Landsbankinn hf.: Financial results of Landsbankinn in H1

Landsbankinn's profit in the second quarter of 2020 was ISK 341 million.
After-tax performance was negative by ISK 3.3 bn during the first half of 2020.
Landsbankinn allocated ISK 13.4 bn to the impairment fund in the first half of the year.
Operating costs decreased between years.
Landsbankinn has never granted as many loans to households as in the first part of the year 2020, and has significantly increased its market share with regard to residential mortgages.
Deposits grew by ISK 51 bn from the beginning of the year, representing a 7.2% increase.
Landsbankinn is in a strong position with regard to its equity and liquidity, well above regulatory limits.

Landsbankinn's after-tax performance was negative by ISK 3.3 billion during the first half of 2020, compared with a profit of ISK 11.1 billion during the same period in 2019. Loan impairment amounted to ISK 13.4 billion during the period, equal to about 1.1% of the bank‘s loan portfolio, compared with an impairment of ISK 2.4 billion in the same period last year. Return on equity (ROE) for the period was -2.7% on an annualised basis, compared with 9.1% during the same period of 2019.

In the first half of the year, net interest income amounted to ISK 18.9 billion, compared with ISK 20.5 billion in the same period of 2019, which is a decrease of 7% between periods. Net commission income amounted to ISK 3.6 billion, decreasing by 13% from the same period the previous year.

Loan impairment was negative by ISK 13.4 billion during the first half of the year, compared with ISK 2.4 billion during the same period in 2019. Assessment of expected credit losses (ECL) at the end of the first half of 2020 is based on the most recent economic forecast from Landsbankinn’s Economic Research Department. The effects of the updated economic forecast explains the ISK 6.6 billion increase in expected credit losses during the first half of the year, and Landsbankinn Economic Research now considers it likely that there will be a 8.7% downswing in domestic production and 9.1% unemployment in the year 2020. Expected credit loss from loans in risk levels 1 and 2, i.e. loans that are not credit impaired, has increased significantly since the beginning of the year, by about ISK 9.6 billion. The expected credit loss plan is based among other things on a comprehensive assessment of the effects from COVID-19 on the Bank's loan portfolio, which was performed in the second quarter, and customers who account for 16% of the Bank's loans have availed themselves of the option to temporarily defer payments and interest.

The Bank’s net interest margin for the first half of 2020 was 2.1%, while for the same period of 2019 it was 2.4%.

The Bank's operating costs decreased by ISK 1.1 billion between periods and amounted to ISK 13.2 billion in the first half of the year 2020, compared with ISK 14.3 billion for the same period in 2019, which is a decrease of 8%. Of this, wage expenses amounted to ISK 7.6 billion, compared with ISK 7.4 billion for the same period last year. Other operating expenses were ISK 4.6 billion, compared with ISK 4.9 billion for the same period last year.

In H1 2020, the cost-income ratio was 54.1%, whereas for the same period in 2019 this was 40.4%.

Lending to private customers and companies increased by 5.1% since the beginning of the year, or by just over ISK 58 bn, whereof about ISK 30 bn were due to exchange rate changes. Landsbankinn has never granted as many loans to households as in the first part of the year 2020. In total, 3,963 individuals and families obtained residential mortgages from the Bank in the first half of the year, to the amount of ISK 36 billion. Deposits with Landsbankinn grew by ISK 51 billion from the beginning of the year, representing a 7.2% increase.

As of 30 June this year, Landsbankinn's equity was ISK 244.4 billion and its capital ratio was 24.9%.

Lilja Björk Einarsdóttir, CEO of Landsbankinn:

"The assessed credit loss that is entered as a contribution to the impairment fund is at center stage in the Bank's settlement for the first half of the year, and in accordance with the deteriorating economic outlook. The Bank's strong economic position constitutes a good resource in the uncertain times that loom ahead, even though profitability in this year is significantly lower than the Bank's long-term objectives.

In addition, the Bank's performance in the first half of the year was good, which is reflected among other things in the high market share, the great increase in residential mortgages, more customer satisfaction and international recognition.

Landsbankinn has endeavored to offer competitive interest rates and simple procedures with regard to residential mortgages. This policy has resulted in great demand for new residential mortgages, as well as refinancing of older loans, and many new customers have joined the ranks of the Bank's satisfied clients. The Bank's residential mortgage market share has increased substantially, and in July this year the number of residential mortgages granted has yet again surpassed the previous record and has never been higher. Surveys indicate great satisfaction with the Bank's services, and it is clear that the well-designed digital presentation of products and services has been met with approval from customers.

In the second quarter, as in the first, the Bank allocated significant amounts to the impairment fund in order to respond to possible setbacks due to the pandemic. The economic outlook worsened considerably between end of March and end of June, which had an effect on the managers' assessments and actions taken to address expected credit loss. The Bank's forecast regarding economic growth was lowered significantly, i.e. from an economic growth of 2% to a downswing of 8.7%. It is likely that there will be more unemployment and we now assume that the unemployment level will be 9.1% instead of 4%. Following assessment from the Bank's managers the Bank now allocates ISK 8.2 billion to the impairment fund in addition to the ISK 5.2 impairment during the first quarter. This impairment is five to sixfold that which may be expected under normal conditions, and reflects the high level of uncertainty regarding the effects of the pandemic.

The Bank's operations yielded a profit in the second quarter, operations resulted in a positive rate of return, and the cost-income ratio was only 42.7%.

Landsbankinn is run in a reliable manner and, as the largest bank in the country, it is important that it is able to provide support for the economy, individuals and families. As ever, we do our utmost to provide excellent service, to realistically assess the altered economic situation and prepare for the continued uncertain times."

Landsbankinn will be hosting an investor call in English covering the main results of H1 2020 on Friday, 31 July, at 10 am local time. Please register participation by emailing ir@landsbankinn.is.

For further information contact:

Rúnar Pálmason, Public Relations, pr@landsbankinn.is, tel: +354 410 6263

Hanna Kristín Thoroddsen, Investor Relations, ir@landsbankinn.is, tel: +354 410 7310

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Landsbankinn hf.: Financial results of Landsbankinn in H1 of 2020

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