ConsolidatedFinancialStatements
31December2021
Kvika banki hf.
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Appendixes‐unaudited
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IndependentAuditor'sReport........................................................................................................
NotestotheConsolidatedFinancialStatements...........................................................................
ConsolidatedStatementofComprehensiveIncome.....................................................................
EndorsementandStatementbytheBoardofDirectorsandtheCEO..........................................
ConsolidatedIncomeStatement....................................................................................................
ConsolidatedStatementofFinancialPosition...............................................................................
ConsolidatedStatementofChangesinEquity...............................................................................
StatementontheCorporateGovernance
ofKvikabankihf.2021...............................................
‐Generalinformation....................................................................................................................
ConsolidatedStatementofCashFlows..........................................................................................
Non‐FinancialInformationregardingKvikabankihf.....................................................................
‐Significantaccountingpolicies....................................................................................................
‐Riskmanagement........................................................................................................................
‐Financialassetsandfinancialliabilities.......................................................................................
‐Segmentinformation...................................................................................................................
‐Incomestatement........................................................................................................................
‐StatementofFinancialPosition..................................................................................................
‐Otherinformation........................................................................................................................
ConsolidatedFinancialStatements31December2021
Kvika banki hf.
Endorsement and Statement
by the Board of Directors and the CEO
MergerwithTMhf.andLykillfjármögnunhf.
AcquisitionofNetgíróhf.andAurappehf.
Operationsduring2021
Operationaloutlook
These are the audited Consolidated Financial Statements of Kvika banki hf. ("Kvika" or the "Bank") and its subsidiaries (together the "Group") for the
year2021.
The Group operates four business segments, Insurance, Asset Management, Commercial Banking and Investment Banking. The Group provides
businesses, investors and individuals with comprehensive investment banking, insurance services and asset management services, as well as selected
banking services. At the end of December 2021 the Group had ISK 528 billion of assets under management, compared to ISK 527 billion at year end
2020. The relatively small increase in assets under management during the year can by explained by the divestment of large closed‐end funds, which
offsetstheincreaseinfundsundermanagementandprivatebanking.TheBankislistedonthemainlistofNasdaqOMXIceland .
The Group's solvency ratio at 31.12.2021 was 1.57, with a regulatory minimum requirement of 1.0. There is no comparative figure as this is the first year
thatthe
Groupcalcul atesasolvencyratio.
According to the Consolidated Statement of Financial Position, equity at the end of the year amounted to ISK 78,368 million (31.12.2020: ISK 19,208
million)andtotalassetsamountedtoISK246,240million(31.12.2020:ISK123,196million).
Following the merger, the Financial Supervisory Authority of the Central Bank ("FME") has designated the Group as a financial conglomerate as defined
in Article no. 3 of Act no. 61/2017 on Additional Supervision of Financial Conglomerates. As a result of this designation, the Group's capital adequacyis
now calculated as the solvency ratio of a financial conglomerate. Solvency measures the Group's ability to take on setbacks, thus indicating its financial
strength.
At the end of March 2021, the previously announced tripartite merger with TM hf. ("TM") and Lykill fjármögnun hf. ("Lykill") was concluded and as at
endofMarch2021,theGroup'soperationsincludeinsuranceservicesthroughthesubsidiaryTMtryggingarhf.TM'sshareholdersreceived,inreturnfor
their shares in TM, 2,509,934,076 shares in Kvika. The payment was made by issuance of new share capital at end of March 2021. In accordance with
IFRS 3, Business Combinations, the purchase price of TM and Lykill has been allocated to identifiable assets and liabilities acquired. The purchase price
allocationprocessresultedinthe
recognisitionofgoodwillamountingtoISK21billion.Refertonote3forfurtherinformationonthemerger.
During the first quarter of 2021 the Group concluded the acquisitions of Netgíró hf. ("Netgíró") and Aur app ehf. ("Aur"). Netgíró is a provider of "buy
now pay later" services and Aur is a leading financial technology services company. Both companies have an extensive client base and the acquisitions
are in line with Kvika's policy of utilising technological solutions to modernize financial services. Refer to note 3 for further information on the
acquisitions.
Profit before taxes for the year amounted to ISK 10,487 million (2020: ISK 2,339 million), corresponding to an annualised 34.7% return on weighted
tangible equity, based on the tangible equity position at the beginning of the year adjusted for changes in share capital and transactions with treasury
shares during the year The Covid‐19 pandemic continues to have an effect, especially with regards to operational complexity. However, for the year, it
has not had a large impact on the Group's operations and income generating segments. The Group's net operating income during the year was ISK
21,997 million (2020: ISK 8,666 million). Net interest income amounted to ISK 4,646 million (2020: ISK 1,800 million). Net fee income amounted to ISK
6,828 million (2020: ISK 5,956 million). Net premiums and claims amounted to ISK 4,247 million (not part of the Group's operations in 2020). Other
operating income amounted to ISK 6,276 million (2020: ISK 910 million). Administrative expenses during the year amounted to ISK 11,635 million (2020:
ISK 5,724 million). The figures in the consolidated income statement for the year do not include the operations of TM, Lykill or Aur f or the first quarter
as the business combinations took place at end of March. Furthermore, they do not include the operations of Netgíró for January as the business
combinationtookplaceatendofJanuary.
Our balance sheet strength and capital position has increased in the last year and it is expected that this trend will continue. The maintenance of a
strong capital position and liquidity is a priority and this year there will be an emphasis on increasing the Bank's debt issuance, both in Iceland and
internationally, in addition to growing the retail deposit base in ISK. Kvika has considerable excess capital and due to the high profitability of the Group
its capital base is constantly growing. As has been communicated to the market, it is expected that this excess capital will be partially returned to
shareholders in the form of dividends and share buybacks, but the aim will also be to maintain strong capital ratios. That will enable the Group to take
advantage of both external and internal growth opportunities in a sensible manner, with focus on further diversification and granularity of the Bank's
loanbook.
TheBank'sBoardofDirectorsproposethatnodividend
willbepaidintheyear2022on2021operations.
Following the successful merger with TM and Lykil, and the acquisitions of Aur and Netgíró, Kvika's financial position has never been stronger. The Bank
enjoys a combination of financial strength, diversified business units and identifiable growth opportunities. The four business units of the Group :
Insurance, Asset Management, Commercial Banking and Investment Banking are all highly profitable and we expect them to continue to strengthen.
The pending acquisition of Ortus Secured Finance (OSF), will further add to the diversification of the income streams of the group. It is therefore
expected that the strong and stable profitability of Kvika will continue this year, although it should be noted that market conditions in 2021 were
unusuallyfavourable.
This year there will be clear focus on taking advantage of the numerous growth opportunities Kvika has. In the UK we expect to support in a sensible
manner the growth of OSF, and increase its profitability with more efficient f unding, which Kvika's ownership brings. It is expected that Kvika's fintech
platforms will continue to grow at a high rate and there will be an emphasis on offering clients further products and services from across the group. The
aim is also that TM will strengthen its position in the insurance market and in particular increase its relatively small market share in life and health
insurance.
ConsolidatedFinancialStatements31December2021 1
Kvikabankihf.
Endorsement and Statement
by the Board of Directors and the CEO
Economicoutlook
Sharecapitalandshareholders
Shareholder 31.12.2021 31.12.2020
8.20% 7.57%
6.28% 5.86%
6.11% 8.24%
4.61% 0.29%
4.40% 2.18%
4.33% 2.30%
3.08% 0.28%
2.47% 2.89%
2.14% 0.23%
2.02%‐
43.63% 29.85%
Riskmanagement
Corporategovernance
The Bank had 2,820 shareholders at year‐end 2021 (2020: 990), none of which held more than 10% of shares in the Bank (2020: 0). The ten largest
shareholdersareasfollows:
The Bank's issued share capital amounted to ISK 4,907 million as a t 31 December 2021 (31.12.2020: ISK 2,141 million). At the end of the year the Bank
held ISK 117 million treasury shares (31.12.2020: no treasury shares). The shares were acquired through a share buy‐back programme. The Bank's share
capitalwasincreasedbyanominalvalueofISK
2,766millionduringtheyear.
BrúLífeyrissjóðurstarfsmannasveitarfélaga................................................................................................
Bóksalehf.......................................................................................................................................................
The objective of risk management is to promote a good and efficient culture of risk awareness within the Group and to increase the understanding of
employees and management on the Group's risk taking, in addition to an assessment process related to risk and capital position. An emphasis is placed
on being up to speed on the latest developments and adoption of rules related to risk management, such as regarding capital‐ and liquidity
management. The Group is faced with various kinds of risk that relate to its operations as a financial conglomerate and arise from its day‐to‐day
operations. An active risk management entails analysing risk, measuring it and taking actions to limit it, as well as monitoring risk factors across the
Group. The Group’s risk management, and its main operations, are described in the notes accompanying the Consolidated Financial Statements. Refer
tonotes46‐63onanalysisofexposuretovarioustypesofrisk.
FurtherinformationabouttheshareholdersoftheBankisprovidedinnote73.
Lífeyrissjóðu rstarfsmannaríkisinsA‐deild....................................................................................................
Lífsverklífeyrissjóður
.....................................................................................................................................
Kvika is obliged to observe recognised corporate governance guidelines, pursuant to Par. 7 of Article 54 of Act No. 161/2002, on Financial Undertakings.
The Bank complies with the Guidelines on Corporate Governance issued jointly in February 2021 by the Chamber of Commerce, NASDAQ Iceland and
the Confederation of Icelandic Employers in most respects. The only deviation from the guidelines is that Kvika has not appointed a nomination
committee nor decided how one should be appointed as further discussed in an appendix to these financial statements, which contains a corporate
governance statement. Kvika has twice been recognized as a company which has achieved excellence in corporate governance following a formal
assessment based on the Icelandic Guidelines on Corporate Governance issued by the Icelandic Chamber of Commerce, SA – Business Iceland and
NasdaqIceland,firstin2018andagainin2021.TherecognitionappliesforthreeyearsatatimeunlesstherehavebeensignificantchangestotheBoard
of Directors or the ownership of the Bank. The Board of Directors intends to have such an assessment carried out on a regular basis and maintain the
aforementionedrecognition.
Stoðirhf..........................................................................................................................................................
Gildi‐lífeyrissjóður........................................................................................................................................
In accordance with the Bank´s articles of association, five members and two alternate members are elected to the Board of Directors each year at the
Annual General Meeting. The eligibility of members of the Board is subject to statutory law. It is the Bank´s policy concerning election of the Board of
Directors that the Board collectively has sufficient knowledge, competency and experience to understand the Bank´s operations, including the main risk
factors. The ratio of each gender of members of the Board and alternate members shall be at least 40%. The election of Board members is furthermore
governedbytheprovisionsoftheActonPublicLimitedLiability
CompaniesNo.2/1995andtheActonFinancialUndertakingsNo.161/2002.
Stapilífeyrissjóður.........................................................................................................................................
Birtalífeyrissjóður..........................................................................................................................................
Arionbankihf.................................................................................................................................................
Lífeyrissjóðu rverzlunarmanna......................................................................................................................
The Icelandic economy is experiencing rebound in gross domestic product from 6.5% contraction in 2020 due to the Covid‐19 pandemic. Gross domestic
product in the first three quarters of 2021 was stronger than initially forecasted and it is anticipated that growth in GDP will be in the area of 5% in 2021
or 1% higher than officially forecasted. Unemployment has been falling and is reaching pre‐pandemic level of 5% where p art‐time benefits and other
government measures introduced early in the pandemic have n ow been abolished to a large extent. The labour market has historically been flexible
and as unemployment returns to pre‐pandemic levels, as the tourism gains more momentum and consumer confidence increases, labour shortages
may occurr as the output gap closes. Inflation has been rising and peaked at 5.7% year‐on‐year at the end of 2021 mainly attributable to price increases
due to devolopment in global commodity prices, shipping costs, housing prices and wage growth. Inflation is set to remain above 5.0% in 2022 but
forecasted to not going below 4% until 2023, accounting for 10% appreciation of the ISK to trade‐weigted basket of currencies and upcoming negotions
on collective wage agreements. Commodity exports such as seafood and energy (aluminium) have rebounded due to increased commodity prices as
well has the international sector (not reliant on natural resources) seen strong demand. In the short‐term the outlook is promising in tourism as it is set
to keep growing over the next years. Main uncertainty in the economic recovery is the development of the pandemic globally since Iceland is heavily
dependentonforeigntrade.
ConsolidatedFinancialStatements31December2021 2
Kvikabankihf.
Endorsement and Statement
by the Board of Directors and the CEO
The Board of Directors determines the risk policy and risk appetite of the Group with rules on risk management of the financial conglomerate of Kvika,
whichdefineriskfactorsinKvika’soperations,includingtheirnatureandacceptablevolume.
Kvika has not established a specific policy on the diversity of its Board of Directors, Executive Committee and senior management with regard to age,
genderoreducationalandprofessionalbackground.ReasonsforthisarediscussedthoroughlyintheStatementontheCorporateGovernanceofKvika.
The Board of Directors emphasizes good corporate governance and adherence to accepted guidelines on corporate governance. The Board has laid
down comprehensive rules in which the authority of the Board is defined and its scope of work in conjunction with the CEO. They address e.g.
competence of Board members to participate in individual decisions, confidentiality and information disclosure between the CEO and the Board. All of
the Board members are independent of the Bank and it´s major shareholders and there are no executive directors on the Board. The Bank aims to
promotegenderequalityandtwooutoffiveboardmembersarewomen.
The Bank´s articles of association may be amended at lawfully convened shareholders´ meetings, provided that the notice of the meeting specifies that
proposals for such amendments are scheduled and outlines the main substance of the amendments. An amendment takes effect only if approved by at
least 2/3 of the votes cast and by shareholders controlling at least 2/3 of the shares represented at the meeting. However, the provisions of the articles
of association regarding the voting rights of shareholders and equality among them cannot be amended except with the consent of all the shareholders
whoare
subjecttothecurtailmentofrights,cf.paragraph3ofArticle94oftheActonPublicLimitedLiabilityCompaniesNo.2/1995.
Kvika’s sustainability report follows Nasdaq’s ESG Reporting Guide 2.0 and, to a limited extent, the GRI Standards. This is the first time the Group is su es
a sustainability report in this format. The sustainability report can be found on Kvika’s website www.kvika.is and will also be submitted to the registry of
annualaccounts,aspartoftheGroup'snon‐financialdisclosures.
In accordance the Act on Annual Accounts, no 3/2006, Kvika provides information on its progress, scope, and impacts, notably on the environment,
society. and human resources, in a summary with the Board of Director´s statement. The summary also covers Kvika’s approach to human rights,
corruption, and bribery, as well as other factors that are included in, and affect, Kvika’s social responsibility, cf. article 66 (d) of the Act on Annu al
Accounts. The summary with the Board´s statement refers to Kvika’s sustainability report for 2021 for more detailed information on the Group´s non‐
financialperformance.
Further information about the Bank's corporate governance can be found in an appendix to these financial statements which contains a corporate
governancestatement.Acopyofthestatementisavailableonthe
Bank'swebsite,www.kvika.is.
The Board determines compensation for the CEO. The Board of Directors has delegated certain tasks to three separate subcommittees, the Risk
Committee, Audit Committee and Remuneration Committee. In accorda nce with the Bank's articles of association, at least three members ha ve been
appointed to each committee, thereof at least two Board members. It is not permitted to appoint employees of the Bank to any subcommittee.
Members shall have the necessary experience and knowledge for each committee's tasks according to applicable laws and rules. Each committee has
incorporatedproceduralruleswhichhavebeenconfirmedbytheBoardofDirectors.
Sustainabilityandnon‐financialreporting
A new strategy for the Group was approved in 2021. One of the guiding principles of the new strategy is sustainability and social responsibility. In
addition, one of the seven key goals of Kvika, as outlined in the strategy, is to have a real and measurable impact on Iceland’s carbon footprint and
climateissuesingeneral.Long‐termthinkingremainsKvika’svalue,andthevalueofsimplicityandcouragehavenowalsobeenadded.
The Bank has issued a social responsibility policy which outlines the group’s vision and focus on social responsibility, including Kvika’s objectives,
obligations, and commitments. Kvika´s ownership policies state that sustainability and social issues are, among other issues, coordinated throughout
the Group. In 2021 Kvika established a committee for social responsibility and sustainability, and a new p osition of a project manager of sustainability.
Thecommitteeand
theprojectmanagerofsustainabilityfollowthroughontherelevantactivitiesatagrouplevel.
Responsible decision making is discussed in Kvika‘s code of conduct, which reflects the Bank´s values and strategy. The code of conduct is approved by
Kvika‘s Board of Director and formally certified by its employees. The Bank has also issued a code of conduct for suppliers and important suppliers are
askedtoformallyacknowledgethecode.
Kvika is involved in various collaboration in sustainability and offers diverse community grants. Kvika became a member of the UN Principles for
Sustainable Investments (UN PRI) in autumn 2020 on behalf of the Group and has since then worked on the implementation of the principles into the
operation.
Kvika is a commercial bank that puts emphasis on f intech solutions. By emphasizing using digital technology, Kvika supports environmental protection,
with simpler and more ecologically friendly processes, products, and services. Among green products and services the Bank established in 2021 are
green car loans of Lykill, now one of Kvika´s brands, and green deposit accounts of the brand Audur, both of which fall under the terms of the Bank´s
GreenFinancingFramework.Inaddition,KvikaissueditsfirstgreenbondinDecember2021.
The CEO reports to the Board and verifies the effectiveness of internal controls and risk management in the Consolidated Financial Statements. Internal
controls and risk management applied in the preparation of the Consolidated Financial Statements are organised with a view to preventing any
significant deficiencies in the accounting process. Kvika’s Board of Directors and control units regularly verify the effectiveness of internal controls and
riskmanagement.
The Risk Committee h as an advisory and supervisory role for the Bank’s Board of Directors, among other things, in determining its risk policy and risk
appetite. The Audit Committee is intended to play an advisory and supervisory role for the Bank’s Board of Directors by, among other things, ensuring
the quality of financial statements and other financial information from the Bank and the independence of its auditors. The Audit Committee supervises
accounting procedures and the effectiveness of internal controls as well as internal and external auditing. The main aspects of internal and external
control and the Bank’s management in connection with the accounting process are described in detail in the Statement on the Corporate Governance
ofKvika.
ConsolidatedFinancialStatements31December2021 3
Kvikabankihf.
Endorsement and Statement
by the Board of Directors and the CEO
StatementbytheBoardofDirectorsandtheCEO
GuðmundurÞórðarson HelgaKristínAuðunsdóttir
DeputyChairman
IngunnSvalaLeifsdóttir GuðjónReynisson
MarinóÖrnTryggvason
Chairman
ChiefExecutiveOfficer
BoardofDirectors
SigurðurHannesson
The Consolidated Financial Statements of Kvika banki hf. for the year 2021 have been prepared in accordance with International Financial Reporting
Standards as adopted by the EU, and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial
Undertakingsno.161/2002andrulesonaccountingforcreditinstitutionsno.834/2003.
The Board of Directors and the CEO of the Bank have today discussed the Consolidated Financial Statements for the year 2021, and confirm them by the
meansoftheirsignatures.
Reykjavík,24February2022.
To the best of our knowledge these Consolidated Financial Statements give a true and fair view of the Group's assets, liabilities and financial position as
at 31 December 2021 and the financial performance of the Group and changes of cash flows for the year 2021. Furthermore, in our opinion the
Consolidated Financial Statements and the Endorsement of the Board of Directors and the CEO give a fair view of the development and performance of
theGroup'soperations
anditspositionanddescribetheprincipalrisksanduncertaintiesfacedbytheGroup.
In our opinion, the Consolidated Financial Statements of Kvika banki hf. for the year 2021 identified as "254900WR3I1Z9NPC7D84‐2021‐12‐31‐en.zip"
arepreparedinallmaterialrespects,incompliancewiththeEuropeanSingleElectronicFormatRegulation(ESEF).
ConsolidatedFinancialStatements31December2021 4
Kvikabankihf.
Independent Auditor's Report
TotheBoardofDirectorsandShareholdersofKvikabankihf.
Opinion
BasisforOpinion
KeyAuditMatters
KeyAuditMatters Howthematterwasaddressedinouraudit
Businesscombination
•
•
•
The business combination with TM hf. was recognized as of 30 March
2021 in the consolidated financial statements and one of the subsidiary
of TM hf. (TM tryggingar hf.) now represent the new insurance
segmentintheconsolidatedfinancialstatements.
Wehavealsoreviewedthedisclosurespresentedinnote3tothefinancial
statements
toconfirmcompliancewiththeprovisionswithinIFRS3.
We have audited the consolidated financial statements of Kvika banki hf. for the year ended December 31, 2021 which comprise, the consolidated
statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the
consolidated statement of cash flows for the year then ended and the notes to the consolidated financial statements, including a summary of significant
accountingpolicies.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of Kvika banki hf .as
at December 31, 2021, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements, as applicable, in the Act on Annual Accounts, the
ActonFinancialUndertakingsandrulesonaccountingforcreditinstitutions.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described
in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of Kvika banki hf. in
accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the
ethical requirements that are relevant to our audit of the financial statements in Iceland, and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the IESBA. This includes that, based on the best of our knowledge and belief, no prohibited services referred
to in the EU Audit Regulation 537/2014 Article 5.1 has been provided to the audited company or, where applicable, its parent company or its controlled
companieswithintheEU.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovide
abasisforouropinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements
of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our
opinionthereon,andwedonotprovideaseparateopiniononthesematters.
Based on our risk assessment we have reviewed internal controls that address
the accounting for business combinations and tested the reasonableness of the
keyassumptions.
Our opinion in this report on the consolidated financial statements is consistent with the content of the additional report that has been submitted to
thecompany´sauditcommitteeinaccordancewiththeEUAuditRegulation537/2014Article11.
Due to the complexity involved, we consider the business combination
tobeakeyauditmatter.
On 30 March 2021, Kvika banki hf and TM hf. merged together. As
detailed in note 3, the purchases price was ISK 49.4 billion. Following a
purchase price allocation, ISK 5.0 billion of intangible assets were
recognized, resulting in the recognition of ISK 21 billion of goodwill
recognizedinconnectionwiththeacquisition.
Considered the impact of reasonable possible changes in key assumptions
and performed sensitivity calculations to quantify the impact of potential
downsidechangestoManagement´s
models.
The business combination required complex management judgment in
applying IFRS 3, including determining the acquirer and valuation of
recognizedidentifiableassetsandliabilities.
Testing valuation models, including mathematical accuracy and obtaining
supporting evidence for future cash flow projections, estimates and key
assumptions.
Challenging assumptions used to measure the valuation of identifiable
assetsandliabilitiesrecognizedandlifetimeofintangibleassets.
Wehaveengagedourinternalvaluationspecialisttoassessandchallenge
management´sassumptionsusedinitsfairvaluemodelsforidentifyingand
measuringidentifiableassetsandliabilities,including:
ConsolidatedFinancialStatements31December2021 5
Kvikabankihf.
Independent Auditor's Report
Impairmentchargesforloans
•
• •
• •
• •
•
Measurementofliabilitiesunderinsurancecontracts
•
•
•
•
•
Otherinformation
ReconcliationsofreportedandIBNRclaimsatyearend.
Evaluated managements first estimates of claims when further information
ismissing.
In addition we have evaluated whether disclosures in the consolidated financial
statementsareinaccordancewithIFRS.
Changes in assumptions and the methodology applied may have a
materialimpactonthemeasurementofclaimsprovision.
Management has provided further information about liabilities under
insurance contracts in note 33 and 104 to the consolidated financial
statements.
Evaluated
managementmethodologyandcalculationsofIBNR.
Performed substantive testing on reported claims and estimated whether
theliabilitywassufficientlyrecognized.
Liabilities under insurance contracts for the Group amounted to ISK
22,434 million at 31 December 2021. There of claims provision
amountedtoISK16,493million.
Based on our risk assessment, we have examined the valuation of claims
provisionandevaluatedthemethodologyappliedandtheassumptionsmade.
Measurement of claims provision is deemed a key audit matter as the
determination of assumptions for the measurement of claims provision
requiresManagementtoapplyjudgementsaboutfutureevents.
Ourexaminationincludedthefollowingelements,wherewealsomadeuseof
ourinternationallyqualified
actuaries:
Testing of key controls over the actuarial models, data collection and
anal
y
sisandtheassum
p
tions‐settin
g
p
rocesses.
Management has provided further information about expected credit
losses and provisions for guarantees in notes 23, 50 and 89 to the
consolidatedfinancialstatements.
Management overlays for particular exposures, which are not
appropriatelycapturedintheexpectedcreditlossmodel.
The Board of Directors and the CEO are responsible for the other information. The other information comprises the report of board of directors,
StatementoftheCorporateGovernanceandNon‐Financialinformation.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except
theconfirmationregardingreportoftheboardofdirectorsasstatedbelow.
In accordance with Paragraph 2 article 104 of the Icelandic Financial Statement Act no. 3/2006, we confirm to the best of our knowledge that the
accompanying report of the board of directors includes all information required by the Icelandic Financial Statement Act that is not disclosed elsewhere
inthefinancialstatements.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
reportthatfact.Wehavenothingtoreportinthisregard.
Valuation of collateral and assumptions of future cash flows on
manually
assessedcredit‐impairedexposures.
Themostsignificantjudgementsare:
Assumptions used in the expected credit loss models to
incorporateforwardlookinginformation.
Timely identification of exposures with significant increase in credit
riskandcreditimpairedexposures.
ThegroupgrossloansamountedISK72,925millionatyearendandthe
total allowance f or the group amounted to ISK 1,343 million against
loans at amortized cost, unused credit facilities and guarantees at 31
December2021.
Based on our risk assessment and industry knowledge, we have examined the
impairment charges for loans and provisions for undrawn loan commitments
and guarantess and evaluated the methodology applied as well as the
assumptionsmadeaccordingtothedescriptionofthekeyauditmatter.
We have evaulated whether disclosure in the consolidated financial statement
areinaccordancewithIFRS.
Testing the appropriateness of forward looking information and how they
have
beenappliedintheexpectedcreditlossmodels.
Ourexaminationincludedthefollowingelements:
Testing of key controls over assumptions used in the expected credit loss
models.
Substantively testing the valuation of collateral with particular focus on
managementoverlaysappliedtocollateralvalue.
Measurement of loan impairment charges is considered a key audit
matter as the determination of assumptions for expected credit losses
is highly subjective due to the level of judgement applied by
management.
Reviewed the PD (proabability of default) model from CreditInfo and how it
hasbeencalibratedtorepresentthebanksportfolio.
During our audit we have evaluated whether the groups expected credit loss
modelsarecomplianttoIFRS9.
ConsolidatedFinancialStatements31December2021 6
Kvikabankihf.
Independent Auditor's Report
ResponsibilitiesoftheBoardofDirectorsandtheCEOfortheConsolidatedFinancialStatements
Auditor’sResponsibilitiesfortheAuditoftheConsolidatedFinancialStatements
•
•
•
•
•
•
In addition to our work as the auditors of Kvika banki hf., Deloitte has provided the firm with permitted additional services such as review of interim
financial statements, other assurance engagements and consultation on tax matters. Deloitte has in place internal procedures in order to ensure its
independence before acceptance of additional services. Deloitte has provided to the audit commitee written confirmation that Deloitte is independent
ofKvikabankihf.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the
consolidatedfinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to expressan
opinion on the consolidated and separate financial statements. We are responsible for the direction, supervision and performance of the group
audit.Weremainsolelyresponsibleforourauditopinion.
We communicate with the Board of Directors and the Audit Committee regarding, among other matters, the planned scope and timing of the audit and
significantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.
The Board of Directors and the CEO are responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements, as applicable, in the Act on Annual
Accounts, the Act on Financial Undertakings and rules on accounting for credit institutions, and for such internal control as the Board of Directors a nd
the CEO determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due
tofraudorerror.
In preparing the consolidated financial statements, the Board of Directors and the CEO are responsible for assessing Kvika banki hf.’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of
DirectorsandtheCEOeitherintendstoliquidatethecompa nyortoceaseoperations,orhasnorealistic
alternativebuttodoso.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going
concern.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influencetheeconomicdecisionsofuserstakenonthebasisoftheseconsolidatedfinancialstatements.
AspartofanauditinaccordancewithISAs,weexerciseprofessionaljudgementandmaintainprofessionalscepticismthroughouttheaudit.Wealso:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform
auditproceduresresponsivetothoserisks,
andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskof
not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but
notforthepurposeofexpressinganopinionontheeffectivenessofKvikabankihf.'sinternalcontrol.
We also provide the Board of Directors and the Audit Committee with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and
whereapplicable,relatedsafeguards.
From the matters communicated with the Board of Directors and the Audit Committee, we determine those matters that were of most significance in
the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public
interestbenefits
ofsuchcommunication.
ConsolidatedFinancialStatements31December2021 7
Kvikabankihf.
Independent Auditor's Report
Reportonotherlegalandregulatoryrequirements
ReportonEuropeansingleelectronicformat(ESEFRegulation)
Deloitteehf.
Kópavogur,24February2022.
Deloitte was appointed auditor of Kvika banki hf. by the general meeting of shareholders on 21 April 2021. Deloitte have been elected since the general
meeting2016.
PálínaÁrnadóttir
As part of our audit of the consolidated financial statements of Kvika banki hf. we performed procedures to be able to issue an opinion on whether the
consolidated financial statements of Kvika banki hf. for the year 2021 with the file name "254900WR3I1Z9NPC7D84‐2021‐12‐31‐en.zip" is prepared, in
all material respects, in compliance with laws no. 20/2021 disclosure obligation of issuers of securities and the obligation to flag relating to
requirements regarding European single electronic format regulation EU 2019/815 which include requirements related to the preparation of the
consolidatedfinancialstatementsinXHTMLformatandiXBRLmarkup.
Management is responsible for preparing the consolidated financial statements in compliance with laws no. 20/2021 disclosure obligation of issuersof
securities and the obligation to flag. This responsibility includes preparing the consolidated financial statements in a XHTML format in accordancetoEU
regulation2019/815ontheEuropeansingleelectronicformat(ESEFregulation).
Our responsibility is to obtain reasonable assurance, based on evidence that we have obtained, on whether the consolidated financial statements is
prepared in all material respects, in compliance with the ESEF Regulation, and to issue a report that includes our opinion. The nature, timing and extent
of procedures selected depend on the auditor's judgement, including the assessment of the risks of material departures from the requirement set out i
n
theESEFregulation,whetherduetofraudorerror.
In our opinion, the consolidated financial statements of Kvika banki hf. for the 2021 with the file name "254900WR3I1Z9NPC7D84‐2021‐12‐31‐en.zip" is
prepared,inallmaterialrespects,incompliancewiththeESEFRegulation.
