Lombard Bank Malta Plc

Earnings Release • Mar 9, 2017

Company Announcement

The following is a Company Announcement by Lombard Bank Malta p.l.c. pursuant to Malta Financial Services Authority Listing Rules:

Quote

The Board of Directors of Lombard Bank Malta p.l.c. approved the audited financial statements for the financial year ended 31 December 2016 and resolved that these statements be submitted for approval at the forthcoming Annual General Meeting to be held on 27 April 2017. The attached Preliminary Statement of annual results is being published in terms of the Listing Rules.

The Board of Directors further resolved to recommend that the Annual General Meeting approves the payment of a final gross dividend of 4 cent (net dividend of 2.6 cent) per nominal €0.25 share. This will be paid on 5 May 2017 to shareholders appearing on the Bank's Register of Shareholders as at 28 March 2017 (the 'Record Date'), the last trading date being 24 March 2017.

Unquote

Dr. Helena Said LL.D. Company Secretary

9 March 2017

Lombard Bank Malta p.l.c.

Office of the Company Secretary: 67 Republic Street Valletta VLT 1117 Malta • PO Box 584 Valletta VLT 1000 Malta Tel: +356 25581117 • Fax: +356 25581151 • e-mail: companysecretary@lombardmalta.com • www.lombardmalta.com • SWIFT Code: LBMAMTMT Lombard Bank Malta p.l.c. is listed on the Malta Stock Exchange and is licensed and regulated by the Malta Financial Services Authority as a credit institution and as an investment service provider Registered Office: 67 Republic Street Valletta Malta • Company Registration Number: C 1607

Preliminary Profit Statement

This report is published in terms of Malta Financial Services Authority Listing Rule 5.54 and Article 4(2)(b) of the Prevention of Financial Markets Abuse (Disclosure and Notification) Regulations, 2005.

The financial statements of the Lombard Bank Group ("the Group") have been extracted from the Annual Report of Lombard Bank Malta p.l.c. ("the Bank") for the financial year ended 31 December 2016, audited by PricewaterhouseCoopers and approved by the Board of Directors on 9 March 2016. These were prepared in accordance with the provisions of the Banking Act, 1994 and the Companies Act, 1995, and International Financial Reporting Standards as adopted by the EU.

Review of Financial Performance and Commentary

• Group Profit Before Tax increased by 5.1% to €8.24 million when compared to €7.84 million in 2015.
• Profit Attributable to Equity Holders of the Bank was €4.73 million, 7.9% above the previous year.
• Bank Cost Efficiency Ratio improved to 46.8% (Group: 73.2%) from 50.1% (Group: 74.0%) in 2015.
• Net Loans and Advances to Customers rose by 12.3% to €343.49 million from €305.89 million in 2015.
• Customer Deposits were up by 10.9% and reached €721.56 million, an increase of €71.04 million from the previous year.
• Post Tax Return on Equity for 2016 was marginally up at 5.2%.
• Group Total Assets stood at €862.73 million (FYE 2015:€781.92 million).
• Total Capital Adequacy Ratio of 16.8% remained at a satisfactory level. Common Equity Tier 1 Ratio stood at 16.2% and well within regulatory requirements.

Group profit before adjusting for Net Impairment Losses rose by 11.6% to €12.18 million. This was achieved despite the continued drag of low and sometimes negative interest rates that persisted throughout 2016. Improved performance was registered in almost all the Bank's business lines even though the growing regulatory demands served as a dampener to more aggressive growth. Profit from the Group's logistics operations were lower following anticipated reduced Letter Mail volumes and one-off items recorded in the previous year that were not repeated in 2016.

Net Interest Income at €14.20 million increased by 8.1% mainly due to lower interest expense and increased interest income from Loans and Advances to Customers.

Fee income was supported by higher credit-related activity as well as transaction banking volumes within the Bank's International Business Banking unit. New and improved services at MaltaPost also contributed to the Group Fee and Commission income of €4.04 million, an increase of 17.4% over the previous year. Postal Sales and Other Revenues increased by 9.0% to €26.77 million from business generated by MaltaPost. Foreign exchange earnings were marginally down for the Bank. Adverse movements on MaltaPost foreign exchange transactions negatively affected Net Trading Income for the Group, which was down to €0.63 million from €0.97 million.

