Earnings call transcript: Eastlands Bank Q2 2025 sees strong profit growth

Eastlands Bank, a prominent player in the Icelandic banking sector with a market capitalization of $1.9 billion, reported a robust second quarter for 2025, with a profit of 7.2 billion ISK, marking a 37% year-over-year growth. The bank’s return on equity reached 13%, and it achieved a net interest margin of 3.3% for the quarter. According to InvestingPro analysis, the bank currently appears slightly overvalued based on its Fair Value assessment. Despite challenges such as a slowdown in the housing market and U.S. tariffs on Icelandic exports, Eastlands Bank maintained strong performance across its operations.

Key Takeaways

• Eastlands Bank reported a 37% increase in quarterly profit year-over-year.
• The bank’s net interest income rose by 1.5 billion ISK compared to the previous year.
• A new partnership with Wies for insurance sales and digital innovation investments were highlighted.
• The bank anticipates reaching the upper end of its full-year ROE guidance of 10-11%.

Company Performance

Eastlands Bank demonstrated significant growth in the second quarter of 2025, with profits increasing by 37% compared to the same period last year. The bank’s strong performance is attributed to robust growth across all revenue units and strategic investments in digital innovation, including a new internet banking platform and enhanced mobile app. The bank also launched a partnership with Wies for insurance sales, further diversifying its revenue streams.

Financial Highlights

• Quarterly Profit: 7.2 billion ISK, a 37% increase YoY
• Year-to-Date Profit: 12.4 billion ISK
• Net Interest Income: 13.9 billion ISK, up by 1.5 billion YoY
• Net Interest Margin: 3.3% in Q2
• Cost-to-Income Ratio: 41%

Outlook & Guidance

Looking forward, Eastlands Bank expects to achieve the upper end of its full-year return on equity guidance of 10-11%. The bank’s stock has shown strong momentum, delivering a 30.77% return over the past year and maintaining a "GOOD" Financial Health Score of 2.59 according to InvestingPro metrics. The bank anticipates stable fee income in the second half of the year and is exploring potential capital optimization through AT1 and Tier 2 issuance. The ongoing share buyback program is also expected to continue.

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Executive Commentary

"We had a very robust quarter with very strong growth in core operating income," said Jungkun Omerson, CEO of Eastlands Bank. Aleth Ledersson, CFO, added, "Overall, the results for the second quarter are very strong." These statements underscore the bank’s confidence in its financial health and strategic direction.

Risks and Challenges

• The U.S. has imposed 15% tariffs on Icelandic exports, which could impact the bank’s international operations.
• Inflation remains a persistent issue, potentially affecting consumer spending and economic growth.
• The housing market is showing signs of a slowdown, which could impact mortgage lending and related services.

Q&A

During the earnings call, analysts inquired about the bank’s profit warning guidelines and potential mergers and acquisitions. The bank’s leadership also discussed the impact of CRR3 implementation on capital ratios and reaffirmed their commitment to a capital optimization strategy.

Eastlands Bank’s strong performance in Q2 2025 reflects its strategic initiatives and robust market position, despite external economic challenges. The bank’s focus on digital innovation and capital optimization is expected to support continued growth in the coming quarters.

Full transcript - Islandsbanki hf (ISB) Q2 2025:

Piat Njana, Investor Relations Moderator, Eastlands Bank: Good morning and welcome to Iceland’s Bank this Friday, where we present the financial results for the 2025. I’m Piat Njana with Investor Relations and I’ll be moderating today’s session. I am joined by our CEO, Jungkun Omerson and CFO, Aleth Ledersson. Before I hand the session over to them, I want to remind you that as per usual, we will have a Q and A session following the presentation. You can participate in the session via the conference call using the dial in details and press pound key 5 and the operator will give you the floor.

You can also submit questions in writing using the webcast form or send us an e mail through ireastlandsbanken. Is. Now over to you, Jungkune.

Jungkun Omerson, CEO, Eastlands Bank: Thank you, Bjartne, and thank you all for joining in this peak of the summer season, summer vacation season. The weekend ahead here in Iceland is Iceland’s biggest travel weekend where people flock outside of the cities and towns and seek out festivals across the country. And also the Icelandic national sport of following the weather, finding out where is the best weather in Iceland during the weekend, which now should be in the Northeast probably. Apart from that, we have had a good tourism season so far this year and in general good economic conditions. Now moving to the second quarter earnings of the bank.

