Føroya Banki : Q1 Interim Report 2024

Føroya Banki	Interim Report Q1 2024
Contents
MANAGEMENT'S REPORT
• Financial highlights and ratios	3
• Financial review	4
-	Q1 2024 Highlights	4
-	Income statement	4
-	Balance sheet	5
-	Capital and Liquidity	6
- Compliance with the Danish FSA Supervisory Diamond …	6
- Events after the balance sheet date	6

• Guidance for 2024……………………………....................................................................... 6
• Adjusted results……………….…………………………………………………………………... 7

•	Segments	8
	-	Personal Banking	9
	-	Corporate Banking	10
	-	Insurance: Trygd	11
FINANCIAL STATEMENTS
•	Income statement	12
•	Balance sheet	14
•	Statement of capital	16
•	Capital and Solvency	18
•	Cash flow statement	19
• Notes to the financial statements	20
Statement by the Executive Board and the Board of Directors	.…..............................................27

CONTACT DETAILS …................................................................................................................. 28

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Føroya Banki						Interim Report Q1 2024
Financial highlights and ratios - Føroya Banki Group
Highlights	Q1	Q1	Index	Q1	Q4	Q3	Q2	Q1
DKK 1,000	2024	2023	23 / 22	2024	2023	2023	2023	2023
Net interest income	113,520	91,784	124	113,520	112,279	113,338	102,060	91,784
Dividends from shares and other investments	1	6,080	0	1	0	10	25	6,080
Net fee and commision income	21,496	22,303	96	21,496	22,168	16,826	20,383	22,303
Net interest and fee income	135,016	120,167	112	135,016	134,447	130,174	122,469	120,167
Net insurance result	9,418	929	1,014	9,418	6,321	23,738	14,937	929
Interest and fee income and income from insurance activities, net	144,434	121,096	119	144,434	140,768	153,912	137,406	121,096
Market value adjustments	6,972	1,576	443	6,972	31,721	13,949	7,369	1,576
Other operating income	2,388	1,350	177	2,388	4,407	1,495	2,042	1,350
Staff costs and administrative expenses	58,382	59,935	97	58,382	60,646	58,396	64,694	59,935
Impairment charges on loans and advances etc.	22,730	-8,400		22,730	5,086	460	-7,189	-8,400
Net profit	55,038	61,352	90	55,038	88,560	87,886	69,736	61,352
Loans and advances	8,915,364	8,354,190	107	8,915,364	8,882,855	8,790,393	8,655,308	8,354,190
Bonds at fair value	1,409,035	1,612,037	87	1,409,035	1,396,516	1,461,287	1,451,887	1,612,037
Intangible assets	5,347	2,195	244	5,347	1,702	1,780	1,987	2,195
Assets held for sale	0	19,000		0	0	19,000	19,000	19,000
Total assets	13,377,435	12,461,892	107	13,377,435	12,944,835	12,493,312	12,427,069	12,461,892
Amounts due to credit institutions and central banks	688,191	835,923	82	688,191	719,105	850,685	1,074,332	835,923
Issued bonds at amortised cost	982,496	564,813	174	982,496	986,134	561,264	556,176	564,813
Deposits and other debt	8,999,102	8,518,439	106	8,999,102	8,702,192	8,590,082	8,415,165	8,518,439
Total shareholders' equity	1,824,127	1,607,831	113	1,824,127	1,850,609	1,761,974	1,675,828	1,607,831
	March 31	March 31		March 31	Dec. 31	Sept. 30	June 30	March 31
Ratios and key figures	2024	2023		2024	2023	2023	2023	2023
Solvency
Ow n funds incl. MREL capital ratio, %	39.9	28.9		39.9	41.1	29.9	30.2	28.9
Ow n funds capital ratio, %	28.6	24.2		28.6	29.4	25.0	25.4	24.2
Tier 1 capital ratio, %	27.0	22.8		27.0	28.0	23.6	24.0	22.8
CET 1 capital	25.0	20.8		25.0	25.8	21.5	21.8	20.8
RWA, DKK mill	7,019	7,382		7,019	6,819	7,106	7,029	7,382
Profitability
Return on shareholders' equity after tax, %	3.0	3.6		3.0	4.9	5.1	4.2	3.6
Cost / income, %	54.4	43.7		54.4	39.7	37.9	42.0	43.7
Cost / income, % (excl. value adjustm. and impairments)	41.5	51.0		41.5	44.7	41.2	49.1	51.0
Return on assets	0.4	0.5		0.4	0.7	0.7	0.6	0.5
Market risk
Interest rate risk, %	0.8	1.4		0.8	0.8	1.0	1.5	1.4
Foreign exchange position, %	0.8	0.7		0.8	0.6	0.9	1.0	0.7
Foreign exchange risk, %	0.0	0.0		0.0	0.0	0.0	0.0	0.0
Liquidity
Liquidity Coverage Ratio (LCR), %	283.6	220.0		283.6	228.2	196.6	183.7	220.0
Net Stable Funding Ratio. (NSFR), %	156.3	144.8		156.3	151.8	142.6	141.0	144.8
Credit risk
Change in loans and advances, %	0.4	3.4		0.4	1.1	1.6	3.6	3.4
Gearing of loans and advances	4.9	5.1		4.9	4.8	4.9	5.1	5.1
Impairment and provisioning ratio, end of period, %	2.0	1.8		2.0	1.8	1.8	1.7	1.8
Write-off and provisioning ratio, %	0.2	-0.1		0.2	0.1	0.0	-0.1	-0.1
Share of amounts due on w hich interest rates
have been reduced, end of period, %	0.2	0.2		0.2	0.3	0.2	0.2	0.2
Shares
Earnings per share after tax (nom. DKK 20), DKK	5.7	6.4		5.7	9.3	9.2	7.3	6.4
Market price per share (nom. DKK 20), DKK	153.0	180.0		153.0	164.5	165.0	143.0	180.0
Book value per share (nom. DKK 20), DKK	190.5	169.9		190.5	193.3	186.0	177.0	169.9
Other
Number of full-time employees, end of period	209	203		209	207	207	203	203