The results for the Bank include a one-time significant item of income arising from Visa Inc.'s purchase of all the shares in Visa Europe resulting in the disposal of its membership interest in Visa Europe Limited and for which the Bank received a combination of cash and non-cash consideration. The income recognised in the accounts amounts to €1.48 million and is included under Other Operating Income. A provision of €0.19 million for contingencies related to this item has been made and is included under Provision for Liabilities and Other Charges. The Group results adjusted to exclude this item would be as follows:

	Group		Bank
	31/12/2016	31/12/2015	31/12/2016	31/12/2015
	€000	€000	€000	€000
Reported Profit before Taxation	8,235	7,837	6,647	5,973
Net gain on sale of investment in Visa Europe Limited	(1,290)	-	(1,290)	-
Adjusted Profit before Taxation	6,945	7,837	5,357	5,973

Group Employee Compensation and Benefits at €17.72 million increased by 7.2% from €16.53 million in 2015 while Other Operating Costs rose by 16.3% to €15.46 million, partly reflecting the higher cost of Compliance and Regulation. Further investment was undertaken in enhanced IT systems and related areas as well as improved automated customer services.

The Bank's Cost Efficiency Ratio of 46.8% (FY 2015: 50.1%) also reflects effective cost containment in a scenario where interest income levels remained persistently low. Overall, the Group Cost Efficiency Ratio stood at 73.2% (FY 2015: 74.0%).

In calculating Impairment Allowances the Bank adopted International Accounting Standards as well as banking regulations, with particular attention to the assessment of "Non-Performing Exposures", that is, exposures that were not fully compliant with agreed terms such as where repayments fell in arrears by 90 days or more. Specific Impairment charge for 2016 amounted to €3.28 million, compared to €2.71 million in 2015. It is to be noted that most of the Specific Impairment Allowance relates to the interest element of such exposures. The Collective Impairment Allowance charge for the year at €0.74 million was €0.37 million higher when compared to the previous year.

Group Customer Deposits increased by €71.04 million to €721.56 million, which reflects the high level of confidence that customers have in the Bank.

Group Loans and Advances to Customers at €343.49 million increased by 12.3% over the previous year.

Total Group assets as at 31 December 2016 increased to €862.73 million (2015: €781.92 million), while Equity Attributable to Equity Holders of the Bank rose by a further 5.0% to €93.84 million. Net Asset Value (NAV) per share stood at €2.12 (2015: €2.03). Group Earnings per Share (EPS) increased by 0.7 cents to 10.7 cents. Return on Assets (ROA) at 0.62% remained at the same level of the previous year while Post Tax Return on Equity (ROE) was 5.2% (2015: 5.1%).

The Bank's prudent policies resulted in a Common Equity Tier 1 (CET1) Ratio of 16.2% on a CRD IV basis, well above the minimum requirement of 4.5%, while Total Capital Ratio stood at 16.8%, against a minimum 8% requirement.

Advances to Deposits Ratio stood at 47.6% reflecting strong liquidity as well as cautious approach. Excess funds continued to be placed on a short-term basis with reputable counterparty banks and in Malta Government Treasury Bills. The Bank held no exposure to foreign sovereign or corporate bonds.

Once again the Group produced a robust set of results proving that it is well positioned to meet the challenges of a fast changing industry while delivering services of the highest standard. Though the low interest rate environment is set to persist throughout 2017, Lombard Bank looks to the future with enthusiasm and the conviction that its strategies are well geared to satisfy the expectations of its customers - while also grasping those opportunities that will add value to the Group and benefit all stakeholders.

