Hamburg Commercial Bank well on track with EUR 230 million pre-tax profit in the first half-year
- Net income before taxes 29% above H1 2022
- Group net result after taxes on target at EUR 178 million
- Sustainably profitable: total income up 24% – RoE before/after taxes1 at 21.7/16.8%
- Robust portfolio – solid risk coverage
- CEO Ian Banwell: “Successful first half-year: solid financials, rating upgrade and good stress test result – 2023 earnings forecast confirmed”
Hamburg Commercial Bank AG (HCOB) presented its figures for the first half of 2023 on Thursday, reporting net income before taxes of EUR 230 (prior-year period: 178) million.
The positive margin development in the bank’s further diversified operating business makes a notable contribution to the strong result, which is almost 30% higher than in the prior-year period. In view of the market environment, characterized by economic uncertainties, HCOB’s capital and liquidity positions were maintained at a solid level.
“The first half of the year was very successful for Hamburg Commercial Bank, with an increase in pre-tax earnings of almost 30%, our improved rating position as well as the good performance in the ECB stress test. This has enabled us to further consolidate our strong position in the German banking market. With its diversified and prudent business approach, the bank is sustainably profitable. Net interest margins have increased in all market segments and yields are above the cost of capital – we are very satisfied with this development,” said Ian Banwell, Chief Executive Officer of Hamburg Commercial Bank. “In light of the encouraging half-year result, we confirm our forecast and expect to generate profit after taxes above EUR 250 million for the full year 2023.”
Pre-tax profit up 29 % – improved earning power – minor one-off effects
At EUR 230 (178) million, net income before taxes noticeably exceeds the half-year result for 2022 by 29%. In particular, a profitable operating business as well as valuation effects in the fair value result contributed to the strong outcome. The group net result of EUR 178 (207) million demonstrates the bank’s sustainable earning power and benefits only to a minor extent from one-off effects. Along with a normalization of the tax position, income tax expenses had a negative impact of EUR 52 million on the half-year result; in the same period of the previous year, they made a substantial positive contribution of EUR 29 million to the half-year result after taxes. Return on equity (RoE) after taxes1 is 16.8% (30/06/2022: 20.5%).
Total income up by a quarter – balanced loan loss provisions – administrative expenses stable
HCOB’s further improved profitability is reflected in the increase in total income by approximately a quarter (24%) to EUR 375 (303) million. Net interest income of EUR 292 (260) million made a significant contribution to this, improving by 12% in the wake of higher net interest margins and a favorable interest rate environment. In addition, total income benefited from the fair value result (result from financial instruments categorised as FVPL) of EUR 73 (16) million, due to positive developments in the capital markets and corresponding valuation effects. The other items of total income amount to EUR 10 (27) million.
Loan loss provisions amount to EUR 2 (31) million. At Stage 3 (SLLP), moderate net additions in the Real Estate segment and net reversals in the Corporates segment almost offset each other. At Stages 1 and 2 (GLLP), model overlays were created for the Real Estate segment as part of a prudent risk provisioning policy. These were offset by net reversals in the Project Finance and Shipping segments, resulting in a low net reversal in overall loan loss provisions.
Administrative expenses rose only slightly to EUR 156 (150) million, despite persistently high inflation and forward-looking investments. Operating expenses (including depreciation of property, plant and equipment and amortization of intangible assets) of EUR 87 (80) million reflect, among others, IT investments. Personnel expenses remained almost unchanged compared to the prior-year period at EUR 69 (70) million. As of 30 June 2023, the bank employed 863 (31/12/2022: 868) full-time employees (FTEs) as scheduled and fluctuation-related departures were offset by new hires.
The other operating result made a smaller contribution to the half-year result of EUR 29 (40) million compared to the first half of 2022, which benefited to a greater extent from one-off effects. At EUR 20 (29) million, expenses for regulatory affairs, deposit guarantee fund and banking associations are lower than in the previous year and already include the full annual contributions for the bank levy and deposit guarantee fund. As planned, there was no burden from the result from restructuring and transformation at EUR 0 (-17) million.
The cost-income ratio (CIR) improved as of 30 June 2023 to a good 39% (30/06/2022: 44%). The bank is thus well on track to achieve the forecast CIR of 45% for full year 2023.
