Landsbankinn hf. - Financial Statement Release

Landsbankinn hf.: Financial Results January - September 2014

Landsbankinn reports an ISK 20 bn profit in the first 9M of 2014

In the first nine months of 2014, Landsbankinn's after-tax profit was ISK 20 bn
as compared with ISK 22 bn for the same period in 2013. This lower margin is
due mostly to higher taxes, up by 32% between years. Income taxes and special
financial activities tax amount to a total of ISK 8.7 bn for the first nine
months of 2014. 

The Bank's operating expenses remain unchanged between years, in real terms.

Significant progress has been made in reducing both corporate and household
debt and total defaults amounted to 3.3% at the end of September as compared
with 6.2% at the same time last year. This decrease in default has, amongst
other effects, resulted in positive valuation adjustments in lending. 

Steinthór Pálsson, CEO of Landsbankinn: "Landsbankinn's operations during the
first nine months of 2014 have been successful. A lower interest spread and
falling prices on securities markets contribute to lower profits but this is
offset by a value increase in lending, achieved in part through falling default
rates. There has been a marked growth in both deposits and lending, a sign of a
reviving economy. 

We have achieved some important milestones with regard to the Bank's financing,
both on domestic and international bond markets, with the result that Standard& Poor's has revised the Bank's outlook from stable to positive. Landsbankinn
listed a Euro Medium Term Note (EMTN) programme on the Irish stock exchange in
August. This will allow Landsbankinn to issue notes in the equivalent amount of
up to EUR 1 billion in various currencies and at fixed or floating rates. 

One of the largest challenges facing the Bank is linked to upcoming efforts to
ease capital controls and the entry into force of changes to the terms of the
secured bonds as agreed upon in May by Landsbankinn and LBI hf. It is the view
of Landsbankinn that the agreement between the Bank and LBI hf. furthers the
matters repeatedly pointed to by the Central Bank of Iceland as vital to the
effective lifting of capital controls for the benefit of the Icelandic economy
as a whole. 

In addition to extended maturity, the amendments to the terms of the secured
bonds negotiated in May will have more extensive consequences. Onerous
limitations on dividend payments will be abolished and collateral requirements
eased. 

As mentioned before, this agreement is conditional upon LBI hf. being granted
certain exemptions from the Foreign Exchange Act. The Bank aims to tap into the
EMTN programme next year for the purpose of fully discharging the debt owed to
LBI hf. by October 2018. Extending the duration of the LBI bonds, provided the
agreement enters into force, will make it easier for the Bank to achieve its
goal of offering more favourable terms."



Key figures from the profit and loss account and balance sheet

Operations:

  -- In the first nine months of 2014, Landsbankinn's net after-tax profit was
     ISK 20 bn as compared with ISK 22 bn for the same period in 2013.
  -- Income tax and special financial activities tax increase by ISK 2 bn as
     compared with the same period in 2013 and amount to ISK 8.7 bn.
  -- Return on equity (ROE) after taxes for the period was 11.4% as compared to
     a ROE of 12.9% for the same period of 2013.
  -- Net interest income in the first nine months of the year amounted to ISK
     22.3 bn but was ISK 24.3 bn for the same period in 2013.
  -- The ratio of interest spread to average capital position is falling, was
     2.6% in the first nine months of 2014 as compared to 2.9% for the same
     period in 2013.
  -- Net commission income amounted to ISK 4.2 bn, increasing slightly between
     periods.
  -- Operating expenses remain unchanged in real terms. General operating
     expenses decrease by 5% while wages and related expenses have risen by 7%
     as compared with the previous year; this increase is for the most part a
     result of contractual increases.
  -- The cost-income ratio for the first nine months of the year was 55.3%, up
     from 42.3% for the same period last year. The change is due for the most
     part to a lower interest spread. Cost as a ratio of total assets is 1.9%.
  -- Full-time equivalent positions at the end of September 2014 were 1,166 as
     compared with 1,183 at the end of 2013.



