Lombard Bank Malta Plc

Earnings Release • Mar 6, 2019

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 2018 and resolved that these statements be submitted for approval at the forthcoming Annual General Meeting to be held on 11 April 2019. 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 5 cent (net dividend of 3.25 cent) per nominal €0.25 share. This will be paid on 17 April 2019 to shareholders appearing on the Bank's Register of Shareholders as at 12 March 2019 (the 'Record Date'), the last trading date being 8 March 2019.

Unquote

Dr. Helena Said LL.D. Company Secretary

6 March 2019

Lombard Bank Malta p.l.c.

Preliminary Profit Statement

This report is published in terms of the Malta Financial Services Authority Listing Rules and 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 2018, audited by PricewaterhouseCoopers and approved by the Board of Directors on 6 March 2019. 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 rose by 55.3% to €13.77 million compared to €8.87 million in 2017.
• Profit Attributable to Equity Holders of the Bank was €8.45 million, or 64.7% above that in the previous year.
• Bank Cost Efficiency Ratio improved to 47.4% (Group: 77.8%) from 51.4% (Group: 79.6%) in 2017.
• Net Loans & Advances to Customers increased by 19.3% to €511.12 million from €428.61 million in 2017.
• Customer Deposits rose by 7.5%, reaching €788.04 million, an increase of €54.89 million over the previous year.
• Group Post Tax Return on Equity for 2018 was 8.3%, up from 5.4%.
• Group Total Assets rose to €950.07 million (€882.75 million in 2017).
• Total Capital Ratio at 14.7% was over the minimum regulatory requirements.

Group Profit after Tax increased by 56.7% to €8.94 million as the Group experienced positive trends in most of its business lines especially in its lending activity. Pressure from low interest rates persisted as did increased costs from higher regulatory and compliance requirements.

Net Interest Income at €17.51 million rose by 13.5% mostly as a result of increased customer lending, transaction banking and prudent treasury management.

Net Fee and Commission Income at €4.72 million increased by 14.1% as a result of a higher volume of business and as new initiatives gained traction. Postal Sales and Other Revenues rose by 5.0% despite a continuation of the decline in Letter Mail volumes, which however was offset by growth in ecommerce and other services.

Group Employee Compensation and Benefits increased by 4.1% to €20.77 million while Other Operating Costs rose by 7.2% to €26.48 million. The latter includes costs directly associated with increased Postal Sales and Other Revenues as well as higher compliance and regulation costs. The Group is heavily reliant on IT and automated services and invests substantially in respect of security, resilience and integrity of data.

The Bank's Cost Efficiency Ratio improved to 47.4% (FY 2017: 51.4%). That of the Group stood at 77.8% (FY 2017: 79.6%) reflecting the characteristics of the postal services industry where business is high volume yet low margin and human resource intensive.

As from January 1, 2018, Impairment Allowances are based on the new Expected Credit Loss methodology prescribed by the new accounting standard IFRS 9. On this basis, the charge in Expected Credit Losses amounted to €0.23 million, compared to a charge of €2.83 million in 2017. This reflects the high quality of the Bank's financial assets as well as adequate levels of collateral cover. During the year the Bank remained focused on resolving those situations where repayments by borrowing customers were in arrears by 90 days or more, referred to as "Non-Performing Exposures".

The level of customer deposits at €788.04 million was €54.89 million above the previous year. The Bank remained judicious in managing its liquidity mindful of the adverse impact of negative interest rates.

Loans & Advances to Customers increased by 19.3% to €511.12 million from €428.61 million in 2017. The Bank continued to register increased business based on its understanding of the needs of the local business community.

Group Total Assets as at 31 December 2018 rose to €950.07 million (2017: €882.75 million), while Equity Attributable to Equity Holders of the Bank grew by an additional 12.7% to €108.31 million. Group Net Asset Value (NAV) per share stood at €2.45 (2017: €2.18). Group Earnings per Share (EPS) increased by 7.5 cents to 19.1 cents. Group Return on Assets (ROA) rose to 0.9% (2017: 0.6%) while Group Post Tax Return on Equity (ROE) was 8.3% (2017: 5.4%).

Total Capital Ratio stood at 14.7%.

Advances to Deposits Ratio stood at 64.9% compared to 58.5% at the start of the year reflecting the Bank's strong liquidity and prudent management of its credit exposures. Excess funds continued to be placed only with reputable counterparty banks and in Malta Government securities. The Bank held no exposure to foreign sovereign or corporate bonds.

