Solid operating profit in Q1 2016

Highlights of BankNordik's interim report for the first quarter of 2016:

(The figures below have been adjusted for discontinued activities related to Vørður, unless otherwise indicated)

Good underlying performance in BankNordik’s core activities

• BankNordik reported operating profit of DKK 50m for the first quarter of 2016, an increase of DKK 27m compared to the first quarter of 2015 (+116%).
  • Net interest income was down DKK 7m year-on-year due to pressure on interest margins, the controlled run-off of corporate loans in Denmark and less income from the investment portfolio.
  • Fee and commission income was DKK 10m lower, due to overall low customer activity in Q1 2016 compared to relatively high activity in Q1 2015.
  • Net insurance income was up DKK 8m in Q1 2016 due to lower claims.
  • Operating costs were down DKK 10m from DKK 127m, which is consistent with the progress made in refocusing the Group’s core activities. FTE count is 27 less than at 31 March 2015.
  • BankNordik reversed DKK 1m in impairment charges compared to net impairment charges of DKK 20m for the same period last year.
• BankNordik generated profit before tax, including discontinued activities from Vørður, of DKK 25m in the first quarter of 2016 compared to DKK 61m for the same period of 2015.
• Non-recurring items in Q1 2016 amounted to DKK 12m versus zero in Q1 2015 due to payments in lieu of notice related to recent organisational adjustments.
• Value adjustments amounted to a DKK 3m loss in comparison to an income of DKK 34m in Q1 2015.

“The winding up of the corporate activities in Denmark is progressing as planned. The corporate loan book in Denmark was reduced by close to DKK 520m in the first quarter of 2016, and by July 2016 we expect to have wound up around two-thirds of our Danish corporate loans by book value. Net interest income was only marginally affected by the winding up since most of the progress took place in the month of March,” commented BankNordik CEO Árni Ellefsen.

“We are pleased to report profit before impairment charges in line with our performance in previous quarters, while maintaining impairments on loans at a minimum. In addition to the adjustments made to our business operations in Denmark, our focus in the first quarter was to implement the announced initiatives. Accordingly, the branch network has now been consolidated in Jutland and reduced from from six to four branches. At the same time, the process of centralising branch support in the Faroe Islands is well underway and expected to be completed in the first half of 2016,” said Mr Ellefsen.

Quarter-on-quarter performance holding up well

• Operating profit in Q1 2016 up by DKK 14m compared to Q4 2015.
  • Net interest income was up DKK 2m in Q1 2016 compared to Q4 2015, partially due to decreased deposit rates. Most of the run-off of corporate loans took place during March and therefore has not yet taken full effect.
  • Fee and commission income was down DKK 7m compared to Q4 2015 due to overall low customer activity in the period and seasonal variations.
  • Net insurance income was flat compared to Q4 2015.
  • Operating costs were down DKK 5m from DKK 122m.
  • Loan impairment charges fell DKK 12m from DKK 11m in Q4 2015.
• BankNordik recorded a profit before tax, including discontinued activities from Vørður, of DKK 25m in Q1 2016 compared to a loss of DKK 447m in Q4 2015.
• No goodwill impairments were made in Q1 2016 compared to extraordinary impairments of DKK 468m in Q4 2015.
• Non-recurring items were DKK 12m in Q1 2016 compared to DKK 29m in Q4 2015.
• Value adjustments amounted to a DKK 3m loss in Q1 2016 compared to a DKK 4m loss in Q4 2015.

Update on the sale of Vørður

Following an indication from the Icelandic central bank, Arion Banki and BankNordik have agreed to amend the conditioned SPA for the shares in Vørður. The transaction will be settled in ISK rather than EUR, and the sale will not be split-up but will involve 100% of the shares in Vørður Group immediately.

The purchase price for 100% of BankNordik’s shares in the Vørður Group is ISK 5.3 billion, which is expected to produce a capital gain of approximately DKK 60 million. In addition to the purchase price, BankNordik is expected to receive a part of the 2015 earnings from the Vørður Group.

As previously announced, BankNordik’s Board of Directors intends for the Bank to pay an amount corresponding to the increase in the Bank’s core equity resulting from the sale as dividend to the shareholders. Following completion of the sale of all shares in Vørður, the Bank still expects such increase to amount to not less than DKK 100 million.

BankNordik aims to complete the transaction, which is still subject to the approval of the relevant Icelandic authorities, in the first half of 2016.

Long-term financial objectives

In addition to the current capital ratio objectives, the Group has decided to target a return on equity of 10% and a cost/income ratio of 62% by 2020.

“These objectives reflect how confident we are that we can improve the operational efficiency of the BankNordik Group and our commitment to supporting long-term moderate growth for the purpose of delivering attractive and stable returns to our shareholders. The series of initiatives in our pipeline, which lay the groundwork for the objectives, are aimed at simplifying the structure of the Bank and further strengthening its position within relationship banking,” said Mr Ellefsen. 

The objectives are based on currently known regulatory requirements.

Restructuring of subordinated debt

BankNordik has now initiated a process to explore the possibility of raising DKK 200-250m in new CRD IV compliant Tier 2 capital in conjunction with the planned repayment of BankNordik’s current outstanding Tier 1 and Tier 2 capital during 2016. BankNordik has engaged ABG Sundal Collier as its financial advisers to explore the possibilities.

Capital ratios and extraordinary dividends

As of 31 March 2016, BankNordik had a total capital ratio of 17.2%, leaving a margin of 8.4 percentage points to the Bank’s capital requirement of 8.8%. The long-term total capital ratio target of 16.5% has thus been met.

The CET1 capital ratio was 14.4% at 31 March 2016 as compared to the Bank’s target of 13%.

The previously announced extraordinary dividends of approximately DKK 300m are contingent upon the regulatory approval and final completion of the sale of Vørður, as well as the winding up of the Danish corporate banking activities.

Outlook for 2016

Management reconfirms the FY2016 guidance of profit before impairment charges, non-recurring items, value adjustments and tax in the range of DKK 150-190m (Q1 2016: DKK 49m).

Impairment charges on loans for 2016 are expected to be in line with the level of 2015 (DKK 20m). For the first quarter of 2016, net impairment charges were a reversal of DKK 1m.

This guidance is generally subject to uncertainty and will depend on economic conditions, including possible central bank monetary policy measures.

For additional information, please contact:

Árni Ellefsen, CEO, tel. (+298) 230 348

BankNordik has banking activities in Denmark, Greenland and the Faroe Islands and insurance activities in the Faroe Islands and Iceland. Founded in the Faroe Islands more than a century ago, the Group has total assets of DKK 16.2bn and 477 employees. The Bank is subject to the supervision of the Danish Financial Supervisory Authority and has a dual listing on Nasdaq Iceland and Nasdaq Copenhagen.

Appendix: Financial highlights and comparative figures are provided below.

Financial highlights

* Excluding non-recurring items and value adjustments.

Further details are available in the interim report.