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Føroya Banki

Interim Report Q1 2024

Financial Review

"We delivered a generally positive performance for the first three months of 2024. Our profit before tax of DKK 70m was largely in line with the figure for the first quarter of last year. 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. Our income improved slightly, driven by an increase in business activity (both deposits and lending improving), while costs were in line with the previous quarterly periods.

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. However, the impairment charges taken previously do not imply that our customers generally are facing challenges, and they continue to display credit robustness. Nor have the impairment charges affected our previous full-year guidance for net profit of DKK 225-255m," says CEO Turið F. Arge.

Q1 2024 Highlights

Adjusted Income statement, Group
DKKm				Q1 2024	Q4 2023	Index	Q3 2023	Q2 2023	Q1 2023	Q1 2024	Q1 2023		Index
Net interest income			92	100	93	96	86	78	92	78		119
Net fee and commission income	19	17	111	19	19	21	19	21		91
Net insurance income		12	12	98	24	19	5	12	5		246
Other operating income (less reclassification)	11	4	289	9	11	8	11	8		133
Operating income		135	133	101	148	135	112	135	112		120
Operating costs	1			-64	-65	99	-65	-64	-63	-64	-63		101
Sector costs				0	0	100	0	0	0	0	0		158
Profit before impairment charges	70	68	104	83	71	49	70	49		144
Impairment charges, net		-23	-5	447	0	7	8	-23	8	-	271
Operating profit			47	62	76	82	78	57	47	57		83
Non-recurring items	2		0	0		0	-6	-3	0	-3
Profit before investment portfolio earnings and tax	47	62	76	82	72	54	47	54		88
Investment portfolio earnings	3	23	46	49	26	15	22	23	22		104
Profit before tax			70	109	64	108	87	75	70	75		93
Operating cost/income, %		48	49		44	47	56	48	56
Number of FTE, end of period	209	207	101	207	203	203	209	203		103
1 Comprises staff costs, administrative expenses and amortisation, depreciation and impairment charges (less reclassification to non-recurring items).
2 Reclassified from Staff costs and administrative expenses.
3 Incl. net income from investments accounted for under the equity method (excl. sector shares).

