At a Board meeting on 27 May 2021, the Board of Directors and the CEO approved the quarterly results of the Kvika banki hf. group for the period 1 January 2021 to 31 March 2021.
Highlights of results for the first three months of 2021
The combined pre-tax profit of Kvika banki hf., TM hf. and Lykill fjármögnun hf. amounted to ISK 2,520 million. The profit of Kvika banki hf. amounted to ISK 1,002 million and the combined profit of TM hf. and Lykill fjármögnun hf. was ISK 1,518 million.
Before-tax return on weighted tangible equity was 26.7%.
Earnings per share were 0.40 kr. for the period
Total assets were ISK 260 billion.
The group’s equity amounted to ISK 70 billion.
The solvency ratio of the financial conglomerate was 1.33 and its capital adequacy ratio (CAR) was 29.3% at the end of the period.
Overall group liquidity coverage ratio (LCR) was 208%.
Total assets under management were ISK 546 billion.
Following the merger the total number of full-time equivalent positions is 319.
A presentation meeting for shareholders and market participants will be held at 4:00 pm on Thursday, 27 May. The meeting will be held electronically, using the URL https://www.kvika.is/fjarfestaupplysingar/fjarfestakynning-27-mai-2021/
Attached is the investors’ presentation.
Good performance of all divisions
The combined pre-tax profit of Kvika banki hf., TM hf. and Lykill fjármögnun hf. amounted to ISK 2,520 million. As the merger was effected at the end of March, the operations of TM hf. and Lykill fjármögnun hf. are not part of the group's quarterly results. The companies’ profit for the quarter, which amounted to ISK 1,518 million before tax, is part of the companies’ equity which merges with the statement of financial position of Kvika banki hf., and as a result is part of the group’s statement of financial position at the end of the quarter. The pre-tax profit of the Kvika banki hf. group amounted to ISK 1,002 million and return on weighted tangible equity was 26.7%.
Net interest income of Kvika banki hf. amounted to ISK 634 million, increasing by 31% 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 the favourable trend in financing costs. As defaults by the bank's clients were low, net impairment amounted to only ISK 11 million, with the impact of the COVID-19 pandemic already apparent for the most part. Net financial income amounted to ISK 373 million, as returns were good on most of the asset markets where the bank is active. Fee and commission income remained high, with net fee and commission income totalling ISK 1,684 million.
Return on investment assets well exceeding expectations
The operations of TM hf. and Lykill fjármögnun hf. were very successful during the quarter and the companies' net income amounted to ISK 2,973 million. Operating expenses decreased by 6% from the previous quarter. Investment income amounted to ISK 1,663 million during the period and the return on their asset portfolio was 5.6% during the period. The combined ratio of insurance operations was 102.5%, which was in line with expectations, despite major damage claims during the period.
Major changes in the statement of financial position following the merger
The total assets of the Kvika banki hf. group increased by 111% or ISK 136 billion during the quarter and amounted to ISK 260 billion. Loans to customers increased by ISK 39 billion and the proportion of lending to individuals rose from 19% to 40% of total lending. Balances with banks and the Central Bank, together with government-guaranteed securities, amounted to ISK 79 billion and total liquid assets were ISK 107 billion, increasing by ISK 31 billion during the quarter. The group's total liquidity coverage ratio (LCR), excluding insurance operations, amounted to 208% at the end of the quarter, which was well above the 100% minimum requirement.
The group’s equity increased significantly with the merger of Kvika banki, TM hf. and Lykill fjármögnun hf. and amounted to ISK 70 billion at the end of the quarter. The solvency ratio of the financial conglomerate (Kvika banki hf. and TM Tryggingar hf.) was 1.33 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 29.3%, while the regulator's minimum capital requirement is 20.6%.
Earnings forecast and anticipated synergies
Kvika intends to publish an updated earnings forecast along with its 6-month results for 2021. The earnings forecast will, among other things, take into account the group's updated strategy, which should be finalised this summer.
Actions to achieve those synergies which have been anticipated as a result of the merger of the companies are proceeding well and greater insight into the success of the synergy process will be provided when results are published.
Kvika's Board of Directors agrees to begin share buy-backs
The Board of Directors of Kvika banki hf. today authorised a buy-back programme for the bank's own shares. The authorisation provides for the repurchase of up to 117,000,000 shares, or around 2.5% of issued share capital, subject to approval by the Financial Supervisory Authority of the Central Bank of Iceland. Later this year it will be decided if the remaining part of the buy-back authorisation from the general meeting 2021 will be utilized.
Marinó Örn Tryggvason, CEO of Kvika:
It is particularly gratifying to see how successful the group's operations have been this past quarter. The merger of the bank with TM hf. and Lykill fjármögnun hf. during the quarter is probably the largest merger of listed companies ever in Iceland.
The group is financially strong, with efficient operations resting on a number of pillars. There are major opportunities to increase the company's market share. It is unusual for a financially strong company to have a limited market share in most of the segments where it offers services, and this presents a variety of opportunities for growth. Work is underway on expanding services offered to individuals and I expect the company's customers will experience increased competition in the future.
Achieving cost-effectiveness targets following the merger has been highly successful, and will likely be mainly reflected in more favourable funding. The bank has never obtained more advantageous funding terms than in its last bond offering.
As the group employs over 300 people, despite its success in merging the companies pandemic restrictions have made this work demanding. I look forward to the day when the entire employee group can meet. The fact is that the merger would never have been as successful as it has without the co-ordinated efforts of all employees, and I am sincerely grateful for their contribution.