2019 Results Lilja B. Einarsdóttir Hreiðar Bjarnason CEO CFO
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 2019 Results 2
Highlights – Operations Q4 2019 Highlights of Q4 2019 Profit Return on equity The Bank’s after -tax profit in Q4 in 2019 amounted to ISK 3.9 bn, remaining 4,000 8% unchanged between years. Net interest income amounted to ISK 9.6 bn in Q4 compared to ISK 11.0 bn in Q4 2018. 2,000 4% 3,867 3,875 6.5% 6.3% Net valuation adjustments during the period were negative by ISK 1.4 bn compared to a negative change in the amount of ISK 0.3 bn in Q4 of 2018. Net fee and commission income for the period amounted to ISK 2.1 bn in Q4 as 0 0% Q4 2018 Q4 2019 Q4 2018 Q4 2019 compared to ISK 2.4 bn during the same period the previous year. Operating cost was ISK 6.3 bn, as compared with ISK 6.2 bn in Q4 2018. Net interest income Cost-income ratio Return on equity (ROE) after taxes was 6.3% in Q4 2019 compared to a ROE of 12,000 60% 6.5% during the same period in 2018. 50% The cost-income ratio for Q4 was 46.2%, as compared with 47.3% for the same 8,000 40% time last year. 30% 10,968 9,580 47.3% 46.2% 4,000 20% 10% 0 0% Q4 2018 Q4 2019 Q4 2018 Q4 2019 Amounts in ISKm Landsbankinn 2019 Results 3
Highlights – Operations 2019 Highlights of 2019 Profit Return on equity The Bank’s after -tax profit in 2019 amounted to ISK 18.2 bn, as compared to ISK 16,000 10% 19.3 bn for the same period in 2018. 14,000 Net interest income amounted to ISK 39.7 bn compared to ISK 40.8 bn in 2018. 12,000 10,000 Net valuation adjustments during the period were negative by ISK 4.8 bn as 19,260 18,235 compared with a positive change in the amount of ISK 1.4 bn in 2018. 8,000 5% 8.2% 6,000 7.5% Net fee and commission income for the period amounted to ISK 8.2 bn remaining 4,000 unchanged between years. 2,000 Other operating income amounted to ISK 8.5 bn compared to ISK 3.6 bn in 2018. 0 0% 2018 2019 2018 2019 Operating cost was ISK 24 bn, remaining unchanged between years. The interest margin on assets and liabilities was 2.4% at year-end 2019, as Net interest income Cost-income ratio compared to 2.7% at year-end 2018. Return on equity (ROE) after taxes was 7.5% in 2019 as compared with an ROE 50,000 60% of 8.2% in 2018. 50% 40,000 The cost-income ratio of the year was 42.6%, as compared with 45.5% last year. 40% 30,000 The effective income tax rate for 2019 was 21.8%. 30% 40,814 20,000 39,670 45.5% 42.6% 20% 10,000 10% 0 0% 2018 2019 2018 2019 Amounts in ISKm Landsbankinn 2019 Results 4
Highlights – Balance sheet Total assets amounted to ISK 1,426 bn at year-end 2019. Total assets Total capital ratio 1,600,000 25% Lending increased by ISK 76 billion in 2019. Lending to corporates increased by 1,400,000 ISK 21 bn and lending to households by ISK 55 bn. 20% 1,200,000 1,000,000 Landsbankinn’s equity was ISK 247.7 bn at year-end 2019, up from ISK 239.6 bn 15% 800,000 25.8% 24.9% the beginning of this year. 1,426,328 1,326,041 10% 600,000 400,000 5% The total capital ratio is now 25.8%, up from 24.9% at year-end 2018, and well 200,000 above the FME’s requirement of 20.5%. 0 0% 31.12.2018 31.12.2019 31.12.2018 31.12.2019 The Bank’s AGM, held on 4 April 2019, approved a motion from the Board of Directors to pay a dividend in the amount of ISK 9,922 m for the 2018 operating Loans and advances to Liquidity coverage ratio total year. customers 200% 1,200,000 In December 2019, the Bank concluded issuance of ISK Tier 2 fixed rate inflation 1,000,000 150% linked subordinated bonds, in the amount of ISK 5.5 bn. The issuance is a step towards further optimizing the Bank’s capital structure. 800,000 100% 600,000 1,140,184 161% 1,064,532 158% The total liquidity coverage ratio (LCR) is 161% at year-end 2019, up from 158% 400,000 50% at year-end 2018. According to the Central Bank's rules, there is a minimum 200,000 100% LCR requirement, both in total and in foreign currencies . 0 0% 31.12.2018 31.12.2019 31.12.2018 31.12.2019 Amounts in ISKm Landsbankinn 2019 Results 5
