Lombard Bank pre-tax profits down by 25%

Lombard Bank turned in a satisfactory performance for the year ended 31 December 2013, notwithstanding the challenging operating environment which prevailed.

Increased competition for customer deposits, a low-interest rate setting and subdued demand for credit all contributed towards pressure on interest rate margins.

The bank also continued to absorb the impact of an increasingly stringent regulatory regime. Against this backdrop it registered a profit before tax of €6.39 million, down 25.4% over the previous year. The decline was mainly due to the application of cautious provisioning criteria that resulted in higher amounts set aside in respect of credit facilities.

Results for the group include a slightly lower contribution from MaltaPost which experienced a €110,000 (5.4%) decrease in profits before tax.

The board of directors are recommending a final ordinary gross dividend of 4 cents per share (net dividend of 2.6 cents per share) with a nominal value of 25 cents per share, to be paid on 30 April 2014, and a bonus share for every 20 to be funded by a capitalisation of reserves amounting to €500,000.

Net interest income at €15.07 million was up €1.27 million (9.2%) over 2012, reflecting also judicious treasury management. Net fees and commission income remained marginally unchanged at €2.33 million.

Employee compensation and benefits at €15.43 million increased by €0.67 million (4.5%) reflecting the costs associated with maintaining a well-trained and motivated human resource complement.

Other operating costs were well contained and showed a decrease of €0.20 million (1.9%) to €10.40 million. Inter-group efficiencies counterbalanced the increased cost of compliance with regulatory requirements as well as new investment in technology. The cost efficiency ratio, including the highly human resource intensive processes at MaltaPost, improved to 70.7% from 72.0%.

Total impairment allowances were increased by €4.18 million, mainly reflecting the prudential management of exposures that the Bank had to certain credit facilities that were considered to require a longer period to reach a positive conclusion. Overall, a high percentage of facilities are solidly secured.

Net loans and advances to customers at €314.77 million were €5.09 million (1.6%) lower than in 2012. The Bank continued to be closely involved in property project finance even though demand in this sector was subdued during 2013 and tighter regulatory constraints placed further pressure on the Bank’s objectives. 4

Customer accounts at €493.9 million increased by €31.79 million (6.9%) over 2012.

Given that the financial markets remain unsettled, when determining the placement of funds the bank’s main objective is capital protection. Furthermore, no exposures are held to any non-Maltese sovereign or corporate securities.

The Bank’s Capital Adequacy Ratio stood at 19% at year-end, which was well above the required level of 8%. The Core Tier 1 capital ratio stood at 17.4%, providing a strong base to meet the capital requirements under the Basel III framework.

Net Asset Value (NAV) per share stood at €2.00. Earnings per Share (EPS) decreased by 5.1 cents to 10.7 cents. Return on Assets (ROA) was also down from 1.1% to 0.7%, reflecting the record low market rates and the Bank’s prudent placement policy.