Stock Market Review - Lombard announces record profits and robust capital ratios
Pre-tax profit of €14 million in 2008
The Lombard Group published its 2008 financials on March 12. The Group's profit for the year came in at a record level of €14 million, representing a 32.9 per cent increase over the 2007 record earnings. This jump in profitability was mainly attributable to the inclusion of the MaltaPost figures for the first time as a subsidiary and hence comparison to the previous year's financials should take this into consideration. The postal services operator became a subsidiary of the bank in September 2007, when Lombard increased its shareholding to 60 per cent. During the course of 2008, Lombard increased its participation in MaltaPost to 63.8 per cent through further purchases of shares on the market.
Notwithstanding the strong contribution from postal services, Lombard Bank still managed to increase its profitability by 10 per cent to €11.2 million. While Lombard suffered a compression in net interest income due to a declining interest rate scenario and increased competition for deposits, the Bank's profitability was not impacted by any investment write-downs while the loss of foreign exchange income following adoption of the euro was not felt to such an extent as in the larger banks.
The key highlights of Lombard's 2008 results are:
Net interest income down 6.2 per cent to €14.6 million;
Net fee and commission income climbs to €2.3 million (2007: €1.2 million);
Income from postal services of €19.5 million;
Pre-tax profit of €14.1 million;
Loans and advances up 25 per cent to €325 million; deposits grow by five per cent to €440 million.
On March 12, Lombard's directors also recommended the payment of a gross dividend of €0.10 per share, unchanged over last year's payment when adjusted for the four for one share split effected in May 2008. As in previous years, Lombard shareholders have the option of receiving the dividend either in cash or by the issue of new shares at a price of €2.50 per share. The dividend is expected to be paid on April 28 following its approval at the forthcoming Annual General Meeting scheduled for April 23.
Lombard's income statement reveals that net interest income dropped by 6.2 per cent during the whole year to €14.6 million in contrast to the strong rise during the first six months. This was possibly as a result of the significant interest rates cuts which had a lagged effect on the interest receivable on loans compared to the interest paid to depositors. Moreover, due to the increased competitive landscape, Lombard Bank had to maintain attractive rates on its deposits. Lombard's net interest margin decreased by 2.7 percentage points to 50.1 per cent, equivalent to that of HSBC but higher than BOV margin of 43.3 per cent.
Net fee and commission income climbed to €2.3 million from just €1.2 million the previous year while trading profits (including foreign exchange income) shrunk to €0.3 million from €0.7 million in 2007.The largest component of the Group's operating income is "postal sales and other revenue" which amounted to €19.5 million in 2008, representing almost 53 per cent of total income.
Non-interest expenses, comprising administrative costs and depreciation, totaled €23.9 million with a significant amount attributable to the consolidation of the MaltaPost figures. The group cost to income ratio thus increased from 36.7 per cent in 2007 to 64.7 per cent. However, the bank's cost to income ratio remained at a very healthy level of 39.1 per cent.
Group operating profit before impairment allowances and other provisions increased by 7.3 per cent to €13.1 million. During 2008, Lombard recognised a net release in impairment allowances of €1.4 million compared to a provision of €1.9 million in 2007. The directors stated that they maintained their approach to a prudent provisioning policy. This helped the Group's profit climb by 33 per cent to €14.1 million.
Total assets as at December 31, 2008 amounted to €524.7 million, up from €504.5 million in 2007. The bank registered a strong increase in loans and advances to customers. Loans surged by 25 per cent (€64.7 million) to €325 million, with a large percentage of the increase coming during the second half of the year. Likewise, the increase in deposits during the year materialised during the second six months possibly as a result of the increased efforts as the bank offered more attractive term deposit rates. While deposits had dropped to €404 million on June 30 2008 (from €418 million at the end of 2007), during the second half of 2008, customers' deposits climbed by €35.9 million to €439.9 million. The strong increase in loans during the year resulted in a jump in the loans to deposits ratio of 0.74 compared to 0.62 in 2007.
For many years, Lombard's strategy was that of maintaining above-average capital ratios. In last week's statement, the directors placed increased focus on the robust capital and liquidity ratios of the bank. These ratios are especially relevant at a time when many of the larger international banks are having to increase their equity capital so as to maintain comfortable ratios. Lombard's capital adequacy ratio of 15.2 per cent as at December 31, 2008 is substantially higher than that of many banks and almost twice the minimum regulatory level of eight per cent. Likewise, the liquidity ratio of 71 per cent also shows the strength of this small niche bank and this should help it to withstand the challenging economic climate.
