BAWAG Group AG: Solid profit before tax (PBT) of EUR 116 million for Q1 2018; normalized PBT of EUR 142 million

Wien (pta005/24.05.2018/07:55 UTC+2) -
- Profit before tax (PBT) of EUR 116 million, normalized for front-loaded regulatory charges EUR 142 million
- Return on tangible equity (@12% CET1) of 13.0%, normalized 16.0%
- Core revenues of EUR 282 million, +15% vs. prior year
- Operating expenses of EUR 130 million, including full expenses from acquired businesses
- Cost-income ratio of 43.7%, ahead of 2018 target of <46%
- Net interest margin at 2.15%
- Fully loaded CET1 ratio of 14.0% (including interim profit), +50bps versus year-end 2017

BAWAG Group today reports a solid profit before tax of EUR 116 million for the first quarter 2018. Normalizing for the front-loaded regulatory charges, profit before tax was EUR 142 million (up 5% versus the prior year). The return on tangible equity (@12% CET1) came in at 13.0%, normalized at 16.0%. The cost-income ratio was up 3.0pts versus the prior year to 43.7%, reflecting the full impact of the acquisitions closed in the fourth quarter 2017. The net interest margin decreased by 9bps in the first quarter 2018 compared to the fourth quarter 2017. The fully loaded CET1 ratio increased by 50bps to 14.0% versus year-end 2017, including the interim profit.

"After a record 2017, we started the first quarter 2018 with a set of strong operating results and making good progress on a number of strategic initiatives. The first quarter was marked by an intense focus on the integration and transformation of businesses we acquired in 2017, continuing to reposition our domestic retail franchise, and building a solid pipeline of organic and inorganic opportunities. Our focus remains on driving operational excellence and profitable growth, and we are confident in meeting or exceeding our 2018 targets. All of our team members across BAWAG Group are committed to delivering value to our customers and shareholders," commented Chief Executive Officer Anas Abuzaakouk.

Delivering solid results in the first quarter 2018

We successfully continued to execute on our business plans in the first quarter 2018, delivering another quarter of solid results.

Core revenues increased by 15% to EUR 282 million. Despite a low interest rate environment, net interest income rose by 6%, primarily driven by the acquisitions we closed in the fourth quarter 2017 as well as core product growth. Net commission income increased by 50% to EUR 75 million mainly due to the acquisition of PayLife. The net interest margin in the first quarter 2018 decreased by 9bps to 2.15% compared to the fourth quarter 2017, mainly reflecting the full impact of the Südwestbank acquisition.

Operating expenses in the first quarter 2018 increased by 21% compared to the first quarter 2017 mainly due to the acquisition of PayLife and Südwestbank. The cost-income ratio increased by 3.0pts to 43.7%, but is ahead of our 2018 target of <46% and fully in line with our expectations.

We continued to focus on proactive risk management and maintaining a conservative risk profile. This is best reflected in a risk cost ratio of 16bps and an NPL ratio of 1.8% as of March 2018 (excluding the legal case with the City of Linz, this would be 1.2%). Our fully loaded regulatory leverage ratio stood at 6.5%, while the balance sheet leverage was 12.6 times.

Profit before tax was EUR 116 million, down 4% compared to the first quarter 2017. Normalizing for the front-loaded regulatory charges, profit before tax increased by 5%. Higher operating income (up EUR 34 million, or 13%) more than offset the increase in operating expenses and risk costs.

Loans and receivables with customers remained largely stable compared to December 2017. The overall customer loan book continued to be comprised of 75% exposure to the DACH region and 25% exposure to Western Europe and the United States. The total new origination volume in the first quarter 2018 was EUR 1.7 billion.

The funding of BAWAG Group continues to be based on customer deposits, representing two-thirds of the overall funding base. Deposits from customers decreased by 2% to EUR 30.5 billion compared to December 2017, primarily reflecting movements of corporate customers' short term deposits. The funding costs continued to decrease as the product mix, volume and pricing were optimized. At the end of March 2018, the blended overall retail deposit rate stood at 0.12%, versus 0.17% a year ago.

We maintained a strong capital position. As of the first quarter 2018, our fully loaded CET1 ratio was 14.0% (December 2017: 13.5%). The increase of 50bps compared to year-end 2017 reflects earnings accretion as well as a decrease in RWAs, while compensating for a 10bps impact from the first-time application of IFRS 9.

Customer business performance in the first quarter 2018

Segment	PBT (EUR million)	Pre-tax RoTE (@12% CET1)	Cost-income ratio
BAWAG P.S.K. Retail	55	34.9%	41.9%
easygroup	32	29.4%	31.8%
International Business	25	26.6%	22.2%
DACH Corporates & Public Sector	14	16.8%	50.4%
Südwestbank	11	12.0%	61.0%

The BAWAG P.S.K. Retail segment comprises BAWAG Group's retail and small business lending to domestic customers and social housing activities. The segment achieved a profit before tax of EUR 55 million in the first quarter 2018, up 35% compared to the same period last year. The increase was primarily driven by higher operating income (up 14%), which reflects improved net interest income as well as increased net fee and commission income. The latter also includes lower commission expenses paid to Austrian Post following the separation agreement. The segment delivered a pre-tax return on tangible equity (@12% CET1) of 34.9% and a cost-income ratio of 41.9%.

