FINANCIAL STATEMENTS 31.3.2015 INVESTOR PRESENTATION 12 MAY 2015
HIGHLIGHTS OF Q1 2015 BOND ISSUE IN EUROS AND SALE OF SHAREHOLDINGS IN TWO COMPANIES Sale of shares in companies in non-core Funding operations First major benchmark bond issue in euros Sale and listing of shares in Refresco Gerber – € 300 million (approx. ISK 45 billion) – The issue was two times oversubscribed – Arion Bank and subsidiaries owned directly or – Diverse group of investors indirectly 9.8% – 3-year bonds with 3.125% fixed interest Arion Bank sold stakes in two local real estate Norwegian kroner denominated bonds companies repurchased for NOK 59 million (approx. ISK 1 Arion Bank sold 13.25% in Reitir in April billion) – Proceeds of ISK 6.4 billion Continued issuance of domestic covered bonds – Demand from approx. 3,600 investors – Total demand of ISK 25.5 billion in Iceland – Reitir listed on market in April, Arion Bank now owns approx. 8% in company Sale and listing of Eik prepared – Company was listed on market at the end of April. Arion Bank sold its entire shareholding 2
HIGHLIGHTS OF Q1 2015 BETTER BANKING Loans Arion express service Strong emphasis on introducing Arion express New loans in the seafood industry in service to customers. Adverts, courses and cooperation with DNB Bank promotion in branches Continued emphasis on mobile banking Innovation Continued leadership in startup and venture App users exceeded the number of users of capital on-line banking for the first time Even more new ATMs introduced. 280% Joint venture for seed investment. ISK 800 million invested in startup fund Eyrir Sprotar increase in use of ATMs from same period last year Startup Reykjavík 2015 Startup Energy Reykjavík Investor Day held 3
HEADLINE FIGURES FOR Q1 2015 NET EARNINGS AFFECTED BY VALUE CHANGES OF EQUITIES RELATING TO I PO’S Efficiency Q1 2015 results Strength Asset quality Return on Return on Cost-to- Problem Regular equity income ratio Tier 1 ratio loans operations 35.1% 29.3% 3.2% 21.2% 9.8% Q1 2014: 7.8% Q1 2014: 69.0% Q1 2014: 6.1% 31.3.2014: 18.6% Q1 2014: 4.7% Net Net earnings Leverage Mortgages/ Employees earnings regular op. ratio Total loans ISK 14,908 ISK 3,972 1,112 14.5% 41.7% million million 31.03.2014: 1,140 31.12.2014: 15.4% 31.03.2014: 41.1% Q1 2014: Q1 2014: ISK 2,864 million ISK 1,694 million 4
HIGHLIGHTS IN Q1 2015 CONTINUED STRONG EARNINGS FOR ARION BANK Net Net interest Net earnings are characterized by high net earnings income financial income and other income due to sale ISK 14,908 and listing of legacy equity holdings ISK 5,783 Net earnings for Q1 2015 ISK 14,908 million million million – Net interest income up from Q1 2014 Q1 2014: Q1 2014: – Stable net interest margin ISK 2,864 million ISK 5,483 million – Continued growth in commission income Total assets increased by ISK 71 billion (7.5%) from Q4 2014 Net interest – Increase in assets mostly in cash and cash Return on equity margin equivalents 35.1% – EUR 300 million bond issued in March 2.6% – Repayment of 30% of subordinated liabilities – The Bank is well funded and holds a very strong Q1 2014: 7.8% Q1 2014: 2.6% capital position Dividend paid in April, ISK 12.8 billion 5
INCOME STATEMENT 6
INCOME STATEMENT OUTSTANDING PERFORMANCE IN Q1 2015 Net interest income in line with previous Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 quarters Net interest income 5,783 5,911 6,343 6,483 5,483 Commission income Net commission income 3,757 3,192 3,526 3,445 3,148 continues to show Net financial income 7,539 1,429 1,994 4,439 (572) strong growth Other income 4,702 5,211 689 2,356 918 High net financial Operating income 21,781 15,743 12,552 16,723 8,977 income and other Salaries and related expense (3,492) (3,953) (2,862) (3,714) (3,450) operating income due Other operating expenses (2,896) (4,467) (2,787) (3,064) (2,747) to sale and listing of Net change in valuation 1,782 (744) 876 34 1,967 legacy equity holdings Net earnings before taxes 17,175 6,579 7,779 9,979 4,747 Operating expenses Income tax (1,720) (223) (1,989) (1,152) (1,315) decreased significantly Bank levy (730) (636) (633) (715) (660) from Q4 2014 Net gain from disc. operations 183 241 67 6,433 92 Net earnings 14,908 5,961 5,224 14,545 2,864 Low effective income tax due to tax exempt revenues from equity positions 7 All amounts in ISK millions
NET INTEREST INCOME NIM AFFECTED BY NEW FUNDING STILL TO BE CHANNELLED INTO NEW LOANS OR PREPAYMENTS Interest income from loans Inflation remains low. 7.5 CPI balance increased 15 6.5 12.7 by 10% from Q1 2014 6.3 12.0 11.6 10.5 9.6 5.9 5.8 10 Decrease in NIM due 5.5 to increase in low 6.7% 6.3% 6.2% interest bearing FX 5 5.5% 5.1% 5.0 assets, mainly cash 0 Less focus on deposits Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 3.1% 2.9% from institutional 2.8% Interest income lending / av. lending investors which bear 2.6% 2.6% higher interests Interest expense funding* 10 2.5 7.5 7.4 6.8 5.8 4.9 5 3.2% 4.0% 4.1% 3.7% 2.7% 0 0.0 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Interest expense funding / av. funding Net interest income NIM 8 All amounts in ISK billion *Funding includes liabilities due to credit institutions and Central Bank, deposits, borrowings and subordinated liabilities.
