Strong half-year: Hamburg Commercial Bank with Group net profit of EUR 194 million
- Pre-tax profit at EUR 168 (H1 2020: 71) million
- Excellent financials in last transformation year: CIR 45%, RoE 19.8%, CET1 ratio 29.6%, Leverage Ratio 13.2%
- CEO Ermisch: “HY figures clearly exceed expectations – strong foundation for the voluntary deposit protection fund of private banks – HCOB in robust condition”
- Full-year forecast raised again
Hamburg Commercial Bank AG (HCOB) presented its figures for the first half of 2021 on Thursday, reporting a good and better-than-expected Group net result (after taxes) of EUR 194 million (prior-year period: EUR 4 million). The bank’s operating business developed particularly well amid steadily rising net interest margins and continued success in reducing costs. Thanks to its prudent business policies, the bank maintained its solid credit quality, even in a market environment still dominated by the pandemic, and built upon its already excellent capital position.
With these strong key figures, which have continued to improve since the end of 2020, HCOB is laying a very solid foundation for the intended switch to the voluntary deposit protection fund of the Association of German Banks (BdB), which is planned for the beginning of next year. This switch will also mark the completion of the three-year, far-reaching transformation into a profitable and well-capitalized commercial bank. As a specialty financier, HCOB focuses on its national and international priorities in commercial real estate, project financing for infrastructure and renewable energies, ship financing and the newly established Corporates International & Specialty Lending segment. In addition, the bank offers targeted solutions in the traditional corporate clients business. All client segments are supported by a broad range of payment transaction services.
“The first half of the year has been very encouraging and Hamburg Commercial Bank’s very good performance led us to clearly exceed our net income forecast; in particular, our progress in operating profitability has surpassed our plans. We have thus once again demonstrated that the comprehensive transformation of the bank and the reorganization efforts over the past two and a half years have paid off. HCOB is now without any doubt one of the best-capitalized and most resilient banks in Europe and is well positioned as a focused specialist financier with a clear competence profile. We have thus laid the foundation for a sustainably successful future,” said Stefan Ermisch, CEO of Hamburg Commercial Bank. “The transformation of a Landesbank into a private commercial bank, which remains unique to this day, was and is a tremendous feat. The entire bank, including all employees, have performed outstanding, pioneering work in this regard. We have reached all the milestones of our strategic realignment along a tight timeline, which were always clearly communicated, and made visible progress in all areas. I am therefore convinced that we will successfully complete HCOB’s transformation with the intended switch to the deposit protection scheme of the private banks. For the full year, we are very confident that we will noticeably exceed our previous target forecasts and we expect net income after tax to exceed 250 million euros.”
Profitability significantly improved – total income up 21% – costs reduced once more
The very good net income before taxes (IFRS) of EUR 168 (71) million can be attributed in particular to a more profitable operating business, a positive fair value result and noticeable cost reductions, as well as a modest contribution from reversals in risk provisions. As expected, income tax expense made a positive contribution of EUR 26 (-67) million to consolidated earnings due to effects from deferred taxes. The Group net result stands at EUR 194 (4) million at the half-year mark and has thus already surpassed the original result forecast for the full year 2021. On the basis of this strong Group net result, Return on Equity (RoE) after taxes1, which is relevant for steering the bank’s business, improved very noticeably to 19.8% (0.3%).
At EUR 338 (280) million, total income was up by more than a fifth on the prior-year period. Even though the balance sheet total was further reduced, net interest income of EUR 269 (351) million contributed significantly to total income and reflects the improvement in net interest margins in the wake of lower refinancing costs. In the prior-year period, net interest income had benefited from one-off effects from the valuation of hybrid financial instruments amounting to EUR 74 million.
Net commission income of EUR 22 (27) million reflects HCOB’s clear focus on profitable and scalable products. The fair value result (result from financial instruments categorized as FVPL) contributed EUR 28 (-149) million to total income and benefited from operating net trading income and valuation effects on client derivatives and receivables as well as securities. The result from the disposal of financial assets classified as AC contributed EUR 19 (44) million to total income and mainly includes income from the sale of receivables and prepayment penalties for early repayments.
