Lombard Bank Malta plc - Interim Results

On 20 August, Lombard Bank Malta plc published its half-year results covering the six months ended 30 June 2014.

Performance Overview

The performance of Lombard Bank in the first half of 2014 was characterised by further pressure on interest income as interest margins tightened, largely attributable to softer loan demand and a higher level of deposits. This resulted in an 11.4% decline in net interest income, compared to the same period in 2013. Interest Income declined by 3.1%, whilst interest expense increased by 11.6%.

Operating income, nonetheless, was aided by an increased level of non-interest income, which in the first 6 months increased by 5.5% to €12.9 million, largely related to the increase of revenues from the consolidated subsidiary Maltapost plc. Revenues from the postal operator increased by 4.1% to €11.2 million in the six months under review (€10.8 million in 1H2013). The directors of Lombard Bank attributed this to an increase in parcel delivery and favourable price adjustments which mitigated the decline in traditional mail. Additionally, income from fees and commissions generated by the Group increased by 9.6% to €1.3 million. Consequently, the decline in total operating income was limited to 1.1% at €19.7 million (1H2013: €19.9 million).

The Bank’s cost-to-income ratio increased to 44.3% from 39.3% for the period to 30 June 2013, on the back of increased compliance costs including contributions to the Depositor Compensation Scheme and regulatory reporting expenses against lower level of operating income.

An additional impairment provision of €1.6 million was charged to operating income, resulting in a pre-tax profit figure of €3.3 million. Despite the 2.3% increase in impairments required for the period, management claims to remain confident that the level of security held against the underlying impaired facilities adequately covers the bank’s exposures. As at 30 June 2014, the Bank’s non-performing loans (NPLs) stood at 4.4% of gross loans.

After accounting for a tax charge of €1.2 million and minority interest of €0.2 million (representing the 30.8% shareholding in Maltapost not held by Lombard), the Group’s net profit was €1.9 million, which represents a 25.1% drop from comparative figures of 2013. This is the third year where half-year figures declined compared to previous periods.

The Group’s balance sheet increased by 7% in the first half of 2014, primarily as the bank’s deposit base expanded by 8.7% to €536.9 million. The Group employed most of this excess liquidity into balances with the Central Bank of Malta. This increased by 14.1% to €153.7 million since the end of last reporting period. As the loan portfolio of the bank shrank by 2.7%, the Bank’s loans-to-deposit ratio declined to 57% (FY2013: 63.7%). Capitalisation of the Group remained relatively unchanged, with equity attributable to shareholders at €80.2 million (FY2013: €79.3 million). The Directors reported a capital adequacy ratio of 16.5%, comfortably above the 8% regulatory minimum.

Outlook

The bank reports that the Central Bank of Malta predicts further deposit growth but slower credit growth and as such, the Directors recognise that the local financial sector is likely to continue to de-risk in the face of increased regulatory restrictions. Although souding optimistic that new business opportunities will be identified, the bank remains cautiously wary of the EU-wide regulations impacting lending activity which could influence its risk appetite.

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Lombard Bank Malta plc – Interim Financial Statements for the six months ended 30 June 2014