StateAuthorizedPublicAccountant
ConsolidatedFinancialStatements31December2021 8
Kvikabankihf. AmountsareinISKthousands
Consolidated Income Statement
For the year 2021
Notes 2021 2020
(2,438,481 ) (1,919,810 )
Netinterestincome
5
(396,739 ) (194,136 )
Netfeeandcommissionincome
6
(7,560,809 ) 0
Netpremiumsandclaims
7
8 5,671,978 832,595
26 (27,566 ) (7,427 )
Otheroperatingincome
Netoperatingincome
10‐13 (11,634,885 ) (5,723,554 )
14 138,842 (317,468 )
(97,548 ) (286,058 )
27 83,095 0
Profitbeforetaxes
15 347,634 28,277
16 (35,454 ) (16,613 )
17 (135,299 ) (77,402 )
Profitfortheyear
Notes 2021 2020
25 (70,737 ) (75,390 )
Profitfortheyear
Earningspershare
18
Thenotesonpages16to77areanintegralpartoftheseConsolidatedFinancialStatements.
Otheroperatingincome..........................................................................................................................................
Administrativeexpenses.........................................................................................................................................
Netimpairment.......................................................................................................................................................
Revaluationofcontingentconsideration...............................................................................................................
Shareinlossofassociates,netofincometax........................................................................................................
Interestincome.......................................................................................................................................................
Interestexpense.....................................................................................................................................................
Feeandcommissionincome..................................................................................................................................
Feeandcommissionexpense.................................................................................................................................
Netfinancialincome...............................................................................................................................................
Earnedpremiums,netofreinsurers'share............................................................................................................
Claimsincurred,netofreinsurers'share................................................................................................................
Specialtaxonfinancialinstitutions........................................................................................................................
Revaluationofinvestmentproperties....................................................................................................................
Specialtaxonfinancialactivity...............................................................................................................................
Basicearningspershare
(ISKpershare).................................................................................................................
Dilutedearningspershare(ISKpershare).............................................................................................................
Incometax...............................................................................................................................................................
AttributabletotheshareholdersofKvikabankihf................................................................................................
Attributabletonon‐controllinginterest.................................................................................................................
ConsolidatedFinancialStatements31December2021 9
Kvikabankihf. AmountsareinISKthousands
For the year 2021
Notes 2021 2020
Profitfortheyear
(108,180 ) 20,887
(96,657 ) 21,834
OtherComphrehensiveincomethatisormaybereclassifiedsubsequentlytoprofitandloss
(84,419 ) 70,769
Totalcomprehensiveincomefortheyear
Notes 2021 2020
(70,737 ) (75,390 )
Totalcomprehensiveincomefortheyear
Thenotesonpages16to77areanintegralpartoftheseConsolidatedFinancialStatements.
Consolidated Statement of Comprehensive Income
AttributabletotheshareholdersofKvikabankihf.................................................................................................
Attributabletonon‐controllinginterest..................................................................................................................
Exchangedifferenceontranslationofforeignsubsidiaries.................................................................................
ChangesinfairvalueoffinancialassetsthroughOCI,netoftax.........................................................................
RealizednetgaintransferredtotheIncomeStatement,netoftax.....................................................................
ChangestoreserveforfinancialassetsatfairvaluethroughOCI....................................................
ConsolidatedFinancialStatements31December2021 10
Kvikabankihf. AmountsareinISKthousands
Consolidated Statement of Financial Position
As at 31 December 2021
Assets
Notes 31.12.2021 31.12.2020
19 38,645,894 28,945,030
20 40,046,651 28,785,033
21 22,683,295 5,072,830
22 22,085,696 19,620,240
23 71,587,646 29,322,972
24 2,734,216 389,671
26 67,000 42,240
27 1,100,000 1,016,905
28 31,455,409 3,562,621
29 1,458,621 0
15,30 3,177,763 835,816
33 749,383 0
31 10,042,553 5,440,092
Totalassets
Liabilities
32 78,669,807 59,924,683
33 22,434,447 0
34 17,261,048 26,424,340
35 0 2,003,608
36 32,597,716 5,568,085
37 3,371,766 2,077,225
38 1,323,631 1,520,547
39 1,280,868 731,987
24 3,008,401 1,750,346
30 899,942 236,186
40 6,677,507 3,750,472
Totalliabilities
Equity
41 4,790,139 2,141,002
Totalequityattributabletothesharehold ersofKvikabankihf.
25 (49,058 ) 21,030
Totalequity
Totalliabilitiesandequity
Thenotesonpages16to77areanintegralpartoftheseConsolidatedFinancialStatements.
Investmentproperties..............................................................................................................................
Issuedbills................................................................................................................................................
Otherreserves..........................................................................................................................................
Retainedearnings.....................................................................................................................................
Issuedbonds.............................................................................................................................................
Reinsuranceassets...................................................................................................................................
Operatingleaseassets..............................................................................................................................
CashandbalanceswithCentralBank......................................................................................................
Other
assets..............................................................................................................................................
Deferredtaxassets...................................................................................................................................
Subordinatedliabilities............................................................................................................................
Derivatives................................................................................................................................................
Fixedincomesecurities............................................................................................................................
Sharesandothervariableincomesecurities...........................................................................................
Securitiesusedforhedging......................................................................................................................
Loanstocustomers..................................................................................................................................
Investmentinassociates..........................................................................................................................
Intangibleassets.......................................................................................................................................
Propertyandequipment..........................................................................................................................
Deposits...................................................................................................................................................
Technicalprovision...................................................................................................................................
Borrowings...............................................................................................................................................
Non‐controllinginterest...........................................................................................................................
Shortpositionsheldfortrading...............................................................................................................
Shortpositionsusedforhedging.............................................................................................................
Currenttaxliabilities................................................................................................................................
Sharecapital.............................................................................................................................................
Sharepremium.........................................................................................................................................
Otherliabilities.........................................................................................................................................
Deferredtaxliabilities..............................................................................................................................
Derivatives................................................................................................................................................
ConsolidatedFinancialStatements31December2021 11
Kvikabankihf. AmountsareinISKthousands
Consolidated Statement of Changes in Equity
For the year 2021
Deficit Trans‐ Restricted Totalshare‐ Non‐
Share Share Option Warrants reduction Fairvalue lation retained Retained holders' controlling Total
1January2021to31December2021 Notes capital premium reserve reserve reserve reserve reserve earnings earnings equity interest equity
(108,180 ) (108,180 ) (108,180 )
(5,459 ) (5,459 ) (5,459 )
0 51,440,045
Ownsharesacquiredthroughbusinesscombination (6,400 ) (126,720 ) (133,120 ) (133,120 )
(117,256 ) (2,741,165 ) (2,858,422 ) (2,858,422 )
72 4,430 4,430 4,430
42 92,994 (92,994 ) 0 0
Equityasat31December2021
Thenotesonpages16to77areanintegralpartoftheseConsolidatedFinancialStatements.
ChangesinfairvalueoffinancialassetsthroughOCI................
Otherreserves
Profitfortheyear.......................................................................
Restrictedretainedearnings.....................................................
Translationofforeignoperations
Exchange
differenceontranslationofforeignsubsidiaries....
TransactionswithownersoftheBank
Stockoptions...........................................................................
Equityasat1January2021........................................................
Totalcomprehensiveincomefortheyear.................................
Warrantsexercised..................................................................
RealizednetgaintransferredtotheIncomeStatement...........
Treasurysharesacquiredaspartofabuy‐backprogramme..
Transactionswithownshares.................................................
Capitalincrease........................................................................
Prioryearadjustment.................................................................
ConsolidatedFinancialStatements31December2021 12
Kvikabankihf. AmountsareinISKthousands
Consolidated Statement of Changes in Equity
For the year 2020
Deficit Trans‐ Restricted Totalshare‐ Non‐
Share Share Option Warrants reduction Fairvalue lation retained Retained holders' controlling Total
1January2020to31December202
0
Notes capital premium reserve reserve reserve reserve reserve earnings earnings equity interest equity
Translationofforeignoperations 0 0
72 2,471 2,471 2,471
Equityasat31December2020
Thenotesonpages16to77areanintegralpartoftheseConsolidatedFinancialStatements.
Profitfortheyear.......................................................................
Exchangedifferenceontranslationofforeignsubsidiaries....
Equityasat1January2020........................................................
Changesinfair
valueoffinancialassetsthroughOCI................
RealizednetgaintransferredtotheIncomeStatement...........
Stockoptionsexcercised.........................................................
Totalcomprehensiveincomefortheyear.................................
Stockoptions...........................................................................
Restrictedretainedearnings......................................................
Capitalincrease........................................................................
TransactionswithownersoftheBank
Warrantsexercised..................................................................
Adjustmentsfortaxeffects........................................................
Otherreserves
ConsolidatedFinancialStatements31December2021 13
Kvikabankihf. AmountsareinISKthousands
Consolidated Statement of Cash Flows
For the year 2021
Cashflowsfromoperatingactivities
Notes 2021 2020
(4,646,115 ) (1,800,174 )
(138,842 ) 334,773
(329,374 ) (28,277 )
(83,095 ) 0
(71,925 ) 87,851
Changesin:
(5,042,426 ) (1,413,622 )
(2,465,456 ) 4,654,529
(2,802,876 ) 1,109,130
(763,439 ) 870,162
(276,730 ) 0
(380,224 ) 538,821
(1,905,378 ) (1,653,626 )
Netcashfrom(to)operatingactivities
Cashflowsfrominvestingactivities
28 (458,271 ) (354,053 )
(160,551 ) 0
(845,239 ) 0
Netcash(to)frominvestingactivities
(1,440,397 ) 214,413
Cashflowsfromfinancingactivities
(12,377,785 ) 5,672,370
(5,291,000 ) (1,941,697 )
42 (1,258,799 ) 0
(2,858,421 ) 0
(299,701 ) (197,076 )
Netcash(to)fromfinancingactivities
(20,091,363 ) 4,838,040
(135,688 ) 1,236,189
CashandbalanceswithCentralBankattheendoftheyear
19 38,645,894 28,945,030
Thenotesonpages16to77areanintegralpartoftheseConsolidatedFinancialStatements.
Aquiredownshares...........................................................................................................................................
Changeincashandcashequivalentsduetoacquisitionofsubsidiary.............................................................
NetincreaseincashandbalanceswithCentralBank.......................................................................................
Leasereceivablepayments................................................................................................................................
Leasepayments
..................................................................................................................................................
Acquisitionofintangibleassets.........................................................................................................................
Increaseincapital..............................................................................................................................................
Subordinatedliabilities......................................................................................................................................
Decreaseinwarrants.........................................................................................................................................
EffectsofexchangeratefluctuationsoncashandbalanceswithCentralBank...............................................
CashandbalanceswithCentralBankatthebeginningoftheyear..................................................................
Otherliabilities................................................................................................................................................
Interestpaid
.......................................................................................................................................................
Fixedincomesecurities...................................................................................................................................
Sharesandothervariableincomesecurities..................................................................................................
Otherassets.....................................................................................................................................................
Operatingleaseassets.....................................................................................................................................
Derivatives‐liabilities.....................................................................................................................................
Securitiesusedforhedging.............................................................................................................................
Derivatives‐assets..........................................................................................................................................
Technicalprovision..........................................................................................................................................
Shortpositions.................................................................................................................................................
Loanstocustomers..........................................................................................................................................
Deposits..........................................................................................................................................................
Netinterestincome
.........................................................................................................................................
Incometax.......................................................................................................................................................
Issuedbills..........................................................................................................................................................
Interestreceived................................................................................................................................................
Acquisitionofpropertyandequipment............................................................................................................
Proceedsfromthesaleofpropertyandequipment.........................................................................................
Borrowings.........................................................................................................................................................
Dividendfromassoiciates..................................................................................................................................
Acquisitionofsubsidiaryandassociates,netofcash........................................................................................
Netsale(investment)inassociates...................................................................................................................
Profitfor
theyear...............................................................................................................................................
Adjustmentsfor:
Indexationandexchangeratedifference.......................................................................................................
Sharein(profit)lossofassociates,netofincometax....................................................................................
Depreciationandamortisation.......................................................................................................................
Netimpairment...............................................................................................................................................
Otheradjustments...........................................................................................................................................
Investmentproperties,fairvaluechange.......................................................................................................
ConsolidatedFinancialStatements31December2021 14
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
0
Generalinformation Page Riskmanagement(cont.) Page
1 Reportingentity...................................................................................... 16 54 Insurancerisk.................................................................................. 46
2 Basisofpreparation................................................................................ 16 55 Liquidityrisk..................................................................................... 46
3 Businesscombinations............................................................................ 17 56 Marketrisk...................................................................................... 49
57 Interestraterisk.............................................................................. 49
Segmentinformation
58 Interestrateriskassociatedwithtradingportfolios......................... 49
4 Businesssegments.................................................................................. 20 59 Interestrateriskassociatedwithnon‐tradingportfolios.................. 50
60 ExposuretowardschangesintheCPI............................................... 51
Incomestatement
61 Currencyrisk.................................................................................... 51
5 Netinterestincome................................................................................ 21 62 Equityrisk........................................................................................ 53
6 Netfeeandcommissionincome............................................................. 21 63 Operationalrisk............................................................................... 53
7 Netpremiumsandclaims........................................................................ 21
8 Netfinancialincome............................................................................... 22
9 Foreigncurrencyexchangedifference.................................................... 22
Financialassetsandliabilities
10 Administrativeexpenses......................................................................... 22 64 Accountingclassificationoffinancialassetsandfinancialliabilities.54
11 Salariesandrelatedexpenses................................................................. 22 66 Financialassetsandfinancialliabilitiesmeasuredatfairvalue........ 56
12 EmploymenttermsoftheBoardofDirectorsandmanagement............. 23 67 Financialassetsandfinancialliabilitiesnotmeasuredatfairvalue.. 58
13
Auditor'sfees.......................................................................................... 23
14 Netimpairment....................................................................................... 24
Otherinformation
15 Incometax.............................................................................................. 24 68 Pledgedassets................................................................................. 59
16 Specialtaxonfinancialactivity................................................................ 24 69 Relatedparties................................................................................ 59
17 Specialtaxonfinancialinstitutions......................................................... 24 70 Remunerationpolicy........................................................................ 60
18 Earningspershare.................................................................................. 24 71 Incentivescheme............................................................................. 60
72 Share‐basedpayments.................................................................... 60
73 ShareholdersoftheBank................................................................. 61
StatementofFinancialPosition
74 Eventsafterthereportingdate........................................................ 61
19 CashandbalanceswithCentralBank...................................................... 25
20 Fixedincomesecurities........................................................................... 25
Significantaccountingpolicies
62
21 Sharesandothervariableincomesecurities........................................... 25
22 Securitiesusedforhedging..................................................................... 25
23 Loanstocustomers................................................................................. 26
24 Derivatives.............................................................................................. 26
25 Groupentities......................................................................................... 26
26 Investmentinassociates......................................................................... 27
27 Investmentproperties............................................................................ 27
28 Intangibleassets..................................................................................... 27
29 Operatingleaseassets............................................................................ 28
30 Deferredtaxassetsandliabilities............................................................ 29
31 Otherassets............................................................................................ 29
32
Deposits................................................................................................. 29
33 Technicalprovision................................................................................. 30
34 Borrowings............................................................................................. 31
35 Issuedbills.............................................................................................. 31
36 Issuedbonds........................................................................................... 31
37 Subordinatedliabilities............................................................................ 32
38 Shortpositionsheldfortrading............................................................... 32
39 Shortpositionsusedforhedging............................................................. 32
40 Otherliabilities........................................................................................ 32
41 Sharecapital........................................................................................... 33
42 Warrants................................................................................................. 34
43 Solvencyofafinancialconglomerate...................................................... 34
44 Capitaladequacy
ratio(CAR)................................................................... 35
45 Solvencyofinsuranceactivities............................................................... 36
Riskmanagement
46 Riskmanagementframework................................................................. 37
47 Hedging................................................................................................... 38
48 Creditrisk‐overview.............................................................................. 38
49 Maximumexposuretocreditrisk............................................................ 39
50 Creditqualityoffinancialassets.............................................................. 39
51 Loan‐to‐value.......................................................................................... 45
52 Collateralagainstexposurestoderivatives............................................. 45
53 Largeexposures...................................................................................... 45
ConsolidatedFinancialStatements31December2021 15
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
0
Generalinformation
1. Reportingentity
2. Basisofpreparation
a. Statementofcompliance
b. Basisofmeasurement
‐
‐
‐
‐
‐
‐
‐
‐ sharedbasedpaymentisaccountingforinaccordancewithIFRS2;
‐
‐
‐
c. Functionalandpresentationcurrency
d. Goingconcern
e. Estimatesandjudgements
f. Relevanceandimportanceofnotestothereader
The preparation of financial statements in accordance with IFRSs requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ
The COVID‐19 pandemic and the challenges it created had an impact on the operation and assets of the Group during the years 2020 and
2021.ThisimpactisbestquantifiedinitseffectontheBank's
loanportfolio.Forfurtherdetailsseenotes50and89.
The Group's assets and liabilities which are denominated in other currency than ISK are translated to ISK using the exchange rate as at the end
ofday31December2021.
The estimates and underlying assumptions are based on historical result and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not
readilyapparentfromothersources.
The estimates and underlying assumptions are reviewed on an on‐going b asis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period or in the period and future periods if the revision affects both current
Information about areas of estimation uncertainty and critical judgements made by management in applying accounting policies that can have
asignificanteffectontheamountsrecognisedintheConsolidatedFinancialStatementsisprovidedinnote118.
In order to enhance the informational value of the Condensed Interim Consolidated Financial Statements, the notes are evaluated based on
relevance and importance for the reader. This can result in information, that has been evaluated as neither important or relevant for the
reader,notbeingpresentedinthenotes.
fixedincomesecuritiesaremeasured
atfairvalue;
sharesandothervariableincomesecuritiesaremeasuredatfairvalue;
technicalprovisionismeasuredinaccordancewithIFRS4.
certainreceivablesaremeasuredatfairvalue;
The Bank's management has assessed the Group's ability to continue as a going concern and is satisfied that the Group has the resources to
continueitsoperations.
Kvika banki hf. ("Kvika" or the "Bank") is a limited liability company incorporated and domiciled in Iceland, with its registered office at
Financial Supervisory Authority of the Central Bank ("FME"). At end of March 2021, a tripartite merger with TM hf. and Lykill fjármögnun hf.
wasconcludedandasatendofMarch2021,theGroup'soperationsincludeinsuranceservicesthroughthesubsidiaryTM
tryggingarhf.
TheConsolidatedFinancialStatementswereapprovedandauthorisedforissuebytheBoardofDirectorsandtheCEOon24February2022.
The Consolidated Financial Statements have b een prepared in accordance with International Financial Reporting Standards (IFRS), as adopted
by the European Union and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial
Undertakingsno.161/2002andrulesonaccountingforcreditinstitutionsno.834/2003.
TheConsolidatedFinancialStatementshavebeenpreparedusingthehistoricalcostbasisexceptfor
thefollowing:
The Consolidated Financial Statements are prepared in Icelandic Krona (ISK), which is the Bank's functional currency. All financial information
hasbeenroundedtothenearestthousand,unlessotherwisestated.
The Consolidated Financial Statements for the year ended 31 December 2021 comprise Kvika banki hf. and its subsidiaries (together referred
to as the Group). The Group operates four business segments, Asset Management, Corporate Banking, Insurance Services and Investment
Banking. The Group provides businesses, investors and individuals with comprehensive investment banking, insurance services and asset
managementservicesaswellasselectedbankingservices.
securitiesusedforhedgingaremeasuredatfairvalue;
derivativesaremeasuredatfairvalue;
shortpositionsaremeasuredatfairvalue;and
investmentpropertiesaremeasuredatfairvalue;
certainloansto
customerswhicharemeasuredatfairvalue;
contingentconsiderationismeasuredatfairvalue;
ConsolidatedFinancialStatements31December2021 16
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
0
3. Businesscombinations
a. MergerofKvikabanki,TMhf.andLykillfjármögnunhf.
Identifiableassetsacquiredandliabilitiesassumed Bookvalueat Fairvalue
Assets acquisitiondate changes Total
4,476,923 4,476,923
15,649,175 15,649,175
12,899,937 12,899,937
39,384,339 39,384,339
1,784,025 1,784,025
93,883 93,883
1,581,106 1,581,106
750,648 4,607,739 5,358,387
793,195 793,195
1,088,721 937,495 2,026,216
11,706,807 11,706,807
Total 90,208,760 5,545,234 95,753,994
Liabilities
6,457,110
233,548 6,690,658
3,253,058 3,253,058
24,241,920 24,241,920
2,358,610 2,358,610
93,883 93,883
42,623 42,623
694,715 297,348 992,063
27,169,612 27,169,612
2,449,848 2,449,848
Total 66,761,377 530,896 67,292,273
28,461,721
49,445,701
20,983,981Calculatedgoodwillonacquisition.....................................................................................................................................................
Acquisitionprice..................................................................................................................................................................................
Totalidentifiablenetassets................................................................................................................................................................
The figures in the consolidated income statement for the year 2021 do not include the operations of TM or Lykill during January through
March as the merger took place at end of March. If the merger had occurred on 1 January 2021, it is estimated that the consolidated net
operatingincomewouldhavebeenISK24,971millionandthe
consolidatedprofitbeforetaxfortheyearwouldhavebeenISK12,004million.
In March 2021, the tripartite merger of Kvika banki hf. ("Kvika"), TM hf. ("TM") and Lykill Fjármögnun hf. ("Lykill") was concluded. In the
merger TM and Lykill were dissolved without settlement of debts, the three companies were combined and are TM and Lykill thereby a part of
the Bank as at 30 March 2021 and their subsidiaries are part of the Group's Consolidated Financial Statements from that day. The activities and
operations of TM and Lykill have been integrated with those of the Bank and the merged company operates under the name Kvika banki hf.
During the years 2020 and 2021, the Bank incurred transaction costs related to the merger amounting to ISK 40 million which were expensed
asoperatingexpenses.
The consideration transferred, to the previous owners of TM, was in the form of shares in the merged company in exchange for their shares in
TM. TM's shareholders received, in return for their shares in TM, 2,509,934,076 shares in Kvika. The payment was made by issuance of new
share capital at end of March 2021. The fair value of the Kvika shares transferred was based on the listed share price of the Bank at 30 March
2021, being 19.7 per share. Kvika is the acquirer in the business combination as, among other things, the majority of the Group‘s senior
managementandboardofdirectorsconsistsofmanagementanddirectorsfromKvika.
In accordance with IFRS 3, Business Combinations, the purchase price of TM and Lykill was allocated to identifiable assets and liabilities
acquired. The purchase price allocation ("PPA") of TM and Lykill has been finalised and recognised goodwill amounts to ISK 20,984 million. The
following table summarises the recognised amounts of assets and liabilities acquired by the Group on the acquisition date, 30 March 2021, as
wellasfairvaluechangesmadeasapartofthePPA.
The transaction is a good strategic fit and allows for loan diversification for the Group. It is anticipated that cost synergies will result in
considerably lower funding costs and reduced operating expenses for the activities of Lykill and TM. For more information, reference is made
tostockexhangereleasesandinvestor
presentationsthatKvikahaspublished.
Fixedincomesecurities....................................................................................................................
Cashandcashequivalents...............................................................................................................
Derivatives........................................................................................................................................
Investmentwhereinvestmentriskisbornebylife‐insurancepolicyholders..................................
Operatingleaseassets......................................................................................................................
Loanstocustomers..........................................................................................................................
Sharesandothervariableincomesecurities...................................................................................
Otherliabilities.................................................................................................................................
Borrowings.......................................................................................................................................
Issuedbills
........................................................................................................................................
Issuedbonds.....................................................................................................................................
Subordinatedliabilities....................................................................................................................
Technicalprovisionforlife‐insurancepolicieswhereinvestmentriskisbornebypolicyholders.
Derivatives........................................................................................................................................
Deferredtaxliabilities......................................................................................................................
Technicalprovision...........................................................................................................................
Otherassets......................................................................................................................................
Deferredtaxassets...........................................................................................................................
Propertyandequipment..................................................................................................................
Intangibleassets...............................................................................................................................
ConsolidatedFinancialStatements31December2021 17
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
0
3. Businesscombinations(cont.)
b. AcquisitionofNetgíróhf.
Identifiableassetsacquiredandliabilitiesassumed Bookvalueat Fairvalue
Assets acquisitiondate changes Total
35,843 35,843
2,655,867 2,655,867
4,335 4,335
409,372 623,072 1,032,444
112,300 112,300
285,884 285,884
Total 3,503,602 623,072 4,126,674
Liabilities
3,320,809 3,320,809
0 133,911 133,911
486,644 486,644
Total 3,807,454 133,911 3,941,365
185,309
406,000
220,691
In January 2021, the Group acquired 80% of the shares in Netgíró hf. ("Netgíró") and is Netgíró a part of the Group and Consolidated Financial
Statements from the end of January 2021. The Group is now the sole owner of Netgíró as before the acquisition, it owned 20% of the shares in
the company. The 20% share which the Group previously owned was at end of 2020 held at a fair value in line with the purchase price for the
remaining share. The consideration transferred, to the previous owners of Netgíró, was in the form of a cash payment of ISK 325 million.
During the years 2020 and 2021, the Bank incurred transaction costs related to the acquisition amounting to ISK 16 million which were
expensedas
operatingexpenses.
As a part of the acquisition, the Group provided Netgíró with funding to repurchase cash flow from loans which it had sold. The presentation in
thetableabovereflectsthis.
Calculatedgoodwillonacquisition.....................................................................................................................................................
In accordance with IFRS 3, Business Combinations, the purchase price of Netgíró was allocated to identifiable assets and liabilities acquired.
The purchase price allocation ("PPA") of Netgíró has been finalised and recognised goodwill amounts to ISK 221 million. The f ollowing table
summarises the recognised amounts of assets and liabilities acquired by the Group on the acquisition date, 31 January 2021, as well as fair
valuechangesmadeasapartofthePPA.
Netgíró is a provider of "buy now pay later" services. The transaction is a good strategic fit and is in line with Kvika‘s policy of utilising
technological solutions to modernize financial services. The acquisition also allows for loan diversification for the Group, and synergies in
termsofimprovedfundingcosts.
Cashandcashequivalents...............................................................................................................
Otherliabilities.................................................................................................................................
Borrowings.......................................................................................................................................
Deferredtaxliabilities......................................................................................................................
Deferredtaxassets...........................................................................................................................
Intangibleassets...............................................................................................................................
Property
andequipment..................................................................................................................
Loanstocustomers..........................................................................................................................
Otherassets......................................................................................................................................
The figures in the consolidated income statement for the period do not include the operations of Netgíró in January 2021 as the merger took
place at end of January 2021. If the merger had occurred on 1 January 2021, it is estimated that the consolidated net operating income would
havebeenISK22,075millionandtheconsolidatedprofitbeforetaxfortheyearwouldhavebeenISK10,492million.
Totalidentifiablenetassets................................................................................................................................................................
Acquisitionprice..................................................................................................................................................................................
ConsolidatedFinancialStatements31December2021 18
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
0
3. Businesscombinations(cont.)
c. AcquisitionofAurappehf.
Identifiableassetsacquiredandliabilitiesassumed Bookvalueat Fairvalue
Assets acquisitiondate changes Total
75,302 75,302
38,132 419,570 457,702
0 33,069 33,069
3,925 3,925
Total 117,359 452,639 569,998
Liabilities
0 83,914 83,914
142,263 142,263
Total 142,263 83,914 226,177
343,821
453,239
109,418
The figures in the consolidated income statement for the period do not include the operations of Aur for January through March 2021 as the
merger took place at end of March 2021. If the merger had occurred on 1 January 2021, it is estimated that the consolidated net operating
incomewouldhavebeenISK22,035million
andtheconsolidatedprofitbeforetaxfortheyearwouldhavebeenISK10,497million.
In accordance with IFRS 3, Business Combinations, the purchase price of Aur was allocated to identifiable assets and liabilities acquired. The
purchase price allocation ("PPA") of Aur has been finalised and recognised goodwill amounts to ISK 109 million. The following table
summarises the recognised amounts of assets and liabilities acquired by the Group on the acquisition date, 31 March 2021, as well as fair
valuechangesmadeasapartofthePPA.
Calculatedgoodwillonacquisition.....................................................................................................................................................
Totalidentifiablenetassets................................................................................................................................................................
Acquisitionprice..................................................................................................................................................................................
Otherliabilities.................................................................................................................................
Deferredtaxliabilities......................................................................................................................
Aur is a leading financial technology services company with an extensive client base. The acquisition is in line with Kvika's policy of utilising
technologicalsolutionsto
modernizefinancialservices.
Otherassets......................................................................................................................................
Deferredtaxassets...........................................................................................................................
Intangibleassets...............................................................................................................................
Cashandcashequivalents...............................................................................................................
In March 2021, the Group acquired Aur app ehf. ("Aur") and is Aur a part of the Group and Consolidated Financial Statements from 31 March
2021. The consideration transferred, to the previous owners of Aur, was in the form of a cash payment of ISK 453 million. During the year
2021,theBankincurredtransactioncostsrelatedtotheacquisitionamountingtoISK8millionwhichwereexpensedasoperatingexpenses.
ConsolidatedFinancialStatements31December2021 19
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
3
Segmentinformation
4. Businesssegments
‐
‐
‐
‐
Asset Commercial Investment Supporting
2021 Insurance
M
anagement Banking Banking units Total
205,437 (654) 3,365,277 1,081,026 (4,971) 4,646,115
(14,483) 3,700,385 857,867 2,233,452 50,520 6,827,741
4,247,400 ‐‐‐ ‐4,247,400
3,399,270 79,056 655,736 1,537,915‐5,671,978
0 (2,184) (27,881) ‐ 2,498 (27,566)
84,510 7,078 517,837 2,646 19,319 631,391
Netoperatingincome 7,922,134 3,783,682 5,368,836 4,855,040 67,367 21,997,059
(1,163,622) (1,149,644) (665,856) (1,289,582) (2,010,955) (6,279,660)
(1,595,644) (95,716) (1,417,256) (746,619) (1,499,990) (5,355,225)
(8,245) ‐ 149,572‐(2,484) 138,842
‐ (97,548) ‐‐ ‐(97,548)
‐‐83,095‐ ‐83,095
Profit(loss)beforecost
allocationandtax 5,154,623 2,440,773 3,518,391 2,818,839 (3,446,063) 10,486,563
Netsegmentrevenuefromexternal
7,922,134 3,794,627 6,156,740 4,055,845 67,713 21,997,059
Netsegmentrevenuefromother
‐ (10,945) (787,904) 799,195 (346) 0
Asset Commercial Investment Supporting
2020 Insurance
M
anagement Banking Banking units Total
‐ (58,208) 1,638,335 220,233 (186) 1,800,174
‐ 3,467,718 639,258 1,852,277 (3,594) 5,955,659
‐ ‐‐‐ ‐ ‐
‐ 44,368 91,400 696,826‐832,595
‐ 10,428 (17,855) ‐‐(7,427)
‐ (4,942) 97,041 1,935 (8,986) 85,048
Netoperatingincome ‐ 3,459,363 2,448,180 2,771,271 (12,766) 8,666,048
‐ (1,099,252) (269,758) (1,024,285) (1,229,688) (3,622,983)
‐ (202,014) (453,196) (538,557) (906,803) (2,100,570)
‐ (142,069) (173,296) (1,108) (994) (317,468)
‐ (286,058) ‐‐ ‐(286,058)
Profit(loss)beforecostallocationandtax ‐ 1,729,970 1,551,929 1,207,321 (2,150,251) 2,338,969
Netsegmentrevenuefrom
external
‐ 3,459,369 2,440,427 2,701,519 64,734 8,666,048
Netsegmentrevenuefromother
‐ (6) 7,753 69,753 (77,500) ‐
Netimpairment.......................................................................