These results continue to strengthen the Lombard Bank Group's position and its ability to meet the challenges posed by a rapidly changing environment. The Group is committed to remain focused on meeting the needs and expectations of the Maltese economic operators and the community at large, while also remaining prudent in its approach to risk, thus providing consistent added value to all its stakeholders.

Income Statements For the year ended 31 December 2018

	Group		Bank
	2018	2017	2018	2017
	€ 000	€ 000	€ 000	€ 000
Interest receivable and similar income
- on loans and advances, balances with Central
Bank of Malta and treasury bills	21,470	19,490	21,430	19,462
- on debt and other fixed income instruments	1,718	1,936	1,594	1,823
Interest expense	(5,677)	(5,992)	(5,677)	(5,997)
Net interest income	17,511	15,434	17,347	15,288
Fee and commission income	5,051	4,431	3,889	3,357
Fee and commission expense	(335)	(298)	(336)	(299)
Net fee and commission income	4,716	4,133	3,553	3,058
Postal sales and other revenues	39,254	37,371	425	172
Dividend income	369	326	1,970	1,880
Net trading income	880	619	862	699
Other operating income	55	-	377	177
Operating income	62,785	57,883	24,534	21,274
Employee compensation and benefits	(20,765)	(19,945)	(6,368)	(6,269)
Other operating costs	(26,477)	(24,695)	(4,634)	(4,052)
Depreciation and amortisation	(1,588)	(1,411)	(625)	(622)
Provisions for liabilities and other charges	(60)	(23)	(20)	(22)
Credit impairment losses	(234)	(2,835)	(258)	(2,831)
Operating profit	13,661	8,974	12,629	7,478
Share of profit/(loss) of investment accounted for
using the equity method, net of tax	109	(106)	-	-
Profit before taxation	13,770	8,868	12,629	7,478
Income tax expense	(4,831)	(3,165)	(4,448)	(2,632)
Profit for the year	8,939	5,703	8,181	4,846
Attributable to:
Equity holders of the Bank	8,447	5,129	8,181	4,846
Non-controlling interests	492	574	-	-
Profit for the year	8,939	5,703	8,181	4,846
Earnings per share	19c1	11c6

Statements of Comprehensive Income For the year ended 31 December 2018

Group
	2018	2017
	€ 000	€ 000
Profit for the year	8,939	5,703
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Investments designated at FVOCI (2017: available-for-sale)
Net gain/(loss) in fair value, before tax Net loss on financial assets reclassified to profit or loss on disposal,	(1,621)	(1,591)
before tax	(59)	(81)
Net loss on investments designated at FVOCI attributable to change in credit risk	107	-
Income taxes	538	540
Items that will not be reclassified to profit or loss:
Net gains on investments in equity instruments designated at FVOCI	2,846	-
Surplus arising on revaluation of land and buildings	5,564	-
Remeasurements of defined benefit obligations Income taxes	(11) (1,855)	(528) 304
Other comprehensive income for the year, net of income tax	5,509	(1,356)
Total comprehensive income for the year, net of income tax	14,448	4,347
Attributable to:
Equity holders of the Bank	13,228	3,874
Non-controlling interests	1,220	473
Total comprehensive income for the year, net of income tax	14,448	4,347
Bank
Profit for the year	8,181	4,846
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Investments designated at FVOCI (2017: available-for-sale)
Net gain/(loss) in fair value, before tax Net loss on financial assets reclassified to profit or loss on disposal,	(1,587)	(1,460)
before tax	(59)	(81)
Net loss on investments designated at FVOCI attributable to change
in credit risk Income taxes	107 538	- 540
Items that will not be reclassified to profit or loss:
Net gains on investments in equity instruments designated at FVOCI	2,847	‐
Surplus arising on revaluation of land and buildings	2,717	-
Income taxes	(1,608)	-
Other comprehensive income for the year, net of income tax	2,955	(1,001)
Total comprehensive income for the year, net of income tax	11,136	3,845