Income Statements For the year ended 31 December 2016

	Group		Bank
	2016 € 000	2015 € 000	2016 € 000	2015 € 000
Interest receivable and similar income - on loans and advances, balances with Central Bank of Malta and treasury bills - on debt and other fixed income instruments Interest expense	18,935 1,970 (6,703)	18,919 1,823 (7,603)	18,917 1,827 (6,711)	18,890 1,686 (7,619)
Net interest income	14,202	13,139	14,033	12,957
Fee and commission income Fee and commission expense	4,039 (233)	3,439 (232)	2,941 (232)	2,415 (232)
Net fee and commission income	3,806	3,207	2,709	2,183
Postal sales and other revenues Dividend income Net trading income Other operating income	26,772 361 634 1,479	24,562 240 969 138	75 1,740 731 1,645	76 1,754 769 465
Operating income	47,254	42,255	20,933	18,204
Employee compensation and benefits Other operating costs Depreciation and amortisation Provisions for liabilities and other charges Net impairment losses	(17,719) (15,456) (1,408) (521) (3,950)	(16,526) (13,290) (1,450) (71) (3,081)	(5,728) (3,511) (559) (462) (4,026)	(5,272) (3,366) (488) (22) (3,083)
Operating profit	8,200	7,837	6,647	5,973
Share of profit of investment accounted for using the equity method, net of tax	35	-	-	-
Profit before taxation Income tax expense	8,235 (2,905)	7,837 (2,800)	6,647 (2,395)	5,973 (2,137)
Profit for the year	5,330	5,037	4,252	3,836
Attributable to: Equity holders of the Bank Non-controlling interests	4,726 604	4,382 655	4,252 -	3,836 -
Profit for the year	5,330	5,037	4,252	3,836
Earnings per share	10c7	10c0

Statements of Comprehensive Income For the year ended 31 December 2016

Group
	2016 € 000	2015 € 000
Profit for the year	5,330	5,037
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Fair valuation of available-for-sale financial assets: Net changes in fair value arising during the year, before tax Reclassification adjustments - net amounts reclassified	1,989	4,678
to profit or loss, before tax	(1,479)	(21)
Income tax relating to fair valuation of available-for-sale financial assets	(151)	(1,561)
Items that will not be reclassified to profit or loss:
Surplus arising on revaluation of land and buildings	-	1,433
Deferred tax attributable to revaluation of land and buildings	-	(956)
Remeasurements of defined benefit obligations	(74)	(115)
Other comprehensive income for the year, net of income tax	285	3,458
Total comprehensive income for the year, net of income tax	5,615	8,495
Attributable to:
Equity holders of the Bank	5,009	7,781
Non-controlling interests	606	714
Total comprehensive income for the year, net of income tax	5,615	8,495
Bank
Profit for the year	4,252	3,836
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Fair valuation of available-for-sale financial assets:
Net changes in fair value arising during the year, before tax Reclassification adjustments - net amounts reclassified	1,911	4,482
to profit or loss, before tax	(1,479)	(23)
Income tax relating to fair valuation of available-for-sale financial assets	(151)	(1,561)
Items that will not be reclassified to profit or loss:
Surplus arising on revaluation of land and buildings	-	539
Deferred tax attributable to revaluation of land and buildings	-	(179)
Other comprehensive income for the year, net of income tax	281	3,258
Total comprehensive income for the year, net of income tax	4,533	7,094

Statements of Financial Position As at 31 December 2016

		Group		Bank
	2016	2015	2016	2015
	€ 000	€ 000	€ 000	€ 000
Assets
Balances with Central Bank of Malta,
treasury bills and cash	218,148	115,884	217,398	115,377
Cheques in course of collection	1,374	475	1,374	475
Investments	80,515	76,246	76,358	72,465
Loans and advances to banks	161,728	229,788	155,966	225,546
Loans and advances to customers	343,487	305,891	344,456	306,572
Investment in subsidiaries	-	-	13,186	12,168
Investment in associate	1,681	1,645	1,645	1,645
Intangible assets	1,809	1,490	554	409
Property, plant and equipment	30,198	26,931	16,826	13,833
Assets classified as held for sale	833	1,023	833	1,023
Current tax assets	190	533	190	533
Deferred tax assets	8,973	7,695	8,634	7,291
Inventories	1,197	1,106	398	425
Trade and other receivables	8,136	8,170	3,312	2,104
Accrued income and other assets	4,462	5,043	2,555	2,790
Total assets	862,731	781,920	843,685	762,656

Statements of Financial Position (continued) As at 31 December 2016

		Group	Bank
	2016	2015	2016	2015
EQUITY AND LIABILITIES	€ 000	€ 000	€ 000	€ 000
Equity
Share capital	11,044	10,943	11,044	10,943
Share premium	18,530	17,746	18,530	17,746
Revaluation and other reserves
Retained earnings	13,723 50,541	13,152 47,556	13,434 48,381	12,869 45,551
Equity attributable to equity
holders of the Bank	93,838	89,397	91,389	87,109
Non-controlling interests	6,510	6,101	-	-
Total equity	100,348	95,498	91,389	87,109
Liabilities
Amounts owed to banks	9,036	1,059	9,036	1,059
Amounts owed to customers	721,559	650,516	725,383	654,316
Provisions for liabilities and
other charges	2,823	2,378	1,114	639
Current tax liabilities	310	346	-	-
Deferred tax liabilities Other liabilities	4,449 16,100	4,377 18,404	3,671 8,829	3,507 11,670
Accruals and deferred income	8,106	9,342	4,263	4,356
Total liabilities	762,383	686,422	752,296	675,547
Total equity and liabilities	862,731	781,920	843,685	762,656
Memorandum items
Contingent liabilities	8,775	7,479	8,887	7,479
Commitments	182,919	106,925	182,919	106,925