Balance sheet:

  -- The Bank's equity was ISK 241 bn at the end of September 2014, remaining
     virtually unchanged from the beginning of this year. Landsbankinn paid just
     under ISK 20 bn in dividends to its owners in the first quarter.
  -- The Bank's capital adequacy ratio (CAR) remains well above the requirements
     of the Financial Supervisory Authority (FME). It is currently 27.1%; was
     26.2% at the end of September 2013.
  -- Landsbankinn's total assets amounted to ISK 1,201 bn at the end of
     September 2014 which is an increase of just under ISK 50 bn from the
     beginning of the year.
  -- Customer deposits have increased by 9% since the beginning of the year, or
     by just under ISK 41 bn.
  -- Lending to customers in the first nine months of the year amount to ISK 116
     bn yet instalments and other factors contribute to a total increase in
     lending of ISK 39 bn during the period, or 6%.
  -- The Bank's liquidity position is strong, both in foreign currency and
     Icelandic króna. The Bank's liquidity ratio was 49% at the end of September
     2014 as compared with 50% at year-end 2013.
  -- The Bank's foreign balance is favourable and assets in foreign currencies
     amount to around ISK 21 bn in excess of foreign currency liabilities.
  -- Total defaults by companies and households were 3.3% at the end of
     September 2014, as compared with 6.2% at the same time in 2013.



Key aspects of operations in the first nine months of 2014

  -- International rating agency Standard & Poor's (S&P) issued
     Landsbankinn the rating grade BB+ with a stable outlook in January. In
     October, S&P's changed its outlook for the Bank from stable to positive
     and affirmed the Bank's long and short-term rating of ‘BB+/B'.
  -- Landsbankinn paid dividends to its owners in March in accordance with a
     motion approved by its AGM. Dividends amounted to 70% of last year's
     profit, or just under ISK 20 bn. The dividend payment led to a decrease in
     equity in Q1.
  -- A new organisational structure of Landsbankinn's branches in the capital
     region became effective in March. As a result, all branches in the region
     are now devoted to personal banking. All corporate services for small and
     medium-sized enterprises were transferred to a new Corporate Service Centre
     in Borgartún 33.
  -- In May, an agreement was signed to amend the terms of the secured bonds
     issued by Landsbankinn to LBI hf. in accordance with an agreement from
     December 2009. The maturity date of the bonds is thereby pushed from 2018
     to 2026, onerous limitations on dividend payments abolished and collateral
     coverage requirements reduced. This agreement is conditional upon LBI hf.
     being granted certain exemptions from the Foreign Exchange Act.
  -- In June, Landsbankinn sold its 9.9% share in FSÍ (Framtakssjóður Íslands)
     slhf. and its entire holding of 27.6% in IEI slhf. At year-end 2013, FSÍ
     was split into two entities, FSÍ slhf. and IEI slhf. The total sale value
     was just over ISK 7 bn.
  -- Landsbankinn listed a Euro Medium Term Note (EMTN) programme on the Irish
     stock exchange in August. This will allow Landsbankinn to issue notes in
     the equivalent amount of up to EUR 1 billion in various currencies and at
     fixed or floating rates.
  -- In September, Landsbankinn issued a new series of covered bonds, LBANK CB
     19. These bonds are non-indexed 5-year fixed rate notes. The issue amounts
     to ISK 960 bn. Earlier this year, the Bank tapped into its series of
     covered bonds, increasing the issue by ISK 1.5 bn.
  -- New housing loans have increased sharply or by 129% in the first nine
     months of the year as compared with the same period the previous year.
     Housing mortgages now account for just over 67% of the Bank's lending to
     individuals.
  -- Landsbankinn placed a great deal of emphasis on advertising the advantages
     of supplementary pension savings as a part of the government's debt
     adjustment plan. New pension savings agreements tripled during the first
     nine months of the year as compared with the same period in 2013.
  -- In July, the Banker, a magazine run by the Financial Times, published its
     assessment of the strength and performance of the world's one thousand most
     prominent banks. Landsbankinn ranked number 20 in financial strength on the
     global list and number 1 in Western Europe.
  -- Landsbankinn was one of four companies nominated for the Icelandic
     Employers' Education Award in 2014.
  -- Global Finance magazine named Landsbankinn the best bank in Iceland.
  -- International Finance magazine selected Landsbankinn as the best Icelandic
     bank and Landsbankinn's online banking the best Internet banking option.



For further information:

Kristjan Kristjansson,  Public Relations, pr@landsbankinn.is, tel: +354 410 4011

Kolbrun Gudlaugsdottir, Investor Relations, ir@landsbankinn.is , tel:  +354 
410 4014

Attachments:

Landsbankinn 9M 2014 Results Press Release.pdf

Landsbankinn 9M 2014 Results Presentation.pdf

Condensed Consolidated Interim Financial Statements 30.09.2014.pdf