Third quarter 2021 (3Q21) financial highlights – best quarter in more than five years

• Íslandsbanki reported a net profit of ISK 7.6bn in the third quarter (3Q20: ISK 3.4bn) generating an annualised return on equity of 15.7% (3Q20: 7.4%) which is above both the Bank’s financial targets and market expectations.
• Growth in loans to customers during the year led an increase in net interest income YoY which totalled ISK 8.8bn in 3Q21 compared to ISK 8.3bn in 3Q20.
• Net fee and commission income grew 20% YoY and amounted to ISK 3.4bn in 3Q21. Asset management and investment banking and brokerage are primary drivers for the increase.
• The Bank focuses on core banking operations with NII and NFCI accounting for around 92% of total operating income in 3Q21. These two items grew 9% YoY.
• Net financial income was ISK 941m in 3Q21 compared to a loss of ISK 255m in 3Q20, the increase largely explained by a positive value change in unlisted equity instruments and by income from listed shares and equity instruments.
• Administrative expenses are comparable YoY totalling ISK 5.1bn in the 3Q21.
• Cost-to-income ratio (C/I ratio) was 39.4% in 3Q21, below target, down from 46.7% in 3Q20 due to strong revenue generation and cost reduction efforts.
• A positive ISK 1.8bn net impairment on financial assets in 3Q21 is mainly attributable to a brighter outlook for the tourism industry and reduced impairments on loans to individuals resulting from an updated risk assessment model. This is compared to an impairment charge of ISK 1.1bn in 3Q20. The net impairment charge over loans to customers, the annualised cost of risk, was -0.64% in 3Q21 compared to 0.44% in 3Q20.
• Loans to customers fell by 0.8% in the quarter to ISK 1,081bn as growth in mortgages lending normalises following Central Bank rate hikes, whilst the growth from year-end 2020 is 7.4%, mostly driven by mortgage lending but also by growth in loans to companies.
• At the end of the reporting period, the share of credit-impaired loans to customers was 2.0% (gross) down from 2.9% at YE20 following full repayment of exposures in Stage 3.
• Deposits from customers fell by ISK 11bn in the quarter, the outflow is a result of the cash settlement of shares from the Bank’s IPO. Nonetheless, deposits grew by ISK 75bn in 2021.
• The liquidity position remains strong with all ratios well above regulatory requirements and internal thresholds.
• The Bank issued its inaugural Additional Tier 1 (AT1) issue in September – a SEK 750 million perpetual non-call 5-year transaction, paying a margin of STIBOR + 475 basis points. The deal was well oversubscribed and was sold to investors across the Nordic countries, France and Switzerland.
• Total equity amounted to ISK 197bn at the end of September and the Bank’s capital ratio was 24.7%, including 3Q21 profit, compared to 23.0% at YE20. The corresponding CET1 ratio was 20.6%, up from 20.1% at YE20 This is considerably higher than the total capital ratio target which is currently at 18.3-19.8% and 19.5-21.0% in the long term.
• The leverage ratio was 13.2% at the end of September, including 3Q21 profit, compared to 13.6% fat YE20, indicating low leverage.

First nine months 2021 (9M21) financial highlights – net profit turnaround led by positive net impairment

• The Bank’s net profit for the first nine months of year 2021 was ISK 16.6bn (9M20: ISK 3.2bn) with annualised return on equity for 9M21 of 11.7% compared to a 2.4% in 9M20.
• Net interest income totalled ISK 25.4bn in 9M21, a growth of 1.1% YoY which is explained by larger lending volumes and despite a low interest rate environment.
• Net fee and commission income increased by 20.1% between years. The growth is evenly distributed between income types, demonstrating a strong underlying income foundation. Net fee and commission income totalled ISK 9.2bn for the first nine months of the year.
• Net financial income was ISK 1.9bn compared to a loss of ISK 2.2bn for 9M20 as markets have been considerably more benign in 2021 compared to 2020
• Administrative expenses rose between years, mostly explained by a one-off cost in relation to the Bank’s IPO (ISK 663m in 1H21) and salary increase due to collective salary increase and redundancy costs following layoffs.
• Cost-to-income ratio dropped significantly YoY from 55.3% in 9M20 to 46.6% in 9M21.
• Net impairment on financial assets was positive of ISK 2.4bn in the first nine months of 2021, mainly due to brighter outlook for the tourism industry, compared to a charge of ISK 7.0bn in 9M20 which reflected the economic situation at the start of the COVID-19 pandemic. The net impairment charge over loans to customers, the annualised cost of risk, was -0.30% in 9M21 compared to 0.98% in 9M20.