From the Chairman of the Board and the CEO

Helga Björk Eiríksdóttir was elected Chairman of the Board of Directors of Landsbankinn in April 2016. Hreiðar Bjarnason, Managing Director of Finance, assumed the post of interim CEO in November 2016.
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Address of the Chairman of the Board of Landsbankinn

Landsbankinn had positive results in 2016. Conditions in the economic environment were favourable and the majority of the Bank's customers prospered.

Since the beginning of 2015, the Bank's employees have worked to implement its new and ambitious strategy for the years leading up to 2020. Landsbankinn has made concerted efforts to improve customer service and at the same time taken steps to strengthen core operations.

Since 2013, the Bank has paid out the lion's share of each previous year's profit in dividend while simultaneously maintaining strong liquidity and equity positions. Landsbankinn paid just under ISK 28.5 bn in dividends to its owners in 2016. In 2013-2016, the Bank has paid a total of ISK 82 bn in dividend, 98% of which goes to the National Treasury. At the Annual General Meeting of Landsbankinn on 22 March 2017, the Board of Directors will propose that the Bank pay ISK 13 bn in dividend for the year 2016. Should this proposal be approved, dividend paid by Landsbankinn in 2013-2017 will amount to ISK 95 bn. The Board will further propose that the AGM approve payment of a special dividend in September 2017.

Helga Björk Eiríksdóttir, Chairman of the Board

The quality of the Bank's credit portfolio continued to improve in 2016. It is especially pleasing to note that at year-end, the proportion of loans in arrears had fallen to its lowest value since the establishment of the Bank, or 1,5%.

Ownership of Landsbankinn

Name Holding
National Treasury of Iceland 98.20%
Landsbankinn hf. 1.47%
Other shareholders* 0.33%
*In 2013 around 1,400 employees and former employees received shares in Landsbankinn under a settlement agreement between LBI hf. and the Icelandic State. Upon the mergers with Sparisjóður Vestmannaeyja and Sparisjóður Norðurlands, former guarantee capital holders in the savings banks received shares in the Bank.

In October 2016, rating agency Standard & Poor's revised Landsbankinn's credit rating to BBB/A-2 with a positive outlook. Improving terms and healthy transactions on international markets allowed the Bank to lower its debt to LBI ehf. by ISK 61 bn in 2016. The Bank intends to discharge the debt in full in 2017.

Supreme Court rulings in four cases involving the foreign currency indexation of loans impact the Bank's results for 2016 to a considerable degree. Results were nevertheless acceptable and Landsbankinn profited by ISK 16.6 bn, after taxes. The Bank's balance sheet is very sound, with equity amounting to ISK 251.2 bn and its CAR being 30.2% at year-end.

In September, Landsbankinn announced that it would offer to buy back own shares as authorised by the AGM. The Bank purchased own shares to the amount of ISK 1,391 bn during two buy-back periods. The third and last buy-back period begins on 13 February and ends on 24 February 2017. At the end of 2016, Landsbankinn’s shareholders numbered 1,003.

Several changes occurred to the composition of the Board of Directors in April last year. I became the first woman to chair Landsbankinn’s Board of Directors when Tryggvi Pálsson stepped down as Chairman and left the Board. Directors Eva Sóley Guðbjörnsdóttir, Kristján Davíðsson, Jóhann Hjartarson and Jón Sigurðsson all left the Board. I thank them for their efforts and our acquaintanceship. New directors of the Board are Magnús Pétursson, Berglind Svavarsdóttir, Einar Þór Bjarnason, Hersir Sigurgeirsson and Jón Guðmann Pétursson. In November, Ásbjörg Kristinsdóttir announced her resignation as an alternate to the Board of Directors of Landsbankinn. Danielle Pamela Neben was a Director of the Board since April 2013 and has now resigned. I thank her for her work on behalf of the Bank.

The Board of Directors of Landsbankinn is optimistic about the future. Landsbankinn is well positioned and opportunities abound. Certainly there is need to improve core operations even further and we face several challenges going forward, such as the implementation of new rules on the Bank's operation, increasingly stiff competition both domestically and abroad, fast-paced technological developments and increased customer demands for varied service.

The Board deems the restructuring period that followed the financial collapse to have ended. The Board thanks Steinþór Pálsson, who stepped down as CEO in late November 2016, for his weighty efforts on behalf of the Bank since mid-year 2010. We wish him all the best for the future.