We had a very robust quarter with very strong growth in the core operating income of the bank and very healthy return on equity of 13%. The costincome ratio came in at 41%, mainly on the back of strong revenue generation. And we obviously remain extremely well capitalized with our capitalization in the amount of around SEK40 billion. The balance sheet remains very strong, bit of an uplift in the Stage two loans, mainly due to some forbearance measures in the real estate sector where the selling of new apartments has slowed down a bit. So we have had to extend some credit to some of our customers there to give them a bit more time in terms of to sell the apartments.

But apart from that, a very healthy loan book and an overall good quality on the balance sheet. In terms of our targets, obviously, reached all our targets in the second quarter with the return on equity well above our 10% target. We have now noted that the guidance for the year is 10% to 11%. I would say we’d hope to be rather in the upper end of that range. And this the range also assumes that in the second quarter of the year, we have through the cycle regular impairment levels.

The outlook for impairments is quite good at the moment. So if obviously we will have lower impairments, that would have a positive impact on our profitability. The economy is gradually as you can see here, lifting off. We expect to see some two percent real growth this year. We got news this morning that The U.

S. And Trump have put tariffs on Iceland at 15% rather than the planned 10% tariffs. And this obviously can have some impact. And then obviously, we will see what the overall impact of tariffs across different countries will have in the coming weeks and months. For Iceland, it’s we mainly export seafood and medical equipment to The U.

S. And we obviously also see where there will be some exemptions from the tariffs. But in general, obviously, a bit of a negative news this morning, but hopefully will not have major impact here in Iceland. Like I said, the housing market is slowing down a bit with a bit more selling time for new apartments, especially the older apartments are easier to sell than the new ones, which are at a bit higher prices. And inflation is still a bit stubborn.

So we are now actually expecting or rather expecting that we will not see further rate decreases this year. But hopefully inflation will come down rather quickly and then we will see further rate cuts towards or either towards the end of the year or early next year. All the revenue units did very well in the quarter. We’re seeing very good growth across all three revenue units both on the balance sheet and in income. And I think I’ll cover these a bit more in the following slides.

In terms of the main events of the year, we could say that the sale of the government stake obviously is the biggest event which came in May and I will cover in the following slides. We launched the partnership with Wies during the quarter, which is off to a very good start where we are basically selling insurance from Wies to our customers and a very healthy and good and strong relationship there from the very start. And we are seeing a very good pickup from our customers. And the main obviously target of this was to increase customer happiness and retention of our customers. We have seen a very strong market share in equities and bonds here in Iceland.

And like I said overall very good operations business wise during the quarter. Like I mentioned, the highlight of the quarter was the government shutdown in May where we saw extremely good growth from institutional clients and especially from the Icelandic retail. And as you all probably all know due to the heavy demand from retail pretty much everything was allocated to the retail. And we are now seeing retail investors having around 35% stake in the bank. The Icelandic pension funds have some of them have been increasing the shares or the shares owned in the bank as well and have been seeing extremely good trading in the stock in the past few weeks and we are seeing volumes up by 400% year on year, which is obviously extremely good for our shareholders to see more liquidity in the stock.

The number of shareholders topped at around 35,000 just after the sell down in May ending at around 31,000 or just under 32,000 at the end of the quarter and moving slightly downwards. But we are seeing much less sell down from the public than we had expected. We had expected maybe 20% to 30% to sell their shares following the event. But as you can see we still have large number of shareholders which is obviously quite enjoyable. Moving along first in terms of the Investment Banking or the Corporate Investment Banking unit.

We have seen very strong activity there. Two notable sizable transactions being announced very recently. First, the Samhari land based salmon farming and then the merger of Orkan and Samkirk, which is creating a retail giant here in Iceland. I could say the third retail giant here and a very competitive company and where we are underwriting part of the equity of that transaction. Like I said, we have enjoyed the highest market share in both the debt and equity in the capital markets in terms of brokerage and very strong market share in foreign currency as well.

