Arion banki hf.

Good morning all and welcome to our third quarter results, presentation of our third quarter results. It's very pleasing to present these results for the third quarter, as this is one of our best quarters in recent years, with a 17% ROE for the quarter. And if you look at it on a normalized basis, with our set 17% target capital ratio, the ROE is actually higher, or 21.8%. We continue to show growth, strong growth in core income in the quarter, 7.5% now in the third quarter, and that is underpinned by a strong performance on the fee income side, which is the best fee income that we've had since 2016. of 3.8 billion, and that is contributed by most fee income lines. There's only the card and payment solutions that is flat year on year. But for example, in asset management and corporate finance and capital markets, we are seeing fees more than 60% higher than last year. We've seen for the first time in quite some time a substantial loan growth in the quarter, and we say that it reflects the economic recovery in Iceland, and we saw our loan book grow by 53 billion in the quarter, or 6.3%. And what is different from previous quarters is that this loan growth is now hand in hand between corporates and individuals. The capital ratio of the bank continues to be quite strong and Despite a 26 billion capital release already done this year, and we will end the year with at least 36 billion, we're still grossly overcapitalized with more than 50 billion of capital, if you include the buyback program that we are now launching and the retained earnings for dividends of next year. And if you add the 11 billion that we expect to receive from the sale of Valetor, which is subject to regulatory approval, it's clear to us that we need to revisit our capital release plans if we stand to obtain the 17% SET1 target. And that might involve further capital release and changes to our financial targets. Now if we look briefly at the economy, you can see that most economic indicators are strongly demonstrating a sharp recovery in the economy, like is reflected in the loan growth. And unemployment rate has come down considerably since it peaked during COVID times. And this is also demonstrated by the fact that Central Bank has already raised interest rates or policy rates three times this year. And if you do an outlook review, the terms of trade are very favorable for Iceland. The outlook for our main export industries are good. And recent announcements of, for example, the Kaepernick quota for next year are very promising. So the outlook for the Icelandic economy is good at this point in time. Now in this quarter we did some changes to our organizational structure and also announced a further kind of integration of our subsidiary Vörður with our operations. And we say here that we have now created a customer-centric organization by the introduction of a new division, Customer Experience, which was created during the quarter. And we added a new managing director to the executive committee. This division is designed to enhance our comprehensive sales and services channels with a special focus on digital services. and plays a crucial role in developing the partnership between Arjon and Vörður, creating integrated financial services which can be accessed through diverse and modern service channels. And we have identified substantial bank assurance opportunities, which form a sort of key pillar of our strategy for the coming years. In this quarter, we made a substantial effort on the funding side with an inaugural euro covered bond issuance. This is the first euro-denominated covered bond issuance of an Icelandic bank. and marks a new way for us to finance our markets portfolio. I think it's worth mentioning that Nordic banks tend to fund a relatively high portion of their markets through these means. There are banks, compatible banks that fund up to 60% of their markets in the Eurobond, covered bond market. And we think this will be a new norm for funding markets in Iceland, but obviously reliant on the functioning of the FX market. And what was particularly pleasing, obviously, with these bond issuance was that our funding spreads were extremely favorable compared to where we've been funding previously. And actually, the best funding spread that an Icelandic entity, including the Ministry of Finance or Treasury of Iceland, has achieved in the international markets over the last 13 years. In the quarter, we released an updated equality and human rights policy with clear objectives, well-defined KPIs. And what we're particularly proud of is the initiative that the board approved earlier this year to support, where we are effectively topping up the parental leave fund payments to make sure that our employees, irrespective of their monthly salary, stand to receive 80% of their salary for the duration of six months during parental leave. What we witnessed here is that men generally exercise their rights to parental leave less than women. And the aim here is obviously to increase the number of men exercising the right. And then we hope that in the long term, it will contribute to pay equality and gender equality at management level and in other areas of the bank. And finally, before I hand over to my colleague, Oliver Høskulsson, the CFO, I want to remind you of our Capital Markets Day. It's our second Capital Markets Day since we listed, which will be held on November 17th here in our headquarters, webcasted live, and will be sort of... held during the morning session, starting at 9 a.m., and we plan to finish before noon. And I remind you, if you're interested in joining, to sign up online. And with that, I'm going to hand over to my colleague, Oliver Høskundsson.