Statements of Financial Position As at 31 December 2018

	Group			Bank
	2018	2017	2018	2017
	€ 000	€ 000	€ 000	€ 000
Assets
Balances with Central Bank of Malta,
treasury bills and cash	128,726	215,133	128,143	214,500
Cheques in course of collection	1,422	1,755	1,422	1,755
Investments	100,070	75,895	96,245	72,282
Loans and advances to banks	140,581	97,048	125,819	90,258
Loans and advances to customers	511,124	428,611	511,124	428,611
Investment in subsidiaries	-	-	15,732	15,732
Investment in associate	1,684	1,575	1,645	1,645
Intangible assets	1,701	1,648	375	480
Property, plant and equipment	38,554	31,753	21,449	17,676
Assets classified as held for sale	778	822	778	822
Current tax assets	865	1,557	681	1,557
Deferred tax assets	9,221	8,980	8,639	8,369
Inventories	1,360	1,164	754	407
Trade and other receivables	5,010	8,826	1,812	1,526
Accrued income and other assets	8,973	7,979	4,618	4,218
Total assets	950,069	882,746	919,236	859,838

Statements of Financial Position (continued) As at 31 December 2018

		Group
	2018	2017	2018	2017
Equity and Liabilities	€ 000	€ 000	€ 000	€ 000
Equity
Share capital Share premium Revaluation and other reserves Retained earnings	11,044 18,530 17,356 61,380	11,044 18,530 12,662 53,904	11,044 18,530 15,490 59,097	11,044 18,530 12,624 51,887
Equity attributable to equity holders of the Bank	108,310	96,140	104,161	94,085
Non-controlling interests	7,525	6,734	-	-
Total equity	115,835	102,874	104,161	94,085
Liabilities
Amounts owed to banks Amounts owed to customers Provisions for liabilities and	854 788,044	5,362 733,151	854 790,073	5,362 736,695
other charges Current tax liabilities	3,135 -	3,177 229	1,107 -	1,064 -
Deferred tax liabilities Other liabilities Accruals and deferred income	5,264 27,138 9,799	3,914 23,217 10,822	4,236 14,070 4,735	3,136 15,076 4,420
Total liabilities	834,234	779,872	815,075	765,753
Total equity and liabilities	950,069	882,746	919,236	859,838
Memorandum items
Contingent liabilities	14,148	9,078	14,167	9,093
Commitments	202,384	247,737	202,384	247,737

Statements of Changes in Equity For the year ended 31 December 2018

	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 2017	11,044	18,530	13,723	50,541	93,838	6,510	100,348
Comprehensive income Profit for the year	-	-	-	5,129	5,129	574	5,703
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 to profit or loss Remeasurements of deferred benefit obligations Transfers and other movements	‐ ‐ ‐ -	‐ ‐ ‐ -	(1,044) (52) (159) 191	- - - (191)	(1,044) (52) (159) -	(37) - (64) -	(1,081) (52) (223) -
Total other comprehensive income for the year	‐	‐	(1,064)	(191)	(1,255)	(101)	(1,356)
Total comprehensive income for the year	‐	‐	(1,064)	4,938	3,874	473	4,347
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners Dividends to equity holders	‐	‐	-	(1,149)	(1,149)	(433)	(1,582)
Changes in ownership interests in subsidiaries that do not result in a loss of control Change in non-controlling interests in subsidiary	‐	‐	3	(426)	(423)	184	(239)
Total transactions with owners	‐	‐	3	(1,575)	(1,572)	(249)	(1,821)
At 31 December 2017	11,044	18,530	12,662	53,904	96,140	6,734	102,874

Statements of Changes in Equity (continued) For the year ended 31 December 2018

	__________		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 31 December 2017 Changes on initial application of IFRS9 At 1 January 2018	11,044 - 11,044	18,530 - 18,530	12,662 36 12,698	53,904 53 53,957	96,140 89 96,229	6,734 - 6,734	102,874 89 102,963
Comprehensive income Profit for the year	-	-	-	8,447	8,447	492	8,939
Other comprehensive income Fair valuation of land and buildings, net of tax Fair valuation of financial assets designated at FVOCI: Net changes in fair value arising during the year Reclassification adjustments – net amounts reclassified	- -	- -	3,962 794	- -	3,962 794	739 (11)	4,701 783
to profit or loss Net change attributable to changes in credit risk Remeasurements of deferred benefit obligations Transfers and other movements	- - - -	- - - -	(38) 70 (5) (125)	- - - 125	(38) 70 (5) -	- - (2) -	(38) 70 (7) -
Total other comprehensive income for the year	-	-	4,658	125	4,783	726	5,509
Total comprehensive income for the year	-	-	4,658	8,572	13,230	1,218	14,448
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners Dividends to equity holders	-	-	-	(1,149)	(1,149)	(427)	(1,576)
Total transactions with owners	-	-	-	(1,149)	(1,149)	(427)	(1,576)
At 31 December 2018	11,044	18,530	17,356	61,380	108,310	7,525	115,835