Income statement

The following comments are generally stated relative to Q4 2023. Due to seasonal variations, comments provided on the insurance segment relate to Q1 2023.

Operating income

The Føroya Banki Group generated operating income of DKK 135m in Q1 2024, an increase of DKK 2m compared to Q4 2023, driven by quarter-on-quarter increases in net fee and commission income and other operating income that outweighed the slight decrease seen in net interest income.

Net interest income

Net interest income was DKK 92m in Q1 2024, a decrease of DKK 7m compared to Q4 2023 that was mainly due to higher funding costs.

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Føroya Banki

Interim Report Q1 2024

Net fee and commission income

Net fee and commission income amounted to DKK 19m in Q1 2024, DKK 2m higher than in Q4 2023. The income in Q1 2024 is higher due to fees that are charged in the beginning of the year.

Net insurance income

Net insurance income was DKK 12m in Q1 2024, DKK 7m more than in Q1 2023. Both in Q1 2023 and in Q1 2024, there have been severe storms in the Faroe Islands, but despite this storm in Q1, the result is positive.

Operating and sector costs

Operating costs amounted to DKK 64m in Q1 2024, DKK 1m less than in Q4 2023. The costs are under pressure due to price and salary growth, but the Bank has a continuous focus on maintaining the costs on a stable level.

Profit before impairment charges

Profit before impairment charges was DKK 70m in Q1 2024, an increase of DKK 3m compared to Q4 2023.

Impairment charges

Net impairments were DKK 23m in Q1 2024 compared to DKK 5m in Q4 2023. The increase in net impairments can be attributed to a few corporate clients in Greenland. In the Faroese part of the operations the impairments are reversed. The total increase is not a sign of general challenges with the client base that continues to show solid creditworthiness. The management provision of DKK 100m taken in relation to the ongoing economic uncertainty as well as uncertainty in relation to the Bank's impairment calculation and modelling did not change during the quarter. Management believes that the overall economic uncertainty remains a risk to the Bank's customers.

Operating profit

The resulting operating profit was DKK 47m in Q1 2024 compared to DKK 62m in Q4 2023.

Non-recurring items

Non-recurring items amounted to DKK 0m in Q1 2024, the same as in Q4 2023.

Investment portfolio earnings

Investment portfolio earnings amounted to DKK 23m in Q1 2024 compared to DKK 46m in Q4 2023.

Profit before tax

Profit before tax in Q1 2024 was DKK 70m, DKK 39m less than the pre-tax profit of DKK 109m reported for Q4 2023.

Balance sheet

Føroya Banki's total assets at 31 March 2024 amounted to DKK 13.4bn, up by DKK 0.4bn compared to 31 December 2023. Loans and advances were DKK 8.9bn, DKK 33m more than at 31 December 2023. Deposits were DKK 9.0bn, up by DKK 297m compared to 31 December 2023. Liquidity invested in Danish mortgage bonds and Danish government bonds amounted to DKK 1.4bn, an increase of DKK 13m compared to 31 December 2023. Liquidity invested in equities amounted to DKK 276m, a decrease of DKK 4m relative to 31

5

Føroya Banki

Interim Report Q1 2024

December 2023. Shareholders' equity at 31 March 2024 amounted to DKK 1,824m, down by DKK 26m compared to 31 December 2023 due to the payment of dividend in the amount of DKK 80m.

Capital and Liquidity

At 31 March 2024, the Group's CET1 capital ratio was 25.0%, the Tier 1 capital ratio was 27.0% and the Own funds capital ratio was 28.6%. The Own funds capital ratio, incl. MREL capital, was 39.9%. The net profit for the Q1 2024 period, amounting to DKK 55.0m, is not included in the calculation of the capital ratios. The Group's liquidity indicator was 278.3% at 31 March 2024, well above the requirement of 100%. The Group's LCR at 31 March 2024 was 283.6%, also well above the requirement of 100%. The Group's Net Stable Funding Ratio (NSFR) was 156.3% at 31 March 2024, well above the requirement of 100%.

