Islandsbanki hf.: Consolidated Unaudited Interim Financial Statements 9M18

First 9 months 2018 (9M18) financial highlights

• Profit after tax was ISK 9.2bn (9M17: ISK 10.1bn) generating an 7.1% annualised return on equity (9M17: 7.7%).
• Earnings from regular operations were ISK 9.0bn (9M17: ISK 10.2bn) with 9.0% annualised return on equity from regular operations normalised for 16% CET1 (9M17: 9.7%).
• Net interest income was ISK 23.6bn (9M17: ISK 22.7bn), an increase of 4.3% between years and the net interest margin was 2.9% (9M17: 2.9%).
• Net fee and commission income was ISK 8.7bn (9M17: ISK 10.1bn), down by 13.5% from the same time last year mostly due to lower activity levels from two of the Bank’s fee-generating subsidiaries.
• Net impairment on financial assets generated a gain of ISK 1.9bn in 9M18, compared to ISK 0.6bn gain in 9M17.
• Administrative costs grew by approximately 4.5% between years and totalled ISK 20.2bn (9M17: ISK 19.3bn), mainly due to increases in negotiated salary agreements and costs related to new core banking system.
• The cost to income ratio for the group by end September was 65.6% compared to 60.3% for same period in 2017, while the same ratio for parent company and Íslandssjóðir was 57.4% and slightly above the Bank‘s 55% long term target.  
• Loans to customers grew by 10.6% (ISK 80.4bn) to a total of ISK 836bn at the end of September. Total new lending amounted to ISK 175.6bn, split across lending divisions.
• Deposits from customers grew by 7.3% (ISK 41.6bn) to ISK 609bn at the end of September.
• The Bank’s liquidity position is strong in both Icelandic kroners and foreign currency. Capital ratios continue to be elevated and exceed all internal and external requirements.

Third quarter 2018 (3Q18) financial highlights

• Profit after tax was ISK 2.1bn, comparable to 3Q17, generating an 4.9% annualised return on equity (3Q17: 4.7%).
• Earnings from regular operations were ISK 2.9bn, (3Q17: ISK 2.8bn) and annualised return on equity for regular operations normalised for 16% CET1 was 8.1% (3Q17: 7.9%).
• Net interest income amounted to ISK 8.3bn (3Q17: ISK 7.5bn) with 3.0% net interest margin (2Q17: 2.8%).
• Net fee and commission income was ISK 2.9bn (3Q17: ISK 3.3bn).

Birna Einarsdóttir, CEO of Íslandsbanki

Íslandsbanki made a net profit of ISK 9.2 billion in the first nine months of the year and an annualised ROE of 7.1% (9.0% for regular operations). Fees and commissions rose by 6.1% for the parent company and its core subsidiary Íslandssjóðir, while the combined cost-to-income ratio for the two was slightly above the Bank‘s long term target of 55%. Lower activity levels for the Bank’s two other subsidiaries did however reduce overall fees and commissions for the Group by 13.5% as well as raising its cost-to-income ratio up to 65.6%.

Lending growth continued to be strong in the third quarter with a 10.6% increase (ISK 80bn) during the year‘s first nine months, with the Bank‘s loan portfolio comparing well with its international peers. The Bank‘s liquidity position is strong, both in the domestic ISK and foreign currencies and funding has been successful during the year with the Bank issuing its second subordinated bond at the end of summer. In addition, the Financial Supervisory Authority lowered the Íslandsbanki‘s capital requirement from 19.8% to 18.8% which reflects the Bank‘s lower risk profile.

The FX market in Iceland has been very active this autumn and the Bank‘s FX trading desk has posted back to back record months. Íslandssjóðir obtained its highest market share in the Icelandic investment fund market and the real estate company, FAST-1, managed by Íslandssjóðir, was recently sold yielding a good investor return.

Íslandsbanki recently launched its new core system for payments and deposits and has been investing in new technologies which will prepare it for the new banking environment. The Bank has recently been introducing new digital solutions, including a safe online live chat service for its customers, the first of its kind in Iceland and which has proven to be successful in international markets. Next week, the Bank will start offering its customers the opportunity to use their mobile phones to pay for goods and services.