Hreiðar Bjarnason, Managing Director of the Finance division, has served as interim CEO since 30 November 2016. Lilja Björk Einarsdóttir will take up the position of CEO of Landsbankinn on 15 March. She has extensive experience and knowledge of the management of financial undertakings. The Board of Directors trusts her to lead the powerful team of Landsbankinn employees to positive achievements for the benefit of customers, shareholders and the entire community.

Landsbankinn is Iceland's largest bank, both in terms of customer numbers and balance sheet. It plays an important role in the country's economy, and its size, ownership and history accord it a special place in the minds of many Icelanders. The Bank's strategy is to be exemplary so that its customers can truly say: This is what a bank should be like.

Dividend paid by Landsbankinn 2013-2017 (mISK)

*Proposal of the Board of Directors, to be submitted to the AGM on 22 March 2017.

Address of the interim CEO of Landsbankinn

Hreiðar Bjarnason, acting CEO

Landsbankinn continues to be the largest financial undertaking in Iceland and its financial position is very sound. The Bank's core operations yielded positive results in 2016 - net interest and commission income increased considerably between years while the Bank’s operating expenses decreased.

Our market share in the retail market has never been higher and the Bank's position in the corporate market and on financial markets remains strong. Surveys show that customer satisfaction increased considerably during the year, a fact we consider tremendously important, as the Bank emphasises providing customers throughout Iceland with exemplary service at competitive terms.

Standard & Poor’s raised Landsbankinn's credit rating for the second year in a row, to BBB/A-2 with a continued positive outlook. This is a welcome recognition of the great work that the Bank has done in previous years.

Landsbankinn has emphasised ensuring profitability from core operations, discounting large, irregular items. This strategy has yielded positive results and the Bank will continue along this path.

Landsbankinn's balance sheet is robust. Equity at year-end 2016 amounted to ISK 251.2 bn and the Bank's CAR was 30.2%, much higher than regulators' minimum requirements. This strong position has allowed the Bank to pay a significant sum in dividend in recent years and this trend is likely to continue.

Full-time equiv. positions at year-end

Technological developments have influenced banking very much in recent years and further and even more frequent changes can be expected in the near future. Landsbankinn continues to emphasise the development of digital solutions in its operation.

In recent years, the online banking platforms for private individuals and corporates, as well as Landsbankinn mobile banking, have been renewed. These efforts have been successful and Landsbankinn mobile banking,, was chosen the best web app at the Icelandic Web Awards in 2016. Online banking for individuals has twice been named the best service site. Umræðan, Landsbankinn's new online review of social, economic and financial matters, was selected the best content and news site in 2016.

Over the past two years, great effort has gone into implementing a new deposit and payment system in cooperation with the Icelandic Banks' Data Centre (IBDC). The new system replaces several, home-made core systems from IBDC, some of which are over 40 years old and ripe for replacement. Once this project is completed in 2017, the Bank will be even better placed to offer diverse digital banking solutions.

It is important to the Bank and its customers that Landsbankinn has good access to international credit markets. Landsbankinn's foreign bond issue in 2016 was very successful. A EUR 500 m bond issued in September was at much more favourable terms than Icelandic banks had received for a long period. The proceeds from the issue were primarily used to pre-pay less favourable funding instruments. In October, Standard & Poor’s raised the Bank's credit rating to BBB. Landsbankinn's access to international credit is now easier than before, which provides the Bank with the possibility to optimise its capital structure over the coming years.

As Iceland's largest financial undertaking with a sizeable workforce, Landsbankinn plays a large role in the community. The Bank's strategy emphasises the integration of corporate social responsibility in the Bank's entire operation and activities. Landsbankinn has set a clear policy regarding responsible investment and in November, the Economic Research department began effective analysis of the operation of listed companies with regard for sustainability and social responsibility. For many years now, Landsbankinn has put gender equality front and centre. It is therefore extremely pleasing and simultaneously important for the Bank to have been awarded the Golden Seal of PwC's Equal Pay Audit for the second time in December 2016. The Bank also received the Golden Seal in 2015, the first Icelandic bank to achieve this distinction.

In November, Steinþór Pálsson quit as CEO of Landsbankinn. On behalf of the Bank's employees, I thank him for his good work during difficult times and a pleasant acquaintanceship.

Landsbankinn's role is to be a dynamic presence in the community and a trusted financial partner to its customers. We are extremely gratified that private individuals as well as companies increasingly choose to bank with Landsbankinn. Our strategy is clear: We want our customers to feel that the Bank helps them to achieve their goals. I thank our customers and my colleagues for a successful collaboration in 2016.