The preliminary assessment by the Financial Supervisory Authority still lacks clarity regarding the existence of a well-developed and established market for residential and commercial properties in both the Faroe Islands and Greenland. The case is expected to be resolved in the first half of 2024. Despite the ongoing proceedings resulting in a deviation from the dividend policy in 2023, the bank remains committed to its goals for 2024.

Compliance with the Danish FSA Supervisory Diamond

The Supervisory Diamond
	Q1 2024	Q1 2023	FSA limit
Sum of large exposures	133,9%	150,1%	< 175%
Liquidity indicator	278,3%	222,4%	>100 %
Loan growth	6,7%	8,6%	< 20 %
Property exposure	13,4%	13,8%	< 25 %

At 31 March 2024, the Group was in compliance with all Supervisory Diamond requirements set by the FSA.

Events after the balance sheet date

No events have occurred since 31 March 2024 that are deemed to have a significant impact on the Group's financial position.

Guidance for 2024

Management reconfirms the guidance for 2024 communicated in the Group's annual report for 2023. The guidance was for a net profit in the range of DKK 225-255m.

The guidance is subject to uncertainty, including impairments on loans and advances, market value adjustments, and macroeconomic developments in the markets in which the Group operates.

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Føroya BankiInterim Report Q1 2024

Adjusted results

				Restated income
Note Adjusted Income statement Q1 2024, Group, DKK 1,000	Income statement	Restatement	statement
1, 5	Net interest income	113,520	-21,083	92,436
2, 6	Net fee and commission income	21,496	-2,141	19,356
5, 7, 8	Net insurance income	9,418	2,450	11,868
2, 4	Other operating income	2,388	8,695	11,083
	Operating income	146,822	-12,079	134,743
3, 6, 7	Operating costs	60,488	3,681	64,169
	Sector costs	497	0	497
	Profit before impairment charges	85,837	-15,760	70,077
	Impairment charges	22,730	0	22,730
	Operating profit	63,108	-15,760	47,347
3	Non-recurring items	0	0	0
	Profit before investment portfolio earnings and tax	63,108	-15,760	47,347
1, 4, 8	Investment portfolio earnings	6,972	15,760	22,732
	Profit before tax	70,080	0	70,080
Note Adjusted Income statement Q1 2023, Group, DKK 1,000
1, 5	Net interest income	91,784	-14,068	77,716
2, 6	Net fee and commission income	28,383	-7,091	21,292
5, 7, 8	Net insurance income	929	3,893	4,822
2, 4	Other operating income	1,350	6,992	8,342
	Operating income	122,445	-10,274	112,171
3, 6, 7	Operating costs	61,748	1,597	63,345
	Sector costs	315	0	315
	Profit before impairment charges	60,382	-11,871	48,511
	Impairment charges	-8,400	0	-8,400
	Operating profit	68,782	-11,871	56,911
3	Non-recurring items	0	-3,286	-3,286
	Profit before investment portfolio earnings and tax	68,782	-15,157	53,625
1, 4, 8	Investment portfolio earnings	6,684	15,156	21,840
	Profit before tax	75,465	0	75,465
Note Restatements made to the income statement, DKK 1,000		Q1 2024	Q1 2023
1	Reclassification of interest income related to bonds from the item Interest income to Investment	22,945	14,720
	portfolio earnings.
2	Dividends and fees reclassified from Net fee and commission income to Other operating income.	1	7,091
3	Reclassification of severance costs to Non-recurring items.			3,286
4	Reclassification of value adjustments related to sector shares and of profit or loss from currency	8,694	99
	transactions to Other operating income.
5	Reclassification of interest income from Net insurance income to Net interest income due to	1,862	652
	implementation of IFRS 17
6	Reclassification from Net fee and commision income to Operation costs due to implementation of	2,140	1,575
	IFRS 17
7	Reclassification of operating costs from Net insurance income to Operating costs due to	6,168	4,883
	implementation of IFRS 17
8	Reclassification of market value adjustments from net insurance income to Investment portfolio	1,856	1,237
	earnings due to implementation of IFRS 17