Revaluationofcontingentconsideration................................
Netpremiumsandclaims........................................................
Netfinancialincome................................................................
Shareinprofitofassociates....................................................
Otheroperatingexpenses.......................................................
Salariesandrelatedexpenses.................................................
Salariesandrelated
expenses.................................................
Otheroperatingexpenses.......................................................
Insurance
TheTMinsurancegroupoffersitscustomerscomprehensiveinsuranceservices,includinglifeinsurance.
Netinterestincome.................................................................
Netfeeandcommissionincome.............................................
Otheroperatingincome..........................................................
AssetManagement
CommercialBanking
Supporting units consist of the functions carried out by the Bank's support divisions, such as Risk Management, Finance, IT and Operations, etc.
Theinformationpresentedrelatingtothesupportingunitsdoesnotrepresentanoperatingsegment.
Products and services offered include asset management involving both domestic and foreign assets, private banking, and private pension
plans. The management of a broad range of mutual funds, investment funds and institutional investor funds is include in this segment through
theoperationsofKvikaeignastýringhf.andGammaCapitalManagementhf.
Commercial Banking offers various forms of banking services and related advisory services, in addition to providing specialised lending
services. Included in this operating segment is Lykill, the leasing operations of the Group, and the Group's fintech operations, such as Auður,
NetgíróandAur.
InvestmentBanking
Investment Banking consists of Capital Markets, Corporate Finance and Kvika Securities Limited. The functions of Market Making and Treasury
arealsoincludedinthesegmentalthoughtheyareapartofKvika'sFinancedivision.
Revaluationofinvestmentproperties.....................................
Netpremiumsandclaims........................................................
Following business combinations during the year 2021, the Group has changed the structure of its internal reporting and reportable segments.
The Group now defines four reportable operating segments; Insurance, Asset Management, Commercial Banking and Investment Banking. The
figures for the year 2021 reflect the current operating segment structure for the whole year and comparison amounts for the previous year have
beenrestatedaccordingly.
Segment reporting is based on the same principles and structure as internal reporting to the CEO a nd the Board of Directors. Segment
performanceisevaluatedonprofitbeforecost
allocationandtax.
Reportablesegments
segments...............................................................................
Netinterestincome.................................................................
Netfeeandcommissionincome.............................................
customers..............................................................................
Netimpairment.......................................................................
Revaluationofcontingentconsideration................................
customers..............................................................................
segments...............................................................................
Netfinancialincome................................................................
Shareinprofitofassociates....................................................
Otheroperatingincome..........................................................
ConsolidatedFinancialStatements31December2021 20
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
4
Incomestatement
5. Netinterestincome
Interestincomeisspecifiedasfollows:
2021 2020
98,077 394,169
1,358,756 735,015
4,985,407 2,433,211
459,687 140,067
182,670 17,522
Total 7,084,596 3,719,984
Interestexpenseisspecifiedasfollows:
2021 2020
688,525 763,176
325,855 647,679
34,334 73,266
866,116 134,078
385,960 206,285
10,557 6,175
127,136 89,150
Total 2,438,481 1,919,810
6. Netfeeandcommission
income
Netfeeandcommissionincomebybusinesssegment 2021 2020
(14,483) 0
3,700,385 3,467,718
857,867 639,258
2,233,452 1,852,277
50,520 (3,594)
Total 6,827,741 5,955,659
7. Netpremiumsandclaims
Earnedpremiums,netofreinsurers'share 2021
8,048,480
(315,788)
4,484,240
(408,723)
Total 11,808,210
CashandbalanceswithCentralBank.....................................................................................................................................
Derivatives..............................................................................................................................................................................
Loanstocustomers.................................................................................................................................................................
Other
interestincome.............................................................................................................................................................
Deposits..................................................................................................................................................................................
Borrowings..............................................................................................................................................................................
Subordinatedliabilities...........................................................................................................................................................
Issuedbills...............................................................................................................................................................................
Issuedbonds...........................................................................................................................................................................
Fixedincomesecurities(FVOCI)..............................................................................................................................................
Insurance.................................................................................................................................................................................
CommercialBanking...............................................................................................................................................................
Supportingunits......................................................................................................................................................................
Changeinprovisionforunearnedpremiums,reinsurers'share.................................................................................................................
*Thereofareleaseliabilities'interestexpenseamounting
toISK39million(2020:ISK22million).
Otherinterestexpense*.........................................................................................................................................................
Derivatives..............................................................................................................................................................................
Total interest income recognised in respect of financial assets not carried at fair value through profit or loss amounts to ISK 5,021 million (2020:
ISK 2,634 million). Total interest expense recognised in respect of financial liabilities not carried at fair value through profit or loss amounts to ISK
2,432million(2020:ISK1,913million).
During the year 2021, ISK 112 million were expensed in one‐off costs related to refinancing debt which was acquired in relation to the merger
with Lykill. Additionally, interest expenses related to issued bonds was reduced by ISK 184 million as a result of the fair value measurement of
liabilitiesassumedfromLykill.
Fee income and expenses are presented on a net fee basis, as presented in internal reporting to management for decision making purposes, and
broken down by business segments. The business segments are representative of the nature and types of activity from which the Group
generates fee income from. A description of each business segment is provided in note 4. As discussed in that note, the Group changed the
structure of its internal reporting and reportable segments during 2021. The figures for the year 2021 reflect this structure and the comparison
amountshavebeenrestatedaccordingly.
AssetManagement.................................................................................................................................................................
InvestmentBanking................................................................................................................................................................
Netpremiumsandclaimsisspecifiedasfollows:
Premiumswritten...............................................................................................................................
..........................................................
Premiumswritten,reinsurers'share............................................................................................................................................................
Changeinprovisionforunearnedpremiums..............................................................................................................................................
ConsolidatedFinancialStatements31December2021 21
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
4
7. Netpremiumsandclaims(cont.)
Claimsincurred,netofreinsurers'share 2021
(8,126,007)
853,013
245,620
5,075
(538,510)
Total (7,560,809)
Netpremiumsandclaims 4,247,400
Combinedratio 84.1%
8. Netfinancialincome
Netfinancialincomeisspecifiedasfollows:
2021 2020
Netgainonfinancialassetsandfinancialliabilitiesmandatorilymeasuredatfairvaluethroughprofitorloss
607,723 399,893
4,647,213 474,696
388,524 28,163
(36,956) 6,684
488 0
64,987 (76,841)
Total 5,671,978 832,595
9. Foreigncurrencyexchangedifference
Foreigncurrencyexchangedifferenceisspecifiedasfollows:
2021 2020
(148,309) 228,247
213,295 (305,088)
Total 64,987 (76,841)
10. Administrativeexpenses
Administrativeexpensesarespecifiedasfollows: 2021 2020
6,279,660 3,622,983
3,627,764 1,758,834
31,718 35,366
1,243,431 133,907
452,312 172,463
Total 11,634,885
5,723,554
11. Salariesandrelatedexpenses
Salariesandrelatedexpensesarespecifiedasfollows: 2021 2020
4,675,858 2,816,240
275,830 34,175
4,389 2,471
642,849 380,309
306,555 162,627
374,179 227,161
Total 6,279,660 3,622,983
316 144
331 160
Salaries....................................................................................................................................................................................
Fixedincomesecurities.........................................................................................................................................................
Sharesandothervariableincomesecurities........................................................................................................................
Derivatives.............................................................................................................................................................................
Loanstocustomers
...............................................................................................................................................................
Foreigncurrencyexchangedifference....................................................................................................................................
Otheroperatingexpenses......................................................................................................................................................
According to Act No. 165/2011, passed in 2011, banks and other financial institutions providing VAT exempt services, must pay a tax based on
salarypayments,calledtaxonfinancialactivity.Thecurrenttaxrateis5.50%(2020:5.50%).
Performancebasedpaymentsexcludingshare‐basedpayments..........................................................................................
Gain(loss)onotherfinancialinstruments.............................................................................................................................
Depositors'andInvestors'GuaranteeFundcontributions....................................................................................................
Share‐based
paymentexpenses.............................................................................................................................................
Claimspaid....................................................................................................................................................................................................
Claimspaid,reinsurers'share......................................................................................................................................................................
Changeinprovisionforclaimsduetoinsuranceoperations.......................................................................................................................
Averagenumberoffulltimeemployeesduringtheyear......................................................................................................
Totalnumberoffulltimeemployeesatyear‐end..................................................................................................................
Salariesandrelatedexpenses................................................................................................................................................
Pensionfundcontributions
....................................................................................................................................................
Taxonfinancialactivity..........................................................................................................................................................
Othersalaryrelatedexpenses................................................................................................................................................
Depreciationofrightofuseasset...........................................................................................................................................
The figures for 2020 do not include employees of TM hf. and its subsidiaries, Lykill fjármögnun hf. and TM tryggingar hf., nor for Netgíró hf. or Aur
appehf.Atthebeginningof2021,thesecompanieshad179fulltimeemployeesandKvikaanditssubsidiarieshad160,or339intotal.
Depreciationandamortisation...............................................................................................................................................
(Loss)gainonfinancialinstrumentsatfairvaluethroughprofitandloss.............................................................................
Insurance operations became part of the Group's operations following the merger with TM hf. at end of the first quarter of 2021. As a result, the
operating figures only relate to period 01.04.2021 to 31.12.2021. Furthermore, there are no comparative figures as insurance operations were not
partoftheconsolidatedfinancialstatementsfortheyear2020.
Changeinriskmargin...................................................................................................................................................................................
Changeinprovisionforclaims,reinsurers'share........................................................................................................................................
Unwinding,interestandexchangeratechangeoftechnicalprovision..................................................................................
ConsolidatedFinancialStatements31December2021 22
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
4
12. EmploymenttermsoftheBoardofDirectorsandmanagement
31.12.2021 31.12.2020
Salariesand Number Warrants
S
alariesand Number Warrants
benefits ofshares &options benefits ofshares &options
63,756 3,427 7,390 51,397 2,093 14,667
17,461 8,550 0 11,673 8,550 0
10,002 66,750 0 8,299 133,500 0
9,379 10,411 0 8,472 10,411 0
8,916 0 0 0 0 0
3,159 0 0 0 0 0
4,759
0 0 8,299 500 0
5,579 0 0 10,163 0 0
1,229 0 0 0 0 0
489 0 0 489 0 0
0 0 0 3,968 0 0
0 0 0 1,755 0 0
380,996 47,971 29,564 283,518 31,804 73,333
Total 505,725 137,108 36,954 388,032 186,858 88,000
13. Auditor'sfees
Remuneration
totheGroup'sauditorsisspecifiedasfollows:
2021 2020
83,724 67,009
28,350 11,180
14,934 3,436
Total 127,008 81,625
71,249 50,320
Otherauditrelatedservices...................................................................................................................................................
ThereoftotheauditorsoftheBank.......................................................................................................................................
ManagingDirectors(2021:7(onaverage:6.75),2020:6(onaverage:6))
The Bank has adopted a remuneration policy which covers three remuneration components, base pay, performance based incentive scheme and
otherbenefits,includingpension
fundcontributions.Furtherinformationabouttheremunerationpolicyisprovidedinnotes70‐72.
Reviewofinterimaccounts....................................................................................................................................................
Salaries and benefits are substantially all short‐term employee benefits. Salaries and benefits paid to members of the Board of Directors include
compensationfortheirparticipationinBoardcommittees.
Auditofannualaccounts........................................................................................................................................................
The Bank has defined the Deputy CEO and two Managing Directors as Key Employees, as defined in Act No. 161/2002 on Financial Undertakings.
Furthermore the Bank has approved and published internal rules covering the qualification requirements, evaluation process and conduct of Key
Employees,inaccordancewithrequirementssetforthbytheFinancialSupervisoryAuthorityoftheCentralBank.
Figures for shares, share options and warrants are in thousands and include shares held by companies owned by or under the control of the
respective parties as at 31 December 2021 and 31 December 2020. If the holdings are held indirectly through companies, then the pro rata
ownership
oftheaforementionedpersonshasbeenincluded.
theRiskandRemunerationcommittees.................................................
The CEO and the managing directors received performance based payments in 2021. Following the merger with TM and Lykill in 2021, the number
of managing directors of the Bank increased by one, and as a result the salaries and benefits figures for managing directors for 2021 and 2020 are
notdirectlycomparable.
formerBoardmember.............................................................................
HrönnSveinsdóttir,memberoftheAuditcommitteand
KristínPétursdóttir,formerBoardmemberandformermemberof
GuðmundurÞórðarson,DeputyChairmanoftheBoardand
IngaBjörgHjaltadóttir,memberoftheAuditcommitte
and
GuðjónKarlReynisson,Boardmemberandchairperson
chairpersonoftheRiskcommittee..........................................................
formermemberoftheRiskandAuditcommittees.................................
SigurðurHannesson,ChairmanoftheBoardandmemberof
theRiskandRemunerationcommittees.................................................
Salaries and benefits paid to the Board of Directors, the CEO and Managing Directors, including the Deputy CEO, of the Bank for their work for
companieswithintheGroup,andtheirshareholdingintheBank,arespecifiedasfollows:
Marinó
ÖrnTryggvason,CEO.....................................................................
formerBoardmember.............................................................................
theAuditcommittee................................................................................
theAuditcommittee................................................................................
HelgaKristínAuðunsdóttir,Boardmemberandmemberof
IngunnSvalaLeifsdóttir,Boardmemberandchairpersonof
theAuditcommittee................................................................................
KristínFriðgeirsdóttir,formerBoardmemberandformermemberof
KristínGuðmundsdóttir,formeralternateBoardmemberand
Albert
ÞórJónsson,formeralternateBoardmember................................
oftheRemunerationcommittee.............................................................
ConsolidatedFinancialStatements31December2021 23
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
4
14.
2021 2020
124,089 (158,956)
(10,730) (147,346)
25,483 (11,166)
Total 138,842 (317,468)
15. Incometax
Incometaxrecognizedintheincomestatementisspecifiedasfollows:
Reconciliationofeffectivetaxrate:
2021 2020
10,486,563 2,338,969
20.0% (2,097,313) 20.0% (467,794)
0.1% (7,395) 0.0% (1,137)
(17.8%) 1,862,182 (12.6%) 293,712
(11.1%) 1,159,050 (10.8%) 252,325
6.0% (632,952) 0.0% 0
(0.6%) 64,062 2.1% (48,830)
Effectiveincometax (3.3%) 347,634 (1.2%) 28,277
16. Specialtaxon
financialactivity
17. Specialtaxonfinancialinstitutions
18. Earningspershare
2021 2020
NetearningsattributabletoequityholdersoftheBank 10,734,181 2,348,621
4,104,785 2,141,002
90,703 161,879
Total 4,195,488 2,302,882
2.62 1.10
2.56 1.02
Effectsduetomerger....................................................................................................................
Dilutedearningspershare(ISK).............................................................................................................................................
The calculation of basic earnings per share is based on earnings attributable to shareholders and a weighted average number of shares
outstanding during the year. The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares. The Bank has issued warrants and stock options that have a dilutive
effect.
Non‐deductibleexpenses..............................................................................................................
Recognitionoftaxlosses...............................................................................................................
Otherchan ges ................................................................................................................................
Profit before tax amounts to ISK 10,487 million. Income tax amounts to ISK 348 million, resulting in an effective tax rate of ‐3.3%. This is
substantially different from the Icelandic corporate tax rate of 20%, mainly due to non‐taxable income from shares and revaluation of the
deferredtaxasset.
Non‐taxableincome......................................................................................................................
Weightedaveragenumberofoutstandingshares.................................................................................................................
Adjustmentsforwarrantsandstockoptions.........................................................................................................................
Basicearningspershare(ISK).................................................................................................................................................
Netimpairment
According to Act No. 155/2010 on Special Tax on Financial Institutions, certain types of financial institutions, including banks, must pay annually a
tax based on the carrying amount of their liabilities as determined for tax purposes in excess of ISK 50 billion at year‐end. The tax rate is set at
0.145% (2020: 0.145%) and the tax is not a deductible expense for income tax purposes. The tax is presented separately in the consolidated
incomestatement.
The special tax on financial activity is an additional income tax which becomes effective when the income tax base exceeds ISK 1,000 million. It is
levied on the same entities as the tax on financial activity according to Act No. 90/2003. The tax rate is set at 6.0% (2020: 6.0%) and the tax is not a
deductibleexpenseforincometaxpurposes.Thetaxispresentedseparately
intheconsolidatedincomestatement.
Incometaxusingthedomesticcorporationtaxrate....................................................................
Profitbeforetax.............................................................................................................................
The Bank and some of its subsidiaries will not pay income tax on its profit for 2021 due to the fact that Group has a tax loss carry forward that
offsets the calculated income tax. Following business combinations during the first half of 2021, the tax loss carry forward has increased
considerably and as at 31 December it amounts to ISK 23 billion for the Group. A substantial part of the tax loss carry forward is utilisable until end
of year 2028. Management is of the opinion that the Group's operations in the years to come will result in taxable results which will be offset with
the tax loss carry forward. The Group has therefore recognised a part of the tax loss carry forward as a deferred tax asset in the consolidated
statement of financial position. The deferred tax asset is reviewed at each reporting date. Refer to note 30 for more information on the deferred
taxasset.
Income tax is recognised based on the tax rates and tax laws enacted during the current year, according to which the domestic corporate income
tax rate was 20.0% (2020: 20.0%). Companies within the Group, which operate outside of Iceland, recognise income tax in accordance with the
applicabletaxlawsinthecountrywheretheyareresident.
Netchangeinimpairmentofloans........................................................................................................................................
Netchangeinimpairmentofotherassets.............................................................................................................................
Netchangein
impairmentofloancommitments,guaranteesandunusedcreditfacilities..................................................
ConsolidatedFinancialStatements31December2021 24
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
StatementofFinancialPosition
19. CashandbalanceswithCentralBank
CashandbalanceswithCentralBankarespecifiedasfollows:
31.12.2021 31.12.2020
16,611,434 21,379,857
14,651 11,649
16,093,533 3,405,876
2,564,841 1,739,281
Includedincashandcashequivalents 35,284,459 26,536,663
0 0
1,235,491 952,636
2,125,945 1,455,730
Total 38,645,894 28,945,030
20. Fixedincomesecurities
Fixedincomesecuritiesarespecifiedasfollows:
Mandatorily
measuredatfairvaluethroughprofitorloss 31.12.2021 31.12.2020
5,343,444 2,890,226
8,492,751 1,412,239
4,907,093 1,535,801
Measuredatfairvaluethroughothercomprehensiveincome
18,127,222 18,962,079
2,997,628 3,984,688
178,512 0
Total 40,046,651 28,785,033
21. Sharesandothervariableincomesecurities
Sharesandothervariableincomesecuritiesarespecifiedasfollows:
Mandatorilymeasuredatfair
valuethroughprofitorloss 31.12.2021 31.12.2020
5,523,914 892,423
8,907,091 2,338,138
3,824,181 1,448,126
4,428,108 394,143
Total 22,683,295 5,072,830
22. Securitiesusedforhedging
Securitiesusedforhedgingarespecifiedasfollows:
31.12.2021 31.12.2020
126,113 7,115,854
1,699,621 2,147,393
18,745,871 9,890,103
1,514,091 466,891
Total 22,085,696 19,620,240
Listedgovernmentbondsandbondswithgovernmentguarantees..........................................................................
Listed
treasurybills......................................................................................................................................................
Listedbonds.................................................................................................................................................................
Unlistedunitsharesinbondfunds..............................................................................................................................
Listedbonds....................................................................................................................................................................
Listedshares...................................................................................................................................................................
Unlistedunitshares........................................................................................................................................................
DepositswithCentralBank.............................................................................................................................................
ReceivablesfromCentralBank.......................................................................................................................................
Listedgovernmentbondsandbondswithgovernmentguarantees.............................................................................
Cashonhand..................................................................................................................................................................
Foreigntreasurybills......................................................................................................................................................
RestrictedbalanceswithCentralBank‐averagemaintenancelevel............................................................................
Balanceswithbanks........................................................................................................................................................
RestrictedbalanceswithCentralBank‐fixedreserverequirement..............................................................................
The Bank holds mandatory reserve deposit accounts with the Central Bank of Iceland in compliance with the Central Bank’s Rules on Minimum
Reserve Requirements No. 585/2018. Under these rules the reserve requirement is divided into two parts: a fixed reserve requirement bearing no
interest and an average maintenance level requirement bearing the same interest as that on deposit‐taking institutions’ current accounts with
the Central Bank. The mandatory reserve deposit with the Central Bank and the receivables from the Central Bank are not available for the Group
touseinitsdailyoperations.
Listedgovernmentbondsandbondswithgovernmentguarantees..........................................................................
Listedbonds.................................................................................................................................................................
Unlistedbonds.............................................................................................................................................................
Listedshares.................................................................................................................................................................
Unlistedshares.............................................................................................................................................................
Unlistedunitsharesinotherfunds..............................................................................................................................
ConsolidatedFinancialStatements31December2021 25
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
23. Loanstocustomers
Gross Gross Gross
carrying Book carrying Book carrying Book
31.12.2021 amount value a mount value amount value
31,285,094 30,771,742 39,114,914 38,291,634 70,400,008 69,063,377
650,814 650,814 1,873,455 1,873,455 2,524,269 2,524,269
Total 31,935,908 31,422,557 40,988,369 40,165,089 72,924,277 71,587,646
Gross Gross Gross
carrying Book carrying Book carrying Book
31.12.2020 amount value a mount value amount value
5,015,213 4,992,943 22,100,559 21,586,179 27,115,772 26,579,121
608,034 608,034 2,135,817 2,135,817 2,743,851 2,743,851
Total 5,623,247 5,600,976 24,236,376 23,721,996 29,859,623 29,322,972
24. Derivatives
31.12.2021 Assets Liabilities Assets Liabilities
14,353,716 13,087,145 1,799,162 0
8,260,384 9,306,104 54,740 126,212
23,328,516 25,873,506 336,233 2,882,189
453,594 0 544,081 0
Total 46,396,210 48,266,754 2,734,216 3,008,401
31.12.2020 Assets Liabilities Assets Liabilities
3,176,798 3,102,368 74,429 0
2,698,140 2,740,401 0 42,261
21,918,514 23,386,919 108,771 1,577,177
130,343 3,860 206,470 130,909
Total 27,923,795 29,233,548 389,671 1,750,346
25. Groupentities
Share Share
Entity Natureofoperations Domicile 31.12.2021 31.12.2020
Iceland 100%‐
Iceland 100% 100%
Iceland 100% 100%
Iceland 100% 100%
Iceland 100% 100%
Iceland 100% 20%
Iceland 100% 100%
Iceland 100%‐
Iceland 100%‐
Iceland 80% 80%
UK 100% 100%
Derivativesarespecifiedasfollows:
LoanstocustomersatFV
throughprofitorloss.......
Aurappehf............................................................... Financialtechnologyservices
Currencyforwards...................................................................................................
Interestratederivatives..........................................................................................
FÍFasteignafélagGPehf...........................................
During the first quarter of 2021, the Group acquired a number of new subsidiaries. Reference is made to note 3 for more information on the
acquisitions.
Corporates
Individuals
Total
Loanstocustomersatamortisedcost......................
LoanstocustomersatFVthroughprofitorloss.......
Corporates
Thebreakdownoftheloanportfoliobyindividualsand
corporatesisspecifiedasfollows:
The Group presents finance lease receivables as part of loans to customers at amortised cost. As at 31 December 2021, the book value of finance
lease receivables amounted to ISK 16,139 million. Finance leases became part of the Group's statement of financial position following the merger
withLykillduringtheyear2021.Referenceismadetonote3forfurtherinformationonthemerger.
Carryingvalue
Currencyforwards...................................................................................................
Interestratederivatives..........................................................................................
Notional
Equityoptions..........................................................................................................
Bondandequitytotalreturnswaps........................................................................
Themainsubsidiarieshelddirectlyorindirectlyby
theGrouparelistedinthetablebelow.
Realestatefundmanagement
Fundmanagement
TMlíftryggingarhf....................................................
Consumerlendingoperations
Total
Individuals
KvikaSecuritiesltd.................................................... Businessconsultancyservices
Insuranceservices
Bondandequitytotalreturnswaps........................................................................
Equityoptions..........................................................................................................
Holdingcompany
Netgíróhf..................................................................
Rafkletturehf............................................................
Assetmanagement
GAMMACapitalManagement
hf............................. Fundmanagement
Kvikaeignastýringhf.................................................
ACGP3ehf...............................................................
Holdingcompany
Carryingvalue
M‐Investmentsehf...................................................
Notional
Loanstocustomersatamortisedcost......................
TMtryggingarhf....................................................... Insuranceservices
ConsolidatedFinancialStatements31December2021 26
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
26. Investmentinassociates
a. Investmentinassociatesisaccountedforusingtheequitymethodandisspecifiedasfollows:
Share Share
Entity Natureofoperations Domicile 31.12.2021 31.12.2020
Iceland‐50%
Iceland 24% 24%
Croatia 40%‐
b. Changesininvestmentsinassociatesarespecifiedasfollows: 31.12.2021 31.12.2020
42,240 776,490
67,000 0
(3,750) (7,500)
(10,924) (719,323)
(27,566) (7,427)
Total 67,000
42,240
27. Investmentproperties
Investmentpropertiesarespecifiedasfollows: 31.12.2021 31.12.2020
1,016,905 1,016,553
0 352
83,095 0
Total 1,100,000 1,016,905
28. Intangibleassets
a. Intangibleassetsarespecifiedasfollows: Customer Software
31.12.2021 Goodwill relationships Brands andother Total
2,943,881 0 0 618,740 3,562,621
0 0 0 458,271 458,271
21,314,091 2,391,991 2,439,788 2,017,629 28,163,498
0
(136,181) (99,523) (493,278) (728,982)
Balanceasat31December2021 24,257,972 2,255,810 2,340,265 2,601,362 31,455,409
24,257,972 2,391,991 2,439,788 3,270,240 32,359,991
0 (136,181) (99,523) (668,878) (904,582)
Balanceasat31December2021 24,257,972 2,255,810 2,340,265 2,601,362 31,455,409
Customer Software
31.12.2020 Goodwill relationships Brands andother Total
2,943,881 0 0 339,375 3,283,256
0 0 0 354,053 354,053
0 0 0
(74,688) (74,688)
Balanceasat31December2020 2,943,881 0 0 618,740 3,562,621
2,943,881 0 0 794,340 3,738,221
0 0 0 (175,600) (175,600)
Balanceasat31December2020 2,943,881 0 0 618,740 3,562,621
In October 2017, the Group acquired investment properties through one of its subsidiaries, Rafklettur ehf. The intention is to either earn rental
income or capital appreciation or both. The book value of investment properties is based on the most recent appraisal values by licensed real
estate agents, current listing prices and/or recent transactions for comparable real estates or valuation models based on gross income multipliers.
During 2021, the Group received rental income amounting to ISK 81 million (2020: ISK 77 million) and incurred direct operating expenses of ISK 13
million(2020:ISK15million).
Sharein(loss)profitofassociates,netofincometax....................................................................................................
Dividend
received...........................................................................................................................................................
Balanceasat1January2021...........................................................
Additionsduringtheperiod.............................................................
Additionsthroughbusinesscombinations......................................
Amortisation....................................................................................
Acquisitionofsharesinassociates.................................................................................................................................
Disposalofsharesinassociates......................................................................................................................................
Revaluationofinvestmentproperties............................................................................................................................
Mobergd.o.o.......................................................... Digitalsolutionsprovider
Holdingcompany
Balanceatthe
beginningoftheyear..............................................................................................................................
Additionsduringtheperiod.............................................................
Balanceasat1January2020...........................................................
Grosscarryingamount.....................................................................
Accumulatedamortisationandimpairmentlosses.........................
Accumulatedamortisationandimpairmentlosses.........................
Balanceatthebeginningoftheyear..............................................................................................................................
Grosscarryingamount.....................................................................
Additions.........................................................................................................................................................................
Glámafjárfestingarslhf.
...........................................
KjölfestaGPehf........................................................
The Group does not consider its associates material, neither individually nor as a group. During the second quarter of 2021, the Group sold all its
shareholdinginKjölfestaGPehf.Duringthefourthquarterof2021theGroupacquireda40%stakeinMobergd.o.o.,adigitalsolutionsprovider.
Holdingcompany
Amortisation....................................................................................
ConsolidatedFinancialStatements31December2021 27
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
28. Intangibleassets(cont.)
b. Impairmenttesting
Future Discount
31.12.2021
growthrate rate
Bookvalue
3.5% 10.1%
2,943,881
3.5% 11.1%
13,013,764
3.0% 11.2%
8,300,327
Totalgoodwill 24,257,972
Future Discount
31.12.2020
growthrate rate
Bookvalue
3.5% 9.4%
2,943,881
Totalgoodwill 2,943,881
29. Operatingleaseassets
Operatingleaseassetsarespecifiedasfollows:
31.12.2021
0
1,784,025
233,914
(319,763)
(239,555)
Balanceasat31December2021 1,458,621
2,226,907
(768,286)
Balanceasat31
December2021 1,458,621
Additionsthroughbusinesscombinations..............................................................................................................................................
There are no comparative f igures as operating lease assets were part of business combinations during the period. Reference is made to note 3 for
moreinformationonbusinesscombinations.
Accumulateddepreciation.......................................................................................................................................................................
The following table shows the key assumptions used in the estimation of the recoverable amount. The recoverable amounts are calculated by
discounting the estimated f uture growth rate of the CGUs. The time value of money and price of uncertainty, calculated as the weighted average
costofcapital("WACC"),arebasedonexternalmarketinformationaboutmarketrisk,interestratesandCGUspecificelementslikecountryrisk.
AssetManagement............................................................................................................................
CommercialBanking...........................................................................................................................
