Føroya Banki : Investor Presentation of Interim Report Q1 2024

Satisfactory Q1

financial results

Turið F. Arge, CEO

2 May 2024

"We delivered a generally positive performance for the first three months of 2024. In addition to the favourable interest rate environment and the return on our own portfolio, the satisfactory performance was based on a sound balance between income and costs.

Despite the positive trends, the first quarter was also marked by an

increase in impairment charges compared to recent years. As previously

announced, impairment charges are expected to return to a more

normalised level in 2024 than what we have witnessed in recent years."

Turið F. Arge, CEO

Overview

• Føroya Banki at a glance
• Highlights
• Financials
• • Operating income
  • Insurance
  • Expenditures
  • Impairment charges
  • Capital ratios
• The Faroese and Greenlandic economy
• ESG reporting
• Appendices

Føroya Banki at a glance

• Full-servicebanking institution with headquarters in the Faroe Islands:

• 1. 5 branches in the Faroe Islands
  1. 1 branch in Greenland
• Føroya Banki operates three subsidiaries in the Faroe Islands:
• 1. Trygd (non-life insurance)

• 1. NordikLív (life insurance) o Skyn (real estate broker)
• The Group has a total of approximately 200 full-time employees.
• While maintaining a leading position in the Faroe Islands, Føroya Banki is a challenger in Greenland. Furthermore, the Group sees a growth potential in the Faroese insurance market.

Presence in the North Atlantic region

Faroe Islands

Loans: 7,433m

Deposits: 7,775m

Market Share: ~40%

Greenland

Loans: 1,482m

Deposits: 1,155m

Market Share: ~20%

Group figures

Loans: 8,915m

Deposits: 8,930m

Net interest and fee income 2023: 437m

Premiums 2023: 185m

Satisfactory results

• Core operating income improved. The positive performance was driven especially by a strong interest rate environment and an increase in loans and deposits.
• • The high level of interest rates has peaked. Interest rates are expected to fall during 2024.
• Solid return on the investment portfolio.
• Better balance between income and costs.
• Impairment charges set to increase in 2024
• • Impairment charges expected to return to a more normalised level in 2024.
  • Impairment charges were higher than expected in Q1 2024.
  • The increase does not imply that our customers are facing challenges, and they continue to display credit robustness.
• Outlook 2024: Net profit expected at DKK 225-255m, corresponding to a ROE of 12%-14%.

Profit & Loss

DKKm		Q1 2024	Q4 2023	Index
Net interest income		92	100	93
Net fee and commission income		19	17	111
Net insurance income		12	12	98
Other operating income		11	4	289
Operating income		135	133	101
Operating costs		-64	-65	99
Profit before impairment charges		70	68	104
Net impairment charges on loans		-23	-5	447
Operating profit		47	62	76
Non-recurring items		0	0
Investment portfolio earnings		23	46	49
Profit before tax		70	109	64
Tax		15	20	74
Net profit		55	89	62
Key Metrics
DKKbn	Target	Q1 2024	Q4 2023	Index
Loans and advances		8.9	8.9	100
Deposits and other debt		8.9	8.7	103
Mortgage credit		2.6	2.6	101
Operating cost / income, %	< 53.0	48.0	49.2
CET1 capital ratio, %	20.0	25.0	25.8
RoE after tax (annualised)*, %	> 12.0	12.0	17.3

*Non-recurring items are excluded in the annualisation

Financials

•

•

•

•

•

•

•

External funding more expensive Increase in lending and deposit volumes

Fee and commission income unchanged on a general level

Claims high due to storm season

Costs under pressure but remains a focus area Increase in impairment charges

Strong capital ratios with focus on optimisation

QoQ changes in net interest income

DKKbn		2.6
106		2.2	4.9
2.5
101	99.6				4.6
96						0.7	92.4
91
86
81
	Q4 2023 Lending	Lending	Deposit	Deposit	External Other	Q1 2024
	volume	interest	volume	interest	funding
YoY changes in net interest income
DKKbn
140			0.0
120		30.1	16.3
				8.5
					0.0	92.4
100	7.0