Statements of Changes in Equity For the year ended 31 December 2016

	Attributable to equity holders of the Bank __________
Group	Share capital € 000	Share premium € 000	Revaluation and other reserves € 000	Retained earnings € 000	Total € 000	Non controlling interests € 000	Total equity € 000
At 1 January 2015	10,422	17,746	8,329	46,291	82,788	5,519	88,307
Comprehensive income Profit for the year	-	-	-	4,382	4,382	655	5,037
Other comprehensive income Surplus arising on revaluation of land and buildings Movement in deferred tax liability on revalued land and buildings determined on the basis applicable to property disposals	- -	- -	1,165 (723)	- -	1,165 (723)	268 (233)	1,433 (956)
Fair valuation of available-for-sale financial assets: Net changes in fair value arising during the year Reclassification adjustments - net amounts reclassified to profit or loss	- -	- -	3,050 (13)	- -	3,050 (13)	59 -	3,109 (13)
Remeasurements of deferred benefit obligations Transfers and other movements	- -	- -	(80) 1,424	- (1,424)	(80) -	(35) -	(115) -
Total other comprehensive income for the year	-	-	4,823	(1,424)	3,399	59	3,458
Total comprehensive income for the year	-	-	4,823	2,958	7,781	714	8,495
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners Bonus shares issued Dividends to equity holders	521 -	- -	- -	(521) (1,084)	- (1,084)	- (427)	- (1,511)
Changes in ownership interests in subsidiaries that do not result in a loss of control Change in non-controlling interests in subsidiary	-	-	-	(88)	(88)	295	207
Total transactions with owners	521	-	-	(1,693)	(1,172)	(132)	(1,304)
At 31 December 2015	10,943	17,746	13,152	47,556	89,397	6,101	95,498

Statements of Changes in Equity (continued) For the year ended 31 December 2016

	Attributable to equity holders of the Bank __________
Group	Share capital € 000	Share premium € 000	Revaluation and other reserves € 000	Retained earnings € 000	Total € 000	Non controlling interests € 000	Total equity € 000
At 1 January 2016	10,943	17,746	13,152	47,556	89,397	6,101	95,498
Comprehensive income Profit for the year	-	-	-	4,726	4,726	604	5,330
Other comprehensive income Fair valuation of available-for-sale financial assets: Net changes in fair value arising during the year Reclassification adjustments - net amounts reclassified	-	-	1,297	-	1,297	23	1,320
to profit or loss Remeasurements of deferred benefit obligations Transfers and other movements	- - -	- - -	(961) (52) 284	- - (284)	(961) (52) -	- (22) -	(961) (74) -
Total other comprehensive income for the year	-	-	568	(284)	284	1	285
Total comprehensive income for the year	-	-	568	4,442	5,010	605	5,615
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners Dividends to equity holders Rights issue of ordinary shares	- 101	- 784	- -	(1,138) -	(1,138) 885	(435) -	(1,573) 885
Changes in ownership interests in subsidiaries that do not result in a loss of control Change in non-controlling interests in subsidiary	-	-	3	(319)	(316)	239	(77)
Total transactions with owners	101	784	3	(1,457)	(569)	(196)	(765)
At 31 December 2016	11,044	18,530	13,723	50,541	93,838	6,510	100,348

