First quarter 2022 (1Q22) financial highlights – satisfying results with ROE in line with financial targets

• Íslandsbanki reported a profit of ISK 5.2bn in the first quarter (1Q21: ISK 3.6bn), generating an annualised return on equity (ROE) of 10.2% (1Q21: 7.7%), which is above both the Bank’s financial targets and market consensus. The main drivers were strong income generation, good cost control, and positive net impairment.
• Net interest income (NII) grew by 12.4% YoY and totalled ISK 9.2bn in 1Q22, compared to ISK 8.2bn in 1Q21, owing mainly to growth in loans to customers and a higher interest rate environment. The net interest margin was 2.6% in 1Q22, compared to 2.4% in 1Q21.
• Net fee and commission income (NFCI) grew 7.1% YoY and amounted to ISK 3.1bn in 1Q22, compared to ISK 2.9bn in 1Q21. Cards and payment processing, investment banking and brokerage, and asset management are primary drivers of the increase.
• The Bank focuses on core banking operations, with NII and NFCI accounting for around 97% of total operating income in 1Q22, compared to 95% in 1Q21. These two items combined grew 11.0% from 1Q21 to 1Q22.
• Net financial expenses were ISK 95m in 1Q22, compared to net financial income of ISK 293m in 1Q21.
• Administrative expenses were ISK 5.8bn in 1Q22, a decline of 0.3% YoY, as a result of continued cost awareness.
• The cost-to-income ratio (C/I ratio) was 47.6% in 1Q22, well within the guidance for 2022, down from 51.3% in 1Q21, due to strong revenue generation and cost reduction efforts.
• Positive ISK 483m net impairment of financial assets in 1Q22 is mainly attributable to a brighter outlook for the tourism industry. This is compared to an impairment charge of ISK 518m in 1Q21. The net impairment charge as a share of loans to customers, the annualised cost of risk, was -17bp in 1Q22, compared to +20bp in 1Q21.
• Loans to customers rose by ISK 21.6bn, or 2.0%, during the quarter, to ISK 1,108bn, led by mortgage lending.
• Deposits from customers increased by ISK 17.4bn, or 2.3%, during the quarter, to ISK 761bn. The rise was mainly as a result of the cash settlement of the Icelandic Government’s sale of its holding in Íslandsbanki.
• The Bank’s liquidity position remains strong, with all ratios well above regulatory requirements and internal thresholds.
• Total equity amounted to ISK 197.2bn at the end of March 2022. The corresponding capital base, that includes the AT1 and Tier2 issuances, decreased from ISK 228bn to ISK 210bn due to an authorised ISK 15bn buyback of own shares. The Bank’s total capital ratio was 22.5%, including the 1Q22 profit, compared to 25.3% at YE21. The corresponding CET1 ratio was 18.8%, down from 21.3% at YE21. This is considerably above the long-term CET1 target of ~16.5%. The capital ratios are lower mostly due to the reduction in the capital base and an increase in the risk exposure amount (REA).
• The Bank estimates that long-term excess CET1 capital equals approximately ISK 35-40bn.The Bank assumes that CET1 capital will be optimised in the next 12–24 months.
• The leverage ratio was 12.4% at the end of March, including 1Q22 profit, compared to 13.6% at YE21, indicating low leverage.