first of all thank you benedict and it's of course a great pleasure to present my first results as cfo of the bank and i'll hopefully see most of you in person on the capital markets day in november especially so of course presenting another very robust quarter for the bank And we're seeing, as Benedikt mentioned, our core operations trending very positively, and the outlook being, again, positive. We're meeting all our operational targets. And other items as well this quarter were favorable, with financial income and reversal of impairments positive, reflective of the positive economic outlook. Return on equity, again, 17% for the quarter, 15.2% for the nine months. And as Benedikt mentioned, assuming our 17% common equity target, that results in 21.8% for the quarter and 19.5% for the year. capital position again remains very strong although it's very pleasing to see that we're making milestones in the optimization effort and especially so in this this quarter of course being driven by our buyback program successfully executed this year so just moving to the to the income statement Net earnings for the quarter, 8.2 billion, 22.1 billion for the nine months, 2021. As Bennett did mention, core income, healthy growth there, 7.5%, which is a clear positive. I will go into more of the core items in the following pages. But as I mentioned earlier, there were a few more irregular items that were positive this quarter. So I'll highlight those here. It's effectively twofold. Firstly, of course, given the economic outlook becoming more positive, we're reversing some of the impairments. So that's a 718 million number in the net impairments line. Secondly, we are making some milestones in sale of non-core assets that's been on the books for a while for the bank. And you can see those milestones being reflected in the other operating income, which is a development plot held by our subsidiary Lante. And as well as in this continued operation line, which reflects a milestone in the sale of one of our travel agencies within Solbjerg subsidiary. So just moving to the more core items. In terms of net interest income, the NIM slightly dropped slightly this quarter, 2.7% from 2.9% last quarter. We see this as defensively strong. We're operating in a very low interest rate environment still. This quarter, we had two funding issues in euros, so we were pre-funding upcoming maturity, so we're effectively overly funded this quarter. We're also seeing over the past year, of course, a significant shift in our loan book, with mortgages becoming a bigger part of our total loan book, as well as within the mortgage pool, CPI-linked mortgages becoming much less. And that's reflected in the net interest income bridge, where, of course, the inflation effect versus last year is the big difference. I think with the outlook, we see the outlook as being positive. Our economists are expecting a relatively sharp increase in policy rates, and that should support our NIM going forward. As Bennett did mention, net fees and commissions, really a very strong quarter there, historically strong. In fact, we need to go very far back to see total commissions reaching this number. Effectively, we've seen, you know, it's not a one-off. We've seen for the past six quarters, we've seen this rise steadily, which is a great positive. Also, if we look at the last nine months versus last year, in fact, basically all our fee sources are increasing, all our main fee sources are increasing year on year, which is a clear positive as well. We see this as reflective of our new strategy, of course. And again, the diversity in our business is reflected in this quarter. Of course, the driver of the fee business over the past few quarters has been the CIB business, and it continues to be so. And we see a very strong pipeline there. But as you can see, there was a slight reduction in that quarter seasonality. But then on the other side, we saw a very strong quarter in asset management this quarter. So a key highlight. In terms of the insurance business, strong, solid growth year on year, 9.4%. And the insurance operations of that business, as defined in the combined ratio, remain strong, reflective of the strong life business within that insurance company. So an 85.5% combined ratio in the quarter and 91.7% over the year. In terms of financial income, again, a very strong quarter driven by our equity holdings. Important to note that, mentioning Vörður earlier, roughly half of the financial income this quarter came from Vörður through their equity holdings mostly. Of course, Vörður, our insurance company, part of the core operations of an insurance company is investing their funds So us having an insurance company and that being a growth area for us, this line will, by definition, be bigger than for some of our competitors in