Statements of Changes in Equity (continued) For the year ended 31 December 2018

Bank	Share capital € 000	Share premium € 000	Revaluation and other reserves € 000	Retained Earnings € 000	Total € 000
At 1 January 2017	11,044	18,530	13,434	48,381	91,389
Comprehensive income Profit for the year	-	-	-	4,846	4,846
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	-	-	(949)	-	(949)
to profit or loss Transfers and other movements	- -	- -	(52) 191	- (191)	(52) -
Total other comprehensive income for the year	-	-	(810)	(191)	(1,001)
Total comprehensive income for the year	-	-	(810)	4,655	3,845
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners Dividends to equity holders	-	-	-	(1,149)	(1,149)
Total transactions with owners	-	-	-	(1,149)	(1,149)
At 31 December 2017	11,044	18,530	12,624	51,887	94,085

Statements of Changes in Equity (continued) For the year ended 31 December 2018

Bank	Share capital € 000	Share premium € 000	Revaluation and other reserves € 000	Retained Earnings € 000	Total € 000
At 31 December 2017	11,044	18,530	12,624	51,887	94,085
Changes on initial application of IFRS9	-	-	36	53	89
At 1 January 2018	11,044	18,530	12,660	51,940	94,174
Comprehensive income
Profit for the year	-	-	-	8,181	8,181
Other comprehensive income Fair valuation of land and buildings, net of tax Fair valuation of financial assets designated at FVOCI:	-	-	2,105	-	2,105
Net changes in fair value arising during the year Reclassification adjustments - net amounts reclassified	-	-	818	-	818
to profit or loss	-	-	(38)	-	(38)
Net changes attributable to changes in credit risk	-	-	70	-	70
Transfers and other movements	-	-	(125)	125	-
Total other comprehensive income for the year	-	-	2,830	125	2,955
Total comprehensive income for the year	-	-	2,830	8,306	11,136
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders	-	-	-	(1,149)	(1,149)
Total transactions with owners	-	-	-	(1,149)	(1,149)
At 31 December 2018	11,044	18,530	15,490	59,097	104,161

Statements of Cash Flows For the year ended 31 December 2018

	Group			Bank
	2018	2017	2018	2017
	€ 000	€ 000	€ 000	€ 000
Cash flows from operating activities Interest and commission receipts Receipts from customers relating to postal	27,546	24,052	27,871	24,238
sales and other revenue Interest and commission payments Payments to employees and suppliers	51,778 (5,844) (51,464)	34,484 (6,238) (41,509)	425 (5,844) (11,070)	172 (6,243) (10,189)
Cash flows from operating profit before changes in operating assets and liabilities	22,016	10,789	11,382	7,978
(Increase)/decrease in operating assets: Treasury bills Deposits with Central Bank of Malta Loans and advances to banks and customers Other receivables Increase/(decrease) in operating liabilities: Amounts owed to banks and to customers Other payables	(16,549) (529) (84,792) (394) 54,893 (899)	47,116 (917) (97,713) (726) 11,615 6,259	(16,549) (529) (83,792) (284) 53,378 (1,007)	47,115 (917) (94,820) (717) 11,335 6,247
Net cash used in operations Income tax paid	(26,254) (4,628)	(23,577) (4,309)	(37,401) (3,860)	(23,779) (3,221)
Net cash flows used in operating activities	(30,882)	(27,886)	(41,261)	(27,000)
Cash flows from investing activities Dividends received Interest received from investments Purchase of investments Investment in subsidiary Proceeds on maturity/disposal of investments Purchase of property, plant and equipment Acquisition of non-controlling interests	369 2,011 (27,850) - 4,406 (2,921) -	326 2,196 (906) - 3,285 (2,943) (429)	1,970 1,845 (27,350) - 4,156 (1,576) -	326 2,038 (879) (1,500) 2,850 (1,396) -
Net cash flows (used in)/generated from investing activities	(23,985)	1,529	(20,955)	1,439
Cash flows from financing activities Dividends paid to equity holders of the Bank Dividends paid to non-controlling interests	(1,149) (427)	(1,149) (244)	(1,149) -	(1,149) -
Net cash flows used in financing activities	(1,576)	(1,393)	(1,149)	(1,149)
Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year	(56,443) 268,636	(27,750) 296,386	(63,365) 263,213	(26,710) 289,923
Cash and cash equivalents at end of year	212,193	268,636	199,848	263,213