26,438	21,998	26,438	21,998
On debt and other fixed income instruments	1,788	1,774	1,371	1,427
Total interest receivable and similar income	28,226	23,772	27,809	23,425
Interest payable	(11,532)	(5,420)	(11,532)	(5,420)
Net interest income	16,694	18,352	16,277	18,005
Fee and commission income	2,930	2,982	2,657	2,770
Fee and commission expense	(514)	(748)	(511)	(745)
Net fee and commission income	2,416	2,234	2,146	2,025
Dividend income	-	-	169	158
Net gains on foreign exchange	213	13	182	198
Net (losses)/gains on other financial assets	(125)	669	-	(7)
Other operating income	84	37	84	37
Operating income before net impairments	19,282	21,305	18,858	20,416
Net impairment charges	(1,258)	(912)	(1,258)	(912)
Net operating income	18,024	20,393	17,600	19,504
Employee compensation and benefits	(6,940)	(6,939)	(6,761)	(6,775)
Other administrative expenses	(5,134)	(4,530)	(4,997)	(4,385)
Depreciation of property and equipment	(507)	(474)	(507)	(474)
Amortisation of intangible assets	(743)	(671)	(743)	(671)
Depreciation of right-of-use assets	(153)	(154)	(153)	(154)
Operating expenses	(13,477)	(12,768)	(13,161)	(12,459)
Net operating profit before associates' results	4,547	7,625	4,439	7,045
Share of results of associates, net of tax	478	283	-	-
Profit before tax	5,025	7,908	4,439	7,045
Income tax expense	(1,577)	(2,470)	(1,554)	(2,466)
Profit for the period	3,448	5,438	2,885	4,579

STATEMENTS OF FINANCIAL POSITION (unaudited)

as at 31 March 2024

Mar-24 Dec-23 Mar-24 Dec-23 €000 €000 €000 €000 ASSETS Cash and balances with Central Bank of Malta 147,858 131,071 147,858 131,071 Loans and advances to banks 64,656 54,499 64,408 53,951 Loans and advances to customers 2,721,099 2,694,229 2,694,229 2,721,099 Syndicated loans 186,095 184,172 186,095 184,172 Derivative financial instruments 541 536 541 536 Financial assets at fair value through profit or loss 47,403 46,484 - - Non-current assets held for sale 1,738 1,738 1,738 1,738	The Group		The Bank
Other debt and fixed income instruments 443,748 442,032 442,032 443,748
Equity and other non-fixed income instruments 6,915 6,960 6,960 6,915
Investment in subsidiaries - - 40,251 40,251
Investment in associates 15,093 14,784 14,563 14,563
Investment properties 6,714 6,714 6,714 6,714
Property and equipment 39,700 39,824 39,700 39,824
Intangible assets 18,034 17,523 18,034 17,523
Right of use assets 4,233 4,386 4,233 4,386
Deferred tax assets 3,082 3,154 3,082 3,154
Other receivables 18,868 13,008 17,906 12,180
TOTAL ASSETS 3,725,777 3,661,114 3,716,885 3,653,284
LIABILITIES
Derivative financial instruments 541 536 541 536
Amounts owed to banks 72,469 80,685 72,469 80,685
Amounts owed to customers 3,190,406 3,137,839 3,191,840 3,139,214
Debt securities in issue 104,431 104,173 104,431 104,173
Lease liabilities 4,343 4,585 4,343 4,585
Other liabilities 35,527 20,385 35,485 20,339
Accruals 26,915 25,483 26,856 25,428
TOTAL LIABILITIES 3,434,632 3,373,686 3,435,965 3,374,960
EQUITY
Share capital 94,451 94,451 94,451 94,451
Share premium 51,907 51,907 51,907 51,907
Revaluation reserve 7,520 7,905 7,520 7,905
Other reserve 389 293 389 293
Retained earnings 120,669 118,508 126,653 123,768
274,936 Attributable to equity holders of the parent 273,064 280,920 278,324
Non-controlling interest 16,209 14,364 - -
TOTAL EQUITY 291,145 287,428 280,920 278,324
TOTAL LIABILITIES AND EQUITY 3,725,777 3,661,114 3,716,885 3,653,284