Operating profit on track despite continuous pressure on interest margin

Highlights of BankNordik's interim report for the first nine months of 2015:

(Figures below are adjusted for discontinued activities related to Vørður, unless otherwise indicated)

Nine month performance in line with expectations

• BankNordik reported operating profit of DKK 157m for the nine months to 30 September 2015, an increase of DKK 41m compared to the first nine months of 2014.
  • Impairment charges were DKK 47m less than in the same period of last year.
  • Interest income was down DKK 17m, primarily due to further pressure on interest margins.
  • Fee and commission income was DKK 29m higher, mainly due to an increase in investment management activity and mortgage broking services.
  • Net insurance income was down DKK 3m.
  • Operating costs were DKK 14m higher, partially due to one-off IT costs. FTE count is 39 lower than at 30 September 2014.
• BankNordik generated profit before tax, including discontinued activities from Vørður, of DKK 115m for the 9M 2015 period compared to DKK 134m for the same period of 2014.
  • Non-recurring items amounted to DKK 25m compared to DKK 1m for the same period last year due to payments in lieu of notice related to recent organisational adjustments.
  • Value adjustments amounted to a DKK 36m loss in comparison to an income of DKK 15m in 9M 2014.

“It was an eventful third quarter, which met our profit expectations. The Bank’s strategy has been adjusted, a sales process involving the Danish corporate banking division has been initiated, and the Bank has entered info a conditional salesagreement regarding the insurance company Vørður. Furthermore we also had considerable activity in our core business. Operating income stayed flat on a year-to-year basis despite the challenging low-interest rate environment, while operating profit was well ahead of 2014 levels mainly due to reversed impairment charges for the second straight quarter, mirroring the strong credit quality of our loan portfolio” said newly appointed BankNordik CEO, Árni Ellefsen.             

“Upon completion, the recently announced sales processes involving Vørður and the Danish corporate banking division are expected to increase capital ratios beyond the bank’s capital ratio targets, allowing for an extraordinary dividend payment to shareholders in due course,” said Mr. Ellefsen.

Fee and commission income back to normal levels in Q3 2015 after surge in mortgage refinancing income in Q2 2015 

• BankNordik reported operating profit of DKK 60m in Q3 2015, DKK 14m less than in Q2 2015.
  • BankNordik reversed DKK 7m in impairment charges versus DKK 5m for the previous quarter.
  • Interest income was DKK 6m lower than in Q2 2015, mostly due to less interest income from the investment portfolio.
  • Fee and commission income was DKK 15m lower than in Q2 2015, owing to mortgage broking services pulling back to normalised levels.
  • Net insurance income for Q3 was DKK 10m, flat vs. previous quarter.
  • Operating costs were DKK 6m lower than in Q2 due to one-off items in Q2.
• BankNordik generated profit before tax, including discontinued activities from Vørður, of DKK 42m in Q3 compared to DKK 12m in Q2.
  • Non-recurring items were DKK 11m in Q3 compared to DKK 14m in Q2
  • Value adjustments amounted to a DKK 20m loss in Q3 compared to a DKK 50m loss in Q2.

Sale of Vørður

In October, BankNordik entered into a conditional agreement to sell 51% of insurance company Vørður to Arion Bank. The remaining 49% is covered by a put and call option agreement enabling BankNordik to sell the stake to Arion Bank in 2017. The combined agreed price for all shares is EUR 37.7m. The deal is, however, subject to the approval of the relevant Icelandic authorities.

Outlook for 2015

Management narrows FY 2015 guidance on profit before impairment charges, non-recurring items, value adjustments and tax from DKK 200-240m to DKK 200-220m, reflecting the discontinuation of business activities related to insurance company Vørður. For the first nine months of 2015, this item was DKK 166m.

At the start of the year, management expected a drop in loan impairment charges relative to last year's net figure of DKK 85m. For the first nine months of 2015 the bank has recognised net impairment charges of DKK 9m. As a result, FY 2015 impairment charges are now expected to fall substantially relative to last year’s charges.

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

CRD IV implemented

BankNordik had a total capital ratio of 15.6% at 30 September 2015, leaving a margin of 6.7 percentage points to the Bank’s capital requirement of 8.9%.

As of 30 September 2015, the new capital adequacy rules (CRD IV) have been implemented and, in comparison to Basel II guidelines, the CET1 capital ratio dropped by 0.1 percentage point. Applying the new capital adequacy rules, the Bank had a CET1 ratio of 12.7% at 30 September 2015.

The Bank’s capital adequacy target is a CET1 capital ratio of 13% and a total capital ratio of 16.5% by 2019. With a CET1 ratio of 12.7% at 30 September 2015, the Bank is well on its way to meeting the CET1 capital ratio target for 2019.

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 170,000 customers, total assets of DKK 17bn and 476 employees. The Bank is subject to the supervision of the Danish Financial Supervisory Authority and is listed on Nasdaq Copenhagen. www.banknordik.dk.

Appendix: 9M 2015 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.