2016 Results Hreiðar Bjarnason CEO
2016 Results DISCLAIMER This presentation is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any financial instrument. The information set out in this presentation has not been independently verified. No representation or warranty is made by Landsbankinn as to the accuracy, completeness or fairness of the information or opinions contained in this presentation. This presentation may contain projections and forward-looking statements which are subject to a number of risks and uncertainties that could cause actual results to differ materially and could adversely affect the financial effects described herein. Landsbankinn accepts no liability whatsoever for any direct or indirect loss, howsoever arising, from use of this presentation. Landsbankinn assumes no obligation to update this presentation, provide any additional information or correct any errors, which may eventually become apparent. Landsbankinn 2
2016 Results Highlights ■ Operations Other operating revenues decreased considerably between years due, for the most part, to lower profit from equities as compared with 2015 Highlights of Q4 of 2016 ■ The net interest spread was 2.3% at year-end 2016, as compared with 2.2% ■ Net profit for Q4 of 2016 was ISK 243 m after taxes, as compared with ISK at year-end 2015. 12 bn for the same period of 2015 ■ ■ Net interest income increased between periods, to ISK 8.4 bn in Q4 2016 After-tax return on equity (ROE) was 6.6%, as compared with 14.8% in 2015. as compared with ISK 7.3 bn in Q4 the previous year ■ Operating expenses less wages and related expenses dropped by 5% ■ Value changes in the credit portfolio were negative by ISK 4.7 bn in Q4 between years. 2016 as compared with positive value changes of ISK 5.9 bn in Q4 2015. ■ At the end of 2016 and in early 2017, the Supreme Court ruled against the The cost-income ratio in 2016 was 48.4%, as compared with 43.8% in 2015. Bank in four cases involving exchange rate indexed loans to corporates. As a result, ISK 5.4 bn were expensed in the Group's consolidated income statement at the end of Q4 2016. Balance sheet ■ Net commission income increased between periods due to a higher transaction volume; was ISK 1.9 bn in Q4 2016 as compared with ISK 1.7 ■ bn during the same period the previous year. This represents a 12% Total assets amounted to ISK 1,111 bn at year-end 2016 increase ■ Deposits from financial undertakings have decreased during the year, ■ Return on equity (ROE) after taxes was 0.4% in Q4 2016 as compared primarily as a result of the Central Bank's foreign currency auction in June with a ROE of 18.6% for the same period in 2015 ■ Landsbankinn's foreign balance decreased during the year, with foreign Key income statement figures for 2016 ■ currency assets in excess of liabilities amounting to ISK 3.5 bn, as Net profit in 2016 was ISK 16.6 bn after taxes, as compared with ISK 36.5 compared with ISK 23.8 bn at the end of 2015. bn in 2015. ■ ■ Net interest income amounted to ISK 34.7 bn, up by 7% as compared with The Bank's liquidity position is very strong, both in foreign currency and 2015 Icelandic króna. ■ Value changes in the credit portfolio were negative by ISK 318 m as ■ Landsbankinn's equity at year-end 2016 amounted to ISK 251.2 bn, down compared with a positive change in the amount of ISK 18.2 bn in 2015. by 5% since the beginning of the year, which is due to an ISK 28.5 bn ■ Net commission income is up by 14% between years, mostly due to dividend payment. The Bank purchased own shares in 2016; 134 m increased activity on capital markets and changes in the payment card shares for the price of ISK 1.4 bn. Total capital ratio was 30.2% at year- market. end 2016, as compared with 30.4% at year-end 2015. Landsbankinn 3
2016 Results Main results 2016 2015 Q4 2016 Q4 2015 Profit after taxes 16,643 36,460 243 12,047 Return on equity after taxes 6.6% 14.8% 0.4% 18.6% Adjusted return on equity after taxes* 7.7% 10.6% 1.5% 12.8% Interest spread as a ratio of assets and liabilities 2.3% 2.2% 2.2% 1.9% Cost-income ratio ** 48.4% 43.8% 50.7% 39.1% 31.12.16 31.12.15 Total assets 1,111,157 1,118,658 Loans to customers 853,417 811,549 Deposits from customers 589,725 559,051 Equity 251,231 264,531 Total capital ratio 30.2% 30.4% Liquitidity ratio NSFR FX 154% 136% Liquitidity ratio LCR total 128% 113% Liquitidity ratio LCR FX 743% 360% Net FX position 3,480 23,795 Arrears (>90 days) 1.5% 1.8% Full-time eqv. positions 1,012 1,063 *Adjusted ROE after taxes = (Profit after taxes – positive value adjustments after taxes – tax on total liabilities of financial institutions – profit from discontinued operations after taxes) / average equity position **Cost-income ratio = Total operating expenses / (Net operating revenue-value net adjustments in valuation) Landsbankinn Amounts in ISKm 4
