On 9 March, Lombard Bank Malta plc published its full-year results for the financial year ended 31 December 2014.
Net interest income dropped by 5.1% to €14.3 million through a combination of a 2.3% decrease in gross interest income to €23.6 million in view of the prevailing low interest rate scenario as well as a 2.2% increase in interest expense to €9.3 million reflecting a larger customer deposit base.
On the other hand, non-interest income increased by 10.3% to a record €25.9 million largely due to the 10% increase in income from postal sales and services to €22.7 million. Additionally, Lombard Bank reported a 9.1% increase in net fee and commission income to €2.5 million on the back of higher transaction volumes with the Bank’s International Business Banking unit and Wealth Management services as well as encouraging growth in the Bank’s credit card business. Furthermore, trading profits (foreign exchange transactions) increased significantly to €0.85 million compared to €0.28 million during the previous financial year. Meanwhile, dividend income dropped by 14.1% to €0.16 million.
Overall, the Group’s total operating income grew by 4.3% to €40.24 million.
Nonetheless, the overall growth in income was offset by a 17.6% increase in non-interest expenses to €29.3 million reflecting the additional appointment of more specialised staff both at the Bank and at MaltaPost, higher costs related to compliance and regulation as well as continued investment in the Group’s IT infrastructure and the Bank’s card services. Meanwhile, depreciation decreased by 12.7% to €1.24 million. The relatively larger increase in expenditure led to the deterioration in the cost to income ratio to 72.9% at Group level (2013: 70.7%) and 47.0% at Bank level (2013: 42.3%).
The income statement of Lombard Bank Malta plc was adversely impacted by impairments of €4.6 million (2013: €4.2 million) reflecting a €1 million increase in specific impairments (in relation to the interest element of non-performing exposures) which was partly offset by a €0.5 million decrease in the Bank’s collective impairment allowance.
As a result, pre-tax profits of the Lombard Group slumped by 11.3% to €6.24 million and after accounting for a tax charge of €2.3 million (2013: €2.55 million) as well as profits attributable to minority interests of €0.55 million (2013: €0.39 million), the net profit amounted to €3.36 million representing a 17.9% drop from the previous year’s comparable figure. This translates into an earnings per share of €0.081 (2013: €0.098).
The statement of financial position shows that total assets grew by 13.4% to €691.5 million largely reflecting the €112.7 million increase in in loans and advances to banks to €185.9 million, the 26.5% growth in investments to €55.1 million and the 1.3% increase in loans and advances to customers to €318.7 million which in aggregate offset the 37.4% drop in balances with the Central Bank of Malta, Treasury Bills and cash to €84.3 million. Total liabilities also increased by 14.8% to €603.2 million mainly due to the 16.2% growth in customer deposits to €573.95 million. Similarly, shareholders’ funds (excluding minority interests) increased by 11.4% to €88.3 million mostly reflecting the profit registered during the period under review as well as other increases in the Group’s other reserves including the revaluation reserve. This is equivalent to a net asset value per share of €2.118. The return on equity (net profit divided by average shareholders’ funds) dropped by 1.2 percentage points to 4% and return on assets (pre-tax profit on average assets) contracted by 0.2 percentage points to 1%.
Voluntary Asset Quality Review
The Directors explained that although Lombard Bank was not one of those banks identified by the European Central Bank (ECB) to undergo a mandatory Asset Quality Review, the Board chose to submit the Bank to such a review so as to ascertain that it is in line with the standards and levels established by the European and local regulators. It was reassuring to note that on the basis of the methodology applicable to the voluntary Asset Quality Review the Bank had a common equity tier 1 ratio of 15.9% as at 30 June 2014 – well above regulatory minimums.
Dividend & Bonus Issue
The Directors recommended the payment of a final gross dividend of €0.04 per share (net: €0.026) representing a 5% increase from the previous year’s dividend and a payout ratio of 30.7% (2013: 25.2%).
The increase in the dividend distribution, is due to a lower regulatory reduction as per the requirements of Banking Rule 09 which obliges all banks to create a new capital reserve against non-performing loans. Lombard’s reserve is currently estimated at €2.62 million with 40% (€1.05 million) provided against the dividend declared in respect of the 2013 financial year, a further 30% (€0.8 million) is being provided against the dividend declared in respect of the 2014 financial year whilst the remaining balance of €0.8 million will be provided for from the dividend distribution of the current financial year (which is declared in 2016).
Shareholders as at the close of trading on 18 March will be eligible to receive the dividend on 28 April subject to shareholder approval at the upcoming Annual General Meeting scheduled to be held on 22 April.
Shareholders will also be asked to approve a 1 for 20 bonus issue which will be financed through the capitalisation of €0.5 million in reserves. The cut-off date for the bonus issue is 25 May 2015.