Development of KPIs Total capital ratio Return on equity Impact of bank levy Return on equity, excluding bank levy FME capital requirement 35% 20% 30% 16.0% 30.4% 30.2% 25% 1,2% 15% 26.7% 25.8% 24.9% 14.8% 20% 22.1% 21.8% 9.8% 21.4% 9.5% 20.5% 20.5% 9.2% 10% 15% 1,6% 7.7% 1,3% 1,7% 1.1% 8.2% 8.2% 10% 7.5% 5% 6.6% 5% 0% 0% 2015 2016 2017 2018 2019 31.12.15 31.12.16 31.12.17 31.12.18 31.12.19 Liquidity coverage ratio total Cost-income ratio LCR total Regulatory requirements 60% 200% 161% 158% 157% 48.4% 46.1% 128% 45.5% 43.8% 40% 100% 42.6% 113% 20% 0% 2015 2016 2017 2018 2019 31.12.15 31.12.16 31.12.17 31.12.18 31.12.19 Landsbankinn 2019 Results 6
Ownership The Finance Ministry published an ownership policy in July 2017 in regards to equity holdings in financial companies that are supervised by the Icelandic State Icelandic State Financial Investments (ISFI). Treasury In regards to Landsbankinn the policy states Landsbankinn The Icelandic State The government will retain a significant equity stake in ~ 900 other - Own shares Financial shareholders Investments (ISFI) the bank (34-40%) to ensure stability in the domestic 0.2% 98.2% 1.6% financial sector. The remaining equity stake will be sold in the next few years given favorable market conditions. Equity in Landsbankinn will be listed on a stock exchange. Landsbankinn 2019 Results 7
Credit rating Fundamental factors for Landsbankinn: Landsbankinn hf. Republic of Iceland - Foreign currency 1 Very strong capital and earnings 3 5 7 Adequate liquidity position 9 25.10.2017 11 Average funding profile 13 15 Adequate business position 17 19 31.12.2016 30.06.2017 31.12.2017 30.06.2018 31.12.2018 30.06.2019 31.12.2019 Moderate risk position Icelandic sovereign Landsbankinn hf. A BBB+ Long-term rating Short-term rating A-1 A-2 Outlook Stable Negative Last rating action March 2017 July 2019 Landsbankinn 2019 Results 8
Financial objectives Objective 2019 Guidelines Return on equity, excluding bank levy 1 ≥ 10% Expected ROE, excluding bank levy in 2020 is 7.0 – 8.5%. 9.2% (ROE) Cost-income ratio ≤ 45% 42.6% Expected ratio in 2020 is 43-47%. (C/I ratio) The Bank's aim is to maintain capital ratios above the FME's capital requirements at any given time, Total capital ratio plus a 1.5-2.5% management buffer. ≥ 23% 25.8% (TCR) The Bank also aims to be in the highest category for risk-adjusted capital ratio, as determined and measured by the relevant credit rating agencies. Common Equity Tier 1 capital The Bank intends to raise subordinated market funding, if suitable and favourable for the Bank‘s ≥ 18% 23.9% (CET1) capital structure. ≥ 50% Dividend payout ratio 52% 2 The aim is also to make special dividend payments to further optimise the Bank's capital structure. 1 Special tax on financial institutions of 0.376% is levied of the carrying amount of total liabilities at year-end, excluding tax liabilities, in excess of ISK 50,000 million as determined for tax purposes. The special income tax on financial institutions is a non-deductible expense 2 Regular dividend payout ratio of last year profit. Landsbankinn 2019 Results 9
Landsbankinn´s successes Source: Gallup Landsbankinn 2019 Results 10
Ársuppgjör 2018 11
Income Statement
Amounts in ISKm 10,000 15,000 20,000 25,000 5,000 0 Landsbankinn 19,260 Profit 2018 -1,144 Net interest income -6,179 Net adjustments in valuation Net fee and commission income 62 Income statement Change from 2018 to 2019 2019 Results 3,955 Other income 913 FX gain (loss) 131 Salaries and related expenses -186 Other operating expenses 1,423 Taxes 18,235 Profit 2019 13
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