Insurance............................................................................................................................................
AssetManagement
............................................................................................................................
The goodwill impairment tests were performed at the end of 2021. Their results show that the recoverable values exceed the carrying values of
goodwill. In addition to the base case testing, additional scenarios were tested where some key inputs had been stressed. In all scenarios tested
theresultsshowthatthereissufficientheadroomandthattherearenotriggersindicatingthatimpairmentisnecessary.
Assets with indefinite useful life, such as goodwill, are not amortised but are subject to annual impairment testing as described in note 98.
Goodwill is allocated to cash generating units ("CGUs") for the purpose of impairment testing. The allocation is made to those CGUs or groups of
CGUs that are expected to benefit from the business combinations in which the goodwill arose. Goodwill has been allocated to three CGUs, Asset
Management, Commercial Banking and Insurance. The goodwill allocated to Commerical Banking and Insurance, following business combinations
duringtheyear2021,isabasedonapreliminaryestimate.Theallocationwillbefinalisedduringtheyear2022.
Depreciation.............................................................................................................................................................................................
Grosscarryingamount.............................................................................................................................................................................
Additions..................................................................................................................................................................................................
Balanceasat1January2021...................................................................................................................................................................
Disposals...................................................................................................................................................................................................
ConsolidatedFinancialStatements31December2021 28
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
30. Deferredtaxassetsandliabilities
3,177,763 835,816
(899,942) (236,186)
Net 2,277,821 599,630
31.12.2021 31.12.2020
270,609 (56,575)
(563,719) 0
(225,954) (172,014)
2,796,884 828,219
Total 2,277,821 599,630
467,499
1,511,014
1,242,589
453,436
18,137,597
909,209
Total 22,721,343
31. Otherassets
Otherassetsarespecifiedasfollows:
31.12.2021 31.12.2020
7,599,584 3,646,962
984,264 630,192
800,087 478,995
111,172 0
30,202 327,210
517,245 356,733
Total 10,042,553 5,440,092
Rightofuseassetandleasereceivablesarespecifiedasfollows:
31.12.2021 31.12.2020
478,995 622,415
453,937 11,152
301,665 0
(175,404) 0
37,716 18,023
(296,822) (172,596)
Total 800,087 478,995
32. Deposits
Depositsarespecifiedasfollows:
31.12.2021 31.12.2020
63,858,051 46,775,812
14,811,756 13,148,871
Total 78,669,807 59,924,683
Demanddeposits............................................................................................................................................................
Investmentwhereinvestmentriskisbornebylife‐
insurancepolicyholders................................................................
Disposal...........................................................................................................................................................................
Additionsthroughbusinesscombinations.....................................................................................................................
Taxlosses
Otheritems.....................................................................................................................................................................
Taxlossescarriedforward..............................................................................................................................................
Taxlosses2015,expiringin2025..............................................................................................................................................................
Taxlosses2012,expiringin2022..............................................................................................................................................................
Taxlosses2017,expiringin2027..............................................................................................................................................................
Taxlosses2018,expiringin2028..............................................................................................................................................................
Taxlosses2020,expiringin2030..............................................................................................................................................................
TheGroup'sdeferredtaxassets(liabilities)areattributabletothefollowingitems:
Propertyandequipment................................................................................................................................................
Intangibleassets.............................................................................................................................................................
Unsettledtransactions....................................................................................................................................................
Rightofuseassetandleasereceivablesatthebeginningoftheyear..........................................................................
Receivablesatfairvalue.................................................................................................................................................
Taxlosses2013,expiringin2023..............................................................................................................................................................
Atyearend2021,taxlossescarriedforwardamounttoISK22.7billion,andaresettoexpireasfollows:
Sundryassets..................................................................................................................................................................
Deferredtaxassets.........................................................................................................................................................
Deferredtaxliabilities.....................................................................................................................................................
Depreciationandleasereceivableinstallment..............................................................................................................
Right of use asset and lease receivables mostly consist of real estates for the Group's own use. The Group has entered into sublease contracts for
partsoftherealestateswhichitdoes
notuseforitsoperations.
Rightofuseassetandleasereceivables........................................................................................................................
Indexation.......................................................................................................................................................................
Timedeposits..................................................................................................................................................................
Additionsduringtheperiod............................................................................................................................................
Accountsreceivable........................................................................................................................................................
ConsolidatedFinancialStatements31December2021 29
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
33. Technicalprovision
Technicalprovisionisspecifiedasfollows:
31.12.2021
16,492,994
5,311,124
630,329
Technicalprovisions,total 22,434,447
Reinsurer'sshare:
635,419
113,964
Reinsurer'sshare,total 749,383
Owntechnicalprovision:
15,857,575
5,197,160
630,329
Owntechnicalprovision(net),total 21,685,065
Developmentofclaimsprovisionsfrom1.4.2021to31.12.2021: Reinsurer's
Total share Ownshare
16,764,649 (1,173,928) 15,590,720
(3,967,947) 310,640 (3,657,306)
4,150 0 4,150
(30,185) 0 (30,185)
(210,595) 0
(210,595)
(66,201) (114,159) (180,360)
3,999,123 342,028 4,341,151
16,492,994 (635,419) 15,857,575
(245,620) 538,510 292,890
(0.4%) 9.7% (1.2%)
Developmentofpremiumprovisionsfrom1.4.2021to31.12.2021: Reinsurer's
Total share Ownshare
9,769,559 (522,428) 9,247,131
25,806 (258) 25,547
(4,484,240) 408,723 (4,075,518)
5,311,124 (113,964) 5,197,160
Premiumprovision...................................................................................................................................................................................
Riskmargin...............................................................................................................................................................................................
Premiumprovision...................................................................................................................................................................................
There are no comparative figures as the technical provision was a part of business combinations during the year. Reference is made to note 3 for
moreinformationonbusinesscombinations.
Claimsprovisionsat1.4.2021.............................................................................................................
Paidclaimsinthe
periodduetoolderaccidentyears.......................................................................
Changeinclaimsprovisionsduetoinsuranceoperations................................................................
Proportionalchangeinassessmentofclaimsforolderaccidentyears............................................
Thepositivedevelopmentofownclaimsprovisioncontributestoadecreaseincombinedratioof1.4%.
Exchangeratechangeofclaimsprovisionsdueto
olderaccidentyears..........................................
Riskmargin...............................................................................................................................................................................................
The estimated claims provisions are reported less estimated salvage value of the assets that were damaged. The total salvage value at end of
December2021isimmaterial.
Claimsprovision.......................................................................................................................................................................................
The Group buys reinsurance primarily as excess of loss treaties to protect itself against extreme events, but certain lines are protected by quota
sharetreaties.
Claimsprovision.......................................................................................................................................................................................
Premiumprovision...................................................................................................................................................................................
Claimsprovision.......................................................................................................................................................................................
Changeinassessmentofclaimsprovisionsduetoolderaccidentyears..........................................
Premiumprovisionsat1.4.2021........................................................................................................
Exchangeratechangeofpremiumprovisions
...................................................................................
Changeintheprovisionforunearnedpremiums..............................................................................
Premiumprovisionsatendofyear....................................................................................................
Unwindingandinterestratechangeofclaimsprovisionsduetoolderaccidentyears...................
Changeinsettlementcostallocationduetoolderaccidentyears....................................................
ChangeinClaimsprovisionsforclaimsincurredin2021
..................................................................
Claimsprovisionsat31.12.2021.........................................................................................................
ConsolidatedFinancialStatements31December2021 30
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
33. Technicalprovision(cont.)
Unwinding,interestandexchangeratechangefrom1.4.2021to31.12.2021: Reinsurer's
Total share Ownshare
(30,185) 0 (30,185)
4,150 0 4,150
25,806 (258) 25,547
(229) (258) (488)
34. Borrowings
Borrowingsarespecifiedasfollows:
31.12.2021 31.12.2020
17,261,048 26,424,340
Total 17,261,048 26,424,340
35. Issuedbills
Issuedbillsarespecifiedasfollows:
31.12.2021 31.12.2020
0 598,488
0 595,587
0 809,534
Total 0 2,003,608
36. Issued
bonds
Issuedbondsarespecifiedasfollows:
First Maturity
Currency,nominalvalue issued Maturity type Termsofinterest 31.12.2021 31.12.2020
Unsecuredbonds:
2020 2023 Atmaturity Floating,1monthREIBOR+0.85
%
4,609,836 1,763,538
2019 2024 Amortizing Floating,1monthREIBOR+1.50
%
3,003,775 3,474,842
2021 2023 Atmaturity Floating,3monthLIBOR+2.50% 2,117,105 0
2021 2027 Atmaturity CPI‐indexed,fixed1.0% 5,589,138 0
2020 2023 Atmaturity Floating,1monthREIBOR+1.10
%
2,575,197 0
2021 2024 Atmaturity Floating,3monthLIBOR+1.75% 2,007,693 0
2021 2024 Atmaturity Floating,3monthREIBOR+0.90
%
4,506,565 0
Assetbackedbonds:
2016 2023 Amortizing Floating,1monthREIBOR+1.10
%
2,928,877 0
2019 2026 Amortizing CPI‐indexed,fixed3.30% 3,792,658 0
2020 2024 Amortizing Fixed,2.80% 1,002,853 0
2019 2023 Amortizing Fixed,5.20% 464,019 0
Total 32,597,716 5,238,381
0 329,704
Total 32,597,716 5,568,085
Moneymarketdeposits..................................................................................................................................................
Lykill2311,ISK3,010million..........
KVB2101,GBP12million...............
Totalunwinding,interestandexchangeratechangeoftechnicalprovisions..................................
Change
intheprovisionforunearnedpremiums..............................................................................
KVB1901,ISK5,000million............
Lykill2406,ISK1,570million..........
Unlistedseniorunsecuredbonds,total.........................................................................................................................
Unwindingandinterestratechangeofclaimsprovisionsduetoolderaccidentyears...................
Exchangeratechangeofclaimsprovisions.......................................................................................
KVIKA24
1216GB,ISK4,500mil.....
Lykill2309,ISK1,000million..........
Lykill2605,ISK5,130million..........
TheBankhasnothadanydefaultsofprincipal,interestorotherbreacheswithrespecttoitsdebtissuedandotherborrowedfunds.
KVB210621....................................................................................................................................................................
KVB210921...............................................................................................................................
.....................................
KVIKA241119,GBP11,4million....
KVB2001,ISK5,000million............
Lykill1601,ISK10,870million........
KVB2102,ISK5,400million............
KVB210322....................................................................................................................................................................
MoneymarketdepositstypicallyhaveaprincipalofISK5‐500millionandmaturitybetween1dayand
6monthsandpayfixedinterestrates.
ConsolidatedFinancialStatements31December2021 31
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
37. Subordinatedliabilities
a. Subordinatedliabilities:
First Maturity
Currency,nominalvalue issued Maturity type Termsofinterest 31.12.2021 31.12.2020
2015 2025 Atmaturity CPI‐Indexed,fixed7.50% 0 1,169,444
2018 2028 Atmaturity CPI‐Indexed,fixed7.50% 960,156 907,781
2015 2045 Atmaturity CPI‐Indexed,fixed5.25% 2,411,610 0
Total 3,371,766 2,077,225
b. Subordinatedliabilitiesarespecifiedasfollows:
31.12.2021 31.12.2020
2,077,225 1,999,530
(1,258,799) 0
2,358,610 0
(113,125) (115,000)
(14,763) (9,922)
322,618 202,617
Total 3,371,766 2,077,225
38. Shortpositions
heldfortrading
Shortpositionsheldfortradingarespecifiedasfollows:
31.12.2021 31.12.2020
608,965 559,382
714,665 961,165
Total 1,323,631 1,520,547
39. Shortpositionsusedforhedging
Shortpositionsusedforhedgingarespecifiedasfollows:
31.12.2021 31.12.2020
1,280,868 731,987
Total 1,280,868 731,987
40. Otherliabilities
Otherliabilitiesarespecifiedasfollows:
31.12.2021 31.12.2020
1,481,030 490,576
1,041,121
477,691
974,515 324,385
875,985 1,217,659
694,281 361,088
483,486 386,001
170,753 97,664
142,407 0
111,172 0
6,720 31,371
696,038 364,037
Total 6,677,507 3,750,472
Withholdingtaxes...........................................................................................................................................................
Paidinterest....................................................................................................................................................................
FollowingauthorisationfromtheFME,theGrouprepaidKVB1501ontheinterestpaymentdateinAugust2021.
At the interest payment date in the year 2023 for KVB 18 02, the Group has the right to repay the subordinated bond and on any subsequent
interestpaymentdates
untilmaturity.
At the interest payment date in May 2025 for TM 15 01, the annual interest rate increases from 5.25% p.a. to 6.25% p.a. At the interest payment
date in May 2025 for TM 15 01, the Group has the right to repay the subordinated bond and on any subsequent interest payment dates until
maturity.
KVB1802,ISK800million...............
KVB1501,ISK1,000million............
Subordinated liabilities are financial liabilities in the form of subordinated capital which, in case of the Group's voluntary or compulsory windin g‐
up, will not be repaid until after the claims of ordinary creditors have been met. In the calculation of the capital ratio, they are included within
Tier 2 and are a part of the equity base. The amount eligible for Tier 2 capital treatment is amortised on a straight‐line basis over the final 5 years
tomaturityorupto20%ayear.TheGroupmayonlyretiresubordinatedliabilitieswiththepermissionoftheFME.
TM151,ISK2,000million...............
Otherliabilities...............................................................................................................................
.................................
Listedgovernmentbondsandbondswithgovernmentguarantees.............................................................................
Balanceatthebeginningoftheyear..............................................................................................................................
Accruedinterestsandindexation...................................................................................................................................
Listedbonds....................................................................................................................................................................
Paidinterestsduetoindexation.....................................................................................................................................
Contingentconsideration...............................................................................................................................................
Reinsuranceliabilities.....................................................................................................................................................
Listedgovernmentbondsandbondswithgovernmentguarantees.............................................................................
Technical
provisionforlife‐insurancepolicieswhereinvestmentriskisbornebypolicyholders.................................
Accountspayableandaccruedexpenses.......................................................................................................................
Specialtaxesonfinancialinstitutionsandfinancialactivities.......................................................................................
RedemptionofKVB1501...............................................................................................................................................
Additionsthroughbusinesscombinations.....................................................................................................................
Expectedcreditlossallowanceforloancommitments,guaranteesandunusedcredit
facilities.................................
Unsettledtransactions....................................................................................................................................................
Leaseliability...................................................................................................................................................................
Salariesandsalaryrelatedexpenses..............................................................................................................................
ConsolidatedFinancialStatements31December2021 32
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
40. Otherliabilities(cont.)
Leaseliabilityisspecifiedasfollows:
31.12.2021 31.12.2020
477,691 616,521
452,001 39,449
373,413 0
(299,701) (197,076)
37,716 18,796
Total 1,041,121 477,691
41. Sharecapital
a. Sharecapital
31.12.2021 31.12.2020
4,907,395 2,141,002
117,256 0
413,325 546,480
b. Changesmadetothenominalamountofsharecapital
c. Sharecapitalincreaseauthorisations
Authorisedbutnotissuedshares...............................................................................................................................
....
Leaseliabilityatthebeginningoftheyear.....................................................................................................................
Installment......................................................................................................................................................................
According to the Bank's Articles of Association dated 20 December 2021, the Board of Directors is authorised to increase the share capital of the
Bank by up to ISK 100 million through subscription for new shares. This authorisation is based on temporary provision I to the Articles of
Associationandisvaliduntil15March2022.
Nominalamountoftreasuryshares...............................................................................................................................
ThenominalvalueofsharesissuedbytheBankisISK1pershare.Allcurrently issued shares have a nominal value of ISK 1 per share, and are fully
paid. The holders of shares are entitled to receive dividends as approved by the general meeting and are entitled to one vote per nominal value
ofISK1atshareholders'meetings.ReferenceismadetotheBank'sArticlesofAssociationformoreinformationaboutthesharecapital.
Share
capitalaccordingtotheBank'sArticlesofAssociation........................................................................................
The Bank's share capital was increased by ISK 256,458,363 in nominal value during the year 2021 in order to serve the exercising of issued
warrants.Inadditiontothat,thesharecapitalwasincreasedbyISK2,509,934,076innominalvalueinrelationtothemergerwithTMhf.andLykill
fjármögnunhf.
Indexation.......................................................................................................................................................................
Additionsduringtheperiod............................................................................................................................................
Temporary provision IV to the Articles of Association authorises the Board of Directors to increase the share capital of the Bank in stages by up to
ISK 70 million in nominal value, for the purposes of fulfilling stock option agreements in accordance with the Bank's stock option plan which has
been approved by Iceland Revenue and Customs as provided for in Art. 10 of the Income Tax Act, No. 90/2003. This authorisation is valid until 31
December2024.
Temporary provision II to the Articles of Association authorises the Board of Directors to issue warrants and increase the share capital
accordingly. Pursuant to this temporary provision the Board of Directors is authorised to increase share capital by up to ISK 77 million to serve
warrantsissuedunder
thisprovision.Thisauthorisationisvaliduntil21April2026.
The aforementioned authorisation under section B of temporary provision IV currently stands at ISK 57 million. However, should the Board of
Directors u tilise its authorisation according to section A of temporary provision I and increase the Bank's share capital by ISK 100 million, the
authorisation under section B of temporary provision IV will increase from ISK 57 million to ISK 107 million, as stipulated in the provision. The
Board of Directors' authorisation under temporary provision IV to increase share capital thus currently totals ISK 117 million but can increase to
ISK 167 million by the usage by the Board of Directors of its authorisation pursuant to section A of temporary provision I. This authorisation is
validuntil31December2022.
Temporary provision IV to the Articles of Association authorises the Board of Directors to issue warrants and increase the share capital
accordingly. According to section A of temporary provision IV the Board of Directors is currently authorised to increase share capital by up to ISK
60 million to serve issued warrants. According to section B of temporary provision IV the Board of Directors is furthermore granted a conditioned
authorisation to increase the share capital, currently by an additional amount of ISK 107 million to serve issued warrants. The authorisation under
sectionBoftemporaryprovisionIVisdirectlylinkedtotheBoardofDirectors'authorisationundersectionAoftemporaryprovisionI.
A copy of the Bank's Articles of Association, including the temporary provisions, is available on the Bank's website, www.kvika.is, reference is
madetothemformoreinformation.
Additionsthroughbusinesscombinations.....................................................................................................................
ConsolidatedFinancialStatements31December2021 33
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
42. Warrants
IssueDate
Nominal
amount
Purchase
priceof
warrants
Annual
increaseof
strikeprice
Strikepriceat
expirydate
Exercise
period
23,000,019 7,148,756
7.5% 7.74
Sept.2020‐Sept.2022
91,966,634 27,456,206
7.5% 7.74
Sept.2021‐Sept.2022
1,166,667 505,167 7.5%
10.75
Dec.2021‐Dec.2022
1,000,000 944,000 7.5%
15.36 Dec.2020‐Dec.2022
16,125,000 15,222,000 7.5%
15.36 Dec.2020‐Dec.2022
5,500,000 5,192,000 7.5% 15.36 Dec.2021‐Dec.2022
138,758,320 56,468,129
43. Solvencyofafinancialconglomerate
Solvencyratioof
theGroupasafinancialconglomerateisspecifiedasfollows:
31.12.2021
Availablecapital
32,496,219
14,121,233
Total 46,617,452
Solvencyrequirementforinsuranceactivities
9,986,019
Ownfundsrequirementfornoninsuranceactivities
7,680,858
6,816,762
Minimumcapitalrequirementfornoninsuranceactivities 14,497,620
5,280,590
Total 19,778,210
46,617,452
9,986,019
19,778,210
29,764,229
1.57
Therearenocomparativefiguresas
theGrouphasnotpreviouslybeenrequiredtocalculatethesolvencyratioforasafinancialconglomerate.
Statutoryminimumcapitalrequirement(PillarI)....................................................................................................................................
September2017........................................................
April2019...................................................................
The FME has designated the Group as a financial conglomerate as defined in Article no. 3 of Act no. 61/2017 on Additional Supervision of
Financial Conglomerates. As a result of this designation, the Group's capital adequacy is now calculated as the solvency ratio of a financial
conglomerate. The Group furthermore calculates the consolidated capital adequacy ratio for entities not belonging to the insurance sector by
excluding the insurance activities from calculation of risk weighted assets and capital base. The Group similarly calculates the solvency ratio of
entitiessolelybelongingtotheinsurancesector.
SolvencyCapitalRequirements(SCR)......................................................................................................................................................
The Bank has issued warrants for shares in the total nominal amount of ISK 138,758,320 as at 31 December 2021. The number of owners of these
warrants is 60 and they purchased the warrants for a total consideration of ISK 56,468,129. The purchase price of the warrants was determined
using market standard methodology and a valuation from an independent appraiser as applicable. Should the owners of the warrants exercise
their warrants, the Bank is obliged to issue new shares and sell to the warrant owners at a predefined price, usually referred to as strike price. If
all the warrants would be exercised, the Bank's share capital would increase to 5,046,153,256, and the newly issued shares would represent 2.7%
oftheBank'stotalissu edcapital,postdilution.
OwnFundseligiblefornoninsuranceactivities......................................................................................................................................
OwnFundseligibleforinsuranceactivities.............................................................................................................................................
Additionalcapitalrequirements(PillarII)................................................................................................................................................
Solvency measures the Group's ability to take on setbacks, thus indicating its financial strength. The available capital and capital requirements o f
the Group is calculated as a financial conglomerate according to Articles 16, 17 and 18 of Act on Additional Supervision of Financial
ConglomeratesNo.61/2017.TheGroup'ssolvencyratiois1.57,witharegulatoryminimumrequirementof1.0.
April2019...................................................................
Total
September2017........................................................
May2018...................................................................
August2019...............................................................
Own
fundsrequirementfornoninsuranceactivities..............................................................................................................................
Additionalcapitalprotectionbuffers.......................................................................................................................................................
Minimumsolvencyoffinancialconglomerate........................................................................................................................................
Solvency....................................................................................................................................................................................................
Solvencyratio...........................................................................................................................................................................................
Solvencyrequirement(SCR).....................................................................................................................................................................
ConsolidatedFinancialStatements31December2021 34
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
44. Capitaladequacyratio(CAR)
Ownfundseligiblefornoninsuranceactivities 31.12.2021 31.12.2020
78,367,620 19,208,001
0 0
CapitaleligibleasCET1Capital 78,367,620 19,208,001
(25,564,998) (3,562,621)
(20,441,123) (259,829)
0 (117,250)
(3,177,763) (835,816)
CommonequityTier1capital(CET1) 29,183,736 14,432,485
3,312,483 2,012,387
0 (227,952)
Totalownfunds 32,496,219 16,216,919
Riskweightedexposures
70,135,184 40,070,248
4,051,492 3,617,483
21,824,053
13,621,015
Totalriskweightedexposures 96,010,729 57,308,746
Capitalratios
33.8% 28.3%
30.4% 25.2%
15.1% 15.1%
20.6% 20.6%
14.0% 14.0%
Deferredtaxasset...........................................................................................................................................................
Operationalrisk..............................................................................................................................................................
The FME supervises the Bank on a consolidated basis and, as such, receives information on the capital adequacy of, and sets capital requirements
for, the Bank as a whole. The Bank's regulatory capital calculations for credit risk and market risk are based on the standardised approach and the
capitalcalculationsforoperationalriskarebasedonthebasicindicatorapproach.
Minimum capital requirement is based on the Bank's Internal Capital Adequacy Assessment Process (ICAAP) and is reviewed by the FME through
the Supervisory Review and Evaluation Process (SREP). The Bank's minimum regulatory capital requirement, based on the SREP from 2019, is
15.1%. The FME has notified the Bank that a new SREP process will be conducted in 2022. The minimum regulatory capital requirement including
theadditionalcapitalbuffersis20.6%asat31December2021.
Tier2capital....................................................................................................................................................................
MinimumCapitaladequacyratiorequirement..............................................................................................................
MinimumCapitaladequacyratiorequirementincludingsupervisorybuffers..............................................................
Totalequity.....................................................................................................................................................................
ExpecteddividendsaccordingtoDividendPolicy..........................................................................................................
Capitaladequacyratio(CAR)..........................................................................................................................................
Goodwillandintangibles................................................................................................................................................
Sharesinotherfinancialinstitutions..............................................................................................................................
Creditrisk........................................................................................................................................................................
Market
risk......................................................................................................................................................................
DeductionsfromTier2capital.......................................................................................................................................
CET1ratio........................................................................................................................................................................
Subordinatedfixedincomesecurities............................................................................................................................
MinimumCET1ratiorequirementincludingsupervisorybuffers.................................................................................
The capital adequacy ratio of the Group, excluding entities which belong to the insurance sector, calculated in accordance with Article 84 of Act
No.161/2002onFinancialUndertakings,was33.8%.TheminimumrequirementfromtheFMEis15.1%.Theratioiscalculatedasfollows:
ConsolidatedFinancialStatements31December2021 35
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
18
45. Solvencyofinsuranceactivities
31.12.2021
Ownfundseligibleforinsuranceactivitiessolvency
22,163,820
(5,888,497)
350,979
(2,500,000)
(5,069)
Total 14,121,233
Solvencyrequirement
326,634
1,390,074
4,956,453
7,478,337
962,624
(4,259,005)
0
BaseSolvencyCapitalRequirements(BasicSCR) 10,855,118
627,562
(1,496,661)
SolvencyCapitalRequirements(SCR) 9,986,019
14,121,233
9,986,019
1.41
14,121,233
3,818,920
3.70
There are no comparative figures as insurance services became a part of the Group's operations through business combinations
duringtheyear2021.Referenceismadeto
note3formoreinformationonbusinesscombinations.
Goodwillandintangibles..........................................................................................................................................................................
Minimumrequiredcapitalratio...............................................................................................................................................................
Lifeinsurancerisk.....................................................................................................................................................................................
Healthinsurancerisk................................................................................................................................................................................
Non‐lifeinsurancerisk.............................................................................................................................................................................
Marketrisk...............................................................................................................................................................................................
Counterpartydefaultrisk.........................................................................................................................................................................
Multifacetedeffects.................................................................................................................................................................................
Operationalrisk........................................................................................................................................................................................
Solvency....................................................................................................................................................................................................
Solvencyrequirement(SCR).....................................................................................................................................................................
Solvencyratio...........................................................................................................................................................................................
Eligibleitemstomeettheminimumcapital............................................................................................................................................
Riskduetointangibleassets....................................................................................................................................................................
Adjustmentfortheloss‐absorbingcapacityofdeferredtaxes...............................................................................................................
Minimumrequiredcapital(MRC)............................................................................................................................................................
Differencebetweennettechnicalprovisioninthefinancialstatementsandsolvencyrules
.................................................................
Equityeligibleforinsuranceactivities.....................................................................................................................................................
Non‐controllinginterest...........................................................................................................................................................................
Proposeddividendpayment....................................................................................................................................................................
The Group calculates solvency capital and capital requirements for entities which belong to the insurance sector. The available capital and
required capital is calulated in accordance with Articles 88 and 96 of the Act on Insurance Activity No. 100/2016. This brings the solvency ratio for
entities which belong to the insurance sector to 1.41. Solvency capital requirements according to law is the minimum insurance companies have
tomeet.
ConsolidatedFinancialStatements31December2021 36
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
45
Riskmanagement
46. Riskmanagementframework
a. BoardofDirectors
b. BoardofDirectorssub‐committees
c. CEO
d. Committees
e. Riskmanagement
f. ComplianceOfficer
The Bank's Board of Directors is responsible for the Group's corporate governance, including the establishment and oversight of the Group's risk
management framework and risk appetite setting. In that respect, the Board of Directors has set a policy on the Group's corporate governance. In
order to ensure harmonized and good governance on a consolidated basis, the Bank's Board of Directors further sets out ownership policies for
subsidiaries that are considered an important part of the Group's operations. According to the ownership policies, the Boards of Directors of the
relevant subsidiaries shall a lways provide the Bank with all information necessary for it to carry out its supervisory role and the services that the
Bank provides to the relevant subsidiaries. Further, as risk management must be co‐ordinated on a group‐wide basis, those subsidiaries, shall
provide risk management with all necessary information to enable the Bank to be able to fulfil its obligations as parent company of the Group.
The head of risk management a nd the Bank's compliance officer can request a direct audience with the Boards of Directors of those subsidiaries.
Risk management policies are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through training
and management standards and procedures, continuously aims to develop a disciplined and constructive control environment in which all
employeesunderstandtheirrolesandobligations.
The Bank's Board of Directors has established three sub ‐committees, the Risk Committee, Audit Committee and Remuneration Committee. In
accordance with the Bank´s articles of association, three members have been appointed to each committee, thereof at l east two Board members.
It is not permitted to appoint employees of the Bank to any committee. Members shall have the necessary experience and knowledge for each
committee´s tasks according to applicable laws and rules. Each committee has incorporated procedural rules which have been confirmed by the
BoardofDirectors.
The Remuneration Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors in connection with the
Bank’sremunerationandthatthe
y
su
pp
orttheob
j
ectivesandinterestsoftheBank.
The CEO is responsible for the effective implementation through the corporate governance structure and committees. The CEO has established
threecommittees,whichareresponsiblefordevelopingandmonitoringriskmanagementpoliciesintheirspecifiedareas.
The Bank operates three committees that are involved in risk management: an Asset and Liability Committee (ALCO), a Credit Committee and an
OperationsCommittee.
The Risk Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors, including for the formation of
the Bank’s risk policy and risk appetite. The Risk Committee supervises the arrangement and activity of risk management, credit risk, market risk,
liquidityrisk,operationalrisk,reputationalriskandotherriskasapplicable.
The Audit Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors, including to ensure the quality
of the annual accounts and other financial information of the Bank and the independence of the Bank’s auditors. The Audit Committee monitors
theworkprocessforthepreparationoffinancialstatements,thefunctioningofinternalcontrolsaswell
asinternalandexternalauditing.
The Operations Committee is responsible for supervision and implementation of the Bank's security and quality policies. The security policy
mainly addresses data security and operational security in IT systems, physical security for the personnel and proper access controls and
monitoring in the Bank's premises. The quality work is aimed at upholding proper quality in work processes, IT systems and services to support
performanceandprofitability,loweroperationalriskandincreasethecustomerexperience.
The purpose of the Bank's risk management unit is to identify, quantify, control and report on the risks that the Group is exposed to in its daily
activities. The unit also participates in drafting the overall risk policy and has representatives on the ALCO committee, Credit committee and the
Operations committee. The unit’s main activities include monitoring and managing credit risk, market risk, liquidity risk and operational risk. The
Board of Directors sets the rules and guidelines regarding the Group's risk policy and the obligations of risk management and credit control. The
divisionreportsregularlyontheGroup’spositionsandexposuretorisktotheBoardofDirectors,theCEOandtotheALCOcommittee.