the banking space which do not have an insurance company. Operating expenses, of course, in terms of cost income, very strong, reflective of the income side of the business being very robust. Also on the operating expenses side, I think we're You know, defensively strong, it's relatively flat year on year if we sort of take out one-off items in the salaries, namely around redundancy payments this quarter. So, and I think we're seeing, as you can see in the other operating expenses, there's a good trend in some of those key items in IT expenses, for example, and housing costs. And we see further improvements in the housing cost line as the further insurance team, as Benedict mentioned, will be relocated to this office later this year. In terms of the balance sheet, so we saw 11% growth in the balance sheet this quarter. I'll go into more of the details on the following pages. But just quickly on the funding, liquidity side continues to be very strong. The LCR ratio is 221%. and 152% in terms of Icelandic kronos. So in terms of loans to customers, as Benedikt mentioned, this quarter we saw continued growth in the mortgage side, which has been a trend over the past year and a half, roughly. So the mortgage business has grown by 22.6% year on year. The difference now this quarter is that we actually saw an increase on the corporate side as well, which is, as Benedikt mentioned, a reflection of our economic outlook and the fact that we're seeing appealing lending opportunities in the corporate space again. And so, but effectively just on the mortgages again, you know, the portion of mortgages in our total loan portfolio has gone from around 40% at the end of 2019 to just under 50% this quarter. Diversity continues to be very strong within the loan book. Deposits again, strong story. 14.2% growth in our core deposits year on year. And that's, of course, just looking at the loans to deposit ratio, has supported our overall funding mix. At the end of 2019, our loans to deposits was 160%. That's come down to 140%. And if we exclude the mortgages business, which are funded by covered bonds, the ratio has come down from 130 to 107% over the period. Again, strengthening our overall funding mix and making the business more robust going forward. In terms of borrowings, of course, we had a lot of activity this quarter. We had a 300 million euro senior green bond in July. And then, of course, as Benedikt mentioned, our inaugural euro covered in September, 300 million again. Those were partly to repay upcoming maturities. We have a 200 million euro senior maturing in December and another Norwegian krona, 750 million in early next year. So as you can see on the maturity profile, when we repaid those, we effectively have no near-term upcoming maturities outside of Icelandic krona cover bonds and a very healthy overall maturity profile going forward. In terms of capital, Bennett covered this, of course, to some extent. We saw a common equity tier one ratio coming down from 22.7% to 20.9% during the quarter. Of course, we see this as a positive milestone on our way to optimizing the capital structure. Again, we've paid out 25.5 billion over the year in dividends and buybacks. And, of course, have an approval now for 10 billion additional buybacks, of which 5 billion we're launching today. And the leverage ratio, of course, continues to be very healthy in terms of European context, reflective of our standardized risk weighting methodology. So just tying this together, very robust operational trajectory, very strong quarter, of course. The growth in our feed business, especially, are positive and reflective of the strategic direction. We see the improving economic climate further supporting our outlook and should support, as Benedikt mentioned, higher profitable loan growth in the medium term. strong deposit inflow and broadening of our funding options through our inaugural Euro cover bond further strengthens our funding profile and again giving our capital position while it has been optimized it has some way to go to reach our 70 percent target so we remain committed to that target and the 10 billion buyback which I mentioned is a key part of that going forward. And then finally, as Bennett mentioned, we have very exciting strategic projects ongoing, which again, we see as further supporting our outlook going forward. So on that, I again hope to see most of you on our Capital Markets Day on the 17th. I will now hand over for Q&A and hand over to the moderator.

Thank you. If you would like to ask a question, please press 01 on your telephone keypad. If you need to withdraw your question, you may do so by pressing 02 to cancel. There will now be a brief pause while questions are being registered. We have a question from Maria Semekatova from Citigroup. Please go ahead. Your line is open.