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Føroya Banki						Interim Report Q1 2024
Segments
Adjusted Income statement, Banking
DKKm	Q1 2024	Q4 2023	Index	Q3 2023	Q2 2023	Q1 2023	Q1 2024	Q1 2023		Index
Net interest income	92	100	93	96	86	78	92	78		119
Net fee and commission income	23	21	109	23	23	25	23	25		94
Other operating income	10	3	378	8	9	8	10	8		128
Operating income	125	124	101	127	118	110	125	110		114
Operating cost	-58	-59	100	-59	-58	-58	-58	-58		100
Sector costs	0	0	100	0	0	0	0	0		158
Profit before impairment charges	66	65	103	68	60	51	66	51		130
Impairment charges, net	-23	-5	447	0	7	8	-23	8	-	271
Operating profit	44	59	74	68	67	60	44	60		73
Non-recurring items	0	0		0	-6	-3	0	-3
Profit before investment portfolio earnings and tax	44	59	74	68	62	56	44	56		78
Investment portfolio earnings	19	42	45	24	14	20	19	20		95
Profit before tax	63	102	62	92	76	76	63	76		82
Loans and advances	8,915	8,883	100	8,790	8,655	8,354	8,915	8,354		107
Deposits and other debt	8,930	8,710	103	8,602	8,426	8,524	8,930	8,524		105
Mortgage credit	2,621	2,599	101	2,615	2,567	2,634	2,621	2,634		100
Operating cost/income, %	47	47		46	49	53	47	53
Number of FTE, end of period	178	176	101	176	173	172	178	172		103

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Føroya Banki

Interim Report Q1 2024

Personal Banking

The Personal Banking segment reported operating income of DKK 84m in Q1 2024, DKK 6m less than in Q4 2023. Net interest income was DKK 60m in Q1 2024, down DKK 12m compared to Q4 2023. The decrease in net interest income is mainly due to higher costs in external funding.

Net fee and commission income was DKK 18m in Q1 2024, DKK 1m more than in the preceding quarter. Other operating income amounted to DKK 6m in Q1 2024, up from DKK 2m in Q4 2023. The growth in Other operating income is mainly due to higher return from the Bank's sector shares.

Operating costs were DKK 49m in Q1 2024, flat relative to Q4 2023. Impairment charges amounted to a reversal of DKK 5m in Q1 2024 compared to a net impairment charge of DKK 5m in Q4 2023. The reason for the low impairment level is that the personal banking segment still seems to be robust. As a result, operating profit for Q1 2024 was DKK 39m, DKK 4m more than in the prior quarter.

Investment portfolio earnings posted to the personal banking segment amounted to DKK 14m in Q1 2024 compared to DKK 30m in Q4 2023. No non-recurring items were seen in the Personal Banking segment in Q1 2024 nor in Q4 2023.

Profit before tax thus amounted to DKK 53m in Q1 2024, DKK 12m less than the DKK 65m posted in Q4 2023.

Loans and advances to personal customers in Q1 2024 rose by DKK 58m to DKK 4,124m, and brokered mortgage credit rose by DKK 12m to DKK 2,191m, both compared to 31 December 2023. The growth is a return to the trend seen in recent years, where Faroese households increasingly embracing the traditional Danish financing model of 80% LTV mortgage funding with the residual in 2nd lien bank lending. Deposits held by personal customers rose by DKK 26m in Q1 2024 to DKK 5,788m at 31 March 2024.