The easygroup segment comprises easybank, one of Austria's leading direct banks; easyleasing, the #3 auto lessor in Austria and real estate leasing platform; easypay, a leading credit card issuer in Austria; start:bausparkasse and our international retail business consisting of high-quality performing residential mortgages in Western Europe. The segment achieved a profit before tax of EUR 32 million in the first quarter 2018, down 6% compared to the first quarter 2017 due to higher regulatory charges. The pre-tax return on tangible equity (@12% CET1) was 29.4% and the cost-income ratio was 31.8%. During the first quarter 2018, we made significant progress with the PayLife integration and continuing to identify synergistic opportunities across the Group.

The International Business segment comprises international corporate, real estate and portfolio lending outside the DACH region, primarily in Western Europe and the United States. The segment contributed EUR 25 million to BAWAG Group's profit before tax in the first quarter 2018, up 12% compared to the same period last year due to lower operating expenses and lower risk costs. The pre-tax return on tangible equity (@12% CET1) increased to 26.6%.

The DACH Corporates & Public Sector segment includes corporate and public lending and other fee-driven financial services for mainly Austrian customers and select client relationships in Germany and Switzerland. The segment contributed EUR 14 million to BAWAG Group's profit before tax and delivered a pre-tax return on tangible equity (@12% CET1) of 16.8%. The business performance was impacted by lower asset volumes, muted corporate loan demand, and redemptions. Our focus continues to be on underwriting business with appropriate risk-adjusted returns.

The Südwestbank segment contributed EUR 11 million to BAWAG Group's profit before tax. In the first quarter 2018, an integration and transformation process was launched, culminating in reaching an agreement with the workers' council on a comprehensive social plan in April. Our transformation plan is designed to improve operating performance across all products and channels with a focus on profitability, efficiency and capital with a goal to deliver results in line with the overall BAWAG Group targets. The segment delivered a pre-tax return on tangible equity (@12% CET1) of 12.0% and a cost-income ratio of 61.0% in the first quarter 2018.

Additional highlights

- BAWAG Group awarded "Austria's Best Bank 2018" by Global Finance
Global Finance, one of the leading magazines for finance and capital market issues, awarded BAWAG Group as "Austria's Best Bank" for the second consecutive year. We are proud to be recognized again for the successful development of the Bank.

- Issuance of EUR 300 million Additional Tier 1 (AT1) capital
In April 2018, we issued EUR 300 million Additional Tier 1 capital. This was an important step in the optimization of BAWAG Group's total capital position planned in 2018. As the issuance was in April, it is not reflected in the capital ratios of the first quarter 2018.

- Agreement on strategic partnership with MediaMarktSaturn Austria
In May 2018, we agreed to an exclusive sales partnership with MediaMarktSaturn Austria. The collaboration will start on 1 January 2019 and is set for the long term. This strategic partnership complements our omni-channel strategy aimed at strengthening our presence in the consumer lending segment on the Austrian market and leveraging cross-selling potential.

Outlook and targets

BAWAG Group delivered solid results in the first quarter 2018 and anticipates that this strong performance will continue throughout the remainder of the year.

Our targets for 2018 are as follows:

- Grow profit before tax (PBT) by more than 5%
- Achieve a cost-income ratio below 46%
- Deliver a return on tangible equity (@12% CET1) above 15%
- Maintain a CET1 ratio (fully loaded) of at least 12%

In addition, we have the following 3-year targets from 2018 through 2020 in place:

- Grow profit before tax at more than 5% CAGR and deliver a PBT of greater than EUR 600 million in 2020
- Deliver pre-tax average annual earnings per share of greater than EUR 5.70
- Achieve a cost-income ratio below 40%
- Maintain a RoTE (@12% CET1) in a range of 15% to 20%
- Maintain a CET1 ratio (fully loaded) of at least 12%
- Total excess capital accretion (>12% CET1) of greater than EUR 2 billion through 2020

In terms of capital generation and return, we target an annual dividend payout of 50% of net profit and will deploy additional excess capital (above 12% CET1) through 2020 to invest in organic growth and pursue earnings-accretive M&A at returns consistent with our RoTE group targets. To the extent excess capital is not deployed via such organic growth and M&A, we are committed to distributing excess capital to shareholders, based on a yearly assessment, in the form of stock buybacks and/or special dividends.

About BAWAG Group

BAWAG Group AG is the listed holding company of BAWAG P.S.K., which is headquartered in Vienna, Austria, with the main banking subsidiaries easybank and start:bausparkasse in Austria and Südwestbank in Germany. With more than 2.5 million customers, BAWAG P.S.K. is one of Austria's largest banks operating under a well-recognized national brand and applies a low-risk, efficient, simple and transparent business model focused on Austria, Germany and developed markets. The Bank serves retail, small business and corporate customers offering comprehensive savings, payment, lending, leasing, investment, building society and insurance products and services through various online and offline channels. Delivering simple, transparent and best-in-class products and services that meet our customers' needs is the consistent strategy across all business units.

BAWAG Group's Investor Relations website https://www.bawaggroup.com/ir contains further information, including financial and other information for investors.

Contact:

Financial Community:
Jutta Wimmer (Head of Investor Relations)
Tel: +43 (0) 5 99 05-22474
E-mail: investor.relations@bawaggroup.com

IR Hotline: +43 (0) 5 99 05-34444
E-mail: investor.relations@bawaggroup.com

Media:
Manfred Rapolter (Head of Communications, Press Officer)
Tel: +43 (0) 5 99 05-31210
E-mail: communications@bawaggroup.com

This text can also be downloaded from our website: https://www.bawaggroup.com

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