Administrative expenses decreased visibly by 15% to EUR -153 (-181) million, with personnel expenses driving this cost reduction, having fallen by 22% to EUR -68 (-87) million. The number of full-time equivalents (FTEs) decreased by 175 compared with December 31, 2020, as planned, and at 947 FTEs was below the one-thousand mark for the first time. Operating expenses decreased to EUR -82 (-90) million as a result of savings in ongoing operations, despite continued high investments in IT and the bank’s digital transformation. Depreciation of property, plant and equipment and amortisation of intangible assets amounted to EUR -3 (-4) million.
The cost-income ratio (CIR) was 45%, with the comparative figure of 42% at year-end 2020 having been significantly influenced by one-off effects (in particular gains on the disposal of properties). In order to secure the target corridor for the CIR of 40 to 42%, further efficiency measures have been initiated in the first half of the year.
The other operating result contributed EUR 5 (100) million to group net income and was impacted by residual value depreciation of a legacy leasing transaction. In the prior-year period, this figure had benefited from significant positive one-off effects from the sale of buildings as part of the concentration of locations. At EUR -31 (-29) million, expenses for regulatory affairs, deposit guarantee fund and banking association were roughly on a par with the previous year and already include the full annual contributions for the bank levy and the deposit guarantee fund. As planned, the result from restructuring and transformation impacted earnings by EUR -13 (-5) million and mainly includes transformation expenses for the realignment of HCOB.
Solid asset quality – NPE ratio stable – positive risk provisioning – RWA further reduced
Thanks to de-risking activities started at an early stage in fall 2019, HCOB’s solid portfolio quality was kept almost constant, even in an environment characterized by the ongoing pandemic, which meant that the NPE ratio (non-performing exposure) remained almost constant at 1.9% (31/12/2020: 1.8%). The NPE coverage ratio was at a comfortable level of 45% (48%) at the half-year reporting date.
Loan loss provisions made a positive contribution to the Group net result in the first half of the year with net reversals of EUR 22 (-94) million. As the economy began to recover and the portfolio quality improved, loan loss provisions were reduced for Levels 1 and 2, which more than compensated newly formed loan loss provisions for Level 3. HCOB will continue to adhere to its prudent risk provisioning policy in the future.
Total assets were reduced to EUR 31.6 (31/12/2020: 33.8) billion and are steadily approaching the target balance sheet total of around EUR 30 billion. Risk-weighted assets (RWA) decreased to EUR 14.8 (31/12/2020: 15.5) billion due to continued de-risking, resulting in a further improvement in the CET1 ratio to 29.6% (31/12/2020: 27.0) from an already high level. The very solid leverage ratio of 13.2% (31/12/2020: 12.2%) also demonstrates the bank’s extremely robust capital position, which is well above the regulatory requirements.
Moderate expansion of new business – profitability increased in all segments
HCOB’s segment reporting has been adjusted in certain parts to reflect the sharpened business strategy. Besides the existing Real Estate and Shipping segments now stands the Project Finance & Corporates segment, which includes Corporates International & Specialty Lending (formerly Diversified Lending). The new segment thus combines all the bank’s activities in the national and international corporate client business as well as project finance in the renewable energies and infrastructure sectors.
At EUR 1.8 (1.4) billion, gross new business in the three market segments (the “Client Business”) was up on the prior-year period by around a quarter. The risk- and profitability-oriented approach to new business and investment portfolio allocations are reflected in a sharp rise in profitability.
The new Project Finance & Corporates segment contributed EUR 24 (28) million to net income after tax, with operating profitability reflected in an increased RoE1 of 7.0% (6.3%). New business of EUR 0.7 (0.5) billion was concluded, mainly in Corporates International & Specialty Lending.
The Real Estate segment contributed EUR 37 (45) million to net income after tax, the slight decrease being due to lower segment assets. At 17.2%, RoE1 was significantly higher than in the prior-year period (13.6%). Focused new business was expanded slightly to EUR 0.4 (0.3) billion in line with an upturn in loan demand.
In the Shipping segment, net income after tax amounted to EUR 30 (-8) million due to strong operating performance and valuation effects on customer derivatives. This was reflected in a clearly improved RoE1 of 20.8% (-3.7%). New business of EUR 0.7 (0.5) billion with national and international shipping companies of good credit standing was moderately expanded in shipping markets experiencing high demand.
Benchmark issuance – rating upgrade – ECB stress test – Sustainability Committee
HCOB has further optimized its funding structure and successfully placed a senior preferred benchmark bond of EUR 500 million in March 2021. With the five-year bond, which was well received by international investors, the bank has significantly extended the maturity profile for its outstanding bonds.
