Financial Results for the First Half of 2021 and a new Earnings Estimate

Thursday 26. ágúst 2021

At a Board meeting on 26 August 2021, the Board of Directors and the CEO approved the interim results of the Kvika banki hf. group for the period 1 January 2021 to 30 June 2021.

Highlights of H1 2021 Interim Financial Statements

  • Pre-tax profit amounted to ISK 4,626 million (ISK 6,144 million including the profit of TM hf. and Lykill fjármögnun hf. in Q1)
  • Pre-tax return on weighted tangible equity was 36.4%
  • Earnings per share for the period were ISK 1.48
  • Total assets were ISK 245 billion
  • The group’s equity amounted to ISK 74 billion
  • The solvency ratio of the financial conglomerate was 1.48 and its capital adequacy ratio (CAR) was 30.8% at the end of the period
  • Overall group liquidity coverage ratio (LCR) was 204%
  • Total assets under management were ISK 509 billion
  • At the end of June, full-time employees numbered 322

A presentation meeting for shareholders and market participants will be held at 4:00 pm on Thursday, 26 August in the bank's headquarters on the 9th floor at Katrínartún 2, 105 Reykjavík. The meeting will also be streamed on the website: https://www.kvika.is/fjarfestaupplysingar/fjarfestakynning-26-agust-2021/

Attached is the investors’ presentation.

Very Good Performance of All Divisions

The pre-tax profit of the Kvika banki hf. group in the first 6M of 2021 amounted to ISK 4,626 billion. As the merger of Kvika banki hf., TM hf. and Lykill fjármögnun hf. took place at the end of March, the operations of TM hf. and Lykill fjármögnun hf. are not included in the consolidated income statement for the first three months of the year. The pre-tax profit of TM hf. and Lykill fjármögnun hf. in the first quarter amounted to ISK 1,518 million, making the combined pre-tax profit of Kvika banki hf., TM hf. and Lykill fjármögnun hf. ISK 6,144 million for the first half.

The return on weighted tangible equity before taxes was 36.4% for the period.

Net interest income of Kvika banki hf. amounted to ISK 1,775 million, increasing by 105% compared with the same period in 2020, with the increase in interest income primarily resulting from the altered composition of the loan portfolio and liquid assets, together with favourable trend of funding costs, especially in Q2. Net impairment amounted to positive ISK 104 million during the period, compared with negative net impairment of around ISK 209 million during the first half of last year. Net financial income amounted to ISK 2,558 million, as returns were good on most of the asset markets where the group is active. Fees and commissions continued to grow, with net fee and commission income amounting to ISK 3,514 million, an increase of 17% from the same period during 2020.

Historically Low Combined Ratio of TM and Good Return on Financial Assets

The combined ratio of TM was 80.8% in Q2, compared with 88.7% for the same period in 2020. The insurance company's investment income amounted to ISK 1,142 million in Q2, making the return on the asset portfolio 3.6% during the period.

Balance Sheet Grows Due to Merger

The total assets of the Kvika banki hf. group increased by 98% or ISK 121 billion during the first half of 2021 and amounted to ISK 245 billion. Customer loans grew by ISK 39 billion, with the increase largely due to the merger. The share of loans to individuals grew from 19% to 41% of all lending by the end of H1. Balances with banks and the Central Bank of Iceland, together with government-guaranteed securities, amounted to ISK 58 billion and total liquid assets were ISK 87 billion, increasing by ISK 11 billion during the 6M period. The group's total liquidity coverage ratio (LCR), excluding insurance operations, amounted to 204% at the end of the June 2021, which was well above the 100% minimum requirement.

The group’ equity increased with the merger of Kvika banki hf., TM hf. and Lykill fjármögnun hf., amounting to ISK 74 billion on 30 June 2021, compared to ISK 19 billion at the end of 2020. The solvency ratio of the financial conglomerate (Kvika banki hf. and subsidiaries, including TM tryggingar hf.) was 1.48 at the end of the period and the group's risk-weighted capital adequacy ratio (CAR), excluding the effect of TM tryggingar hf., amounted to 30.8%, while the regulatory minimum capital requirement is 20.6%.

New Earnings Estimate

The new earnings forecast for Kvika banki hf. for the year 2021 anticipates a pre-tax profit of ISK 4.0-5.0 billion in the latter half of the year 2021. The updated guidance expects a pre-tax profit for the full year between ISK 8.6 and 9.6 billion (between ISK 10.1 and 11.1 billion including the profit of TM hf and Lykill fjármögnun hf. in Q1).

Marinó Örn Tryggvason, CEO of Kvika banki hf.:

The success of the merger of Kvika banki hf., TM hf. and Lykill fjármögnun hf. has exceeded expectations, as can be seen in the group's first post-merger results. We are well on the way to achieving the financial and operational goals set when the companies merged.

The merged company benefits from the financial strength arising from the many strong pillars of its core business. This gives the company the capacity to provide a wide range of financial services for the future. All business segments delivered a good performance and the results of the insurance operations of TM during the first half of the year are the best in the company's history.

In the coming months we will increase our competitive efforts and seek to simplify financial services for existing and new customers with innovations in our product range and services. There are definitely exciting times ahead.

I would like to take this opportunity to thank the staff especially for their positive perspective and diligence in integrating the companies in recent months and I look forward greatly to continue working with this fine team.