Adjusted Income statement, Personal banking
DKKm	Q1 2024	Q4 2023	Index	Q3 2023	Q2 2023	Q1 2023	Q1 2024	Q1 2023	Index
Net interest income	60	72	83	60	48	43	60	43	138
Net fee and commission income	18	16	109	18	16	18	18	18	101
Other operating income	6	2	393	5	7	6	6	6	97
Operating income	84	90	93	84	71	67	84	67	124
Operating costs	-49	-49	100	-51	-49	-47	-49	-47	104
Sector costs	0	0	100	0	0	0	0	0	158
Profit before impairment charges	34	40	85	32	22	20	34	20	174
Impairment charges, net	5	-5	-89	1	1	5	5	5	95
Operating profit	39	35	113	33	23	25	39	25	158
Non-recurring items	0	0		0	-5	-3	0	-3
Profit before investment portfolio earnings and tax	39	35	113	33	18	22	39	22	179
Investment portfolio earnings	14	30	45	17	10	11	14	11	128
Profit before tax	53	65	81	51	28	33	53	33	162
Loans and advances	4,124	4,066	101	3,859	3,771	3,673	4,124	3,673	112
Deposits and other debt	5,788	5,761	100	5,678	5,584	5,392	5,788	5,392	107
Mortgage credit	2,191	2,179	101	2,203	2,285	2,331	2,191	2,331	94
Number of FTE, end of period	79	81	98	82	74	74	79	74	106

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Føroya Banki

Interim Report Q1 2024

Corporate Banking

Corporate Banking activities generated operating income of DKK 42m in Q1 2024, an increase of 23% or DKK 8m compared to Q4 2023. Net interest income rose by DKK 5m to DKK 33m due to full implementation of interest rate increases for the corporate clients. Net fee and commission income was flat at DKK 5m, and other operating income rose by DKK 2m to DKK 3m in Q1 2024 compared to Q4 2023.

Operating costs were DKK 9m in Q1 2024, flat compared to Q4 2023. Net impairment charges during Q1 2023 amounted to DKK 28m compared to a net charge of DKK 0m in Q4 2023.

Operating profit for Q1 2024 amounted to DKK 5m, a decrease of DKK 20m relative to Q4 2023.

Investment portfolio earnings posted to the corporate banking segment in Q1 2024 amounted to DKK 5m, DKK 6m less than in the preceding quarter. The increase in net impairments can be attributed to a few corporate clients in Greenland. In the Faroese part of the operations the impairments are reversed. The total increase is not a sign of general challenges with the client base that continues to show solid creditworthiness.

The resulting profit before tax for the quarter was DKK 10m, compared to DKK 36m in the final quarter of 2023.

Corporate loans and advances fell by DKK 25m in Q1 2024 to DKK 4,791m on 31 March 2024. Customer deposits rose by DKK 194m during the period to DKK 3,143m. Brokered mortgage credit rose by DKK 10m to DKK 430m at 31 March 2024 compared to 31 December 2023.

Adjusted Income statement, Corporate Banking
DKKm	Q1 2024	Q4 2023	Index	Q3 2023	Q2 2023	Q1 2023	Q1 2024	Q1 2023		Index
Net interest income	33	28	117	36	38	35	33	35		95
Net fee and commission income	5	5	109	5	7	7	5	7		77
Other operating income	3	1	354	3	2	1	3	1		298
Operating income	42	34	123	44	47	43	42	43		98
Operating costs	-9	-9	100	-8	-8	-6	-9	-6		153
Sector costs	0	0	100	0	0	0	0	0		158
Profit before impairment charges	32	24	132	36	39	36	32	36		88
Impairment charges, net	-28	0	-8287	-2	6	3	-28	3	-	827
Operating profit	5	25	18	34	45	40	5	40		11
Non-recurring items	0	0		0	-1	0	0	0
Profit before investment portfolio earnings and tax	5	25	18	34	44	39	5	39		12
Investment portfolio earnings	5	12	45	7	4	4	5	4		128
Profit before tax	10	36	27	41	48	44	10	44		23
Loans and advances	4,791	4,816	99	4,932	4,884	4,681	4,791	4,681		102
Deposits and other debt	3,143	2,948	107	2,924	2,824	3,132	3,143	3,132		100
Mortgage credit	430	420	102	412	282	302	430	302		142
Number of FTE, end of period	15	14	105	15	15	15	15	15		100

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