Solid NPE ratio and risk coverage – robust capital and liquidity positions
At 1.5% (31/12/2022: 1.2%), the NPE ratio is at a solid level, despite difficult economic conditions. The slight increase is due, on the one hand, to the reduced exposure at default of EUR 33.5 (34.4) billion in connection with the dividend pay-out. On the other hand, the NPE volume increased moderately to EUR 502 (405) million. This is due to a net increase in the NPE volume in the Real Estate segment, mainly as a result of the interest rate development, as well as a new default of a larger exposure in the Project finance segment, which is, predominantly covered by an export credit guarantee (ECA).
At EUR 318 (414) million, including EUR 129 (31/12/2022: 144) million model overlays, HCOB has a comfortable stock of loan loss provisions for cushioning potential adverse economic developments. The reduction is mainly due to the partial disposal of a substantial NPE exposure from the Real Estate segment.
The NPE Coverage RatioAC remains at a solid level of 37.0% (31/12/2022: 68.9%). The decline is due to structural changes in the NPE portfolio, including a predominantly ECA-covered new default (Project Finance segment) and the partial sale of a CRE exposure with high risk provision coverage.
As expected, the CET1 ratio decreased to a comfortable 18.5% (31/12/2022: 20.5%). The change is mainly due to the scheduled increase in aggregate RWA from EUR 15.4 billion (31/12/2022) to EUR 16.5 billion, partly as a result of recalibrations in the rating models.
The leverage ratio was maintained at the strong level of year-end 2022 at 9.4% (31/12/2022: 9.5%) and is well above the regulatory requirements (3%).
Group total assets decreased moderately by 3% to EUR 30.8 (31/12/2022: EUR 31.8) billion in connection with the scheduled dividend pay-out in April.
Segment results: Lending units with total earnings growth of around one third
The profitability developed well in all four lending units as a result of expanded net interest margins. RoE after taxes1 of the lending units increased to 12.6% (10.0%), demonstrating the successful asset allocation and clear risk/return focus along with a tailwind from the changed interest rate environment. Total income improved by approximately one third to EUR 322 (248) million, despite lower segment assets of EUR 19.0 (19.6) billion. Earnings after taxes of the lending units also rose by around a third to EUR 119 (90) million. Gross new business totaled EUR 3.0 (2.8) billion, slightly above the prior-year period.
The Real Estate segment was managed in a risk-conscious manner in a challenging market environment, with the focus on managing the existing portfolio. At EUR 0.7 billion (0.7), the volume of new business is at the level of the first half of 2022. Earnings after taxes was slightly below the prior-year period at EUR 34 (37) million, resulting in an RoE after taxes1 of 11.0% (11.8%). Segment assets decreased to EUR 7.5 (31/12/2022: 8.1) billion on account of the selective approach to new business.
In the Shipping segment, earnings after taxes amounted to EUR 32 (35) million and benefited from an increase in net interest income, offset by higher administrative expenses. The RoE after taxes1 thus decreased slightly to 17.2% (18.2%). Gross new business with national and international shipping companies with good credit ratings is slightly above the previous year at EUR 0.7 (0.6) billion. At the same time, the good liquidity position of shipping companies that made early loan repayments along with a weakening US dollar exchange rate led to a decline in segment assets to EUR 2.9 (31/12/2022: EUR 3.5) billion.
In the Project Finance segment, earnings after taxes of EUR 14 (9) million and RoE after taxes1 of 9.4% (6.4%) are noticeably higher than in the prior-year period. Segment assets increased slightly to EUR 3.5 (31/12/2022: 3.4) billion and new business was expanded to EUR 0.6 (0.5) billion, with a focus on infrastructure projects.
The Corporates segment is reaping the benefits of higher margins, especially in the expanded international business, resulting in a marked increase in earnings after taxes to EUR 39 (9) million and in RoE after taxes1 to 13.3% (3.6%). Gross new business amounts to EUR 0.9 (1.0) billion; segment assets total EUR 5.1 (31/12/2022: EUR 4.6) billion.
Rating upgrade – ECB stress test result – branch in London – “Best Performing Bank”
The rating agency Moody’s upgraded key ratings of Hamburg Commercial Bank by one notch in February 2023: The bank’s issuer, senior preferred and deposit ratings were raised from “Baa1” to “A3” with a stable outlook. The tailwind for refinancing activities and the broadened investor base were already evident in the first half-year when HCOB issued a senior preferred bond and a mortgage covered bond (Pfandbrief) in benchmark format.