1. 77.7

0
Q1 2023 Lending	Lending	Deposit	Deposit	External Other	Q1 2024
volume	interest	volume	interest	funding

Loans and deposits								Loans		Deposits
DKKbn
9		8.4	8.4	8.5	8.7	8.4	8.8	8.6	8.9	8.7	8.9	8.9
8.1
8
7
6
5
4

3

Q4 2022

Q1 2023

Q2 2023

Q3 2023

Q4 2023

Q1 2024

Increase in funding costs effects interest income in Q1

• Net interest income down by DKK 7.2m QoQ and up DKK 14.7m YoY.
• The drop in interest income QoQ was due to an increase in interest expenses for external funding. This Q1 2024 interim report shows the full effect of the higher interest expenses related to new funding raised.
• Interest margin declined QoQ as customers are increasingly opting for deposit accounts offering higher interest.
• Increase in net interest income YoY driven by higher interest rates and an increase in total lending volume compared to Q1 2023.
• Lending volumes up by DKK 33m QoQ and by DKK 561m YoY.
• Deposits up by DKK 221m QoQ and by DKK 406m YoY.

Fee and commission income unchanged on a general level

1. Fee and commission income up by DKK 1.9m QoQ and down by DKK 1.9m YoY.

1. On a general level the fees have not changed. The variation across quarters are due to deviation in periodisation.

1. The decrease in fee and commission income compared to Q1 2023 was primarily due to fall in guarantee commissions, as certain large guarantees were converted to loans in 2023.

1. Mortgage-brokingservices up by DKK 22m QoQ and down by DKK 13m YoY.
2. • An increase in interest rates has led many customers to convert their mortgages to bank loans, affecting the performance.

QoQ changes in fee and commission income

DKKm
20
									0.8	19.4
19			1.3	0.3		0.1
18		17.5
17
16
		Q4 2023	Investment	Loan,		Mortgage	Other fee and	Q1 2024
			and trading	guarantee,	broking	comm.
			comm.	insurance	services	income
				comm.
YoY changes in fee and commission income
DKKm
22		21.3	0.6
21				1.1
21
20						0.1			0.4
20										19.4
19
19
18
		Q1 2023	Investment	Loan,		Mortgage	Other fee and	Q1 2024
			and trading	guarantee,	broking	comm.
			comm.	insurance	services	income
				comm.
Mortgage-broking services
DKKm
3		2.6	2.6	2.6		2.6		2.6	2.6
2
1
0
	Q4 2022	Q1 2023	Q2 2023	Q3 2023	Q4 2023	Q1 2024

Premiums and claims

Claims higher due to storm

DKKm
45
40
35	39.0
30
25	31.4
20
15
10
5
0
	Q1 2024

Premium income, net

Claims, net

34.1	32.0	39.0	41.8
		31.4	30.1
Q1 2023	Q1 2024	Q4 2023

season

• Combined ratio of 100% in Q1 2024 compared to 113% Q1
	2023.
•	Claims were high in Q1 2024 due to a storm in February.
•	Net premium income down by DKK 2.8m QoQ and up by DKK
	4.9m YoY.

Profit before tax

DKKm

4	3.2		7.0
3
2		3.2
1
0
-1		Q1 2024	Q4 2023
-2
-3		-2.8
-4
	Q1 2024	Q1 2023

• Net claims up by DKK 1.4m QoQ and down by DKK 0.5m YoY.

Costs remain a focus area

1. Operating costs up by DKK 0.8m QoQ and down by DKK 0.8m YoY.
2. • Increase in marketing expenses mainly attributable to costs related to the Bank's name change in Q1 2024.

1. End-of-periodFTE of 209 an increase of 6 FTE compared to Q1 2023.

1. Operating costs under pressure because of an increase in costs. Focus retained on keeping costs low.

QoQ changes in operating costs

DKKm

66				1.4	0.0	1.6
66		0.3	1.0
65	65.0
65							64.2
64
64
63
	Q4 2023	Staff	IT	Marketing	Education	Other	Q1 2024
						expenses

YoY changes in operating costs

DKKm

65		0.5	64.2
64	1.2	0.2

0.2 0.9

1. 63.3

62

Q1 2023	Staff	IT	Marketing Education	Other	Q1 2024
				expenses