Given Lombard's majority control of Malta's postal services company, one envisages that the bank will seek to maximise utilisation of the postal branch network to promote financial services.
• Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd. RFC, are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.
www.rfstockbrokers.com
Notwithstanding the strong contribution from postal services, Lombard Bank still managed to increase its profitability by 10 per cent to €11.2 million. While Lombard suffered a compression in net interest income due to a declining interest rate scenario and increased competition for deposits, the Bank's profitability was not impacted by any investment write-downs while the loss of foreign exchange income following adoption of the euro was not felt to such an extent as in the larger banks.
The key highlights of Lombard's 2008 results are:
Net interest income down 6.2 per cent to €14.6 million;
Net fee and commission income climbs to €2.3 million (2007: €1.2 million);
Income from postal services of €19.5 million;
Pre-tax profit of €14.1 million;
Loans and advances up 25 per cent to €325 million; deposits grow by five per cent to €440 million.
On March 12, Lombard's directors also recommended the payment of a gross dividend of €0.10 per share, unchanged over last year's payment when adjusted for the four for one share split effected in May 2008. As in previous years, Lombard shareholders have the option of receiving the dividend either in cash or by the issue of new shares at a price of €2.50 per share. The dividend is expected to be paid on April 28 following its approval at the forthcoming Annual General Meeting scheduled for April 23.
Lombard's income statement reveals that net interest income dropped by 6.2 per cent during the whole year to €14.6 million in contrast to the strong rise during the first six months. This was possibly as a result of the significant interest rates cuts which had a lagged effect on the interest receivable on loans compared to the interest paid to depositors. Moreover, due to the increased competitive landscape, Lombard Bank had to maintain attractive rates on its deposits. Lombard's net interest margin decreased by 2.7 percentage points to 50.1 per cent, equivalent to that of HSBC but higher than BOV margin of 43.3 per cent.
Net fee and commission income climbed to €2.3 million from just €1.2 million the previous year while trading profits (including foreign exchange income) shrunk to €0.3 million from €0.7 million in 2007.The largest component of the Group's operating income is "postal sales and other revenue" which amounted to €19.5 million in 2008, representing almost 53 per cent of total income.
Non-interest expenses, comprising administrative costs and depreciation, totaled €23.9 million with a significant amount attributable to the consolidation of the MaltaPost figures. The group cost to income ratio thus increased from 36.7 per cent in 2007 to 64.7 per cent. However, the bank's cost to income ratio remained at a very healthy level of 39.1 per cent.
Group operating profit before impairment allowances and other provisions increased by 7.3 per cent to €13.1 million. During 2008, Lombard recognised a net release in impairment allowances of €1.4 million compared to a provision of €1.9 million in 2007. The directors stated that they maintained their approach to a prudent provisioning policy. This helped the Group's profit climb by 33 per cent to €14.1 million.
Total assets as at December 31, 2008 amounted to €524.7 million, up from €504.5 million in 2007. The bank registered a strong increase in loans and advances to customers. Loans surged by 25 per cent (€64.7 million) to €325 million, with a large percentage of the increase coming during the second half of the year. Likewise, the increase in deposits during the year materialised during the second six months possibly as a result of the increased efforts as the bank offered more attractive term deposit rates. While deposits had dropped to €404 million on June 30 2008 (from €418 million at the end of 2007), during the second half of 2008, customers' deposits climbed by €35.9 million to €439.9 million. The strong increase in loans during the year resulted in a jump in the loans to deposits ratio of 0.74 compared to 0.62 in 2007.
For many years, Lombard's strategy was that of maintaining above-average capital ratios. In last week's statement, the directors placed increased focus on the robust capital and liquidity ratios of the bank. These ratios are especially relevant at a time when many of the larger international banks are having to increase their equity capital so as to maintain comfortable ratios. Lombard's capital adequacy ratio of 15.2 per cent as at December 31, 2008 is substantially higher than that of many banks and almost twice the minimum regulatory level of eight per cent. Likewise, the liquidity ratio of 71 per cent also shows the strength of this small niche bank and this should help it to withstand the challenging economic climate.
Given Lombard's majority control of Malta's postal services company, one envisages that the bank will seek to maximise utilisation of the postal branch network to promote financial services.
• Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd. RFC, are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.
www.rfstockbrokers.com