And we are utilizing our model as you can see on the bottom right of the graph where we have full services within this unit, this CIB unit where we can service clients both on the lending front and also in terms of capital markets. In terms of business banking, the same there, very healthy activity and good growth in the quarter and seeing many very interesting projects as you can see on the right here in terms of tourism industry, the so called Forest Lagoon which is in the north of the country where the plan is to build up a hotel next to the lagoon. We launched earlier this year a new Internet bank, which has been very successful and we are seeing a very good increase in the Net Promoter Score from our customers and becoming now well above zero, which is obviously a very healthy sign in terms of the customer service level. And so we are seeing at least a very stable and even increasing market shares. In terms of digital innovation, we have been investing quite heavily there with new web pages and huge investments in the app and the Internet bank as I mentioned.

And this is obviously having a big impact on customer satisfaction. Last but not least, I would like to mention the Icelandic Eastlandsmarking Reykjavik Marathon, which is the biggest charity event of the year with obviously, where Reykjavik is filled with the runners and a brilliant day here accompanied with the Reykjavik festival, which is a great day to visit Reykjavik and participate. And like I said, the biggest charitable event of the year. So the charities here in Iceland rely quite heavily on this event. And the outlook the sign ups are already in great place and the fundraising for charities is at a very nice pace compared to last year.

I have a long term goal to be able to run the 10 ks in minutes fewer than my own age, which is a very good goal because it grows with age. And so now I’m I just turned to 49 earlier this year. So the target is obviously to run the 10 ks below forty nine minutes. And that shouldn’t be a problem, but we will see in August. So from the marathon numbers over to the financial numbers over to you Alert.

Aleth Ledersson, CFO, Eastlands Bank: Thank you, Jorgone. We are quite pleased presenting our results for the quarter here where we turned a profit of 7,200,000,000.0 That means year to date $12,400,000,000 Return on equity 13 for the quarter where all revenue streams and items were contributing. Quarterly profits were growing by 37% compared to the previous year. Shifting focus to the net interest income first. The group turned the net interest income of $13,900,000,000 in the quarter, up by $1,500,000,000 roughly from the same quarter last year.

In terms of NIMs, we turned to 3.3% NIM in the second quarter and 3.2% NIM over the first two quarters as a whole. In the quarter, we accounted for point 36% of inflation compared to a level of 1.51% the first quarter. We expect the levels in the third quarter to be around 1.3% CPI ticks going through our books on a CPI imbalance of £178,000,000,000 The CPI imbalance has been leveling off in line with our expectations. We guide towards that the next rate decision is being announced at the August 20. And I think many analysts assume that rates will be kept unchanged at that point in time as inflation has been more persistent than previously anticipated.

Shifting our focus to fees. As in previous quarters, payments is the largest fee income segment, but we saw a quite good growth in the Investment Banking Services. Overall, fee and commissions were growing by 13% year on year and 7.5% over the first two quarters as a whole. We expect the second part of the year to be a relatively good fee income driven by the contribution of all fee income streams really. In terms of NFI, we turned a neutral result following a turbulent first quarter as we discussed the last time we met.

NFI amounted to £13,000,000 positive for the quarter as a whole as we saw volatility in the capital markets come down and activities come up. It is unclear how the future holds as always, but we expect to be well positioned from an NFI standpoint. Market risk remains a very small part of our balance sheet as in the previous quarters. In terms of other operating income, we turned a profit of $143,000,000 mainly driven by gain of sales of property. During the first quarter, we reevaluated the investment property mainly related to the bank’s previous headquarter at Kirchhysandertur.

And the group expects that steps will be taken towards monetizing that asset in the following quarters. Turning to focus. As Jungskunin mentioned, the cost to income ratio was at 41% over the quarter and 44.1 over the first two quarters as a whole. We saw a 6.8% growth in salaries, but reduction in other operating expenses, noting however that we had an administrative fine in the previous year. Overall, adjusting for the administrative fine, we saw a three percent growth in operating expenses year over year.

Overall, this is a strong cost comp to income ratio, driven mainly by revenue increases, but also cost control. Shifting to the balance sheet. The balance sheet closed off at $1,330,000,000 dollars growing by 2.5% over the quarter or roughly 10% in an annualized basis. As before, the composition of the book is more or less the same, 43% mortgages and the rest healthily divided between segments. The book is over 94% covered by collateral where LTVs are modest currently at 53 across all types of assets and it’s skewed towards the lower risk classes as you can see on the bottom right hand side.