The compliance function is an independent function that operates under the CEO, and the appointment of the Compliance Officer and his deputy
is confirmed by the Board. The compliance function monitors the Bank's compliance risk on a permanent basis and that the measures, policies
and procedures that have been put in place so that the Bank complies with its obligations are adequate and effective. The Compliance Officer is
also responsible for coordinating and monitoring the Bank's compliance with applicable anti‐money laundering and terrorist financing laws and
re
g
ulations.
ALCO supervises the management of the Bank's balance sheet, assets and liabilities. This involves determining the most efficient division between
returnsandriskandallocatingfundstotheBank'sbusinessunits.
The Credit Committee addresses matters regarding the Bank's loan activities and is responsible for and makes decisions on the investments and
sale of unlisted assets, such as unlisted securities and financial instruments, shares in private limited companies and other companies, and as
regards other divisions than Treasury and Market Making, the investment and sale of unit share certificates in funds for collective investment.
The committee is responsible for the approval of larger loans and is the primary forum for the discussion of the Bank's credit rules, including
creditlimitsforrelevantdivisionsoftheBank.
ConsolidatedFinancialStatements31December2021 37
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
46
46. Riskmanagementframework(cont.)
g.
47. Hedging
48. Creditrisk‐overview
a. Definition
b. Management
c. Creditapprovalprocess
d. Collateral
e. Creditrating,controlandprovisioning
f. Loanportfoliomanagement
g. Impairment
h. Derivatives
i. Securitiesusedforhedging
InternalAudit
Internal Audit is responsible for providing an objective opinion on the Group’s operations, as well as advice which aims to increase the Group’s
value and to strengthen risk management and internal control. The Internal Audit’s main task, is to estimate whether adequate processes and
systems are in place, and whether they are relevant and efficient. The Internal Auditor is recruited by the Board of Directors and is located
accordingly in the hierarchy. Its operations cover all units of operations, including the subsidiaries TM tryggingar hf., TM líftryggingar hf., Kvika
eignastýring hf., Gamma Capital Management hf. and Kvika Securities Ltd. According to the letter of appointment, the internal auditor has direct
accesstotheBoards'ofDirectorsoftheBank'ssubsidiaries.
Securitiesheldasahedgeagainstderivativespositionsofcustomersmakeupapartof
theGroup'sportfolioofassets.TheGrouphedgescurrency
exposurebetweentheGroup'sloanportfolioanddebtstotheextentpossible,butdoesnotapplyhedgeaccounting.
The Group offers derivative contracts in the form of swap contracts on highly liquid securities. On the day when the contract is entered into, the
Group purchases the underlying security and hedges its exposure to price changes. Collateral is in the form of cash or listed, highly liquid
securities. The risk management sets rules about the level of collateralisation and monitors the compliance to these rules. Contracts are closed if
requiredlevelsofcollateralisationarenotmet.
The Group hedges itself for market risk of derivative contracts by purchasing the underlying securities at the commencement of the contract.
Since the contracts require delivery of the underlying securities to the customer on the settlement day, the credit risk towards the issuer is
immaterial.
To ensure an effective d iversification of the loan portfolio the board has set a limit framework defining maximum exposure as a ratio of the
Group’s equity and/or the total size of the loan portfolio. These limits include limitation on joint exposure to associated clients, exposure to
individual and associated industries, single regions and countries etc. It is the responsibility of risk management to monitor that these limits are
notbeingviolatedandtoreportdiscrepanciestothecreditcommittee.
One of the Group's primary sources of risk is counterparty credit risk. Credit risk is defined as the risk that one party to a financial instrument will
causeafinancialloss
fortheotherpartybyfailingtodischargeanobligation.
The risk management unit is responsible for managing and reporting on credit risk. The Group uses a variety of tools and processes to manage
creditrisk,includingcollaterals,hedgesandloanportfoliomanagement.
ToaverylargeextenttheGroup'sloanportfolioconsistsofseniorloans,mostofwhicharehighlycollateralised.
Securing loans with collateral is a traditional method to reduce credit risk. The Group uses different methods to reduce credit risk by obtaining
collateral from customers where appropriate. Such collateral gives the Group right to the collateralised assets for current and future obligations
incurredbythecustomer.
The Group places emphasis on pricing loans according to the value and quality of pledged collateral. The Group applies appropriate haircuts on all
collateral in order to ensure proper risk mitigation. For all collateral in listed securities, the Group maintains the right to liquidate collateral in case
itsmarketvaluefallsbelowapredefinedlimit.
The risk management unit is responsible for credit rating and reviewing the loan portfolio. In case of any significant delay of payments or defaults
theunitcarefullyanalysestheunderlyingassetsandloandocumentsandorganizestheprocessofcollection.
TheGroupmonitorsthevalueofcollateralbylistedsecuritiesonarealtimebasis,andtakespromptactionwhennecessary.
The originating department prepares a proposal for each larger loan or credit line which is presented to the credit committee for approval. The
proposal consists of a basic description of the client, the purpose of the loan, a simple credit assessment and arguments for or against granting
the loan. The committee decides whether there is need for further credit assessment and on wha t terms the loan ma y be granted. For sma ller
loans the originating department optains a general credit approval from the credit committee with respect to the process, terms, credit limits and
totalamountofthespecificlendingtype.
A more thorough credit assessment may be conducted if considered appropriate and can include an assessment of a borrower's fundamental
credit strength as well as the value of any collateral. To assess the borrower's capacity to meet his or her obligations the committee can request
stresstestanalysisoftheborrower's
cashfloworcallforthirdpartyassessments.
Provisioning for loan impairments is estimated on the basis of expected loss models assessing the portfolio as a whole as well as individual
lending. Risk management suggest a level of provisioning for the portfolio, based on the expected loss assessment. Risk management reassess
impairments in the event of collateral decay, delayed payments, indication of increased risk, or other early warning signs. Provisions require
approvalfromthecreditcommittee.Refertonote89formoreinformationontheGroup'simpairmentpolicy.
ConsolidatedFinancialStatements31December2021 38
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
48
49. Maximumexposuretocreditrisk
31.12.2021 Public Financial Corporate
On‐balancesheetexposure entities institutions customers Individuals 31.12.2021
22,552,361 16,093,533 38,645,894
27,881,492 5,800,281 6,364,877 40,046,651
14,708 150 40,150,231 31,422,557 71,587,646
2,131,645 595,510 7,061 2,734,216
541,252 2,395,982 4,182,883 2,122,349 9,242,466
50,989,813 26,421,592 51,293,502 33,551,966 162,256,873
Off‐balancesheetexposure
2,819,754 333,034 3,152,788
512,901
512,901
Maximumexposuretocreditrisk 50,989,813 26,421,592 54,626,156 33,885,000 165,922,562
31.12.2020 Public Financial Corporate
On‐balancesheetexposure entities institutions customers Individuals 31.12.2020
25,539,154 3,405,876 28,945,030
26,040,694 1,685,377 1,058,961 28,785,033
23,721,996 5,600,976 29,322,972
130,709 258,962 389,671
364,393 2,105,031 2,491,673 4,961,097
51,944,241 7,326,993 27,531,592 5,600,976 92,403,802
Off‐balancesheetexposure
1,771,209 366,050 2,137,260
1,245,885
1,245,885
Maximumexposuretocreditrisk 51,944,241 7,326,993 30,548,685 5,967,027 95,786,947
50. Creditqualityoffinancialassets
The COVID‐19 pandemic had an impact on the Group's loan portfolio during the years 2020 and 2021. This is mainly reflected in the effect of
macro‐economic variables on the probability of default and has therefore a homogenous impact on the whole portfolio. All scenarios were
negatively impacted when the pandemic started. The negative impact however reduced in 2021 while the weights of the negative outlook
economic scenario slightly decreased. The negative outlook economic scenario now weighs 30% and the positive outlook only weighs 10% in the
total outcome. However, the pandemic has not had a significant effect on asset value. Due to the fact that the loan portfolio is in general well
secured,changestolossgivendefaultareminimal,whichoffsetsthenegativeeffectofincreasedprobabilityofdefault.
Economic measures by the Icelandic government softened and delayed the impact of the pandemic. This means that borrower defaults which
would otherwise have occurred already, have been delayed and possibly avoided. Even though the public restrictions are planned to be fully
lifted in coming weeks the local economy as well as the world economy is expected to be affected by the aftermath of the pandemic, which
appears e.g. in goods shortage, high inflation rates and undesirable unemployment rates. This is accounted for in the expected credit loss
approach mandated in IFRS 9, meaning the Group does not expect to incur further significant losses due to impairments and write offs as the
pandemicunwinds,allotherthingsbeingequal.
Ingeneral,theGroup’sdebtorshavebeen
abletoadapttothechangesintheeconomicrealityduetoCOVID‐19.
Because the economic scenario driven changes in the probability of default has a significant and homogenous impact on all customers and as the
adaptability of debtors varies, the Group has put a greater emphasis on expert review to counter the effect of the pandemic's amplification of the
inherenthomogeneitypredictionerrorinthemodel,i.e.tobetterreflecttheheterogeneityoftheGroup'sdebtors.
Loancommitments...................................................................................
Financialguaranteecontracts..................................................................
Loanstocustomers..................................................................................
Derivatives................................................................................................
Otherassets..............................................................................................
Cashandbalances
withCentralBank......................................................
The book value of financial assets which fall under the impairment requirements of IFRS 9 are presented net of expected credit losses ("ECL") in
the statement of financial position. The ECL are recalculated for each asset on at least a quarterly basis. The assessment of ECL is based upon
calculations being derived from models on PD, LGD and EAD. Furthermore, the assessment is based upon management's assumptions regarding
the development of macroeconomic f actors over the coming year. The a ssumptions for macroeconomic development are decided for three
scenarios: a base case, an upside case and a downside case, including a probability weight for each scenario. The assumptions are used for
calculations of the probability weighted ECLs. The amount of ECL to be recognized is dependent on the Group's definition of significant increase
in credit risk, which controls the impairment stage each asset is allocated to. The factors that are used to measure significant increase in credit
riskincludecomparisonofchangesinPDvalues,annualizedlifetimePDvalues,dayspastdueandwatchlist.
The ma ximum exposure to credit risk for on‐balance sheet and off‐balance sheet items, before taking into account any collateral held or other
creditenhancements,isspecifiedasfollows:
CashandbalanceswithCentralBank......................................................
Fixedincomesecurities............................................................................
Fixedincomesecurities............................................................................
Loanstocustomers..................................................................................
Derivatives................................................................................................
Otherassets..............................................................................................
Loancommitments...................................................................................
Financialguaranteecontracts..................................................................
ConsolidatedFinancialStatements31December2021 39
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
48
50. Creditqualityoffinancialassets(cont.)
Modelparameters31.12.2021 Basecase Upside Downside
Unemploymentrate 4.3% 3.6% 5.0%
InflationCPIindex 5.7% 5.4% 5.8%
Assignedweight 60.0% 10.0% 30.0%
Modelparameters31.12.2020 Basecase Upside Downside
GDPgrowth ‐5.5% ‐3.0% ‐9.5%
Unemploymentrate 10.0% 7.5% 11.0%
Assignedweight 50.0% 5.0% 45.0%
Scenarios
Scenarios
The following table shows the macro economic values for the variables used in the expected credit loss model. The Group utilises an economic
forecastwhichisalignedwithrequirementsforthecalculationofexpectedcreditloss.
ConsolidatedFinancialStatements31December2021 40
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
50
50. Creditqualityoffinancialassets(cont.)
a.
Impairment Listed Unlisted
Claim duetoexpected Carrying Total securitiesand securitiesand Residential Commercial Industrial Unsecured
31.12.2021 value creditloss amount % collateral Deposits liquidfunds otherfunds realestate realestate
A
utomobiles equipment Guarantees Other claimvalue
14,863 (155) 14,708 0.0% 12,094 0 0 0 0 0 7,109 0 0 4,985 3,578
186 (35) 150 0.0% 947 0 0 0 0 0 947 0 0 0 0
Corporate
Serviceactivities..................................... 8,456,811 (247,535) 8,209,276 11.5% 15,651,650 14,947 174,157 4,014,414 0 357,702 7,981,939 1,901,548 0 1,206,943 938,771
Construction........................................... 7,917,387 (322,606) 7,594,781 10.6% 15,033,846 72,849 0
0 5,273,648 3,604,444 2,805,676 2,641,503 0 635,726 137,565
Activitiesofholdingcompanies............. 6,139,170 (12,842) 6,126,328 8.6% 17,448,909 33,420 1,159 10,009,915 2,057,402 4,552,973 109,251 102,295 178,500 403,993 382,487
Realestateactivities.............................. 5,672,433 (23,272) 5,649,161 7.9% 14,962,837 123,210 1,281,231 2,620,852 4,748,147 5,557,610 522,141 75,810 16,000 17,835 109,875
Activitiesofholdingcomp.‐Securities.. 2,692,571 (330) 2,692,241 3.8% 7,278,984
192,983 6,781,355 304,646 0 0 0 0 0 0 10,337
WholesaleandRetailTrade................... 3,266,183 (39,934) 3,226,249 4.5% 5,808,339 428,926 0 680,000 0 483,601 2,153,630 1,050,763 0 1,011,419 523,089
Other...................................................... 6,828,764 (176,570) 6,652,195 9.3% 12,894,412 5,652 450,718 1,427,675 212,449 3,071,002 1,981,879 2,249,651 194,500 3,300,888 3,253,774
31,935,908 (513,375) 31,422,557 43.9% 44,164,668 41,690 2,221,224 823,646 6,589,474 402,206 32,743,905
1,157,983 0 184,542 6,215,381
Total 72,924,277 (1,336,655) 71,587,646 100.0% 133,256,687 913,676 10,909,844 19,881,148 18,881,119 18,029,538 48,306,477 9,179,552 389,000 6,766,330 11,574,857
Impairment Listed Unlisted
Claim duetoexpected Carrying Total securitiesand securitiesand Residential Commercial Industrial Unsecured
31.12.2020 value creditloss amount % collateral Deposits liquidfunds otherfunds realestate realestate
A
utomobiles equipment Guarantees Other claimvalue
0 0 0 0.0% 0 0 0 0 0 0 0 0 0 0 0
Corporate
Activitiesofholdingcompanies............. 5,028,991 (91,502) 4,937,489 16.8% 14,109,569 9,899 168,644 9,471,872 734,690 3,282,905 0 0 441,560 0 128,644
Construction..........................................
.
5,778,115 (212,899) 5,565,216 19.0% 9,133,191 37 0 0 4,035,845 5,057,309 0 0 0 40,000 81,946
Financialactivities.................................. 1,717,763 (50,193) 1,667,570 5.7% 744,727 90,343 81,632 228,239 32 0 0 0 0 344,480 1,228,197
Realestateactivities.............................. 3,669,211 (39,552) 3,629,659 12.4% 8,110,745 3,711 145,905 1,626,221 2,486,304 3,821,735 0 0 26,750 120 234,779
Activitiesofholdingcompa.‐Securities 2,997,582 (2,355) 2,995,226 10.2% 10,623,797 280,488 9,440,256 903,054 0 0 0 0 0 0 10,952
Serviceactivities..................................... 2,012,081 (33,463) 1,978,618 6.7% 5,078,184 136,242 42,470 3,979,506 0 365,769 0 0 0 554,197 76,211
Other.....................................................
.
3,032,633 (84,414) 2,948,219 10.1% 8,707,910 29,267 36,825 2,597,023 385,150 2,268,093 0 0 67,500 3,324,053 150,248
5,623,247 (22,271) 5,600,976 19.1% 9,747,097 24,298 2,842,506 33,032 6,688,262 82,000 0 0 0 77,000 308,698
Total 29,859,623 (536,650) 29,322,972 100.0% 66,255,220 574,284 12,758,237 18,838,945 14,330,282 14,877,811 0 0 535,810 4,339,851 2,219,674
Financialinstitutions....................................
Individual.....................................................
Collatarel value is shown as the market‐ or accounting value of collateral allocated to exposures. Other collateral includes financial claims, inventories and receivables. For larger unsecured claim values, the Bank is in general covered by
covenantsintheloan
agreement,e.g.withanegativepledgeorotherringfencing.
Allocatedcollateral
Breakdownofloanstocustomersbyindustryandinformationoncollateralandothercreditenhancements
The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. For other types of assets the Group uses th ird party valuation where possible. Haircuts are applied to account for liquidity and
otherfactorswhichmayaffectthecollateralvalueoftheassetorothercreditenhancement.
Publicentities..............................................
Individual.....................................................
Financialinstitutions....................................
Allocated
collateral
ConsolidatedFinancialStatements31December2021 41
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
50
50. Creditqualityoffinancialassets(cont.)
b.
31.12.2021
Loanstocustomers:
Stage1Stage2Stage3FVTPL Total
47,608,198 527,551 5,254 995,247 49,136,251
6,501,676 649,356 408 7,151,440
2,726,307 3,561,501 4,480 6,292,288
386,107 1,167,598 1,897 1,555,602
62,259 269,872 1,959,308 127,217 2,418,657
3,748,503 1,003,618 216,115 1,401,804 6,370,040
Grosscarryingamount 61,033,049 7,179,496 2,187,463 2,524,269 72,924,277
(211,083) (293,663) (831,885) (1,336,631)
Bookvalue 60,821,966
6,885,833 1,355,578 2,524,269 71,587,646
Loancommitments,guaranteesandunusedcreditfacilities:
Stage1Stage2Stage3FVTPL Total
1,808,577 0 1,808,577
87,689 0 87,689
1,029,809 1,000 10 1,030,819
44,741 134,415 179,156
1,000 2,636 3,636
470,753 828 7,535 76,694 555,811
Totaloff‐balancesheetamount 3,442,569 136,243 10,182 76,694 3,665,688
(4,940) (130) (1,649) (6,720)
Netoff‐balancesheetamount 3,437,629
136,113 8,533 76,694 3,658,969
31.12.2020
Loanstocustomers:
Stage1Stage2Stage3FVTPL Total
14,899,136 436,960 20,849 1,022,457 16,379,402
3,859,240 389,944 233,126 4,482,310
1,161,890 555,021 229,771 17,999 1,964,680
1,740,690 393,737 1,285 2,135,712
28,455 2,676 552,915 862,234 1,446,280
2,824,445 14,311 4,448 608,034 3,451,238
Grosscarryingamount 24,513,856 1,792,649 809,267 2,743,851 29,859,623
(306,203) (72,222) (158,226) (536,650)
Bookvalue 24,207,653 1,720,426
651,042 2,743,851 29,322,972
Loancommitments,guaranteesandunusedcreditfacilities:
Stage1Stage2Stage3FVTPL Total
2,417,243 0 39,771 2,457,014
331,257 155,937 487,193
56,703 40,276 8,000 104,979
1,089 4,709 5,798
2,591 10,689 2,801 16,081
80,827 154,053 77,200 312,080
Totaloff‐balancesheetamount 2,889,709 354,974 58,460 80,001 3,383,144
(14,830) (13,631) (2,911) (31,371)
Netoff‐balancesheetamount 2,874,879
341,344 55,548 80,001 3,351,773
Non‐rated.............................................................................................
Expectedcreditloss..............................................................................
Expectedcreditloss..............................................................................
CreditqualitybandI.............................................................................
CreditqualitybandII............................................................................
CreditqualitybandIII...........................................................................
CreditqualitybandIV...........................................................................
Indefault..............................................................................................
CreditqualitybandII............................................................................
CreditqualitybandIII...........................................................................
Creditquality
bandIV...........................................................................
Indefault..............................................................................................
Non‐rated.............................................................................................
The following tables show financial assets subject to the impairment requirements of IFRS 9 broken down by credit quality bands where band
i denotes the lowest and iv the highest credit risk. Assets serviced by debtors already recognised as being in default by the rating agency are
shown outside credit quality bands. Assets measured at fair value through profit or loss are not subject to the impairment requirements of
IFRS 9 but are nevertheless i ncluded in the tables in order to give a more complete picture of the credit quality of loans to customers and
reconcile the tables to the carrying amount on the balance sheet. Exposures which are non‐rated relate to Legal Entities not rated by rating
agency or Individuals where individual rating has not been obtained. Probability of default for these exposures is based on average
probabilityforsimilarexposuresandisfurthermoreindividuallyassessedbycreditspecialists.
CreditqualitybandI.............................................................................
CreditqualitybandII............................................................................
CreditqualitybandIII...........................................................................
CreditqualitybandIV...........................................................................
Creditqualityoffinancialassetsbycreditquality
band
CreditqualitybandIII...........................................................................
CreditqualitybandIV...........................................................................
Indefault..............................................................................................
Non‐rated.............................................................................................
Expectedcreditloss..............................................................................
CreditqualitybandI.............................................................................
Indefault..............................................................................................
Non‐rated.............................................................................................
Expectedcreditloss..............................................................................
CreditqualitybandI.............................................................................
CreditqualitybandII............................................................................
ConsolidatedFinancialStatements31December2021 42
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
50
50. Creditqualityoffinancialassets(cont.)
c. Breakdownofloanstocustomersintonotpastdueandpastdue
31.12.2021 Claim Expected Carrying
value creditloss amount
69,602,189 (727,673) 68,874,516
1,362,406 (96,311) 1,266,095
797,031 (19,728) 777,303
76,257 (13,221) 63,036
209,085 (44,399) 164,687
627,918 (251,984) 375,935
249,390 (183,316) 66,074
Total 72,924,277 (1,336,631) 71,587,646
31.12.2020 Claim Expected Carrying
value creditloss amount
28,909,071 (442,622) 28,466,450
537,707 (9,705) 528,002
32,831 (71) 32,760
71,310 (2,416) 68,894
49,403 (2,443) 46,959
17,012
(15,472) 1,541
242,288 (63,922) 178,366
Total 29,859,623 (536,650) 29,322,972
d. Allowanceforexpectedcreditlossonloanstocustomersandloancommitments,guaranteesandunusedcreditfacilities
31.12.2021
Expectedcreditlossallowancetotal
Sta
g
e1Sta
g
e2Sta
g
e3Total
Transfersoffinancialassets:
Balanceasat1January2021 321,032 85,853 161,137 568,022
34,178 (29,997) (4,181) 0
(47,041) 47,041 0
(40,441) 40,441 0
(96,561) 70,239 (5,768) (32,090)
191,888 161,773 764,301 1,117,962
(147,031) (41,115) (42,547) (230,693)
(79,850) (79,850)
Balanceasat31December2021 216,023 293,794 833,534 1,343,351
Expectedcreditlossallowanceforloanstocustomers
Stage1Stage2Stage3Total
Transfersoffinancial
assets:
Balanceasat1January2021 306,203 72,222 158,226 536,650
22,686 (18,946) (3,740) 0
(47,022) 47,022 0
(40,439) 40,439 0
(80,142) 70,417 (6,232) (15,958)
190,271 161,773 763,828 1,115,872
(140,474) (38,824) (40,786) (220,084)
(79,850) (79,850)
Balanceasat31December2021 211,083 293,663 831,885 1,336,631
Newfinancialassets,originatedorpurchased...........................................................
Derecognitionsandmaturities....................................................................................
Write‐offs....................................................................................................................
Derecognitionsandmaturities....................................................................................
Write‐offs....................................................................................................................
TransfertoStage1‐(Initialrecognition)...............................................................
TransfertoStage2‐(significantlyincreasedcreditrisk)......................................
TransfertoStage3‐(creditimpaired)..................................................................
Netremeasurementoflossallowance.......................................................................
The following tables show changes in the expected credit loss allowance of loans to customers and for loan commitments, guarantees and
unusedcreditfacilitiesduringtheperiod.
TransfertoStage1‐(Initialrecognition)...............................................................
TransfertoStage2‐(significantlyincreased
creditrisk)......................................
TransfertoStage3‐(creditimpaired)..................................................................
Netremeasurementoflossallowance.......................................................................
Newfinancialassets,originatedorpurchased...........................................................
Pastdue61‐90days...........................................................................................................................
Pastdue91‐180days.........................................................................................................................
Pastdue181‐360days.......................................................................................................................
Pastduemorethan360days.............................................................................................................
Pastdue
91‐180days.........................................................................................................................
Pastdue181‐360days.......................................................................................................................
Pastduemorethan360days.............................................................................................................
Notpastdue.......................................................................................................................................
Pastdue1‐30days.............................................................................................................................
Pastdue31‐60days...........................................................................................................................
Notpastdue.......................................................................................................................................
Pastdue1‐30days.............................................................................................................................
Pastdue31‐60days...........................................................................................................................
Past
due61‐90days...........................................................................................................................
ConsolidatedFinancialStatements31December2021 43
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
50
50. Creditqualityoffinancialassets(cont.)
Expectedcreditlossallowanceforloancommitments,guaranteesandunusedcreditfacilities
Stage1Stage2Stage3Total
Transfersoffinancialassets:
Balanceasat1January2021 14,830 13,631 2,911 31,371
11,492 (11,051) (440) 0
(19) 19 0
(3) 3 0
(16,419) (178) 464 (16,132)
1,617 472 2,089
(6,558) (2,291) (1,761) (10,609)
Balanceasat31December2021
4,940 130 1,649 6,720
31.12.2020
Expectedcreditlossallowancetotal
Stage1Stage2Stage3Total
Transfersoffinancialassets:
Balanceasat1January2020 182,670 102,932 132,170 417,771
12,232 (10,477) (1,755) 0
(16,824) 16,824 0
(6,259) (6,410) 12,669 0
(17,377) 16,843 2,269 1,735
244,086 46,596 33,894 324,576
(77,496) (80,455) (8,110) (166,061)
(10,000) (10,000)
Balanceasat31December2020 321,032 85,853 161,137 568,022
Expectedcredit
lossallowanceforloanstocustomers
Stage1Stage2Stage3Total
Transfersoffinancialassets:
Balanceasat1January2020 167,078 100,185 129,416 396,679
11,599 (10,020) (1,579) 0
(11,256) 11,256 0
(5,965) (6,410) 12,375 0
(17,562) 10,944 1,598 (5,019)
234,351 44,753 32,486 311,589
(72,043) (78,486) (6,071) (156,599)
(10,000) (10,000)
Balanceasat31December2020 306,203 72,222 158,226 536,650
Expectedcreditlossallowancefor
loancommitments,guaranteesandunusedcreditfacilities
Stage1Stage2Stage3Total
Transfersoffinancialassets:
Balanceasat1January2020 15,592 2,746 2,754 21,092
633 (457) (176) 0
(5,568) 5,568 0
(294) 294 0
186 5,899 670 6,755
9,735 1,844 1,408 12,987
(5,453) (1,970) (2,039) (9,462)
Balanceasat31December2020 14,830 13,631 2,911 31,371
TransfertoStage
2‐(significantlyincreasedcreditrisk)......................................
TransfertoStage3‐(creditimpaired)..................................................................
Netremeasurementoflossallowance.......................................................................
Newfinancialassets,originatedorpurchased...........................................................
Derecognitionsandmaturities....................................................................................
Write‐offs....................................................................................................................
TransfertoStage1‐(Initialrecognition)...............................................................
TransfertoStage2‐(significantlyincreasedcreditrisk)......................................
Transferto
Stage3‐(creditimpaired)..................................................................
Netremeasurementoflossallowance.......................................................................
Newfinancialassets,originatedorpurchased...........................................................
Derecognitionsandmaturities....................................................................................
TransfertoStage3‐(creditimpaired)..................................................................
Netremeasurementoflossallowance.......................................................................
Newfinancialassets,originatedorpurchased...........................................................
Derecognitionsandmaturities....................................................................................
Write‐offs....................................................................................................................
Transfer
toStage1‐(Initialrecognition)...............................................................
Netremeasurementoflossallowance.......................................................................
Newfinancialassets,originatedorpurchased...........................................................
Derecognitionsandmaturities....................................................................................
TransfertoStage1‐(Initialrecognition)...............................................................
TransfertoStage2‐(significantlyincreasedcreditrisk)......................................
TransfertoStage1‐(Initialrecognition)...............................................................
TransfertoStage2‐(significantly
increasedcreditrisk)......................................
TransfertoStage3‐(creditimpaired)..................................................................
ConsolidatedFinancialStatements31December2021 44
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
50
51. Loan‐to‐value
a. General
b. Breakdown
31.12.2021 % 31.12.2020 %
20,182,991 28.2% 12,579,973 42.9%
18,411,393 25.7% 7,450,150 25.4%
18,175,877 25.4% 3,101,307 10.6%
3,063,469 4.3% 1,870,641 6.4%
2,706,342 3.8% 48,476 0.2%
201,953 0.3% 13,996 0.0%
670,667 0.9% 198,961 0.7%
Noornegligiblecollateral:
0 0.0% 2,027,605 6.9%
8,174,954 11.4% 2,031,863 6.9%
Total 71,587,646 100.0% 29,322,972
100.0%
52. Collateralagainstexposurestoderivatives
Fixed Variable Other
income income Real fixed
Deposits securities securities estate assets Other 31.12.2021
2,201,519 118,222 737,598 3,057,340
715,724 19,382 907,511 1,642,617
79,757 5,307 22,613 107,678
Total 2,997,001 142,911 1,667,723 0 0 0 4,807,635
Fixed Variable Other
income income Real fixed
Deposits securities securities estate
assets Other 31.12.2020
587,322 413,397 1,000,720
176,327 121,815 640,596 938,738
20,164 26,064 24,598 70,825
Total 783,813 561,276 665,194 0 0 0 2,010,283
53. Largeexposures
31.12.2021 31.12.2020
Largeexposuresbeforeriskadjustedmitigation Number Amount Number Amount
2 8,732,707 0 0
0 0 0 0
0 0 0 0
Total 2 8,732,707 0 0
2 8,732,707 0 0
2 8,732,707 0 0
Nosinglelargeexposurenetofriskadjustedmitigationexceeds25%ofcapitalbaseinaccordancewiththeregulationno.233/2017.
10‐20%ofcapitalbase................................................................................................
20‐25%ofcapitalbase................................................................................................
Exceeding25%ofcapitalbase....................................................................................
Thereofnostroaccountswith
foreignbankswitharatingof
Largeexposuresnetofriskadjustedmitigation.........................................................
investmentgradeorhigher......................................................................................
Financialinstitutions...............................
Corporatecustomers..............................
Financialinstitutions...............................
Corporatecustomers..............................
Individuals...............................................
Greaterthan200%......................................................................................................
Purchasedshort‐termretailclaims.......................................................................
Inaccordancewithregulationno.233/2017onPrudential
Requirements,totalexposuretowardsacustomerisclassifiedasalargeexposureif
itexceeds10%ofthefinancialinstitution'sTier1capital(seenote44).
According to the regulation a single exposure, net of risk adjusted mitigation, cannot exceed 25% of the eligible Tier 1 capital. Single large
exposures net of risk adjusted mitigation take into account the effects of collateral a nd other credit enhancements held by the financial
institution,andothercreditenhancements,inaccordancewithregulationno.233/2017.