NET COMMISSION INCOME STRONG GROWTH FROM INVESTMENT BANKING AND INTERNATIONAL OPERATIONS OF VALITOR Commission income 5 Breakdown of Net commission income from cards continues Q1 2015 to grow mainly due to growth in international operations of Valitor 3.8 3.5 0.1 3.4 Asset management a 0.3 3.2 0.8 stable source of 3.1 0.6 0.6 commission income 1.4 0.7 ISK 3.8 0.6 0.9 Investment banking 0.7 0.6 Billion 0.7 continues to grow and 0.4 0.2 performed well during 0.3 the quarter 0.9 0.9 1.0 0.9 0.9 0.9 Lending and guarantees and other sources of commission Cards income stable 1.5 1.4 Asset management 1.2 1.2 1.2 80% of Net Collection and payment services commission income Investment banking 0 from corporates Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Lending and guarantees Cards Asset management Other net fee and commission income Investment banking Other 9 All amounts in ISK billion
NET FINANCIAL INCOME EXCELLENT RETURN ON LISTED AND UNLISTED EQUITY POSITIONS Bonds (ISK bn.) and return on bonds (%) (returns include interest income) 80.0 73.2 Excellent return on 9 69.7 68.5 67.8 67.8 equity positions during the period, mainly due 60.0 to shares in Refresco Gerber in connection 9% 7 40.0 with the company’s 6% 6% IPO 5% 4% 20.0 Return on bonds almost entirely due to 5 0.0 interest income but Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 almost no market gain 7.5 Shares (ISK bn.) and return on shares (%) FX gain of ISK 0.3 40.0 36.1 billion during the 3 31.1 quarter 30.1 30.1 4.4 25.5 89% 63% 20.0 1 2.0 1.4 22% 9% 4% -0.6 0.0 -1 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 10 All amounts in ISK billion
TOTAL OPERATING EXPENSES CONTINUED FOCUS ON OPERATING EFFICIENCY Cost-to-income ratio (%) Salaries in line with 80 69.0 10.0 previous quarters 53.5 45.0 Number of employees 40.5 8.4 decreased at the 40 29.3 parent company during the period 6.8 Other operating 6.4 0 6.2 expenses reducing 4.5 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 5.6 from previous quarter, Number of employees partially explained by 3.1 (full time eq. at period end) 5.0 2.9 one-off costs in Q4 2.7 1,140 1,135 1,119 1,120 1,112 2014 2.8 232 236 1,000 232 255 264 Cost-to-income ratio at an all-time low due to unusually large income items and is not 4.0 500 3.7 908 3.5 3.5 899 887 865 848 reflective of full year 2.9 operations 0 0.0 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Parent company Subsidiaries Other operating expense Salaries and related expense 11 All amounts in ISK billions
BALANCE SHEET 12
BALANCE SHEET STRONG BALANCE SHEET OFFERS VARIOUS OPPORTUNITIES Assets above ISK 1,000 Assets 31.3.2015 31.12.2014 31.12.2013 31.12.2012 31.12.2011 billion for the first time, increase in assets Cash & balances with CB 64 21 38 30 29 mainly in cash and cash Loans to credit institutions 126 109 102 101 69 equivalents Loans to customers 649 648 636 567 562 Financial assets 107 102 87 138 158 Increase in borrowings Investment property 8 7 29 29 27 due to EUR 300 million Other assets 51 48 48 37 48 bond issue (ISK 45 Total assets 1,004 934 939 901 892 billion) Deposits increased during the quarter Liabilities and Equity after decrease in Q4 2014 due to market Due to credit institutions & CB 22 23 28 33 16 conditions Deposits from customers 471 455 472 449 490 Partial prepayment of Other liabilities 64 61 58 59 52 subordinated loan at Borrowings 250 201 205 195 187 the end of quarter Subordinated loans 20 32 32 34 32 Equity 177 162 145 131 115 Total liabilities and equity 1,004 934 939 901 892 13 All amounts in ISK billions
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