FINANCIAL STATEMENTS 30 SEPTEMBER 2015 INVESTOR PRESENTATION 11 NOVEMBER 2015
ARION BANK IS A UNIVERSAL RELATIONSHIP BANK ARION BANK PROVIDES A FULL RANGE OF FINANCIAL SERVICES Corporate Banking Asset Management Leading lender to large Leading player in the corporates in Iceland Icelandic market Innovative and customized AuM equal to Arion Bank’s solutions total assets International activities in Services institutional seafood and related investors and HNW clients businesses Retail Banking Investment Banking ~ 30% market share A leading capital markets Largest private provider of house and M&A advisor residential mortgages Full range of investment Wide range of financial banking services Managed all IPOs this year services for individuals and SMEs Strong focus on digital banking solutions
STRATEGIC SUBSIDIARIES IN THE ARION BANK GROUP ARION BANK PROVIDES A FULL RANGE OF FINANCIAL SERVICES Leading life insurance The largest online and e- company in Iceland commerce payment Focus on modern personal services company in Iceland Operations in Iceland, insurance services Sales and distribution Denmark and the UK Member of VISA EU and partnerships with Arion Bank MasterCard International Vörður is the 4th largest non-life Iceland’s largest fund insurance company in Iceland, with management company Retail and professional a market share of more than 10% Arion Bank has reached a deal to clients Range of mutual, acquire 51% in the company Acquisition is subject to approval of investment and institutional Icelandic regulators investment funds
HIGHLIGHTS OF THE THIRD QUARTER OF 2015 INCREASED ACTIVITY IN THE ECONOMY AND AT THE BANK Icelandic economic environment Arion Bank • Growth in loans to companies and demand for loans • Government’s plans to lift capital controls have has generally increased generally been well received • Arion Bank sold 10% stake in Síminn to investor • The tourism industry continues to expand rapidly, consortium and clients of Bank which has an effect on the entire economy • Arion Bank was involved in a project to construct a 5 • The Central Bank of Iceland remains very active on star hotel next to the Harpa concert hall in central the currency market and has been building up very Reykjavík in cooperation with Marriot Edition strong currency reserves • Arion Bank increased its share of vehicle and • The economic situation has been good in Iceland, equipment financing market with 5.2% economic growth, 1.9% inflation and • unemployment at around 4.0% Bank’s share in turnover on NASDAQ Iceland was 17.1% for bonds and 22.6% for equities • Inflation is likely to rise in the medium term, • particularly following collective wage agreements Arion Bank has arranged all three listings on NASDAQ Iceland this year: Eik, Reitir and Síminn • Investments by companies have grown somewhat, • particularly in the construction and manufacturing Merger between AFL Savings Bank and Arion Bank industries approved in early October and will be completed at the end of November 4
HIGHLIGHTS OF THE THIRD QUARTER OF 2015 CREDIT RATING UPGRADED TO INVESTMENT GRADE – ANNUAL STARTUP REYKJAVÍK INVESTOR DAY Innovation Funding • • Startup Reykjavík was held for the fourth time by Arion Bank’s credit rating was upgraded from BB+ Arion Bank. The Bank has invested in 40 companies (with positive outlook) to BBB- (with stable outlook) through this business accelerator • Arion Bank issued ISK 8 billion of covered bonds in • Startup Reykjavík held its annual investor day at the two issues in Q3 end of August. The ten teams presented their ideas • This year Arion Bank has issued ISK 19 billion in to potential investors covered bonds. Proceeds being used to fund the mortgages of the Bank’s customers • Agreement reached with Landsbankinn, Íslandsbanki and Kvika on market making for covered bonds. This increased liquidity of the bonds 5
HEADLINE FIGURES FOR 9M 2015 Profitability Strength Efficiency Asset quality Return on Cost-to- Problem equity Tier 1 ratio income ratio loans 19.8% 22.2% 38.4% 3.2% 9M 2014: 31.12.2014: 9M 2014: 31.12.2014: 19.9% 21.8% 48.7% 4.4% Leverage Number of Mortgages/ Net earnings ratio Employees Total loans ISK 25,397 15.0% 1,151 39.7% million 31.12.2014: 31.12.2014: 31.12.2014: 9M 2014: 15.4% 1,120 42.8% ISK 22,633 million 6
INCOME STATEMENT 7
