OLB on successful growth path to double-digit profitability

March 3, 2022 – Oldenburgische Landesbank AG (OLB) can look back on a successful fiscal year 2021: All business segments performed well and thus OLB increased net income for the fiscal year to EUR 86.2 million (m) (previous year: EUR 78.6 m), excluding one-off items to EUR 97.6 m. OLB posted one of the best earnings figures in its history, which is also a testament to the transformation that has now essentially been completed. Despite restructuring expenses of EUR 38.4 m associated with the transformation, profit before tax under the German Commercial Code (HGB) rose by 19.3 percent, to EUR 137.0 m (previous year: EUR 114.9 m). The operating result increased to EUR 178.1 m (previous year EUR 135.5 m). Income from customer business rose again, while personnel expenses in particular fell.

"Our changes are taking effect and making us fit for the future. We are increasingly profitable in all business segments, and thus have a very good basis for achieving our ambitious goals", said Stefan Barth, Chairman of OLB's Board of Managing Directors. The Bank's successful restructuring is evidenced by its most important key figures – return on equity after tax improved to 7.3 percent (previous year: 6.9 percent) and 8.3 percent excluding one-off items.   The cost-income ratio excluding regulatory charges, such as the bank levy, improved to 59.5 percent (previous year: 62.8 percent), and including regulatory charges to 62.6 percent (previous year: 65.6 percent). The effects of the restructuring program completed and fully expensed at the end of 2021, benefits will be fully recognized in profit and loss from January 2022 and thus provide a very good basis for positive further development of these ratios.

Ahead of the official publication of the interim financial statements under International Financial Reporting Standards (IFRS) planned for the first time with the half-year 2022 reporting, in this release OLB also included a projection of the IFRS-compliant figures for the key performance metrics. On the basis of the projected IFRS figures, net income for 2021 amounted to EUR 109.2 m (previous year: EUR 77.0 m), excluding one-off items to EUR 121.5 m. The cost-income ratio excluding regulatory expenses declined to 55.4 percent (previous year: 62.4 percent) and the return on equity after tax increased to 9.2 percent (previous year: 7.0 percent) and to 10.2 percent excluding one-off items.

2021 figures included a number of one-off effects: OLB generated EUR 22.3 m from the sale of real estate holdings, which is included in other operating income and expenses. Restructuring expenses amounted to EUR 38.4 m, as mentioned above, and were included in the extraordinary result. Depreciation of EUR 1.9 m for branches no longer in use were included in other administrative expenses.

Advice in competence centers and branches and nationwide digital offering

With 625,000 customers across Germany, the Bank has successfully further expanded its digital offering for regional and nationwide contact with customers and will continue to invest into digital development in the future. As a branch bank with nationwide reach, OLB considers itself well positioned for its customers with some 40 branches in Northwest Germany and the Oldenburg-based advisory center acting as a backbone for digital service in all regions of Germany.

Consumer loans and private mortgage financings remained in strong demand among private customers. The volume of consumer loans increased to EUR 302 m (previous year: EUR 256 m). OLB has also been successfully represented nationwide on the Check24 platform. OLB helped some 4,500 customers to purchase real estate in 2021, with a mortgage financing volume in new business of EUR 1.3 billion (bn). The portfolio volume of mortgage financing amounted to EUR 6.6 bn (previous year: EUR 6.1 bn).

The Bankhaus Neelmeyer brand succeeded in further expanding the number of mandates managed in its core asset management product, in particular due to above-average investment performance. Bankhaus Neelmeyer also successfully expanded its market position in large-volume real estate financing.

In the corporate business and in diversified lending, loan volume increased by EUR 2.9 bn (previous year: EUR 2.6 bn), supported by positive development across all areas.

Loan volume increases across business segments

As a result of growth in all business segments, customer lending rose by 9.1 percent to EUR 17.0 bn (previous year: EUR 15.5 bn). In parallel, the volume of customer deposits increased to EUR 14.1 bn (previous year: EUR 13.0 bn). Overnight deposits increased by around EUR 735 m to EUR 10.4 bn, term deposits grew by around EUR 312 m to EUR 1.9 bn, and savings deposits remained at the previous year's level of EUR 1.8 bn.