This of course translates into impairments where we released £400,000,000 over the quarter. Stage three loans are both strong and stable closing off at 1.6% for the portfolio as a whole. We saw a slight increase as Jankuri mentioned in Stage two loans driven by increased forbearance measures mainly related to loans in construction as sale of new housing has slowed down a bit. We also like to draw your attention to the fact that we are not equally weighted when it comes to the economic scenarios where we are a bit weighted towards the bad scenario in terms of our impairments as we have been for many, many quarters now. Looking at the mortgage book, we have seen the shift of mortgage products started to normalize, as you can see on the top left hand side.

The book is entirely covered by collateral averaging at 54% loan to value as seen on the bottom left hand side, which of course is a benefit at the implementation of CRL III, which we expect to be implemented later this year. Asset quality remains high for the mortgage book where NPLs closed off at 1% and Stage two loans remained flat over the last two quarters. On the top right hand side, we draw your attention to the net interest loan fixed rate imbalance, where over the course of next four quarters we will have GBP 50,000,000,000 of fixed rate mortgages being reset. Those mortgages are customarily or in general at quite lower rates than what we’re seeing market rates currently. So as those loans are being refinanced, we will see this fixed rate imbalance we have been discussing in our previous earnings call being alleviated at a quite rapid pace.

When it comes to commercial real estate, it is the same story as in previous quarters. The book is well diversified and of good quality. We have seen reduction in Stage two loans down to a level of 2.9% related to a payment of a loan, which was classified as Stage three. The construction book as a whole is over 50% to residential real estate. As for the CRE book, we are seeing quite good diversification and the CRE entities in Iceland have a natural hedge as the revenues are in the same currency CPI linked as the liabilities and they are funded for a long time unlike many other geographies where you see those companies predominantly funded with short term instruments.

Shifting the focus to the liability side of things. Deposits are currently around 50% of our liability sides and grew in the second quarter where we reached the 4.4% growth over the year as a whole. We saw good growth in all segments where we saw over 2.5% growth, for example, from retail deposits, which are over 50% of our deposit base. And obviously, this strong deposit position and strong growth has allowed us to be more flexible when it comes to wholesale funding where we have a light maturity profile for the remainder of this year and throughout 2026 where maturities are only at £25,000,000,000 throughout this year and at $63,000,000,000 over the next year as a whole. This allows the bank to be more agile when it comes to wholesale funding needs.

We are currently over 50% funded at the wholesale front through ISK as the senior market has been growing quite rapidly domestically. In line with our capital optimization journey, we expect AT1s and Tier two to be issued potentially towards the end this year or into the next year as capital requirements come closer to or as capital position comes closer to capital targets. Liquidity is ample and high. We closed off the reporting period at 185% LCR ratio and 121% for the ISK. Liquid assets are currently at 18 of the balance sheet and fully mark to market as in all previous quarters, All ratios well above requirements and stable throughout time.

And maybe lastly on capital. Towards the end of the second quarter, we received the results of the SREP process by the Central Bank of Iceland, which resulted in a reduction of additional capital to a level of 1.4%, which is a 0.4 percentage point reduction from the previous assessment. Following this, the overall capital requirement is now at 19.3% or 15.2% looking at it from a CET1 standpoint. Taking into account a management buffer midpoint of 200 bps, the capital or the CET1 target is currently at 17.2% compared to a level of 18.5% at the end of the reporting period. In addition, we have deducted from the capital base around $16,000,000,000 which have been committed to buybacks, which are yet to be completed.

Buybacks were on hold throughout the second quarter, mainly related to the sell down of the Icelandic government, but were resumed at the July and are currently ongoing. In our previous earnings calls, we have also discussed the effects of CRL III, which was expected to come into force on the first half of this year, but are currently expected towards the end of this year. Our previous assessment was that the effects of CRO III would reduce the risk amounts or the risk exposure amount by around 4.54% to 5%. We are currently we are constantly reassessing this and are currently guiding towards a reduction of REA of around 6% to 7%. So taking all of this into account, both the current excess capital on balance sheet, also the committed and uncompleted buybacks as well as the anticipated effects of CRL III.

Our excess capital position is around £40,000,000,000 from a CET1 standpoint down to the capital target of CET1 staying at 17.2%. As before, the bank is open to both internal and external growth and is committed to its capital optimization journey. So overall, the results for the second quarter are very strong and there’s a good underlying momentum in all revenue streams. We returned the return of equity of 13% for the quarter, 11.1% for the first half as a whole. Margins or net interest margins are up from the previous year, currently at 3.2% for the first half of the year.