2016 Results Development of KPIs Return on equity after taxes Total capital ratio 16% 35% 14% 30% 14.8% 30.4% 30.2% 29.5% 12% 25% 12.5% 12.4% 26.7% 12.0% 25.1% 10% 20% 8% 15% 6% 6.6% 10% 4% 5% 2% 0% 0% 2012 2013 2014 2015 2016 31.12.12 31.12.13 31.12.14 31.12.15 31.12.16 Cost-income ratio excluding valuation adjustments Dividend yield* 60% 12% 56.0% 50% 10% 10.8% 48.4% 9.4% 40% 45.0% 8% 43.8% 42.9% 8.2% 30% 6% 5.2% 20% 4% 4.4% 10% 2% 0% 0% 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 * 2016 according to a motion for the AGM, the bord also plans to propose an extraordinary dividend at the AGM Landsbankinn 5
2016 Results Marketshare – Retail banking Landsbankinn 6
2016 Results Marketshare – Corporate banking Landsbankinn 7
2016 Results Landsbankinn‘s successes Landsbankinn 8
2016 Results Landsbankinn‘s successes Landsbankinn 9
2016 Results Landsbankinn‘s successes Landsbankinn 10
2016 Results Strategy Vision: Landsbankinn is to be exemplary Mission: The trusted financial partner Our relationship with customers is based on mutual benefit. We are a trusted financial partner that supports customers towards success. We aim to tailor our services to fit their needs and to operate in harmony with our environment and society. We want our customers to be able to say … “This is how a bank should be” Landsbankinn 11
2016 Results
2016 Results 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 5,000 0 Landsbankinn 36,460 Profit 2015 2,326 Net interest income -18,534 Net adjustments in valuation 968 Net fee and commission income Income Statement Change from 2015 to 2016 -10,004 Other income Amounts in ISKm 1,098 FX gain (loss) -295 Salaries and related expenses 513 Other operating expenses Share in profit of equity 235 accounted associates 3,876 Taxes 16,643 Profit 2016 13
2016 Results Income Statement 2016 2015 Change Q4 2016 Q4 2015 Change Net interest income 34,650 32,324 7% 8,443 7,292 16% ■ Net interest income increased by 7% Net adjustments in valuation -318 18,216 -102% -4,737 5,882 -181% Net interest income after adjustments ■ Loan revaluations during the 34,332 50,540 -32% 3,706 13,174 -72% in valuation year were negative by ISK 318 m, compared to positive revaluations of ISK 18.2 Net fee and commission income 7,809 6,841 14% 1,900 1,702 12% billion in 2015 Other net operating income 6,076 14,982 -59% 1,365 6,563 -79% ■ Net commission income Total operating income 48,217 72,363 -33% 6,971 21,439 -67% increased by 14% as compared with the same period the previous year Salaries and related expenses 14,049 13,754 2% 3,640 3,407 7% due to increased activities of Other operating expenses 9,465 9,978 -5% 2,292 2,674 -14% Capital Markets and changes in the payment Total operating expenses 23,514 23,732 -1% 5,932 6,081 -2% card market Share in profit of equity accounted ■ The significant year-on-year 483 248 95% 37 -9 -493% associates decrease in other operating Profit before tax 25,186 48,879 -48% 1,076 15,349 -93% income is largely attributable to decreased capital gains on equities Income tax expense and tax on liabilities 8,543 12,419 -31% 833 3,302 -75% of financial institutions ■ Effective tax rate is 25.1% Profit for the period 16,643 36,460 -54% 243 12,047 -98% Landsbankinn Amounts in ISKm 14
2016 Results Net interest income and valuation adjustments 2016 2015 Change Q4 2016 Q4 2015 Change Interest income 64,612 58,005 6,607 11% 16,241 13,329 2,912 22% Interest expense -29,962 -25,681 -4,281 17% -7,798 -6,037 -1,761 29% Net interest income 34,650 32,324 2,326 7% 8,443 7,292 1,151 16% Net impairment loss on loans and guarantees 5,117 4,440 677 15% 699 -630 1,329 -211% Net impairment from foreign currency linkage of loans -5,435 13,776 -19,211 -139% -5,435 6,512 -11,947 -183% and advances to customers Net valuation adjustments -318 18,216 -18,534 -102% -4,737 5,882 -10,619 -181% Net interest income after net valuation adjustments 34,332 50,540 -16,208 -32% 3,706 13,174 -9,468 -72% Landsbankinn Amounts in ISKm 15
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