INCOME STATEMENT GOOD PROFITABILITY IN THIRD QUARTER Strong net interest income Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Slight decrease in net Net interest income 7,112 7,392 5,783 5,911 6,343 commission income Net commission income 3,292 3,677 3,757 3,192 3,526 due to less Net financial income 453 2,184 7,539 1,429 1,993 transactions during the Other income 3,448 1,038 4,702 5,211 687 summer months Operating income 14,305 14,291 21,781 15,743 12,549 Low net financial Salaries and related expense (3,153) (3,675) (3,492) (3,953) (2,862) income mainly due to Other operating expenses (3,012) (3,108) (2,896) (4,467) (2,787) FX loss Bank levy (779) (659) (730) (636) (633) High other income in Net impairment (33) (1,863) 1,782 (744) 876 Q3 due to profit from Net earnings before taxes 7,328 4,986 16,445 5,943 7,143 the sale and fair value Income tax (1,272) (647) (1,720) (223) (1,989) change of Siminn hf. Net gain from disc. operations 15 79 183 241 67 prior to the company‘s Net earnings 6,071 4,418 14,908 5,961 5,221 IPO in Q4 8 All amounts in ISK million
INCOME STATEMENT POSITIVE DEVELOPEMENT IN MOST ITEMS Net interest income increase from last year, 9M 2015 9M 2014 Diff Diff% mainly related to Net interest income 20,287 18,309 1,978 11% higher inflation and more favourable terms Net commission income 10,726 10,119 607 6% in funding Net financial income 10,176 5,861 4,315 74% Other income 9,188 3,963 5,225 132% Net fee and Operating income 50,377 38,252 12,125 32% commission income Salaries and related expense (10,320) (10,026) (294) 3% increase in all units Other operating expenses (9,016) (8,597) (419) 5% Net financial income Bank levy (2,168) (2,009) (159) 8% and other income are Net impairment (114) 2,877 (2,991) - higher related to sale Net earnings before taxes 28,759 20,497 8,262 40% and listing of three large companies that Income tax (3,639) (4,456) 817 (18%) the Bank owned Net gain from disc. operations 277 6,592 (6,315) - Net earnings 25,397 22,633 2,764 12% Net gain from dis- continued operation was high last year, due to the sale of 18% shareholding in HB Grandi, large company in the fishing sector 9 Allar fjárhæðir í milljónum króna
NET INTEREST INCOME INCREASE IN NET INTEREST INCOME RESULTING FROM TREASURY ACTIVITIES AND HIGHER INFLATION Interest income from loans 7.4 Inflation increased 7.5 7.1 during Q2 and Q3 2015 14.8 13.8 15 resulting in higher net 12.0 6.3 interest income 10.5 9.6 5.9 compared to previous 10 5.8 quarters 7.7% 7.2% 6.2% 5 5.5% Net interest margin 5.1% 5.0 reducing slightly from Q2, mostly due to 3.3% 0 3.1% increase in low interest Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 2.9% bearing positions with 2.8% Interest income lending / av. lending 2.6% Central Bank at the end of the quarter Interest expense funding* 10 2.5 Cost of funding starting 8.6 8.0 to decrease due to 6.8 5.8 more favourable terms 4.9 on new funding and 5 prepayment of older 4.6% 4.2% less favourable loans 3.7% 3.2% 2.7% 0 0.0 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Interest expense funding / av. funding Net interest income NIM 10 All amounts in ISK billion *Funding includes due to credit institutions and Central Bank, deposits, borrowings and subordinated liabilities.
NET COMMISSION INCOME STABILITY AFTER A THREE YEAR GROWTH PERIOD Cards and Asset 5.0 management a stable source of commission Breakdown of Net commission income income 9M 2015 3.8 Commission income in 3.7 3.5 investment banking 0.4 1.1 3.3 contingent on IPO’s 0.8 3.2 0.8 0.6 ISK 4.2 Lending and 1.2 0.8 0.9 guarantees and other 10.7 0.6 0.7 0.4 sources of commission 2.5 billion 0.2 0.9 income stable 0.2 1.0 0.9 0.9 0.9 2.9 0.9 Cards Asset management Collection and payment services Investment banking 1.5 1.4 1.4 1.4 1.2 Lending and guarantees Other net fee and commission income 0.0 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Cards Asset management Investment banking Other 11 All amounts in ISK billion
NET FINANCIAL INCOME MAJOR EFFECT ON NET EARNINGS Bonds (ISK bn.) and return on bonds (%) (returns include interest income) 100 Low return on shares in Q3 compared to Q1 80 73.2 70.7 and Q2 69.7 68.5 67.8 8 60 Good returns on bond 9.3% holdings 7.2% 6.5% 40 5.8% 5.9% High income in Q1 mainly related to sale 6 20 and listing of Refresco Gerber 0 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 FX loss resulting in lower net financial Shares (ISK bn.) and return on shares (%) 4 50 income in third quarter 7.5 compared to previous 38.3 36.1 36.3 quarters 31.1 30.1 A slight growth in 89% equity positions mainly 2 25 related to listing of a former associated 2.2 2.0 22% 20% company whilst bond 9% 9% 1.4 positions remain 0.5 relatively stable 0 0 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 12 All amounts in ISK billion
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