And we are also guiding towards, I would say, fluctuations as in previous quarters related to the same effects. We have seen strong growth in net fee and commission income. When it comes to the balance sheet, we saw healthy loan growth, healthy deposit growth and very strong and stable asset quality as Stage three loans closed off at 1.8%. Loan portfolio is over 94% covered by collateral and skewed towards risk classes lower risk classes. And a capital optimization is an ongoing focal point where we have around ISK £40,000,000 to be either deployed or returned to shareholders as market conditions allow.

Over to you, Konin.

Jungkun Omerson, CEO, Eastlands Bank: Thank you. I think we’ll move over to Q and A. Yes.

Piat Njana, Investor Relations Moderator, Eastlands Bank: We’re now open for a Q and A session. You can participate in the session using the conference call through the dial in details and press pound key 5 and the operator will give you the floor. You can also submit questions to us through the webcast form or send us an e mail as previously noted. So operator, are there any questions on the line?

Aleth Ledersson, CFO, Eastlands Bank: Actually, no questions on the telco at the moment. So if you have any written questions, I can come back if there will be any.

Piat Njana, Investor Relations Moderator, Eastlands Bank: Thank you. We’ve received questions from Alexander at Aker who gives congratulations on a good quarter and poses a couple of questions. I’ve decided to group them into two sessions for you guys. So first of all, what are your guidelines on profit warnings? Q2 earnings are 18% above consensus and pretax earnings are 24% above, yet that didn’t call for a profit warning.

And the other question for this part is, previously you expected Rare related to development asset ADC to increase 60% due to CRR3. Now that EPA has proposed changes to the ADC implementation, can you comment on the effect of the proposed changes?

Aleth Ledersson, CFO, Eastlands Bank: Yes. Maybe starting with the I would say the profit warnings. We have internal guidelines which have not been made public. When we meet those we issue a profit warning. I would say no questions asked if we pass that threshold.

But at the same time, we also take a viewpoint on the composition of the earnings and the composition of the consensus and assess in each and every case if there is a need for, let’s call it, an ad hoc profit warning even if target levels have not been reached. But the levels are undisclosed. With regards to the CR3, as I said before, we previously assumed that REA would be reduced by 4% to 5% boosting capital ratios in line with that. But currently are assessing we’re currently, I would say, assessing between 67% where multiple factors including the I would say the guidelines from EPA are being taken into account. This assessment is constantly being updated and reevaluated and we will provide updates to the markets as they develop until the annihilation of CRL3 into Icelandic law.

Piat Njana, Investor Relations Moderator, Eastlands Bank: Thank you, Alert. And I’ll continue with the questions from Akkor. On M and A and external growth, now that Kveka has entered into merger talks with Adrient Bank, do you have any other specific targets in mind regarding M and A? Is your focus priority on growth in Iceland or are you looking abroad? And continuing in your 2025 guidance, you commit to conclude capital optimization subject to market conditions.

Does that assume external growth or will you conclude the optimization by returning capital to shareholders only before year end if there’s no external growth? And the follow-up to that one, does the commitment apply to the future excess capital following the implementation of CRR three?

Jungkun Omerson, CEO, Eastlands Bank: Well, thank you for that. So firstly on the M and A, I think we are basically domestically we are open for opportunities. But abroad, we are now more actively seeking opportunities and mapping out what opportunities we can see outside of Iceland. In terms of the capital optimization, that is actually a moving target. As we have seen, the implementation of CRR3 has been delayed and the impact is actually growing a bit larger.

So you could say it’s a moving target. But we remain very actively engaged and plan to obviously optimize the capital as soon as possible. But I would expect that they would move at least into next year. But we continue to on the buyback program. And like Aleth said, we have already allocated about SEK 16,000,000,000 to that program.

And with more liquidity in the stock now, we can move a bit faster on that front. So basically working actively on both sides and remain very committed to the optimization program.

Piat Njana, Investor Relations Moderator, Eastlands Bank: Thank you. Junkoony, Einar have any questions? Are there any online?

Aleth Ledersson, CFO, Eastlands Bank: No questions on the telco.

Piat Njana, Investor Relations Moderator, Eastlands Bank: Okay. So if there are no further questions, we want to thank you for joining us this morning. We appreciate the questions and the time allocated to tuning into our webcast. I hope you have a good day and a great weekend.

Jungkun Omerson, CEO, Eastlands Bank: Thank you all. Thank you.

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