In view of HCOB’s excellent capitalization, solid portfolio quality and steadily improving profitability, as well as the prospect of a successful switch of the deposit guarantee systems, rating agency Moody’s upgraded HCOB’s long-term issuer rating to “Baa1” in July. In June, rating agency S&P had already raised the outlook on the issuer rating (BBB) to “developing”, acknowledging the bank’s progress.
Hamburg Commercial Bank’s capital strength and resilience were also confirmed in this year’s stress test conducted by the European Central Bank (ECB). The bank was in the top category for banks in Europe, both before and after the stress scenario, and thus well above normal regulatory requirements even in the adverse scenario.
In order to strengthen and embed the issue of sustainability at HCOB, the bank established a Sustainability Committee in the first half of the year to steer its ESG (Environment, Social, Governance) strategy. To underline the importance of this crucial issue for the future, the new committee is chaired by the Bank’s CEO during the development phase. Since the beginning of the year a framework for the sustainability targets (Sustainability Framework) and an ESG Roadmap for achieving these goals have already been adopted.
Outlook
Hamburg Commercial Bank has delivered strong and better-than-expected financials as of June 30, 2021, the final and pivotal year of its transformation. On this basis, the bank considers itself ideally positioned for its expected entry into the deposit protection fund (ESF) of the Association of German Banks (BdB) at the end of the year.
Based on the good half-year results, HCOB currently expects to noticeably exceed the previously communicated target forecasts for full year 2021 and to achieve net income after taxes above EUR 250 million. The financial forecasts are subject to any unforeseeable effects, for example from the continued transformation, the development of the COVID-19 pandemic or due to changes in contributions to the single resolution fund or deposit guarantee fund.
Group Statement of income (IFRS)
| (€ million) | January–June 2021 | January–June 2020 | Change in % |
|---|---|---|---|
| Interest income from financial assets categorised as AC and FVOCI | 303 | 369 | -18 |
| Interest income from other financial instruments | 173 | 396 | -56 |
| Negative interest on investments categorised as AC and FVOCI | -7 | -10 | -30 |
| Negative interest on other cash investments and derivatives | -39 | -42 | -7 |
| Interest expenses | -211 | -484 | -56 |
| Positive interest on borrowings and derivatives | 50 | 48 | 4 |
| Net income/loss from hybrid financial instruments | – | 74 | -100 |
| Net interest income | 269 | 351 | -23 |
| Net commission income | 22 | 27 | -19 |
| Result from hedging | -2 | 2 | > -100 |
| Result from financial instruments categorised as FVPL | 28 | -149 | > 100 |
| Net income from financial investments | 2 | 5 | -60 |
| Result from the disposal of financial assets classified as AC | 19 | 44 | -57 |
| Total income | 338 | 280 | 21 |
| Loan loss provisions | 22 | -94 | > 100 |
| Total income after loan loss provisions | 360 | 186 | 94 |
| Administrative expenses | -153 | -181 | -15 |
| Other operating result | 5 | 100 | -95 |
| Expenses for regulatory affairs, deposit guarantee fund and banking associations | -31 | -29 | 7 |
| Net income before restructuring and transformation | 181 | 76 | > 100 |
| Result from restructuring and transformation | -13 | -5 | > -100 |
| Net income before taxes | 168 | 71 | > 100 |
| Income tax expense | 26 | -67 | > -100 |
| Group net result | 194 | 4 | > 100 |
| Group net result attributable to Hamburg Commercial Bank shareholders | 194 | 4 | > 100 |
| Further key figures of the Group | 30/06/2021 | 31/12/20 |
|---|---|---|
| Total assets (€ bn) | 31.6 | 33.8 |
| Risk assets (RWA, € bn) | 14,8 | 15,5 |
| CET1 ratio (in %) | 29,6 | 27,0 |
| Overall capital ratio (%) | 36,0 | 33,3 |
| Return on Equity (RoE) after taxes1, 2 (%) | 19,8 | 4.3 (0.33) |
| Leverage Ratio (in %) | 13,2 | 12,2 |
| Liquidity Coverage Ratio in % | 170 | 171 |
| Net Stable Funding Ratio in % | 117 | 111 |
| Employees (FTE) | 947 | 1,122 |
1 RoE after taxes based on a 13%-ratio of invested CET1 capital
2 RoE after taxes based on reported average IFRS capital as of 30/06/2021 at 8.7% (31/12/2020 at 2.3%)
3 As at 30/06/2020
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