The loan‐to‐value ratio (LTV) is the ratio of the gross amount of the loan to the value of the collateral, if any. The general creditworthiness of
a customer is viewed as the most reliable indicator of credit quality of a loan. Besides collateral included in the LTV ratios the Group uses
otherriskmitigationmeasures,suchasguarantees,negativepledge,cross‐collateral
andcollateralizationofnon‐quantifiableassets.
ThebreakdownofloanstocustomersbyLTVisspecifiedasfollows:
Lessthan50%..............................................................................................................
51‐70%.........................................................................................................................
71‐90%.........................................................................................................................
91‐100%.......................................................................................................................
Individuals...............................................
Amountshavebeenadjustedtoexcludecollateralinexcessofclaimvalue,i.e.overcollateralisation.
100‐125%.....................................................................................................................
125
‐200%.....................................................................................................................
Otherloanswithnocollateral...............................................................................
The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. Haircuts are applied to
accountforliquidityandotherfactorswhichmayaffectthecollateralvalueoftheasset.
ConsolidatedFinancialStatements31December2021 45
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
50
54. Insurancerisk
Owntechnicalprovisionclassifiedtolineofinsuranceoperations 31.12.2021
2,105,022
847,645
10,639,438
1,199,425
2,701,425
1,058,845
2,717,221
6,104
360,402
49,539
Owntechnicalprovisiontotal 21,685,065
55. Liquidityrisk
a. Definition
b. Management
IncomeProtectionInsurance...............................................................................................................................................................
Workers'compensationinsurance......................................................................................................................................................
MedicalExpenseInsurance.................................................................................................................................................................
Lif einsurance.......................................................................................................................................................................................
Soldreinsurances.................................................................................................................................................................................
There are no comparative figures as insurance services became a part of the Group's operations through business combinations during the
year2021.
Referenceismadetonote3formoreinformationonbusinesscombinations.
Liquidity risk is the risk that the Group will encounter difficulty in meeting contractual payment obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset. This risk mainly arises from mismatches in the timing of cash flows.
The Group has internal rules that require certain matching of the maturities of assets and liabilities. Furthermore, to ensure the ability to
meetliquidityneeds,theGroupmaintainsastockofhighlyliquidunencumberedassets,e.g.cash,treasurybillsandtreasurybonds.
Liquidity is managed by treasury and monitored by risk management. Liquidity position is reported to the ALCO committee. The Central Bank
of Iceland sets minimum requirements f or the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The minimum 30 day LCR
regulatory requirement is 100% for both LCR total and LCR in foreign currencies. For LCR in ISK the minimum requirement is 30% as of 1
January2020,40%asof1January2022and50%asof1January2023.Theminimumregulatory
requirementforNSFRtotalis100%.
Premium risk is the risk that future claims, in addition to related expenses, will be higher than anticipated at the time premiums for current
insurance contracts were decided and the insurance cover the Group guaranteed thus underestimated. The risk consists in main respect in
that the frequency or severity of claims and benefits are greater than estimated. This may be caused by inaccurate assumptions but also
temporary effect from individual large claims. Nature of claims can be different from expected or have changed due to developments in
society.
The Group monitors frequency of claims and distribution of single claims amounts within each category and responds to changes in pricing or
product development if necessary. Premium risk is reduced by distributing the risk between insurance groups and by making reinsurance
contractsforsignificantclaims.
Outstanding claim risk is the risk that existing but not settled claims will be higher than estimated. Negative development can be caused by
the fact that notified but unsettled claims have been undervalued and that claims not yet notified prove to be higher or more than estimated.
This applies to both actual indemnification to the claimant and related expenses, such as clearance of ruins and cost of expert services in
evaluationsandsettlementsofclaims.
The Group's outstanding claims is based on the evaluation of final cost of all unsettled claims. Significant uncertainty in that evaluation is
inevitable. A period of time can pass from when a loss incurs until a claim is notified to the Group as the loss had not been discovered or the
claimant was not aware of its right to compensation. Though a damage is known its consequences can remain unknown until later, it is not
completely clear what is damaged in an asset damage until repair has begun and permanent consequences of accidents are unclear until long
after the accident. Consequences of a damage may at first have been under or overestimated. There are also some cases where notified
claims do not end in compensation by the Group, either because no loss was incurred, the claim did not fall under the terms of the insurance
contractorthattheclaimdidnotreachtheminimumownriskoftheinsured.
Fireandotherdamagetopropertyinsurance.....................................................................................................................................
Marine,aviationandtransportinsurance...........................................................................................................................................
Motorvehicleliabilityinsurance...............................................................................................................................
..........................
Othermotorinsurance.........................................................................................................................................................................
Generalliability,creditandsuretyshipinsurance...............................................................................................................................
As discussed in note 3, the Group acquired TM hf., an insurance company, during the first quarter of 2021. As a result of the acquisition,
insuranceriskisnowakeyriskwhichisactivelymonitoredandmeasuredbytheGroup'sriskmanagementdivision.
Insurance risk is a risk, other than financial risk, transferred from the holder of a contract to the issuer, such as financial loss due to accident,
damage, theft, illness, disability or death. The Group compensates certain losses of customers against p ayment of a p remium. A premium is
paid at the beginning of the period covered by the insurance protection, the loss is incurred at a later point and settlement can then take
some time, which varies based on the nature of the loss and the circumstances. Premium and estimated indemnity must be secured until
payment takes place. Premiums must cover all claim cost, operating cost and reasonable mark‐up taking into account yield. Specific risk arises
as premiums are predetermined but the service is provided at a later point and is undefined at the beginning. This risk is specific for insurance
operationandisdefinedasinsurancerisk.
Insurance risk is divided into two groups, premium risk and risk of claims outstanding in order to segregate between incurred and future
claims.
ConsolidatedFinancialStatements31December2021 46
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
55
55. Liquidityrisk(cont.)
b. Management(cont.)
31.12.2021 31.12.2020
130% 159%
31.12.2021 31.12.2020
290% 266%
182% 265%
219% 179%
c. Maturityanalysisoffinancialassetsandfinancialliabilities
31.12.2021 Upto1 1‐3 3‐12 1‐5 Over5 Grossinflow/ Carrying
Financialassetsbytype month months months years years (outflow) amount
Non‐derivativeassets
36,735,621 1,173,420 738,000 38,647,041 38,645,894
18,391,127
3,115,221 10,453,037 7,127,439 959,827 40,046,651 40,046,651
15,278,393 2,948,677 4,230,156 226,069 22,683,295 22,683,295
22,085,696 22,085,696 22,085,696
5,009,571 5,730,923 27,168,009 39,368,877 5,872,898 83,150,279 71,587,646
66,660 78,751 240,729 351,169 12,073 749,383 749,383
3,546,888 4,508,101 1,830,359 157,206 10,042,553 10,042,553
101,113,957 17,555,093 44,660,289 47,230,760 6,844,798 217,404,897 205,841,117
Derivativeassets
Inflow....................................................... 8,495,539 1,340,505 3,001,987 8,957,388 21,795,420
Outflow.................................................... (8,151,488) (1,350,233) (1,162,801) (8,648,207) (19,312,729)
344,052 (9,728) 1,839,186 309,181 0 2,482,690 2,734,216
Upto1 1‐3 3‐12 1‐5 Over5 Grossinflow/ Carrying
Financialliabilitiesbytype month months months years years (outflow) amount
Non‐derivativeliabilities
(65,385,245) (6,620,835) (5,409,417) (1,369,701) (58,840) (78,844,038) 78,669,807
(2,569,878) (2,291,356) (7,004,287) (10,217,641) (351,284) (22,434,447) 22,434,447
(2,975,625) (9,783,251) (2,955,884) (1,619,785) (17,334,545) 17,261,048
0 0
(264,524) (989,290) (3,810,121) (25,064,483) (5,611,362) (35,739,780) 32,597,716
(194,143) (813,627) (6,228,579) (7,236,350) 3,371,766
(1,323,631) (1,323,631) 1,323,631
(1,280,868) (1,280,868) 1,280,868
(1,773,454) (2,538,572) (741,858) (1,511,952) (111,672) (6,677,507) 6,677,507
(75,573,225) (22,223,304) (20,115,711) (40,597,189) (12,361,737) (170,871,167) 163,616,790
Derivativeliabilities
Inflow....................................................... 12,935,075 3,788,518 3,167,699 19,891,293
Outflow.................................................... (15,073,201) (4,594,592) (3,233,330) (22,901,123)
(2,138,125) (806,074) 0 (65,631) 0 (3,009,830) 3,008,401
Unrecognisedfinancialitems
Inflow....................................................... 265,888 621,243 1,958,828 369,626 3,215,585
Outflow.................................................... (3,152,788) (3,152,788)
Inflow....................................................... 49,798 87,475 316,571 59,057 512,901
Outflow.................................................... (512,901) (512,901)
(3,399,800) 671,041 2,046,302 686,196 59,057 62,797
Summary
101,113,957 17,555,093 44,660,289 47,230,760 6,844,798 217,404,897
344,052 (9,728) 1,839,186 309,181 2,482,690
(75,573,225) (22,223,304) (20,115,711) (40,597,189) (12,361,737) (170,871,167)
(2,138,125) (806,074) (65,631) (3,009,830)
23,746,658 (5,484,014) 26,383,765
6,877,120 (5,516,939) 46,006,589
(3,399,800) 671,041 2,046,302 686,196 59,057 62,797
20,346,858 (4,812,972) 28,430,067 7,563,316 (5,457,882) 46,069,386
Non‐derivativeassets....................................
Non‐derivativeliabilities................................
Deposits........................................................
Borrowings....................................................
Issuedbills.....................................................
Subordinatedliabilities..................................
Shortpositionsusedforhedging...................
Shortpositionsheldfortrading.....................
Derivativeassets............................................
Derivativeliabilities........................................
Securitiesusedfor
hedging...........................
Loanstocustomers........................................
Fixedincomesecurities.................................
Otherassets...................................................
Otherliabilities..............................................
Loancommitments
Financialguaranteecontracts
Netunrecogniseditems.................................
unrecogniseditems..................................
Netassets(liabilities)excluding
Netassets(liabilities)..................................
Issuedbonds..................................................
Technicalprovision........................................
Reinsuranceassets........................................
The FME has designated the Group as a financial conglomerate. LCR is not calculated for a financial conglomerate, instead the Group calculates LCR
based on the consolidated statement of financial position excluding the insurance operations of TM tryggingar hf. The Group was in compliance with
internalandexternalliquidityrequirementsthroughout
theyears2021and2020.
CashandbalanceswithCentralBank............
Sharesandothervariableincomesecurities.
NSFRtotal........................................................................................................................................................................
LCRtotal...........................................................................................................................................................................
LCRinISK.........................................................................................................................................................................
LCRinforeigncurrencies.................................................................................................................................................
ConsolidatedFinancialStatements31December2021 47
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
55
55. Liquidityrisk(cont.)
31.12.2020 Upto1 1‐3 3‐12 1‐5 Over5 Grossinflow/ Carrying
Financialassetsbytype month months months years years (outflow) amount
Non‐derivativeassets
28,059,712 890,470 28,950,182 28,945,030
5,600,838 117,250 19,802,625 3,264,320 28,785,033 28,785,033
1,464,966 3,607,863 5,072,830 5,072,830
19,620,240 19,620,240 19,620,240
2,017,619 3,403,967 16,159,918
8,581,843 3,504,320 33,667,667 29,322,972
1,474,195 1,027,270 715,537 2,223,090 5,440,092 5,440,092
58,237,570 5,438,957 40,285,943 14,069,253 3,504,320 121,536,043 117,186,196
Derivativeassets
Inflow....................................................... 1,056,236 778,870 76,798 1,911,904
Outflow.................................................... (979,810) (746,525) (2,368) (1,728,703)
76,426 32,345 0 74,429 0 183,200 389,671
Upto1 1‐3 3‐12 1‐5 Over5 Grossinflow/ Carrying
Financialliabilitiesbytype month
months months years years (outflow) amount
Non‐derivativeliabilities
(48,383,678) (5,944,107) (3,993,981) (1,664,675) (47,976) (60,034,418) 59,924,683
(6,789,566) (9,747,775) (10,001,623) (26,538,964) 26,424,340
(600,000) (1,420,000) (2,020,000) 2,003,608
(82,395) (164,111) (1,073,859) (4,529,066) (5,849,431) 5,568,085
(150,788) (1,741,109) (1,060,762) (2,952,658) 2,077,225
(1,520,547) (1,520,547) 1,520,547
(731,987) (731,987) 731,987
(923,315) (1,317,466) (1,098,735) (410,956) (3,750,472) 3,750,472
(58,431,489) (17,773,459) (17,738,985) (8,345,806) (1,108,738) (103,398,478) 102,000,947
Derivativeliabilities
Inflow....................................................... 17,286,909 2,315,614 390,250 19,992,773
Outflow.................................................... (18,111,337) (3,092,010) (411,675) (21,615,021)
(824,428) (776,395) (21,425) 0 0 (1,622,248) 1,750,346
Unrecognisedfinancialitemsbytype
Loancommitments
Inflow....................................................... 107,445 264,951 1,108,702 733,780 2,214,878
Outflow.................................................... (2,137,260) (2,137,260)
Inflow
....................................................... 711,288 114,000 297,639 63,901 59,057 1,245,885
Outflow.................................................... (1,245,885) (1,245,885)
(2,564,411) 378,951 1,406,341 797,681 59,057 77,619
Summary
58,237,570 5,438,957 40,285,943 14,069,253 3,504,320 121,536,043
76,426 32,345 74,429 183,200
(58,431,489) (17,773,459) (17,738,985) (8,345,806) (1,108,738) (103,398,478)
(824,428) (776,395) (21,425) (1,622,248)
(941,921) (13,078,552) 22,525,533 5,797,876 2,395,581 16,698,518
(2,564,411) 378,951 1,406,341 797,681 59,057 77,619
(3,506,331) (12,699,601) 23,931,874 6,595,557 2,454,639 16,776,137
Non‐derivativeliabilities................................
Deposits........................................................
Borrowings....................................................
Subordinatedliabilities..................................
Short
positionsheldfortrading.....................
Shortpositionsusedforhedging...................
Otherliabilities..............................................
Derivativeassets............................................
Issuedbills.....................................................
Issuedbonds..................................................
Financialguaranteecontracts
Non‐derivativeassets....................................
Maturity analysis of financial assets and financial liabilities is based on contractual cash flows or, in the case of held for trading securities, expected
cash flows. If an amount receivable or payable is not fixed, e.g. for inflation indexed assets and liabilities, the maturity analysis uses estimates based
oncurrentconditions.
It should be noted that the Group's expected cash flows sometimes vary considerably from the contractual cash flows, most significantly in that
demand deposits from customers are expected to remain stable or increase in the long term. In this case the presentation used reflects the worst
case scenario from the Group's perspective. Furthermore, the analysis does not consider any measures that could be taken to convert long‐term
assetstocashthroughsale.
Cash flows relating to unrecognised balance sheet items (unused loan commitments and financial guarantee contracts) are presented separately
fromfinancialassetsandfinancialliabilities.Bothcontractual
outflowsandinflowsareshown,tofullyreflectthenatureoftheseitems.
Netassets(liabilities)..................................
Derivativeliabilities........................................
Netunrecogniseditems.................................
Netassets(liabilities)excluding
unrecogniseditems..................................
Otherassets...................................................
CashandbalanceswithCentralBank............
Sharesandothervariableincomesecurities.
Securitiesused
forhedging...........................
Loanstocustomers........................................
Fixedincomesecurities.................................
ConsolidatedFinancialStatements31December2021 48
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
55
56. Marketrisk
a. Definition
b. Management
57. Interestraterisk
a. Definition
b. Management
58. Interestrateriskassociatedwithtradingportfolios
a. Breakdown
Upto1 1‐3 3‐12 1‐5 Over5
month months months years years 31.12.2021
91,531 894,288 1,446,062 2,431,880
(24,979) (514,176) (784,475) (1,323,631)
Netimbalance 0 0 66,552 380,111 661,587 1,108,250
Upto1 1‐3 3‐12 1
‐5 Over5
month months months years years 31.12.2020
995,943 2,512,237 193,801 3,701,981
(127,198) (1,393,349) (1,520,547)
Netimbalance 0 0 995,943 2,385,039 (1,199,548) 2,181,434
b. Sensitivityanalysis
Shiftin 31.12.2021 31.12.2020
basispoints Downward Upward Downward Upward
50 42,091 (42,091) 5,620 (5,620)
100 (35,656) 35,656 31,700 (31,700)
Total 6,436 (6,436) 37,321 (37,321)
The Group performs monthly sensitivity analysis on financial assets and liabilities in trading portfolios that are subject to interest rate risk. The
sensitivity a nalysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the
Group'spre‐taxprofitandequity,assumingall
otherriskfactorsremainconstant:
Indexed.....................................................................................................
Non‐indexed.............................................................................................
Market risk constitutes risk due to changes in the market prices of financial instruments and comprises interest rate risk, currency risk and other
pricerisk.Notes57‐62relatetomarketriskexposure.
The Group has a strict policy on controlling market risk and to keep the exposure within set limits. The risk management unit monitors market risk
limitsonadailybasisandreportsregularlytotheALCOcommitteeandtotheCEO.
The Group's exposure to interest rate risk is twofold. On the one hand, the Group has a proprietary portfolio of bonds, where market rates affect
prices and any fluctuations are recognised in the income statement. On the other hand, the Group has mismatch in assets and liabilities with fixed
interest terms. These include loans and swap contracts for securities on the asset side and borrowings and deposits on the liability side. This
mismatchdoesnotcreateanimmediateeffectontheincomestatementbutneverthelessaffectsthe
Group'seconomicvalue.
The Group takes measures to minimise interest rate risk by matching the interest rate profile and duration of assets with the Group's liabilities as
wellasusingderivativeandnon‐derivativefinancialinstrumentstomanageeffectivelytheriskofanadverseimpactontheGroup'searnings.
ProprietarypositionswhicharesubjecttointerestrateriskfallunderthescopeoftheGroup'smarketriskmanagement.
Fixedincomesecurities....................................................
Shortpositions‐
fixedincomesecurities.........................
Fixedincomesecurities....................................................
Shortpositions‐fixedincomesecurities.........................
Thebreakdownoffinancialassetsandliabilitiesintradingportfoliosbytheearlierofinterestrepricingtimeormaturityisspecifiedasfollows:
ConsolidatedFinancialStatements31December2021 49
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
55
59. Interestrateriskassociatedwithnon‐tradingportfolios
a. Breakdown
31.12.2021
Financialassets Upto1 1‐3 3‐12 1‐5 Over5
month months months years years Total
36,081,053 2,564,841 38,645,894
4,059,204 317,875 15,430,656 9,986,479 7,820,556 37,614,770
59,696,220 2,603,372 4,651,287 4,285,008 351,759 71,587,646
Financialassetsexcludingderivatives 99,836,478 5,486,088 20,081,943 14,271,487 8,172,316
147,848,311
23,328,516 15,129,226 38,457,742
Total 123,164,994 5,486,088 20,081,943 29,400,713 8,172,316 186,306,053
Financialliabilities Upto1 1‐3 3‐12 1‐5 Over5
month months months years years Total
78,669,807 78,669,807
3,431,363 10,955,347 2,861,690 12,648 17,261,048
0
264,089 983,646 3,707,789 22,324,381 5,317,811 32,597,716
(81,893) 1,344,948 2,108,711 3,371,766
Financialliabilitiesexcludingderivatives 82,365,260 11,938,993
6,487,586 23,681,977 7,426,521 131,900,336
12,339,360 12,339,360
Total 82,365,260 24,278,353 6,487,586 23,681,977 7,426,521 144,239,696
Totalinterestrepricinggap 40,799,734 (18,792,265) 13,594,357 5,718,736 745,795 42,066,357
31.12.2020
Financialassets Upto1 1‐3 3‐12 1‐5 Over5
month months months years years Total
27,205,748 1,739,281 28,945,030
17 99,156 17,593,356 7,297,972 92,550 25,083,052
24,457,207 793,533
2,815,576 1,287,973 (31,316) 29,322,972
Financialassetsexcludingderivatives 51,662,972 2,631,970 20,408,932 8,585,946 61,234 83,351,054
18,597,318 3,397,994 3,100,000 25,095,311
Total 70,260,290 6,029,964 20,408,932 11,685,946 61,234 108,446,365
Financialliabilities Upto1 1‐3 3‐12 1‐5 Over5
month months months years years Total
59,924,683 59,924,683
6,797,253 9,715,286 9,911,801 26,424,340
598,592 1,405,016 2,003,608
82,908
164,653 640,449 4,680,075 5,568,085
1,168,852 64,711 843,662 2,077,225
Financialliabilitiesexcludingderivatives 67,973,696 10,478,531 12,021,977 5,523,737 0 95,997,940
3,102,368 3,102,368
Total 71,076,064 10,478,531 12,021,977 5,523,737 0 99,100,309
Totalinterestrepricinggap (815,774) (4,448,567) 8,386,956 6,162,209 61,234 9,346,056
b. Sensitivityanalysis
Shiftin 31.12.2021 31.12.2020
Currency basispoints Downward Upward Downward Upward
50 222,350 (216,040) 62,022 (60,635)
100 85,251 (92,544) 24,517
(36,416)
20 (7,936) 7,901 980 (1,139)
Total 299,665 (300,683) 87,519 (98,190)
Issuedbills........................................................................
Issuedbonds.....................................................................
Effectofderivatives..........................................................
Borrowings........................................................................
Subordinatedliabilities.....................................................
Issuedbills........................................................................
Fixedincomesecurities....................................................
Loanstocustomers...........................................................
Issuedbonds.....................................................................
Borrowings........................................................................
CashandbalanceswithCentralBank..............................
Fixedincomesecurities....................................................
ISK,
non‐indexed.......................................................................................
Othercurrencies.......................................................................................
The Group performs monthly sensitivity analysis on financial assets and liabilities in non‐trading portfolios subject to interest rate risk. The
sensitivity a nalysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the
Group'spre‐taxprofitandequity,assumingallotherriskfactorsremainconstant:
ISK,indexed..............................................................................................
The breakdown of financial assets and liabilities in non‐trading portfolios by the earlier of interest repricing time or maturity is specified as
follows:
CashandbalanceswithCentralBank..............................
Deposits...........................................................................
Effectofderivatives..........................................................
Subordinatedliabilities.....................................................
Effectofderivatives..........................................................
Loanstocustomers...........................................................
Effectofderivatives
..........................................................
Deposits...........................................................................
ConsolidatedFinancialStatements31December2021 50
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
55
60. ExposuretowardschangesintheCPI
a. Definition
b. Management
c. BalanceofCPIlinkedassetsandliabilities
31.12.2021 31.12.2020
36,414,405 11,877,087
(18,295,156) (8,311,283)
Total 18,119,249 3,565,804
d. SensitivitytochangesinCPI
31.12.2021 31.12.2020
‐1% 1% ‐1% 1%
(97,037) 97,037 (14,006) 14,006
(87,163) 87,163 (6,810) 6,810
(81,424) 81,424 (66,955) 66,955
(98,520) 98,520 (31,000) 31,000
8,476 (8,476) 9,484 (9,484)
58,158 (58,158) 55,629 (55,629)
108,317 (108,317) 0 0
8,000 (8,000) 18,000 (18,000)
(181,192) 181,192 (35,658) 35,658
The
effectonequitywouldbethesame.
61. Currencyrisk
a. Definition
b. Management
c. Exchangerates
ThefollowingexchangerateshavebeenusedbytheGroupinthepreparationofthesefinancialstatements:
Closing Average Closing Average
31.12.2021 2021 31.12.2020 2020
147.6 150.2 156.1 154.5
130.4 127.1 127.2 135.3
175.7 174.7 173.6 173.7
Issuedbonds...................................................................................................................
Liabilities........................................................................................................................................................................
Assets.............................................................................................................................................................................
Currency risk arises when f inancial instruments are not denominated in the functional currency of the respective Group entity and can affect both
the Group's income statement and statement of financial position. A part of the Group's financial assets and liabilities is denominated in foreign
currencies.
Currency positions are monitored by risk management and reported to the ALCO committee. Any mismatch between assets and liabilities in each
currencyismonitoredcloselyandmanagedwithinlimits.
The Group is subject to limits set by the Central Bank of Iceland regarding the maximum open currency position. At 31 December 2021 and 31
December2020theGroup'spositioninforeigncurrencieswaswithinthoselimits.
EUR/ISK...........................................................................................................................
USD/ISK...........................................................................................................................
GBP/ISK...........................................................................................................................
Shortpositions................................................................................................................
Deposits..........................................................................................................................
Subordinatedliabilities..................................................................................................
Given the net balance of CPI linked assets and liabilities, a 1% change in the CPI would, with other things constant, result in the following changes
totheGroup'spre‐taxprofit.
Governmentbonds........................................................................................................
Other
fixedincomesecurities........................................................................................
Loanstocustomers........................................................................................................
Derivatives......................................................................................................................
Exposure towards changes in CPI is the risk that fluctuations in the Icelandic Consumer Price Index (CPI) will affect the balance and cash flow of
indexedfinancialinstruments.
The Group is exposed to inflation indexation of assets and liabilities denominated in ISK. All indexed assets and liabilities are valued according to
theCPImeasureatanygiventimeandchangesinCPIarerecognisedintheincomestatement.
ThenetbalanceofCPIlinkedassetsandliabilitiesisspecifiedasfollows:
The Group controls its indexation risk through derivatives contracts and sales and purchases of indexed bonds, mostly government bonds, and
thuskeepsitsexposuretotheCPI
withinthelimitssetbytheALCOcommittee.
ConsolidatedFinancialStatements31December2021 51
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
61
61. Currencyrisk(cont.)
d. Breakdownoffinancialassetsandfinancialliabilitiesdenominatedinforeigncurrencies
31.12.2021
Financialassets Other
EUR USD GBP DKK currencies Total
2,277,825 5,680,299 3,146,054 1,241,355 340,352 12,685,883
739,569 1,825,272 247,114 2,811,955
1,670 1,907,258 2,368,725 834 101,149 4,379,636
560,656 32,740 1,563 200,745 795,704
1,432,801 64,955 1,886,376 23,274 132,863 3,540,269
285,729
59,975 33,389 50,984 33,663 463,739
Financialassetsexcludingderivatives 5,298,251 9,570,499 7,683,221 1,316,446 808,771 24,677,187
3,764,406 491,375 422,187 19,266 4,697,234
Total 9,062,656 10,061,875 8,105,408 1,316,446 828,037 29,374,421
Financialliabilities Other
EUR USD GBP DKK currencies Total
3,330,163 7,437,554 1,320,108 1,201,927 246,671 13,536,423
43,260 652,726 695,986
4,124,798 4,124,798
88,442 133,707 1,298 32,113 82,004
337,563
383,973 96,248 49,046 1,754 98,030 629,052
Financialliabilitiesexcludingderivatives 3,845,838 8,320,236 5,495,250 1,235,793 426,705 19,323,822
5,657,882 1,172,600 2,135,377 8,965,859
Total 9,503,721 9,492,836 7,630,627 1,235,793 426,705 28,289,682
Netcurrencyposition Other
EUR USD GBP DKK currencies Total
9,062,656 10,061,875 8,105,408 1,316,446 828,037 29,374,421
(9,503,721) (9,492,836) (7,630,627) (1,235,793) (426,705) (28,289,682)
116,486 116,486
Total (324,579) 569,039 474,781 80,652 401,332 1,201,226
31.12.2020
Financialassets Other
EUR USD GBP NOK currencies Total
1,448,060 1,781,860 93,064 45,420 1,230,660 4,599,063
468,294 (0) 244,143 712,436
230,685 1,364,787 1 1,595,473
302,728 9,541 143,181 455,449
629,567 1,221,891 0 1,851,457
316,061 552,657 321,743 150,022 1,654 1,342,137
Financialassetsexcludingderivatives 3,164,709 2,574,743 3,245,627 338,622 1,232,315 10,556,016
390,250 2,551,251 20,925 0 2,962,425
Total 3,554,959
5,125,993 3,266,551 338,622 1,232,315 13,518,441
Financialliabilities Other
EUR USD GBP NOK currencies Total
3,076,426 4,311,550 520,743 94,862 933,540 8,937,121
45,990 45,990
329,704 329,704
303,224 223,311 220,068 143,181 268,601 1,158,384
Financialliabilitiesexcludingderivatives 3,425,640 4,864,565 740,811 238,042 1,202,141 10,471,199
130,909 2,256,150 74,640 2,461,699
Total 3,425,640 4,995,474 2,996,961 312,682 1,202,141 12,932,898
Netcurrency
position Other
EUR USD GBP NOK currencies Total
3,554,959 5,125,993 3,266,551 338,622 1,232,315 13,518,441
(3,425,640) (4,995,474) (2,996,961) (312,682) (1,202,141) (12,932,898)
176,393 176,393
Total 305,712 130,519 269,590 25,940 30,174 761,936
Technicalprovision................................................................
Securitiesusedforhedging...................................................
Borrowings.............................................................................
Financialliabilities..................................................................
CashandbalanceswithCentralBank....................................
Otherassets...........................................................................
Derivatives.............................................................................
Deposits................................................................................
Issued
bonds..........................................................................
Otherliabilities.......................................................................
Derivatives.............................................................................
Financialassets......................................................................
Borrowings.............................................................................
Issuedbonds..........................................................................
Otherassets...........................................................................
Derivatives.............................................................................
Financialassets......................................................................
Financialguaranteecontracts...............................................
Otherliabilities.......................................................................
Derivatives.............................................................................
Fixedincomesecurities.........................................................
Sharesandothervariableincomesecurities........................
Loanstocustomers................................................................
Financialliabilities..................................................................
Financial
guaranteecontracts...............................................
CashandbalanceswithCentralBank....................................
Sharesandothervariableincomesecurities........................
Securitiesusedforhedging...................................................
Loanstocustomers................................................................
Deposits................................................................................
Fixedincomesecurities.........................................................
ConsolidatedFinancialStatements31December2021 52
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
61
61. Currencyrisk(cont.)
e. Sensitivitytocurrencyrisk
31.12.2021 31.12.2020
Assetsandliabilitiesdenominatedinforeigncurrencies‐10% +10%‐10% +10%
(32,458) 32,458 30,571 (30,571)
56,904 (56,904) 13,052 (13,052)
47,478 (47,478) 26,959 (26,959)
8,065 (8,065) (1,201) 1,201
668 (668) 2,594 (2,594)
39,465 (39,465) 4,219 (4,219)
Total 120,123 (120,123) 76,194 (76,194)
62. Equityrisk
a. Definition
b. Sesitivityanalysisofequityrisk
31.12.2020
‐10% +10%‐10% +10%
(552,391) 552,391 (89,242) 89,242
(890,709) 890,709 (233,814) 233,814
(825,229) 825,229 (184,227) 184,227
Total (2,268,329) 2,268,329 (507,283) 507,283
63. Operationalrisk
a. Definition
b. Management
Theeffectonequitywouldbethesame.
