Interim financial statements

Announcement no. 19/2018

A strong start to 2018

- Net profit guidance raised

             
Highlights of BankNordik's interim report for the first quarter of 2018:

(The Group’s adjusted income statement figures have been retrospectively adjusted in accordance with the methodology announced in the Financial Review section of the 2017 Annual Report.)

Q1 2018 vs. Q1 2017

• BankNordik reported operating profit of DKK 77m for Q1 2018, an increase of DKK 30m compared to Q1 2017 (+66%).
  • Net interest income was down by DKK 4m year-on-year due to tighter interest margins and the controlled run-off of corporate lending in Denmark.
  • Fee and commission income was down by DKK 7m, offset by a near proportional increase in other operating income, which relates to the restructuring of asset management activity (MiFID II).
  • Net insurance income was up by DKK 3m in Q1 2018, due to growth in premium income.
  • Other operating income amounted to DKK 12m compared to DKK 5m in the same period of last year.

• Operating costs were down by DKK 1m to DKK 115m, consistent with the efforts to curb expenditure growth.

• • BankNordik reversed DKK 31m in net impairment charges in Q1 2018.
• Profit before tax was DKK 148m in Q1 2018 compared to DKK 57m in Q1 2017
  • Non-recurring items amounted to an income of DKK 76m in Q1 2018 owing to the sale and leaseback of the Group’s head office and a revaluation gain on BI Holding A/S
  • Value adjustments amounted to a loss of DKK 6m in Q1 2018 compared to a gain of DKK 11m in Q1 2017.
• Lending volumes were up by DKK 448m from DKK 9,159m at 31 March 2017 to DKK 9,607m at 31 March 2018
• Deposits increased by DKK 404m from DKK 12,679m at 31 March 2017 to DKK 13,083m at 31 March 2018.

“BankNordik had a strong first quarter of 2018 financially, as we continued to reverse impairment charges and recognised a substantial gain on the sale and leaseback of our head office property. Customer engagement remains robust and lending volumes are up, although our net interest income remains challenged by the persistent margin pressure.” said BankNordik CEO, Árni Ellefsen.

“The quality of our customer relationships was strengthened during the quarter and we remain dedicated to further improving the overall customer experience, in particular regards to the Danish market. In April, we launched a new website as part of the announced process that BankNordik has undertaken to redesign the entire digital user interface by integrating all applications into one single platform. Moreover, we are working hard on completing the planned action steps to further enhance operational efficiency by gradually streamlining processes and automating tasks,” said Mr Ellefsen.

Q1 2018 vs. Q4 2017

• Operating profit fell to DKK 77m in Q1 2018 from DKK 103m in Q4 2017.
  • Net interest income was down by DKK 1m in Q1 2018 compared to Q4 2017, due to the continued pressure on interest margins.
  • Fee and commission income was down by DKK 3m compared to Q4 2017, mainly owing to less income from asset management activity.
  • Net insurance income was DKK 12m in Q1 2018, flat compared to Q4 2017.
  • Other operating income amounted to DKK 12m compared to DKK 8m in the previous quarter.
  • Operating costs were up DKK 3m in Q1 2018 compared to the previous quarter.
  • Net impairment charges were a DKK 31m reversal in Q1 2018 compared to a reversal of DKK 51m in Q4 2017.
• BankNordik recorded profit before tax of DKK 148m in Q1 2018 compared to profit of DKK 92m in Q4 2017.
  • Non-recurring items amounted to an income of DKK 76m in Q1 2018 owing to the sale and leaseback of the Group’s head office and a revaluation gain on BI Holding A/S
  • Value adjustments amounted to a loss of DKK 6m in Q1 2018 compared to a loss of DKK 10m in Q4 2017.

Sale and leaseback of head office property
In March 2018, BankNordik announced that it had entered into an agreement with P/F Varðin for the sale and leaseback of its head office property in Tórshavn. The property was sold for DKK 140m and leased back for 15 years, with the option to extend the term for an additional period of five years. The transaction triggered a pre-tax gain of DKK 70m, of which DKK 60m was recognised in the first quarter of 2018. The initial annual rent wil be approximately DKK 5m, the equivalent of a 3.75% yield, and the rent will increase by 1% annually.

Capital ratios

The Group’s CET1 capital ratio fell by 0.8 percentage points quarter-on-quarter to stand at 16,7% at 31 March 2018. The total capital ratio decreased to 18.9% at 31 March 2018 from 19.7% at 31 December 2017.

The decrease in capital ratios was partly attributable to the new IFRS 9 accounting policies, which have triggered an impairment charge recognised directly in the Group’s equity in the net amount of DKK 53m, and partly due to changes in accounting guidelines for which BankNordik has chosen not to recognise net income within a given year in the capital and solvency statement until the annual report is released in audited form.

Outlook

(The below guidance figures are provided in accordance with the announced changes to the adjusted income statement methodology)
Management reconfirms the FY2018 guidance of profit before impairment charges, non-recurring items, value adjustments and tax in the range of DKK 160-200m in 2018 (2017: DKK 187m).
However, the Group is raising its FY2018 net profit guidance upwards from DKK 165-215m as previously guided to DKK 175-225m (2017: DKK 189m).
This guidance is generally subject to uncertainty and will depend on economic conditions, loan impairments and market value adjustments.

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. Founded in the Faroe Islands more than a century ago, the Group has total assets of DKK 16.3bn and 387 employees. The Bank is subject to the supervision of the Danish Financial Supervisory Authority and is listed on 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.

Attachments

• IR-Presentation_Q1-2018
• Interim Report_Q1-2018