HCOB participated in this year’s EU-wide stress test of the European Central Bank (ECB) and is one of the most resilient and well capitalized banks in Europe. With a moderate capital depletion of 4.0 percentage points in the adverse scenario, the bank is well below the average (Ø 4.8 percentage points) of the other banks that took part in the ECB stress test. HCOB also showed a strong post-stress CET1 ratio of 16.5%, surpassing the average result (Ø 10.4%) of the directly by ECB supervised banks.
HCOB has been represented by a branch in London since May 2023. By expanding its existing representative office, HCOB is strengthening its international positioning in one of the world’s most important financial markets.
In July, for the third year in a row, Hamburg Commercial Bank received an industry award from The Banker magazine, which named HCOB “Best Performing Bank” in Germany.
Outlook
Given its successful business development in the first six months, Hamburg Commercial Bank confirms its earnings forecast for the full year 2023. The bank expects to achieve IFRS net income before taxes of around EUR 350 million and, as income taxes continue to normalize, a group net result after taxes of above EUR 250 million.
All forecasts are subject to any unforeseeable or significantly more adverse than expected effects, for example from economic or geopolitical developments.
Group statement of income (IFRS) H1 2023
| (€ million) | January–June 2023 | January–June 2022 | Change in % |
|---|---|---|---|
| Interest income from financial assets categorised as AC and FVOCI | 654 | 307 | > 100 |
| Interest income from other financial instruments | 25 | 53* | -53 |
| Negative interest on investments categorised as AC and FVOCI | – | -11 | -100 |
| Negative interest on other cash investments and derivatives | – | -27 | -100 |
| Interest expenses | -388 | -98* | > 100 |
| Positive interest on borrowings and derivatives | 1 | 36 | -37 |
| Net interest income | 292 | 260 | 12 |
| Net commission income | 11 | 18 | -39 |
| Result from hedging | 6 | 7 | -14 |
| Result from financial instruments categorised as FVPL | 73 | 16* | > 100 |
| Net income from financial investments | – | – | – |
| Result from the disposal of financial assets classified as AC | -7 | 2 | >-100 |
| Total income | 375 | 303 | 24 |
| Loan loss provisions | 2 | 31* | 94 |
| Total income after loan loss provisions | 377 | 334 | 13 |
| Administrative expenses | -156 | -150 | 4 |
| Other operating result | 29 | 40 | -28 |
| Expenses for regulatory affairs, deposit guarantee fund and banking associations | -20 | -29 | -31 |
| Net income before restructuring and transformation | 230 | 195 | 18 |
| Result from restructuring and transformation | – | -17 | 100 |
| Net income before taxes | 230 | 178 | 29 |
| Income tax expense | -52 | 29 | 100 |
| Group net result | 178 | 207 | -14 |
| Group net result attributable to Hamburg Commercial Bank shareholders | 178 | 207 | -14 |
*) Adjusted H1 2022 figures after reclassifications. (For details, see interim Report as at 30/06/2023, Note 2 of Group explanatory notes.)
| Further key figures of the Group | 30/06/2023 | 31/12/2022 |
|---|---|---|
| Total assets (€ bn) | 30.8 | 31,8 |
| Risk assets (RWA, € bn) | 16.52 | 15,43 |
| CET1 ratio (in %) | 18.52 | 20.53 |
| Overall capital ratio (%) | 24,42 | 26,83 |
| Return on Equity (RoE) after taxes1, 2 (%) | 21.7 / 16.8 | 17.65 / 20.55 |
| Leverage Ratio (in %) | 9.42 | 9.53,4 |
| Liquidity Coverage Ratio in % | 157 | 197 |
| Net Stable Funding Ratio in % | 113 | 1133 |
| Employees (FTE) | 863 | 868 |
1) RoE before/after taxes based on standardized regulatory capital backing (average RWA and CET1 ratio of 13%) | 2) The profits for the first half of 2023 have not been taken into account. | 3) The dividend payment of EUR 1,5 bn made in 2023 was taken into account in advance in the CET1 capital as at 31/12/2022 | 4) Restated comparative figure as at 31/12/2022 | 5) As at 30/06/2022
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