GBP......................................................................................................................................
NOK......................................................................................................................................
The analysis below calculates the effect of possible movements in equity prices that affect the Consolidated Financial Statements. A negative
amount in the table reflects a potential net reduction in the Consolidated Income Statement or equity, while a positive amount reflects a
potentialnetincrease.Investmentsinassociatesareexcluded.
31.12.2021
Listedshares........................................................................................................................
Unlistedshares....................................................................................................................
Unlistedunitsharesinfunds...............................................................................................
DKK.......................................................................................................................................
The individual business units within the Group are primarily responsible for managing their respective operational risk. The risk management unit
is furthermore responsible for identifying, monitoring and reporting the Group's operational risk. Operational risk can be reduced through staff
training, process re‐design and enhancement of the control environment. The risk management unit monitors operational risk by tracking loss
events, quality deficiencies, potential risk indicators and other early‐warning signals. The unit takes an active role in internal control and quality
management.
Operational risk is the risk of direct or indirect loss from inadequate or failed internal processes or systems, from human error or external events
that
affecttheGroup'sreputationandoperationalearnings.
EUR......................................................................................................................................
USD......................................................................................................................................
Othercurrencies..................................................................................................................
Equity risk is the risk that the fair value of equties decreases as the result of changes in the value of shares and other variable income securities in
theGroup’sportfolio.
Given the net currency position, a 10% change in the value of the ISK would, with other things constant, result in the following changes to the
Group'spre‐taxprofit.
ConsolidatedFinancialStatements31December2021 53
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
63
Financialassetsandfinancialliabilities
64. Accountingclassificationoffinancialassetsandfinancialliabilities
Manda‐
31.12.2021Fairvalue torilyat Total
Financialassets Amortised through fairvalue carrying
cost OCI throughP/L amount
38,645,894 38,645,894
21,303,362 18,743,288 40,046,651
22,683,295 22,683,295
22,085,696 22,085,696
69,063,377 2,524,269 71,587,646
2,734,216 2,734,216
10,012,351 30,202 10,042,553
Total 117,721,622 21,303,362 68,800,966 207,825,950
Manda‐
Fairvalue
torilyat Total
Financialliabilities Amortised through fairvalue carrying
cost OCI throughP/L amount
78,669,807 78,669,807
17,261,048 17,261,048
0
32,597,716 32,597,716
3,371,766 3,371,766
1,323,631 1,323,631
1,280,868 1,280,868
3,008,401 3,008,401
6,194,021 483,486 6,677,507
Total 138,094,357 0 6,096,387 144,190,744
Manda‐
31.12.2020 Fairvalue torilyat Total
Financialassets Amortised through fairvalue carrying
cost
OCI throughP/L amount
28,945,030 28,945,030
22,946,767 5,838,266 28,785,033
5,072,830 5,072,830
19,620,240 19,620,240
26,579,121 2,743,851 29,322,972
389,671 389,671
5,112,881 327,210 5,440,092
Total 60,637,033 22,946,767 33,992,067 117,575,867
Manda‐
Fairvalue torilyat Total
Financialliabilities Amortised through fairvalue carrying
cost OCI throughP/L amount
59,924,683 59,924,683
26,424,340 26,424,340
2,003,608 2,003,608
5,568,085 5,568,085
2,077,225 2,077,225
1,520,547 1,520,547
731,987 731,987
1,750,346 1,750,346
3,364,471 386,001 3,750,472
Total 99,362,412 0 4,388,881 103,751,293
Derivatives....................................................................................................................
Otherliabilities.............................................................................................................
Theaccountingclassificationoffinancialassetsandfinancialliabilitiesisspecifiedasfollows:
Fixedincomesecurities................................................................................................
Sharesandothervariableincomesecurities...............................................................
Securitiesusedforhedging..........................................................................................
Loans
tocustomers.......................................................................................................
Derivatives....................................................................................................................
Otherassets..................................................................................................................
CashandbalanceswithCentralBank..........................................................................
Fixedincomesecurities................................................................................................
Sharesandothervariableincomesecurities...............................................................
Securitiesusedforhedging..........................................................................................
Loanstocustomers.......................................................................................................
Derivatives....................................................................................................................
Otherassets..................................................................................................................
Deposits.......................................................................................................................
Borrowings....................................................................................................................
Issuedbills....................................................................................................................
Issuedbonds.................................................................................................................
Subordinatedliabilities.................................................................................................
Shortpositionsusedforhedging..................................................................................
Shortpositionsusedforhedging..................................................................................
Shortpositionsheldfortrading....................................................................................
Derivatives....................................................................................................................
Otherliabilities.............................................................................................................
CashandbalanceswithCentralBank..........................................................................
Deposits.......................................................................................................................
Borrowings....................................................................................................................
Issuedbills....................................................................................................................
Issuedbonds.................................................................................................................
Subordinatedliabilities.................................................................................................
Shortpositionsheldfortrading
....................................................................................
ConsolidatedFinancialStatements31December2021 54
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
63
65. Financialassetsandfinancialliabilitiesmeasuredatfairvalue
a.
‐
‐
‐
b.
c.
Inputsarequotedmarketprices(unadjusted)inactivemarketsforidenticalinstruments.
Level1
Level2
Inputs are not observable or unobservable inputs have a significant effect on the valuation. This category includes instruments that are
valuedbasedonquotedpricesforsimilarinstrumentsforwhichsignificantunobservableadjustmentsarerequiredtoreflectthedifferences
betweentheinstruments.
Inputs are not quoted market prices but are observable either directly, i.e. as prices, or indirectly, i.e. derived from prices. This category
includes financial instruments valued using quoted prices in active markets for similar instruments, quoted prices for similar or identical
instruments in markets that are considered less than active and other instruments which are valued using techniques which rely primarily
oninputs
thataredirectlyorindirectlyobservablefrommarketdata.
Level3
Valuationprocess
The Bank's Credit committee is responsible for fair value measurements of financial assets and financial liabilities classified as level 2 or level 3
instruments. The valuation is carried out by p ersonnel from respective d epartments under supervision from Risk. The valuations are revised at
leastquarterly,orwhenthereareindicationsofsignificantchangesintheunderlyinginputs.
The fair value of financial assets and liabilities that are traded in active markets are based on quoted market prices. For other financial
instruments the Group determines fair value using various valuation techniques. IFRS 13 specifies a fair value hierarchy based on whether the
inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources
whereasunobservableinputsreflecttheGroup'smarketassumptions.Thesetwotypesofinputsresultinthefollowingfairvaluehierarchy:
The Group uses widely recognised valuation techniques, including net present value and discounted cash flow models, comparison with similar
instrumentsforwhichmarketobservable
pricesexist,Black‐Scholesandothervaluationmodels.
Fairvaluehierarchy
Valuationtechniques
For more complex instruments, the Group uses proprietary models, which usually are developed from recognised valuation models. Some or all
of the inputs into these models may not be market observable, and are derived from market prices or rates or are estimated based on
assumptions. When entering into a transaction, the financial instrument is recognised initially at the transaction price, which is the best
indicator of fair value, although the value obtained from the valuation model may differ from the transaction price. This initial difference,
usually an increase in fair value, indicated by valuation techniques is recognised in income depending upon the individual facts and
circumstancesofeachtransactionandnolaterthanwhenthemarketdatabecomesobservable.
The value produced by a model or other valuation technique is adjusted to allow for a number of factors as appropriate, because valuation
techniques cannot appropriately reflect all factors market participants take into account when entering into a transaction. Valuation
adjustments are recorded to allow for model risks, bid ‐ask spreads, liquidity risks, as well as other factors. Management believes that these
valuation adjustments are n ecessary and appropriate to fairly state financial instruments carried at fair value in the statement of financial
position.
Valuation techniques include recent arm's length transactions between knowledgeable, willing parties, if available, reference to the current fair
value of other instruments that are substantially the same, the discounted cash flow analysis and option pricing models. Valuation techniques
incorporate all factors that market participants would consider in setting a price and are consistent with accepted methodologies for pricing
financial instruments. Periodically, the Group calibrates the valuation technique and tests it for validity using prices from any observable current
markettransactionsinthesameinstrument,withoutmodificationorrepackaging,orbasedonanyavailableobservablemarketdata.
ConsolidatedFinancialStatements31December2021 55
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
63
66. Financialassetsandfinancialliabilitiesmeasuredatfairvalue
a.
31.12.2021
Financialassets Carrying
Level1 Level2 Level3 amount
Mandatorilymeasuredatfairvaluethroughprofitandloss
13,186,221 4,762,529 794,538 18,743,288
10,222,396 4,077,480 8,383,419 22,683,295
22,085,696 22,085,696
2,524,269 2,524,269
2,734,216 2,734,216
30,202 30,202
Measuredatfairvaluethrough
othercomprehensiveincome
21,303,362 21,303,362
Total 66,797,675 11,574,225 11,732,428 90,104,329
Financialliabilities Carrying
Level1 Level2 Level3 amount
Mandatorilymeasuredatfairvaluethroughprofitandloss
1,323,631 1,323,631
1,280,868 1,280,868
3,008,401 3,008,401
483,486 483,486
Total 2,604,499 3,008,401 483,486 6,096,387
31.12.2020
Financialassets Carrying
Level1 Level2 Level3
amount
Mandatorilymeasuredatfairvaluethroughprofitandloss
5,637,466 200,799 5,838,266
2,406,085 385,570 2,281,174 5,072,830
19,620,240 19,620,240
2,743,851 2,743,851
389,671 389,671
327,210 327,210
Measuredatfairvaluethroughothercomprehensiveincome
22,946,767 22,946,767
Total 50,610,558 775,241 5,553,035 56,938,834
Financialliabilities Carrying
Level1 Level2 Level3 amount
Mandatorily
measuredatfairvaluethroughprofitandloss
1,520,547 1,520,547
731,987 731,987
1,750,346 1,750,346
386,001 386,001
Total 2,252,534 1,750,346 386,001 4,388,881
Fixedincomesecurities..............................................................................................
Fixedincomesecurities..............................................................................................
Otherassets...............................................................................................................
Securitiesusedforhedging........................................................................................
Loanstocustomers....................................................................................................
Securitiesusedforhedging........................................................................................
Shortpositionsusedfor
hedging...............................................................................
Derivatives.................................................................................................................
TransfersoffixedincomesecuritiesfromLevel1tolevel3amountedtoISK199millionduringtheyear2020.
Derivatives.................................................................................................................
Otherassets...............................................................................................................
Fixedincomesecurities..............................................................................................
Sharesandothervariableincomesecurities.............................................................
Fairvaluehierarchyclassification
The fair value of financial assets and financial liabilities measured at fair value in the statement of financial position is classified into the fair
valuehierarchyasfollows:
Derivatives.................................................................................................................
Otherliabilities
...........................................................................................................
Otherliabilities...........................................................................................................
Shortpositionsheldfortrading.................................................................................
Shortpositionsheldfortrading.................................................................................
Shortpositionsusedforhedging...............................................................................
Derivatives.................................................................................................................
Transfers of fixed income securities and transfer of shares and other variable income securities from Level 1 to level 3 amounted to ISK 247
millionandISK735million,respectively,duringtheyear2021.
Fixedincomesecurities..............................................................................................
Loanstocustomers....................................................................................................
Sharesandothervariableincomesecurities.............................................................
ConsolidatedFinancialStatements31December2021 56
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
63
66. Financialassetsandfinancialliabilitiesmeasuredatfairvalue(cont.)
b.
Sharesand
Fixed othervar.
income income Loansto Other Other
31.12.2021 securities securities customers assets liabilities Total
Balanceasat1January2021 200,799 2,281,174 2,743,851 327,210 (386,001) 5,167,034
(361,080) 1,570,435 185,667 (97,548) 1,297,473
290,553 4,357,464 4,648,017
417,151 698,907 1,889,964 3,006,022
(2,295,212) (297,008) 63 (2,592,157)
(1,259,488) (1,259,488)
247,114 734,927 982,041
Balanceasat31December2021 794,538 8,383,419 2,524,269 30,202 (483,486) 11,248,942
Sharesand
Fixed othervar.
income income Loansto Other Other
31.12.2020 securities securities customers assets liabilities Total
Balanceasat1January2020 1,480 1,766,071 2,346,662 (494,991) 3,619,222
(18) 248,743 235,355 (286,058) 198,023
298,594 1,539,245 327,210 2,165,049
0 (1,377,411) 395,048
(982,363)
(32,234) (32,234)
199,337 0 199,337
Balanceasat31December2020 200,799 2,281,174 2,743,851 327,210 (386,001) 5,167,034
c.
Bookvalue
Range
31.12.2021
0‐95%
794,538
‐
8,383,419
‐
2,524,269
‐
30,202
Total 11,732,428
Bookvalue
Range
31.12.2020
0‐95%
200,799
‐
2,281,174
‐
2,743,851
‐
327,210
Total 5,553,035
d.
+10%‐10%
79,454 (79,454)
838,342 (838,342)
252,427 (252,427)
3,020 (3,020)
Total 1,173,243 (1,173,243)
Asset
class Method
Expectedrecovery
Fixedincomesecurities...................................................................................................................................................
Unlistedvariableincomesecurities
Informationonturnover
Valueofassets
Significantunobservableinput
Unlistedbonds
FairvaluemeasurementsforLevel3financialassetsandliabilities
Level 3 assets consist primarily of illiquid, unlisted bonds, shares and share certificates and loans measured at fair value. Each asset is evaluated
separatelybutassetswithinanassetgroupshareavaluationmethod.Thefollowingvaluationmethodsareinuse:
Expertmodel
Expertmodel
Loansto
customers
Recenttrades
Valueofassetsandcollateral
Assetclass Method Significantunobservableinput
Unlistedbonds Expectedrecovery Valueofassets
Unlistedvariableincomesecurities Marketprice Recenttrades
The Group believes its estimates represent appropriate approximations of fair value and that the use of different valuation methodologies and
reasonablechangesinassumptionsorunobservableinputswouldnotsignificantlychangetheestimates.
A10%changeintheestimateswouldhavethefollowingeffectonprofitbeforetaxes:
Shares
andothervariableincomesecurities..................................................................................................................
Loanstocustomers.........................................................................................................................................................
Given the methods used, the possible range of the significant unobservable inputs is wide. When determining the values used the Group
considersthefinancialstrengthoftheentityinquestion,recenttradesifanyandmultipliersforcomparableinstruments.
TheeffectofunobservableinputsinLevel3fairvaluemeasurements
Loantocustomers Expertmodel Valueofassetsandcollateral
Receivablesatfairvalue Expertmodel Information
onturnover
Receivablesatfairvalue.................................................................................................................................................
ReconciliationofchangesinLevel3fairvaluemeasurements
Transfersin(out)ofLevel3..............................................
Totalgainsandlossesinprofitorloss..............................
Marketprice
Disposals...........................................................................
Transfersin(out)Level3..................................................
Additions...........................................................................
Repayments......................................................................
Receivablesatfairvalue
Additions...........................................................................
Repayments......................................................................
Disposals...........................................................................
Additionsthroughabusinesscombination......................
Totalgainsandlossesinprofitorloss..............................
ConsolidatedFinancialStatements31December2021 57
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
63
67. Financialassetsandfinancialliabilitiesnotmeasuredatfairvalue
Deposits and other borrowings are typically either short‐term or have variable interest rates. Other liabilities consist primarily of accounts
payables, withholding taxes and other short‐term payables. The carrying amount of these liabilities is therefore considered a reasonable
approximationoftheirfairvalue.
The Group holds financial instruments which are not measured at fair value. Except for loans to customers, the Group believes that the best
estimate of the f air value of these financial instruments is equal to the carrying amount at the reporting date and does therefore not report a
fair value for these financial instruments. Loans to customers measured at amortised cost are classified as level 3, in the fair value hierarchy, and
have a book value of ISK 69,063 million a t end of December 2021. The estimated fair value of loans to customers measured at amortised cost at
endofDecember2021isISK69,191million.
Cash and balances with Central Bank includes several components as detailed in note 19. These assets are either balances available on‐demand
or on very short notice, or other assets easily converted to cash. Other financial assets consist primarily of short‐term receivables. The carrying
amountoftheseassetsisthereforeareasonableapproximationoftheirfairvalue.
ConsolidatedFinancialStatements31December2021 58
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
67
Otherinformation
68. Pledgedassets
Settlementand Securities Assetbacked
31.12.2021 committedfacilities borrowing securities Total
1 2,126,209 1,409 2,127,620
4,088,885 1,454,453 0 5,543,338
6,498,490 0 9,372,337 15,870,827
0 46,704 0 46,704
Total
10,587,377 3,627,366 9,373,746 23,588,489
Settlementand Securities Assetbacked
31.12.2020 committedfacilities borrowing securities Total
0 1,457,323 0 1,457,323
3,984,688 906,073 0 4,890,761
0
96,102 0 96,102
Total
3,984,688 2,459,498 0 6,444,186
69. Relatedparties
a. Definitionofrelatedparties
b. Arm'slength
c. Effectsonstatementoffinancialposition
Loans& Deposits&
31.12.2021 receivables payables
0 128,067
0 0
Total 0 128,067
Loans& Deposits&
31.12.2020 receivables payables
1,851 83,166
0 0
Total 1,851 83,166
d. Effectsonincomestatement
Interest
Interest Fees Fees
2021 income expense received paid
60 281 3,870 3,395
0 0 0 0
Total 60 281 3,870 3,395
Interest Interest Fees Fees
2020 income expense received paid
0 487 1,362 10,560
10,379 209 26,279 0
Total 10,379 696 27,641 10,560
Loanstocustomers..........................................................................................................
CashandbalanceswithCentralBank
..............................................................................
Fixedincomesecurities....................................................................................................
Otherassets.....................................................................................................................
The Group has pledged assets, in the ordinary course of banking business, to the Central Bank of Iceland to secure general settlement in the
Icelandic clearing system and to secured committed facilities. Cash pledged to secure the borrowing of securities from other counterparties than
the Central Bank of Iceland is classi fied as other assets. Furthermore, the Group has pledged loans to customers as collateral against asset backed
bondsthatithasissued.
Management.....................................................................................................................................................................
Management....................................................................................................................
FurtherinformationaboutsalariesandbenefitspaidtotheBoardofDirectors,theCEOandManagingDirectorsisprovidedinnote12.
CashandbalanceswithCentralBank..............................................................................
Fixedincomesecurities....................................................................................................
Otherassets.....................................................................................................................
Associates
........................................................................................................................
The Group has a related party relationship with the board members of the Bank, the CEO of the Bank and key employees (together referred to as
management), associates as disclosed in note 26, shareholders with significant influence over the Bank, close family members of individuals
identifiedasrelatedpartiesandentitiesunderthecontrolorjointcontrolofrelatedparties.
Management.....................................................................................................................................................................
Associates..........................................................................................................................................................................
Transactionswithrelatedpartiesarecarriedoutatarm'slengthandsubjecttoanannualreviewbytheBank'sinternalauditor.
Associates..........................................................................................................................................................................
Associates........................................................................................................................
Management....................................................................................................................
ConsolidatedFinancialStatements31December2021 59
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
67
70. Remunerationpolicy
71. Incentivescheme
a. Description
b. Performancebasedpaymentsthroughprofitandloss
2021 2020
Cash Cash
189,506 64,818
86,324 2,640
77,849 18,387
0 (33,283)
Total 353,679 52,563
c. On‐balancesheetdeferredperformancebasedpayments
31.12.2021 31.12.2020
158,540 24,955
87,017 0
Total 245,556 24,955
72. Share‐basedpayments
a. Description
b. Movementsinthenumberofstockoptionsoutstandingand
theirrelatedweightedaverageexerciseprices
6.24 8,544
6.46 (7,303)
0.00 (1,240)
0.00 0
26.44 55,484
26.44 55,484
0.00 0
Non‐deferred.....................................................................................................................................................................
At31December2020........................................................................................................................................................
Forfeitedin2020...............................................................................................................................................................
Salaryrelatedexpenses.....................................................................................................................................................
Cancelleddeferredperformancebasedpayments..........................................................................................................
Exercisedin2020...............................................................................................................................................................
The Board of Directors has adopted a remuneration policy at the proposal of the Remuneration Committee. The Bank's Annual General Meeting
approved the Bank's current remuneration policy in April 2021. The Board of Directors will submit an updated remuneration policy for approval
attheBank'sAnnualGeneralMeetingin2022.
Grantedin
2021.................................................................................................................................................................
Deferredcashpayments,acquiredviabusinesscombinations........................................................................................
At1January2020..............................................................................................................................................................
At31December2021........................................................................................................................................................
The remuneration policy conforms to Article 57 of Act No. 161/2002 on Financial Undertakings, Act No. 2/1995 on Public Limited Companies and
the Icelandic FSA's rules No. 388/2016 on Incentive Schemes. A more detailed description of the policy can be found on the Bank's website,
www.kvika.is.
Exercisablestockoptionsat31December2021...............................................................................................................
Average
exerciseprice
pershare
On 21 April 2021 the general meeting of the Bank authorised the Board of Directors to approve a share option plan in accordance with Article 10
of the Income Tax Act No. 90/2003 for all employees of Kvika and its subsidiaries. On 10 November 2021 the Bank’s Board of Directors
implementedashareoptionplanwhichwasapprovedbyIcelandRevenueandCustomson9
December2021.
The objective of the Bank’s stock option plan is to integrate the interests of employees with the long‐term goals of the group. Each eligible
employeehasbeengrantedastockoptionforuptoISK1,500,000peryearthenextthreeyearsonthefollowingexercisedates:
a.on15December2022,thestockoptionholderhasearnedtherighttopurchasesharecapitalforuptoISK1,500,000;
b.on
15December2023,thestockoptionholderhasearnedtherighttopurchasesharecapitalforuptoISK1,500,000;
c. on 15 December 2024, the stock option holder has earned the right to purchase share capital for up to ISK 1,500,000.
The Bank´s previous stock option plan, from 2017, ended in full in September 2020 and thus there are no outstanding obligations based on that
plan.
The Board of Directors h as approved a performance based incentive scheme at the proposal of the Remuneration Committee. The scheme forms
apartoftheremunerationpolicyadoptedbytheBank.
Deferredcashpayments...................................................................................................................................................
The incentive scheme conforms to the Icelandic FSA's rules No. 388/2016 on Incentive Schemes. Payments according to the scheme are based on
key performance indicators (KPIs) that reflect the goals of the Bank, the division and the employee. The basis for performance based p ay reflects
sound risk management and does not induce excessive risk taking. Performance based p ay to individual employees shall not exceed 25% of their
annual salary and 40% of the performance based pay shall be deferred for three years. Performance based pay that does not exceed 10% of
annual salary is not subject to deferral. A more detailed description of the scheme can be found in the Bank's remuneration policy on it's website,
www.kvika.is.
Deferred............................................................................................................................................................................
The calculation of the purchase price was based on weighted average price in transactions with shares of the Bank for ten whole business days
priortothecontractdate,cfArticle10(1)(4)oftheIncome
TaxActNo90/2003,i.e.ISK26.44pershare.
In total, 326 employees entered into a stock option agreement with the Bank for up to 18.494.632 shares per year based on 100% exercise of
their options. The options do not allow for cash settlement. The options are conditional on the employee remaining employed by the Bank and
variousotherconditions.
Thegrantdatefairvalueoftheoptionsgrantedthroughtheschemewasasfollows:
Stock
options
(thousands)
ConsolidatedFinancialStatements31December2021 60
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
67
73. ShareholdersoftheBank
31.12.2021 31.12.2020
Shareholder % % Beneficialowners
8.20% 7.57%
6.28% 5.86%
6.11% 8.24%
4.61% 0.29%
4.40% 2.18%
4.33% 2.30%
3.08% 0.28%
2.47% 2.89%
2.14% 0.23%
2.02%‐
1.90% 2.64%
1.77% 1.87%
1.68% 1.42%
1.61% 0.00%
1.58% 1.06%
1.57% 1.60%
1.51% 2.07%
1.36% 6.24%
1.36%‐
1.28% 1.02%
1.26% 1.25%
1.22% 0.11%
1.19% 2.45%
1.13% 4.32%
1.02% 1.11%
32.53% 42.99% 2021:2795,2020:964
97.61% 100.00%
2.39% 0.00%
Total 100.00% 100.00%
74. Eventsafterthereportingdate
AcquisitionofOrtusSecuredFinanceCompleted
Iceland GuðmundurÖrnÞórðarson(100%)
Frjálsilífeyrissjóðurinn................................... Iceland
InvestementfundmanagedbyAktasjóðirhf.
Country
Bóksalehf....................................................... Iceland BogiÞórSiguroddsson(50%),LindaBjörk
Ólafsdóttir(50%)
Iceland
AktaStokkurhs.............................................. Iceland
Almennilífeyrissjóðurinn...............................
KvikaBanki‐Safnreikningur.......................... Iceland
Gildi‐lífeyrissjóður........................................ Iceland
Stapilífeyrissjóður.......................................... Iceland
BrúLífeyrissjóðurstarfsmannasveitarfélaga Iceland
On 24 February 2022, Kvika signed a purchase agreement to acquire a majority shareholding in alternative lender Ortus Secured Finance Ltd.
(“Ortus”), following the signing of Heads of Terms in late October 2021. Following the transaction, Kvika holds close to 80% of Ortus’ ordinary
shares, having first acquired a minority share of 15% in 2018. The acquisition has no impact on 2021 financial results. Details of the transaction
canbefoundinapressreleasedated24February2022.
Stoðirhf.......................................................... Iceland
Kvika‐Innlendhlutabréf................................ InvestementfundmanagedbyKvikaeignastýringhf.
Siglaehf.
......................................................... Iceland TómasKristjánsson(100%)
Lífeyrissjóðu rstarfsmannaríkisB‐deild......... Iceland
Stefnir‐Innlendhlutabréfhs......................... Iceland InvestementfundmanagedbyStefnirhf.
Iceland
Iceland
Iceland
Iceland
Iceland
Iceland
Íslandsbankihf...............................................
Iceland
Iceland
Landsbréf‐Úrvalsbréfhs............................... InvestementfundmanagedbyLandsbréfhf.
SNVholdingehf..............................................
Arionbankihf.................................................
Lífeyrissjóðu rverzlunarmanna......................
SvanhildurNannaVigfúsdóttir(100%)
Iceland
Vátryggingafélag
Íslandshf............................
Iceland
Lífeyrissjóðu rstarfsmannaríkisinsA‐deild....
Lífsverklífeyrissjóður.....................................
Birtalífeyrissjóður..........................................
Attisehf..........................................................
Beneficial owners are defined as owners holding a share of 10% or greater, directly or indirectly. The information presented is, among other
things,basedonpubliclyavailableinformation.
Kvika‐IHFhs.................................................. InvestementfundmanagedbyKvikaeignastýringhf.
Treasuryshares..............................................
Others,eachlessthan1%..............................
Iceland
IcelandLandsbankinnhf.............................................
ConsolidatedFinancialStatements31December2021 61
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
0
Significantaccountingpolicies Page
75 Basisofconsolidation.....................................................................................
63
76 Foreigncurrency.............................................................................................
64
77 Interestincomeandexpense..........................................................................
64
78 Feeandcommissionincomeandexpense......................................................
64
79 Netpremiumsandclaims...............................................................................
65
80 InsuranceContracts........................................................................................
65
81 Netfinancialincome.......................................................................................
65
82 Dividendincome.............................................................................................
65
83 Administrativeexpenses.................................................................................
65
84 Employeebenefits..........................................................................................
66
85
Incometax......................................................................................................
66
86 Financialassetsandfinancialliabilities...........................................................
66
87 Offsetting.......................................................................................................
68
88 Determinationoffairvalue.............................................................................
68
89 Impairment.....................................................................................................
68
90 CashandbalanceswithCentralBank..............................................................
71
91 Fixedincomesecurities..................................................................................
71
92 Sharesandothervariableincomesecurities...................................................
71
93 Securitiesusedforhedging.............................................................................
71
94
Loanstocustomers........................................................................................
72
95 Derivatives......................................................................................................
72
96 Investmentsinassociates...............................................................................
72
97 Investmentproperties....................................................................................
72
98 Intangibleassets.............................................................................................
73
99 Operatingleaseassets....................................................................................
73
100 Propertyandequipment.................................................................................
74
102 Otherassets...................................................................................................
74
103 Deposits.........................................................................................................
74
104 Technicalprovision.........................................................................................
74
105 Borrowings.....................................................................................................
75
106 Issuedbills......................................................................................................
75
107 Issuedbonds
...................................................................................................
75
108 Subordinatedliabilities...................................................................................
75
109 Shortpositionsheldfortrading......................................................................
75
110 Shortpositionsusedforhedging....................................................................
75
111 Otherliabilities...............................................................................................
75
112 Rightofuseassetandleaseliability................................................................
75
113 Financialguarantees.......................................................................................
75
114 Sharecapital...................................................................................................
75
115 Natureandpurposeofequityreserves...........................................................
76
116 Earnings
pershare..........................................................................................
76
117 Newstandardsandinterpretations................................................................
76
118 Useofestimatesandjudgements...................................................................
77
ConsolidatedFinancialStatements31December2021 62
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
Significantaccountingpolicies
75. Basisofconsolidation
a. Subsidiaries
b. Businesscombinations
c. Non‐controllinginterest
d. Fiduciaryservices
e. Transactionseliminatedonconsolidation
f. Structuredentities
The accounting policies set out below have been applied consistently to all periods presented in these Consolidated Financial Statements, and
havebeenappliedconsistentlybyGroupentities.
The Group provides custody services, fund management and discretionary and advisory investment management services which require the
Grouptomakedecisionsonthehandling,acquisitionordisposaloffinancialinstrumentsonbehalfofitsclients.
The financial statements of managed funds and investment portfolios managed by the Group on behalf of customers are not included in the
financialstatements,astheydonotconstituteassetsorliabilitiesofthe
Group.
Intra‐bank balances, income and expenses, and unrealised gains and losses arising from intra‐bank transactions, are eliminated in preparing the
consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent
of the Group's interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is
noevidenceofimpairment.
The Group acts as investment manager or investment advisor, for example, to a number of investment funds operated by the fund management
companies Kvika eignastýring hf. and Gamma Capital Management hf. The purpose of these fund management companies is to generate fees
from managing assets on behalf of third‐party investors by providing investment strategies. These investment funds are f inanced through the
issueofunitstoinvestors.TheGrouphasnocontractualobligationtoprovidefinancialsupporttothesestructuredentities.