Despite the continuously challenging market environment, OLB was able to keep its margins stable and expand its net interest income overall to EUR 360.2 m (previous year: EUR 336.3 m). Net commission income increased to EUR 119.8 m (previous year: EUR 113.3 m). OLB's activities in profitable market niches, as well as organic growth in lending and expansion of the fee-based business, led to a 6.8 percent increase in operating income to EUR 480.1 m (previous year: EUR 449.7 m).

Socially responsible operational streamlining to lead to reduced expense base in 2022

In addition to personnel expenses, the continued adjustment of the branch network, increasingly standardized and automated offerings in the retail business, and the modernization of information technology were the main components of operating expenses. Investments in improving offerings and processes increased other administrative expenses to EUR 118.1 m (previous year: EUR 108.1 m). Personnel expenses amounted to EUR 166.8 m (previous year: EUR 173.2 m). As planned, the number of full-time equivalents (FTE) decreased to around 1,400 FTE as of the reporting date of January 1, 2022 (December 31, 2020: 1,777), in particular due to the implementation of the voluntary redundancy program offered in October 2021. The restructuring costs of the agreed socially responsible reductions have already been included in the extraordinary result, which totaled EUR 41.1 m (previous year: EUR 20.6 m). This provides OLB with noticeable relief with a view to the current 2022 fiscal year.

The balance of other operating income and expenses of EUR 19.7 m (previous year: EUR 3.6 m) reflects the positive one-off effect from the opportunistic realization of a part of the real estate portfolio. The building sales were enabled by OLB's reduced space requirements as a result of agile and mobile working. In the long term, this will result in further permanent reductions in maintenance costs.

The operating result as of December 31, 2021 increased significantly by 31.4 percent year-on-year to EUR 178.1 m (previous year: EUR 135.5 m).

Continued risk discipline underpinning topline performance

The economic environment proved stable despite the continuing effects of the coronavirus pandemic. Overall, the trend in risk provisioning was positive. As of December 31, 2021, risk provisioning requirements amounted to EUR 16.7 m (previous year: EUR 50.7 m including EUR 20 m release from § 340g reserve). OLB will continue to adhere to its prudent risk management.

The successful placement of the first Pfandbrief sub-benchmark issue in the first half of 2021 contributed to the diversification of funding sources. To sustainably further strengthen its capital base, OLB issued an AT1 bond of EUR 100 m, in addition to retaining earnings. The common equity tier 1 ratio was 12.0 percent at year-end (previous year: 12.2 percent), and the Tier 1 capital ratio increased to 13.5 percent (previous year: 12.7 percent). As usual, OLB was thus well above the minimum values required by the regulatory authorities. "Our strong capital base is also a reflection of what we have already achieved so far," said Dr. Rainer Polster, OLB's Chief Financial Officer, "compared with the starting point of our transformation in 2018, we have significantly reduced our ongoing cost base as of year-end 2021, and the benefits are now being positively reflected in the results, starting from January 2022 already. At the same time, we have increased our earnings by around 25 percent since 2018. Our focus going forward is to maintain cost discipline and generate sustainable growth."

Diversifying the business model

OLB continues to focus on its diversified business model to avoid so-called cluster risks and dependencies. The private customer business and regional business with small and medium-sized enterprises form a mainstay as the Private & Business Customers business segment. Here, the focus is on a modern multi-channel offering with a combination of regional branch networks and a nationwide digital presence. Customers benefit in particular from lean processes, fast processing times, and offers tailored to their needs. The second pillar of the business model is the Corporates & Diversified Lending business area. This combines the larger-volume corporates business, football finance, and specialized lending in the form of acquisition financing and commercial real estate financing. Higher margins and an individual profile with greater use of resources and larger individual transactions characterize this attractive, high-growth business with national and international customers.

Outlook

OLB expects further visible progress as a result of the transformation in fiscal year 2022. With a view to the regulatory framework, the Bank will introduce initial steps to implement the EU taxonomy for sustainable investments and also work to prepare for an ESG rating. OLB continues its work to achieve capital market readiness over the course of 2022. "We're on the right track," says Stefan Barth, "to align OLB in such a way that we can be truly sustainably profitable in the long term and thus be there for our customers with competent advice and needs-based offerings through all contemporary channels."

The approved and final 2021 annual financial statements under the German Commercial Code are expected to be published on the Internet on March 25, 2022.