18. August 2022

Financial Results for the First Six Months of 2022 and Earnings Outlook for the Next Four Quarters

At a board meeting on 18 August 2022, the Board of Directors and the CEO approved the interim financial statements of Kvika banki hf. (“Kvika”) for the period 1 January to 30 June 2022. 

Highlights of 6M 2022 Interim Financial Statements

  • Pre-tax profit amounted to ISK 2,167 million 
  • Pre-tax return on weighted tangible equity was 10.0%
  • Earnings per share for the period were ISK 0.35
  • Total assets amounted to ISK 287 billion
  • The group’s equity amounted to ISK 79 billion
  • The solvency ratio of the financial conglomerate was 1.28 and its capital adequacy ratio (CAR) for operations excluding insurance was 24.4% at the end of the period
  • Liquidity coverage ratio (LCR) was 229%
  • Assets under management were ISK 457 billion

A meeting for shareholders and market participants was held at 16:15 on Thursday, 18 August in Kvika’s headquarters on the 9th floor at Katrínartún 2, 105 Reykjavík where the financial results were presented by Kvika’s management.

Attached is the investor presentation. Additionally, a recording with English subtitles will be made available on Kvika’s website.

Results Excluding Net Financial Income in Line with Published Outlook

Kvika’s pre-tax profit for the first six months of 2022 amounted to ISK 2,167 million. The return on weighted tangible equity before taxes was 10.0% for the period.

Net interest income amounted to ISK 3,426 million, increasing by 93% compared to the same period in the prior year. The increase in net interest income is primarily driven by the increased size and altered composition of the loan portfolio after the merger with Lykill fjármögnun and the acquisition of Ortus Secured Finance, and altered composition of liquid assets together with a favourable development in funding costs. Net impairments amounted to ISK 96 million during the period, compared to positive ISK 104 million in the first six months of 2021. Net financial income amounted to a loss of ISK 91 million during challenging circumstances in asset markets. Net fee and commission income amounted to ISK 3,219 million, a decrease of 8.4% from the year before. Operating expenses amounted to ISK 6,410 million for the first six months of the year, in line with expectations. 

Higher Combined Ratio of TM and Negative Return on Financial Assets

The combined ratio of TM was 99.9% during the first half of 2022, compared with 91.5% for the same period in the prior year. TM's investment income amounted to a loss of ISK 361 million during the first six months, making the return on the asset portfolio -1.0% over the period compared to 9.3% return in the first half of 2021.

Strong Balance Sheet and Liquidity Position

Total assets increased by 16% or ISK 41 billion during the first half of 2022 and amounted to ISK 287 billion at the end of June. Loans to customers grew by ISK 26 billion over the period and amounted to 98 billion at the end of the June. The increase is mostly attributable to the acquisition of Ortus Secured Finance Ltd. Balances with banks and the Central Bank of Iceland, together with government-guaranteed securities, amounted to ISK 74 billion and total liquid assets were ISK 108 billion, increasing by ISK 8 billion over the period. The group’s total liquidity coverage ratio (LCR) amounted to 229% at the end of the second quarter, well above the 100% minimum requirement.

The group’s total equity amounted to ISK 79 billion at the end of the period, compared to ISK 78 billion at the end of 2021. The solvency ratio of the financial conglomerate was 1.28 at the end of the first half and the group's risk-weighted capital adequacy ratio (CAR), excluding the effect of TM, amounted to 24.4%, while the capital requirement including capital buffers set by regulators is 20.6%. 

Share Buy-back Programme Initiated in May 2022 

During the period 19 May to 12 August Kvika bought 92,100,000 own shares, which corresponds to about 1.9% of issued shares in the company, for around ISK 1.8 billion. The purchase of own shares according to the buy-back programme, which was approved by Kvika’s board on 17 May 2022, will amount to a maximum of ISK 3 billion. 

Updated Earnings Outlook

Kvika’s earnings outlook for the next four quarters assumes a pre-tax profit of ISK 9.8 billion which equates to 23.4% return on weighted tangible equity. Further assumptions can be found in the attached investor presentation. 

Marinó Örn Tryggvason, CEO of Kvika:

The first half of the year has been eventful, both for Kvika and its subsidiaries, financial markets and the world as a whole. In times like these it is good to see decisions to diversify operational risk come to fruition, as Kvika delivered positive results in the second quarter of 2022 despite very difficult market circumstances, which significantly affected net financial income. Further, core operations continue to strengthen and, apart from net financial income, results were in-line with published outlook.

Exciting projects are ahead, in May it was announced that Kvika intended to create a subsidiary for payment facilitation following an acquisition of merchant agreements, which will create significant market share for the subsidiary. Also, at the beginning of the year Kvika acquired a majority share in Ortus, which specialises in property backed bridge financing in the UK, as operations in the UK are be expected to slowly have an increased effect on consolidated returns. Further, another large step was taken in May when Kvika was assigned its first credit rating by international ratings agency Moody’s which opens new possibilities in regard to funding and enables Kvika to continue to be successful by creating increased competition with other financial institutions. An example is the Auður deposit platform which I was especially happy to see grow by over 50% since year-start.

We are optimistic about the second half of the year and excited to encounter the opportunities and challenges ahead. Alongside the financial results, Kvika issues an updated earnings outlook for the next 12 months, per the methodology initiated at the beginning of the year, which expects further growth in Kvika’s earnings.”