We are confident that the Bank‘s investments in technological and digital platforms along with its personal service, will contribute to sustaining the Bank’s vision of be a leading financial service provider in Iceland.

First 9 months 2018 (9M18) operational highlights

• Íslandsbanki introduced a new core payments and deposit system in September which was one of the largest IT projects ever to be carried out in Iceland and which will prepare the Bank for a new banking environment.
• The Bank announced a new solution that will allow users to pay for goods and services at all point-of-sale terminals using their mobile phone which will be launched next week bringing a new level of convenience to the Bank‘s customers.
• A new online chat service has recently been activated on Íslandsbanki´s website, which is the first of its kind in Iceland. Such functionality has proven to be quite popular internationally. 
• Customers can now change their account overdrafts through the Íslandsbanki app. This has been an instant success as more than half of overdraft applications are now received through the app and around 11,000 overdrafts have been automatically approved.
• Íslandssjóðir‘s covered bonds funds have reached a size of ISK 10 billion and they are by far the largest funds of their kind on the market.
• The FX market in Iceland has been very active this autumn and the Bank‘s FX trading desk has posted back to back record months
• Several reports were issued by the Bank on topic such as SMEs, the Icelandic residential property market as well as a new economic forecast. The Bank also organised several meetings for its customers about topics such as finances at retirement, mortgage options for customers (index vs. non-index loans) etc.
• Over ISK 155 million was raised for charities in relation to the Íslandsbanki sponsored Reykjavik Marathon which took place on 18 August 2018. About 14,000 runners took part with a record number of runners being set for the 3k and 10k runs. 

INVESTOR RELATIONS

Investor call in English at 9.30 am (GMT)

Today, 8 November, the Bank will host an investor call in English to present the financial results at 9.30 am (GMT). The call will start with a short macro update on the Icelandic economy, followed by a review of the financial results and Q&A. Please register by replying to: ir@islandsbanki.is. Dial-in details and presentation will be sent out prior to the call.

Additional investor material

All presentation material will subsequently be available and archived on the Bank’s investor relations website where other information on the Bank‘s financial calendar and silent periods is also available: https://www.islandsbanki.is/english/investor-relations/   

For further information:

• Investor Relations – Gunnar S. Magnússon, gunnarsm@islandsbanki.is, tel +354 440 4665.
• Media Relations – Edda Hermannsdottir, edda.hermannsdottir@islandsbanki.is and tel: +354 440 4005.

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^{About Íslandsbanki
A leader in financial services in Iceland, Íslandsbanki is a universal bank with total assets of ISK 1,036bn and a 25% - 50% market share across all domestic business segments. Building on over 140 years of servicing key industries, Íslandsbanki has developed specific expertise in tourism, seafood and energy related industries. Driven by the vision to be #1 for service, Íslandsbanki’s relationship banking business model is propelled by three business divisions that manage and build relationships with the Bank´s customers. Íslandsbanki has developed a wide range of online services such as the Íslandsbanki, Kreditkort and Kass apps, enabling customers to do their banking whenever and wherever. At the same time, the Bank continues to operate the most efficient branch network in Iceland through its strategically located 14 branches. For the fifth consecutive year, Íslandsbanki led the Icelandic Customer Satisfactory Index for banks in 2017 and was also named Bank of the Year in Iceland by the Banker. Íslandsbanki has a BBB+/A-2 rating from S&P Global Ratings and BBB/F3 from Fitch Ratings and is the only bank in Iceland rated by two international rating agencies. www.islandsbanki.is}  

^{Disclaimer
This press release may contain “forward-looking statements,” involving uncertainty and risks that could cause actual results to differ materially from results expressed or implied by the statements. Íslandsbanki hf. undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this press release. It is the investor's responsibility to not place undue reliance on these forward-looking statements which only reflect the date of this press release. Forward-looking statements should not be considered as guarantees or predictions of future events and all forward-looking statements are qualified in their entirety by this cautionary statement.} 

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