Kvika banki hf.: Financial Results for the First Nine Months of 2022 and Earnings Outlook for the Next Four Quarters

At a board meeting on 10 November 2022, the Board of Directors and the CEO approved the interim consolidated financial statements of Kvika banki hf. (“Kvika”) for the period 1 January to 30 September 2022.

Highlights of 9M 2022 Interim Consolidated Financial Statements

• Pre-tax profit amounted to ISK 4,007 million
• Pre-tax return on weighted tangible equity was 12.3%
• Earnings per share for the period were ISK 0.66
• Total assets amounted to ISK 298 billion
• The group’s equity amounted to ISK 79 billion
• The solvency ratio of the financial conglomerate was 1.34 and its capital adequacy ratio (CAR) for operations excluding insurance was 23.5% at the end of the period
• Total liquidity coverage ratio (LCR) was 308%
• Assets under management were ISK 460 billion

A meeting for shareholders and market participants will this time be held at 08:30 on Friday, 11 November in Kvika’s headquarters on the 9th floor at Katrínartún 2, 105 Reykjavík. At the meeting, Marinó Tryggvason, CEO of Kvika, will present the company's results and the main developments in the past months. Then Gunnar Sigurðsson, Kvika's managing director in the UK, will give an update on the group’s lending activities in the UK, carried out by Ortus Secured Finance.

The presentation will be conducted in Icelandic and a live stream can be accessed on the following website:

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

Strong Core Operations

Kvika’s pre-tax profit amounted to ISK 4,007 million for the first nine months of 2022 and ISK 1,841 million for the third quarter. The return on weighted tangible equity before taxes was 12.3% for the first nine months and 17.7% for the third quarter.

Net interest income amounted to ISK 5,764 million, increasing by 97% 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, the acquisition of Ortus Secured Finance and altered composition of liquid assets. Net impairments amounted to ISK 171 million during the period, compared to positive ISK 160 million in the first nine months of 2021. Net financial income amounted to a loss of ISK 660 million during challenging circumstances in asset markets. Net fee and commission income amounted to ISK 4,905 million, a decrease of 4% from the same period in the prior year. Operating expenses amounted to ISK 9,492 million for the first nine months of the year, in line with expectations.

TM’s Favourable Combined Ratio but Challenging Conditions in Capital Markets



The combined ratio of TM was 95.8% during the nine months of 2022, compared with 89.1% for the same period in the prior year, and the combined ratio in Q3 2022 amounted to 88.3%. TM's investment income amounted to a loss of ISK 546 million during the first nine months, making the return on the asset portfolio -1.6% over the period compared to 13.4% return in the nine months of 2021. TM's investment income in Q3 2022 amounted to a loss of ISK 185 million making the return on the asset portfolio -0.5% compared to 3.6% in Q3 2021.

Strong Balance Sheet and Liquidity Position

Total assets increased by 21% or ISK 51 billion during the first nine months of 2022 and amounted to ISK 298 billion at the end of September. Loans to customers grew by ISK 32 billion over the period and amounted to 104 billion at the end of the September. The increase is partly attributable to the acquisition of Ortus Secured Finance Ltd. as well as organic growth. Balances with banks and the Central Bank of Iceland, together with government-guaranteed securities, amounted to ISK 78 billion and total liquid assets were ISK 106 billion, increasing by ISK 6 billion over the period. The group’s total liquidity coverage ratio (LCR) amounted to 308% at the end of the third 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 1.34 at the end of the period and the group's risk-weighted capital adequacy ratio (CAR), excluding the effect of TM, amounted to 23.5%. In October, Kvika was informed by the Financial Supervisory Authority of the Central Bank of Iceland (the FSA) of its draft decision, pending comments from Kvika, regarding capital requirements following a Supervisory Review and Evaluation Process (SREP). Kvika will not object to the draft decision regarding capital requirements which sets Kvika’s capital requirements, including capital buffers, as 17.7%.

Further Share Buy-back being Considered

At the Annual General Meeting of Kvika on 31 March 2022, shareholders authorised the board of directors to buy up to 10% of issued shares, equivalent to up to 481,730,531 shares based on the total share capital of that day.

On the basis of that approval, the board of directors of Kvika decided on 17 May 2022 to exercise a part of that authorisation and establish a buy-back programme to carry out a purchase of shares for a maximum amount of ISK 3,000,000,000. During the period 19 May to 22 September Kvika bought 147,871,265 own shares, which corresponds to about 3.0% of issued shares in the company, or around 30% of the amount approved by the AGM, for around ISK 3 billion. The board has not decided on further share buy-back but will in the near future consider opportunities for capital utilization, including buyback through the exercise of the remaining authorisation.

Updated Earnings Outlook

Kvika’s earnings outlook for the next four quarters assumes a pre-tax profit of ISK 9.1 billion which equates to 21.7% return on weighted tangible equity. Further assumptions can be found in the attached investor presentation.

Marinó Tryggvason, CEO of Kvika:

“I am proud of the financial results. The group is providing over 17% returns in the third quarter, attributable to its strong core operations. Like others, we have felt the effects of general uncertainty and difficult market conditions e.g. through our investment activities and under such circumstances I am especially happy to see the group's diverse income streams balance each other and business model we have worked hard to build delivering the desired results. The increased risk diversification of the group’s operations over the last few years is also reflected in a draft of updated capital requirements that we received in October, where Kvika's operations are assessed as having much less risk than in the last SREP process in 2019.

Alongside the financial results, Kvika issues an updated earnings outlook for the next four quarters, which we consider to be rather conservative, e.g. due to conditions in the markets and the world as a whole. Despite expecting slower growth in the UK, inflation effects on operating expenses and lower variable fee and commission income the earnings outlook reflects solid returns.

I believe that Kvika is in a unique position to seize opportunities and I look forward to seeing various exciting projects that are currently being prepared come to the market. However, it is important that we stay aware of developments in our external environment and adjust our growth plans accordingly."

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