Statements of Changes in Equity (continued) For the year ended 31 December 2016

Bank	Share capital € 000	Share premium € 000	Revaluation and other reserves € 000	Retained earnings € 000	Total € 000
At 1 January 2015	10,422	17,746	8,187	44,744	81,099
Comprehensive income
Profit for the year	-	-	-	3,836	3,836
Other comprehensive income Surplus arising on revaluation of land and buildings	-	-	539	-	539
Movement in deferred tax liability on revalued land and buildings determined on the basis applicable to property disposals	-	-	(179)	-	(179)
Fair valuation of available-for-sale financial assets: Net changes in fair value arising during the year Reclassification adjustments - net amounts reclassified	-	-	2,913	-	2,913
to profit or loss Transfers and other movements	- -	- -	(15) 1,424	- (1,424)	(15) -
Total other comprehensive income for the year	-	-	4,682	(1,424)	3,258
Total comprehensive income for the year	-	-	4,682	2,412	7,094
Transactions with owners, recorded directly in equity Contributions by and distributions to owners
Bonus shares issued	521	-	-	(521)	-
Dividends to equity holders	-	-	-	(1,084)	(1,084)
Total transaction with owners	521	-	-	(1,605)	(1,084)
At 31 December 2015	10,943	17,746	12,869	45,551	87,109

Statements of Changes in Equity (continued) For the year ended 31 December 2016

Bank	Share capital € 000	Share premium € 000	Revaluation and other reserves € 000	Retained earnings € 000	Total € 000
At 1 January 2016	10,943	17,746	12,869	45,551	87,109
Comprehensive income
Profit for the year	-	-	-	4,252	4,252
Other comprehensive income Fair valuation of available-for-sale financial assets:
Net changes in fair value arising during the year Reclassification adjustments - net amounts reclassified	-	-	1,242	-	1,242
to profit or loss	-	-	(961)	-	(961)
Transfers and other movements	-	-	284	(284)	-
Total other comprehensive income for the year	-	-	565	(284)	281
Total comprehensive income for the year	-	-	565	3,968	4,533
Transactions with owners, recorded directly in equity Contributions by and distributions to owners
Dividends to equity holders	-	-	-	(1,138)	(1,138)
Rights issue of ordinary shares	101	784	-	-	885
Total transaction with owners	101	784	-	(1,138)	(253)
At 31 December 2016	11,044	18,530	13,434	48,381	91,389

Statements of Cash Flows For the year ended 31 December 2016

		Group		Bank
	2016	2015	2016	2015
	€ 000	€ 000	€ 000	€ 000
Cash flows from operating activities
Interest and commission receipts	23,337	22,651	22,514	23,670
Receipts from customers relating to postal sales and other revenue	30,068	25,645	75	76
Interest and commission payments	(7,072)	(8,472)	(7,079)	(8,487)
Payments to employees and suppliers	(34,879)	(29,934)	(9,219)	(8,583)
Cash flows from operating profit before changes in operating assets and liabilities	11,454	9,890	6,291	6,676
(Increase) / decrease in operating assets:
Treasury bills Deposits with Central Bank of Malta	(36,150) (1,422)	(28) (686)	(36,150) (1,422)	(28) (686)
Loans and advances to banks and customers	(41,753)	8,205	(42,041)	8,108
Other receivables	(2,026)	368	(1,993)	440
Increase / (decrease) in operating liabilities:
Amounts owed to banks and to customers	71,043	76,570	71,066	76,379
Other payables	(2,807)	537	(2,840)	465
Net cash from operations	(1,661)	94,856	(7,089)	91,354
Income tax paid	(3,956)	(2,392)	(3,021)	(1,944)
Net cash flows (used in) / from operating
activities	(5,617)	92,464	(10,110)	89,410
Cash flows from investing activities
Dividends received	361	240	362	240
Interest received from investments	2,157	2,274	1,972	2,097
Purchase of investments	(5,873)	(19,353)	(5,341)	(19,050)
Proceeds on maturity/disposal of investments	2,995	2,687	2,765	2,687
Purchase of property, plant and equipment Acquisition of non-controlling interests	(4,604) (283)	(3,174) -	(3,504) -	(849) -
Net cash flows used in investing activities	(5,247)	(17,326)	(3,746)	(14,875)
Cash flows from financing activities
Dividends paid to equity holders of the Bank	(252)	(1,084)	(252)	(1,084)
Dividends paid to non-controlling interests	(228)	(218)	-	-
Net cash flows used in financing activities	(480)	(1,302)	(252)	(1,084)
Net (decrease) / increase in cash and cash
equivalents	(11,344)	73,836	(14,108)	73,451
Cash and cash equivalents at beginning of year	307,730	233,894	304,031	230,580
Cash and cash equivalents at end of year	296,386	307,730	289,923	304,031