From time to time, the Group makes seed capital investments in certain fund products in order to establish track records for new products, to
testnewinvestmentstrategiesortolaunchnewproductsataviableminimumsize.
The Group has set up a formal procedure to assess whether or not to consolidate investment funds managed and administered by the Group on
behalf of its customers and other investors in the consolidated financial statements. As part of this assessment, the Group reviews all facts and
circumstances including the purpose and design of the investment fund, to determine whether the Group, as fund manager, is acting as agent or
principal. The Group is deemed to be a principal when the Group acts as fund manager and cannot b e removed without cause, has variable
returnsthroughsignificantholdingsandisableto
influencethereturnsofthefundsbyexercisingitspower.
Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual
arrangements.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to p ay contingent consideration that meets the
definition of a financial instrument is classified as equity, then it is not remeasured and settlement is account for within equity. Otherwise, other
contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent
considerationarerecognisedinprofitandloss.
Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses its relationship
withanentitywhenthereisachangeinoneormoreoftheelementsofcontrol.
The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value, at
the date of exchange, of the assets given, liabilities incurred or assumed and equity instruments issued. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at their f air values at the acquisition date,
irrespectiveoftheextentofanyminorityinterest.
The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recognised as goodwill. If
the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised immediately in the
incomestatement.
Non‐controlling interest represent the portion of profit or loss and equity not owned, directly or indirectly, by the Bank. Non‐controlling interest
is presented separately in the income statement and is included in equity in the statement of financial position, separately from equity
attributabletoowners
oftheBank.
The Group chooses on an acquisition‐by‐acquisition basis whether to measure non‐controlling interest in an acquiree at fair value or according
to the proportion of non‐controlling interests in the acquiree's net assets. Changes in the Bank's ownership interest in a subsidiary that do not
result in a loss of control are accounted for as equity transactions. In such circumstances the carrying amounts of the controlling and non‐
controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which
the non‐controlling interest is adjusted and the f air value of the consideration paid or received is recognised directly in equity and attributed to
theownersoftheBank.
ConsolidatedFinancialStatements31December2021 63
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
76. Foreigncurrency
a. Foreigncurrencytransactions
b. Foreignoperations
77. Interestincomeandexpense
Effectiveinterestrate
Amortisedcostandgrosscarryingamount
Presentation
‐
‐
‐
‐
78. Feeandcommissionincomeandexpense
‐
‐
‐
‐
‐
‐
‐
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial
recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference
between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance. The gross
carryingamountofafinancialassetistheamortisedcostofafinancialassetbeforeadjustingforanyexpectedcreditlossallowance.
Transactions in foreign currencies are translated into the functional currency of the respective Group's entity using the exchange rate at the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the
exchange rate at the reporting date. Non‐
monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction. Non‐monetary assets and liabilities denominated in foreign currencies that are
statedatfairvaluearetranslatedusingtheexchangerateatthedatethefairvaluewasdetermined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the
functional currency at spot exchange rate current at the reporting date. The income and expenses of f oreign operations are translated into the
functionalcurrencyatthespotexchangeratesatthedatesofthetransactions.
financialassetsatfairvaluethroughothercomprehensiveincome(FVOCI)
Fees that are earned gradually as the services are performed, such as management fees in asset management, are recognised as income at
theratetheseservicesaredelivered.Inpractice,
theseareonast raightlinebasis
Fee and commission income and expense are recognised in the income statement when an agreement with a customer meets all of the
followingcriteria:
Interest income and expense are recognised in the income statement using the effective interest method. The effective interest rate is the rate
that exactly discounts estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the
financial asset or the amortised cost of the financial liability. When calculating the effective interest rate for financial instruments other than
purchased or originated credit‐impaired assets, the Group estimates future cash flows considering all contractual terms of the financial
instrument but not ECL. For purchased or originated credit‐impaired financial assets, a credit‐adjusted effective interest rate is calculated using
estimatedfuturecashflowsincludingECL.
Interestincomeandexpensepresentedintheincomestatementincludesintereston:
Foreigncurrencydifferencesarepostedasaseparatelineitemundernetfinancialincomeasdisclosedinnotes8
and81.
Translationdifferencesonforeignoperationsarepresentedasaseparatecategoryinthestatementofchangesinequity.
Fees attributable to a specific service or action are recognised as income when the service has been performed. Examples of such fees are
brokerageandpaymentcommissions
financialassetsatfairvaluethroughprofitandloss
derivatives
The Group earns income from providing various services to its customers. This includes fees for managing assets on behalf of customers,
commissions received f or equity and bond transactions and fees and commissions for various other fina ncial services. Fee and commission
income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the
effectiveinterestrate.
financialassetsandliabilitiesmeasuredatamortisedcost
thepartiestothecontracthaveapproved
thecontractandarecommittedtoperformtheirrespectiveobligations
performanceobligationshavebeenestablishedforservicestobetransferred
thepaymenttermshavebeenestablishedfortheservicestobetransferred
thetransactionpricecanbeallocatedtoeachindividualserviceintheagreement
itisprobablethataconsiderationwill
becollectedinexchangefortheservicesthatwillbetransferredtothecustomer
Thefollowingappliestorecognitionofincomeforvarioustypesoffeesandcharges:
ConsolidatedFinancialStatements31December2021 64
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
79. Netpremiumsandclaims
80. InsuranceContracts
Non‐Lifeinsurance
LifeandHealthinsurance
LifeandHealthinsurance
81. Netfinancialincome
‐
‐
‐
‐
‐
‐
‐
‐
82. Dividendincome
83. Administrativeexpenses
Fairvaluechangesofloanstocustomersheldatfairvalue
Unwinding,interestandexchangeratechangeoftechnicalprovision
Premiums are recognised proportionally during the period in which insurance covers. Premium liability is the part of the premium that belongs
to subsequent financial years. Recognised premiums in the income statement are therefore the premiums that occurs during the operating year
plus transferred premiums from previous years, less premiums for subsequent years. Premiums written for the period are presented less
depreciated premiums but without commissions or sales cost and the change in premium liability is presented without changes due to foreign
exchangedifferences.Definitionofnetpremiumsisinlinewith
theguidelinesoftheCentralBank‘sFinancialSupervisorybody,nr.1/2020.
Claims in the income statement are comprised of claims paid during the period and changes in the claims liability due to insurance operations
and risk margin. The changes in the claims liability due to insurance operations include changes of estimates of previous years‘ liability as well as
changes in the reporting year liability. Net claims are claims with the reinsurers‘ share deducted both for the paid claims and the changes in
claims liability. Changes in prior years‘ liabilty is presented without the unwinding, interest and exchange rate change of the claims liability,
which is transferred to the investment segment. Definition of net claims is in line with the guidelines of the Central Bank‘s Financial Supervisory
body,nr.1/2020.
Netfinancialincomecomprisesthefollowing:
Realisedandunrealisedgainsorlossesfrompricechangesoffixedincomesecuritiesmeasuredatfairvalue
TheGroup'sinsurancecontractsarecategorisedinNon‐lifeinsuranceandLifeinsurancecontracts.
Insurance
contractsthatarecategorisedasinthissectionareliabilityinsurances,casualtyinsuranceandpropertyinsurance.
Liability insurance contracts protect the customers against the risk of causing harm to third parties. Casualty insurance compensates harm that
the customer suffers because of an accident. Property insurance contracts mainly compensate the company's customers for damage suffered to
their properties. Customers who undertake commercial a ctivities on their premises could also receive compensation of the loss of earnings
causedbytheinabilitytousetheinsuredpropertiesintheirbusinessactivities(businessinterruptioncover).
Thesecontractsinsureeventsassociatedwithhumanlife,forexampledeathorcriticalillness.
Insurance contracts are contracts under which the insurer accepts insurance risk from policyholders by agreeing to compensate the
policyholdersifaspecified
uncertainfutureeventwouldoccur.
TheGroup'sinsurancecontractsarecategorisedinNon‐lifeinsuranceandLifeinsurancecontracts.
Thesecontractsinsureeventsassociatedwithhumanlife,forexampledeathorcriticalillness.
Administrative expenses comprise expenses other than interest expenses, fee and commission expenses and expenses related to fair value
changes.Abreakdownofadministrativeexpensesisprovidedinnote10.
Realisedandunrealisedgainsorlossesfrom
pricechangesofvariableincomesecurities
Interestincomefromfixedincomesecuritiescarriedatfairvaluethroughprofitorloss
Dividends
Fairvaluechangesinderivatives
Foreignexchangedifference
Dividend income is recognised when the right to receive income is established. Usually this is the ex‐dividend date for equity securities.
Dividendsarepresentedasacomponentofnetfinancialincome.
AspartofitsinsuranceoperationstheGroup'sentitiesissuecontractsthattransfer
insuranceriskfromthecustomerstotheGroup.
Insurance contracts are contracts under which the insurer accepts insurance risk from policyholders by agreeing to compensate the
policyholdersifaspecifieduncertainfutureeventwouldoccur.
ConsolidatedFinancialStatements31December2021 65
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
84. Employeebenefits
a. Short‐termemployeebenefits
b. Definedcontributionplans
c. Share‐ba sedpayments
85. Incometax
86. Financialassetsandfinancialliabilities
a. Recognition
b. Classifi cation
Financialassets
Financialassetsatamortisedcos
t
Current tax liabilities include the estimated tax payable next year on current year's profit according to the tax rates prevailing at reporting date,
inadditiontocorrectionsontaxfrompreviousyears.
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are
originated. All other financial assets and liabilities are initially recognised on the trade date, which is the date when the Group becomes a party
tothecontractualprovisionsoftheinstrument.
The deferred income tax asset and/or liability has been calculated and recognised in the statement of financial position. The calculation is based
on the difference between assets and liabilities as presented in the tax return on the one hand, and in the consolidated financial statements on
the other, taking into consideration tax losses carried forward. This difference is due to the f act that the tax assessment is based on premises
that differ from those governing the financial statements, mostly due to temporary differences arising from the recognition of revenue and
expenseinthetaxreturnsandinthefinancialstatements.
Deferred tax assets and tax liabilities are offset in the statement of financial position when there is a legal right to settle on a net basis and they
areleviedbythesametaxingauthorityonthesameentityorondifferententitiessubjecttojointtaxation.
Short‐term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability
is recognised for the amount expected to be paid under short‐term cash bonus or profit‐sharing plans if the Group has a present legal or
constructiveobligation
topaythisamountasaresultofpastserviceprovidedbytheemployeeandtheobligationcanbeestimatedreliably.
The Group's financial assets are classified into one of three measurement categories, i.e. i) at amortised cost, ii) at fair value through other
comprehensive income or iii) at fair value through profit or loss. The measurement basis of individual financial assets is determined based on an
assessmentofthecashflowcharacteristicsoftheassetsandthebusinessmodelsunderwhichtheyaremanaged.
Impairment on financial assets measured at amortised cost is calculated u sing the expected credit loss approach. Loans and debt securities
measuredatamortisedcostarepresentednetofallowanceforcredit
lossesintheConsolidatedStatementofFinancialPosition.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax
benefitwillberealised.
A financial asset is measured at amortised cost if the contractual terms of the financial asset give rise to cash flows that are solely payment of
principal and interest and the asset is held within a business model whose objective is to collect contractual cash flows, i.e. Held to collect. After
initial measurement, financial assets in this category are carried at amortised cost using the effective interest rate method. Amortisation is
included in interest income in the Consolidated Income Statement. The majority of the Group's loans to customers are carried at amortised cost
usingtheeffectiveinterestratemethod.Interestonloanstocustomersisrecognisedasinterestincome.
Obligations for contributions to defined contribution plans are expensed in profit or loss as the related service is provided. The Group has no
furtherobligationsoncethosecontributionshavebeenpaid.
Equity‐settled share‐based p ayments to employees are measured at the fair value of the equity instruments at grant date. The grant date fair
value of equity‐settled share‐based payment awards granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is
adjusted to reflect the number of awards for which the related service and non‐market performance conditions are expected to be met, such
that the amount ultimately recognised as an expense is b ased on the number of awards that meet the related service and non‐market
performanceconditionsatthevestingdate.
Income tax comprises current and deferred tax. Income tax is recognised in the income statement, except to the extent that it relates to items
recognised
directlyinothercomprehensiveincomeorequity,inwhichcaseitisrecognisedthere.
ConsolidatedFinancialStatements31December2021 66
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
86. Financialassetsandfinancialliabilities(cont.)
Financialassetsatfairvaluethroughothercomprehensiveincome(FVOCI)
Financialassetsatfairvaluethroughprofitorloss(FVTPL)
Businessmodelassessmen
t
‐
‐
‐
‐
‐
Cashflowcharacteristicsassessmen
t
Reclassifications
Financialliabilities
Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at fair value
through profit or loss because they are neither held to collect contractualcashflowsnorheldtobothcollectcontractualcashflowsandtosell
financialassets.
Financial assets held within the business models Held to collect and Held to collect and sell are assessed to evaluate if their contractual cash
flows are comprised of solely payments of principal and interest (SPPI). SPPI payments are those which are consistent with a basic lending
arrangement. Principal is the fair value of the financial asset at initial recognition and may change over the life of the instruments, e.g. due to
repayments. Interest relates to basic lending returns, including compensation for the time value of money and credit risk associated with the
principal amount outstanding and for other basic lending risks (expected losses, liquidity risks and administrative costs), as well as a profit
margin.
the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks
aremanaged;
how managers of the business are compensated ‐ e.g. whether compensation is based on the fair value of the assets managed or the
contractualcashflowscollected;and
the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity.
However, information about sales activity is n ot considered in isolation, but as part of an overall assessment of how the Group's stated
objectiveformanagingthefinancialassetsisachievedandhowcashflowsarerealised.
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model and if
thechangeissignificanttotheGroup'soperations.
The Group's financial liabilities are classified into one of two measurement categories, i.e. at amortised cost or at fair value through profit or
loss. Financial liabilities held for trading are measured at fair value through profit or loss, all other financial liabilities are measured at amortised
cost. Financial liabilities measured at amortised cost are initially recognised at fair value, which is typically equal to cost, i.e. cash advanced less
any transaction costs. They are subsequently measured at amortised cost using the effective interest method. Accrued interest, in the case of
interestbearingliabilitiesisincludedinthecarryingamount.Interestexpenseisrecognised
innetinterestincome.
The Group makes an assessment of the objective of a business model in which an asset i s h eld at a portfolio level because this best reflects the
waythebusinessismanagedandinformationisprovidedtomanagement.Theinformationconsideredincludes:
the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's
strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial
assetstothedurationoftheliabilitiesthatarefundingthoseassetsorrealisingcashflowsthroughthesaleoftheassets;
howtheperformanceoftheportfolioisevaluatedandreported
totheGroup'smanagement;
Financial assets at fair value through profit or loss are measured in the Consolidated Statement of Financial Position at fair value. Loans to
customers which are measured at fair value through profit or loss are assets whose cash flows do no represent payments that are solely
payments of principal and interest but are non ‐trading assets. Interest on loans to customers measured at fair value through profit or loss is
recognised as interest income. Changes in fair value, as well as any gains or losses realised on disposal, are recognised in the line item Net
financialincome(expense)intheConsolidatedIncomeStatement.
Fixed income securities may be classified as financial instruments measured at fair value through other comprehensive income ("FVOCI") when
they meet the classification criteria. Interest income is calculated using the effective interest rate. Interest income and foreign exchange gains or
losses are recognised in the Consolidated Statement o f Comprehensive Income. Fixed income securities classified as FVOCI are subject to
impairment measurement using the expected credit loss approach. Fair value measurements are recognised in Other Comprehensive Income
while on derecognition, cumulative gains (losses) recognised in Other Comprehensive Income are reclassified to the Consolidated Statement of
Income.
Financial assets classified at fair value through profit or loss are all other financial assets which are not classified at amortised cost or at fair
value through other comprehensive income. This includes financial assets classified mandatorily at fair value through profit or loss and financial
assets which are irrevocably designated by the Group at initial recognition as at fair value through profit or loss that would otherwise meet the
requirements to be measured at amortised cost or at fair value through other comprehensive income. The Group may designate f inancial assets
asatfairvaluethroughprofitorlossifdoingsoeliminatesorsignificantlyreducesanaccountingmismatchthatwouldotherwisearise.
Where the contractual terms introduce exposure to other risk or variability of cash flows that are inconsistent with a basic lending arrangement,
therelatedfinancialassetisclassifiedandmeasuredat
fairvaluethroughprofitorloss.
ConsolidatedFinancialStatements31December2021 67
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
86. Financialassetsandfinancialliabilities(cont.)
Derecognition
Financialassets
Financialliabilities
87. Offsetting
88. Determinationoffairvalue
89. Impairment
ExpectedCreditLoss
‐
‐
‐
‐
‐
‐
1.
2.
3.
TheGrouprecogniseslossallowancesforECLonthefollowingfinancialinstrumentsthatarenotmeasuredatFVTPL:
debtinstrumentsmeasuredatamortisedcost;
TheGroupmeasurestheECLoneachbalancesheet
dateaccordingtoathree‐stageexpectedcreditlossimpairmentmodel.
Stage 2 covers financial assets that have deteriorated significantly in credit quality since initial recognition (unless the low credit risk
simplificationhasbeenappliedandisrelevant)butthatdonothaveobjectiveevidenceofacreditlossevent.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or
substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not
derecognised.Examplesofsuchtransactionsaresecuritieslendingandsaleandrepurchaseagreements.
Financialliabilitiesarederecognisedwhentheobligation
oftheGroupisdischarged,cancelledorexpires.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair
value of a liability reflects its non‐performance risk. When available, the Group measures the fair value of an instrument using the quoted p rice
in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency
andvolumetoprovidepricinginformationonanongoingbasis.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the
consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair
value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses
only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the
fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis
over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed
out.
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability
simultaneously.
Income and expenses are presented on a net basis for gains and losses arising from a group of similar transactions, such as in the Group's
tradingactivity,orothercircumstancespermittedbyInternationalFinancialReportingStandards.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs
and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take
intoaccountinpricingatransaction.Forfurtherinformationonvaluationtechniques,refertonotes65‐67.
Thegeneral
approach
A financial asset is derecognised when the contractual rights to the cash flows from the asset expire, or when the Group enters into a
transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred
financialassetsthatiscreatedorretainedbytheGroupisrecognisedasaseparateassetorliability.
contractassets;
loancommitmentsissued;and
financialguaranteecontractsissued.
For trade receivables and contract assets without a significant financing component a simplified (lifetime expected loss) approach can be
applied.
Forassetsthatarecredit‐impairedatpurchaseororiginationlifetimeexpectedlossapproachshallbeapplied.
Forotherassets/exposuresageneral(or
three‐stage)approachshallbeapplied.
The Group estimates an ECL for each of these types of assets or exposures. However, IFRS 9 specifies three different approaches depending on
thetypeofassetorexposure:
debtinstrumentsmeasuredatfairvaluethroughothercomprehensiveincome;
financeleasereceivablesmeasuredatamortisedcost;
Stage 1 covers financial assets that have not deteriorated significantly in credit quality since initial recognition or (where the optional low credit
risksimplificationisapplied)havelowcreditrisk.
Stage3coversfinancialassetsthathaveobjectiveevidenceofacreditlossevent
atthereportingdate.
ConsolidatedFinancialStatements31December2021 68
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Notes to the Consolidated Financial Statements
74
89. Impairment(cont.)
‐
‐
‐
‐
‐
‐
‐
the borrower is considered to be unlikely to pay as determined by the Bank's Risk Management department. Events that are likely to lead to
defaultasdeterminedbytheRiskManagementdepartmentincludethefollowing:
‐breachofcovenantsofloancommitments;
‐loanconcessionsorstressedrestructuring;or
‐RiskManagement'sinternalriskassessmentis4or5.
theborrowerhasbeenindefaultinaccordancewithaboveatanypoint
forthepreviousthreemonths.
12‐month expected credit losses are a portion of the lifetime expected credit losses. They are calculated by multiplying the probability of a
default occurring on the instrument in the next 12 months by the total (lifetime) expected credit losses that would result from that default. They
are not the expected cash shortfalls over the next 12 months. They are also not the credit losses on financial instruments that are forecast to
actuallydefaultinthenext12months.
Expectedcreditlosses
12monthexpectedcreditlosses
Lifetimeexpectedcreditlosses
theborroweris90dayspastdueofoneofhisexposureswiththeBank;
theborrowerisregisteredasindelinquencybyCreditinfo(Icelandic:vanskilaskrá);
theborroweris
registeredinpublicrecordsasfiledforbankruptcy,hasterminatedhisbusinessorisnolongeragoingconcern;
thereasonforreporteddefaulttriggersisknowntotheBankandnotconsideredtobelackofwillingnessorabilitytopay.
Definitionofdefault
TheGroupconsidersafinancialassetto
beindefaultifoneofthefollowingapplies:
Expected credit losses are defined as the difference between all the contractual cash f lows that are due to an entity and the cash flows that it
actually expects to receive (‘cash shortfalls’). This differenceisdiscountedattheoriginaleffectiveinterestrate(orcredit‐adjusted effective
interestrateforpurchasedororiginatedcredit‐impairedfinancialassets).
Lifetime expected credit losses are the expected shortfalls in contractual cash flows, taking into account the potential for default at any point
duringthelifeofthefinancialinstrument.
re‐financingofborrower’sexposuresisexpectedandhasbeenconfirmed.
12‐month expected credit losses are recognised in stage 1, while lifetime expected credit losses are recognised in stages 2 and 3. IFRS 9 draws a
distinction between financial instruments that have not deteriorated significantly in credit quality since initial recognition and those that have.
Measurement of the expected credit losses is determined by a probability‐weighted estimate of credit losses over the expected life of the
financialinstrument.
An asset moves from 12‐month expected credit losses to lifetime expected credit losses when there has been a significant deterioration in credit
quality since initial recognition. Hence the ‘boundary’ between 12‐month and lifetime losses is based on the change in credit risk not the
absolutelevelofrisk
atthereportingdate.
There is also an important operational simplification that permits companies to stay in ‘12‐month expected credit losses’ if the absolute level of
creditriskis‘low’.Thisappliesevenifthelevelofcreditriskhasincreasedsignificantly.
There is also a third stage. This applies to assets for which there is objective evidence of impairment. In Stage 3 the credit loss allowance is still
basedonlifetimeexpectedlossesbutthecalculationofinterestincomeisdifferent.
In the periods subsequent to initial recognition, interest is calculated based on the amortised cost net of the loss provision, whereas the
calculationisbasedonthegrosscarryingvalueinStages1and2.
Finally, it is possible for an instrument for which lifetime expected credit losses have been recognised to revert to 12‐month expected credit
losses should the credit risk of the instrument subsequently improve so that the requirement for recognising lifetime expected credit losses is no
longermet.
The
RiskManagementdepartmentcanmanuallyoverrideautomaticdefaulttriggersifthefollowingapplies:
ConsolidatedFinancialStatements31December2021 69
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
89. Impairment(cont.)
1.
2.
Originationgrade
1
2
3
4
5
6
7
8
9
Probabilityofdefaultandcreditriskrating
Significantincreaseincreditrisk
The Group utilises an external Probability of Default model (PD model) developed and maintained by Creditinfo Iceland, an Icelandic credit
bureau, for the Group. The PD model is based on information compiled b y Creditinfo on the creditworthiness of corporates and individuals in
Iceland based both on personal and demographic factors. It predicts the probability of default in the next 12 months. The model has been
calibrated to using historical default rate information representative of the Group's portfolio. The model is designed as a point in time model
and correlation between forecasted and actual default rates a nd macroeconomic forecasts has been identified. This enables the Group to
calculate different forward looking probabilities of default given different forecasts for changes in inflation rate and unemployment rate.
LifetimePDforloansinstage3is100%asbydefinitiontheyarealreadyindefault.
7
8
8
9
10
QuantitativeSICRassessment
Thresholdgrade
7
7
7
7
The Group utilises an economic forecast and the current 12 month PD for the purpose of estimating lifetime PD for loans in stage 2. The 12
month PD is adjusted with a survival rate for each year until maturity with the following formula: PD
t
=PD
12
*SR
t
where PD
12
is the 12 month PD
from the credit rating model and SR
t
is the survival rate at time t, which is calculated recursively as SR
t
=SR
t‐1
*(1‐PD
t
). The Group monitors the
appropriatenessoftheassumptionasapartofit’syearlyvalidationandmonitoringprocess.
When considering whether a significant increase in credit risk (SICR) has occurred the Group considers both quantitative and qualitative factors.
In general the Group will rely on a quantitative analysis based on the PD model but will additionally consider qualitative factors based on the
informationavailabletotheGroup.
TheGrouphasdefinedthefollowingcriteria’sforSICR:
Migration of one or two risk grading in the PD model is considered to be a significant increase in risk and therefore warrant a transfer to stage 2,
depending on the origination grade. However, the Group considers risk grades less than 5 for corporations to be low risk and therefore excludes
any movement between categories that does not result in a rating above that level. Ratings above 10 are considered to indicative of default and
thereforewarrantelevationtostage3unlessoverriddenbasedonotheravailableinformationorexpertjudgement.
Risk Management is responsible for managing the credit risk of the Group which includes a qualitative SICR assessment. Risk Management
reviewsonamonthlybasis
largeexposures,unsecuredloansandloansthatarepastdueonaloanbyloanbasis.
30dayspastdueofanyoftheclient'sexposures
Grading migrations – SICR has occurred if the current grade has increased compared to the origination grade more or equal to the following
thresholds:
QualitativeSICRassessment
ConsolidatedFinancialStatements31December2021 70
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Notes to the Consolidated Financial Statements
74
89. Impairment(cont.)
Forwardlookingprobabilityweightedscenarios
90. CashandbalanceswithCentralBank
91. Fixedincomesecurities
92. Sharesandothervariableincomesecurities
93. Securitiesusedforhedging
Lifetimedefinition
Committedfacilities
Shares and other variable income securities consist of equity investments and unit shares in mutual funds. Shares and other variable income
securitiesareinitiallymeasuredatfairvalueandsubsequentlyaccountedfordependingontheirclassifica tionasdiscussedinnote86.
Securities used for hedging consist of non‐derivative financial assets that are used to hedge the Group's exposure arising from derivative
contractswithcustomers.
Securitiesusedforhedgingaremeasuredatfairvalueasdiscussedinnote86.
Fixed income securities are initially measured at fair value and subsequently accounted for d epending on their classification as discussed in note
86.
IFRS 9 requires the Group to determine an expected credit loss (ECL) amount on a probability‐weighted basis as the difference between the cash
flows that are due to the Group in accordance with the contractual terms of a financial instrument and the cash flows that the Group expects to
receive. The Group has implemented an ECL model which is consistent with regulatory and best practices. The model is based on four
components.
Probability of Default (PD). This is an estimate of the likelihood of default over a given time horizon. The Bank uses an external PD model
developedbyCreditInfofortheGroup.
Exposure at Default (EAD). This is an estimate of the exposure at a future date, taking into account expected changes in the exposure after the
reportingdate,includingrepaymentsofprincipalandinterest,andexpecteddrawdownsoncommittedfacilities.
Loss Given Default (LGD). This is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due
and those that the lender would expect to receive, including from any collateral. It is expressed as a percentage of EAD and derived from value
ofunderlyingcollaterals.
Discount rate. This is used to discount an expected loss to present value at the reporting date using the effective interest rate (EIR) at initial
recognition.
The Group's management has identified and probability weighted two macro‐economic scenarios for the purpose of calculating expected credit
loss. Forecasts of macro‐economic variables and scenario weights are based on the Group‘s management judgement. The Group incorporates
the following forward‐looking macro‐ economic variables into its probability weighted expected credit loss calculations: (i) unemployment rate
and(ii)
inflationrate.
CashandbalanceswithCentralBankarecarriedatamortisedcostinthestatementoffinancialposition.
Cash and balances with Central Bank include notes and coins on hand, balances held with the Central Bank and other financial institutions, and
highly liquid financial assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of
changesintheirfairvalue,andareusedbytheGroupinthemanagementofitsshort‐termcommitments.
Expectedcreditlossmeasurement
The Group considers the lifetime of each exposure to be the contractual maturity of each loan. The Group considers this to be the case as any
lending subsequent to that period would be based on an independent lending decision at that time based on the prevailing market terms. The
Group only considers contractual cash flows when estimating exposure at default. The average lifetime of the Group's exposures is relatively
shortanditdoesthereforenotconsiderthe
likelihoodofprepaymentwhenconcludingonthelifetimeoftheassets.
The Group considers the off‐balance portion of exposure at default to be 50% (credit conversion factor) of any facilities not drawn upon that are
considered committed. Such facilities include overdrafts, credit cards and guarantees. The credit conversion factor is subject to expert review on
a case by case basis. The Bank does not consider credit line facilities to be committed facilities as disbursements are subject to predetermined
conditions and constitute a separate credit review. These predetermined conditions will in most cases lead directly to an increase in posted
collateralanddisbursementsthereforestaywithinacceptablecollateralcoverage.
Exposureatdefault
ConsolidatedFinancialStatements31December2021 71
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Notes to the Consolidated Financial Statements
74
94. Loanstocustomers
95. Derivatives
‐
‐
‐
96. Investmentsinassociates
97. Investmentproperties
Derivative assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position.
Derivatives with positive fair values are classified as financial assets and derivatives with negative fair values as financial liabilities. Revenue
from derivatives is split into interest income and net income from financial instruments at fair value and presented in the corresponding line
itemsintheincomestatement.
Loans a re non‐derivative financial assets with fixed or determinable payments that are not quoted in an active market and include loans
provided by the Group to its customers, participation in loans from other lenders and purchased loans that are not quoted in an active market
and which the Group has no intention of selling immediately or in the near future. Finance lease receivables are a part of the line item Loans to
Customers.
Loans are initially recognised at fair value, which is the cash advanced, plus any transaction costs. Subsequently, they are measured at amortised
cost using the effective interest method. Accrued interest is included in the carrying amount of the loans and advances. The carrying amount of
impairedloansisreducedthroughtheuseofanallowanceaccount.
When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset, or a substantially similar asset, at a
fixed price at a f uture date ("reverse repo" or "stock b orrowing"), the arrangement is accounted for as a loan and the underlying asset is not
recognisedintheGroup'sstatementoffinancialposition.
A derivative is a financial instrument or another contract that falls under the scope of IFRS 9 and generally has the following three
characteristics:
Its value changes due to changes in an underlying variable, such as bond price, share price, security or price index (including CPI), foreign
currencyexchangerateorinterestrate
The contract requires no initial investment or an initial investment that is smaller than would be required for other types of contracts that
wouldbeexpectedtohaveasimilar
responsetochangesinmarketfactors
Settlementtakesplaceatafuturedate
The Group uses derivatives for trading purposes and to hedge its exposure to market price risk, foreign exchange risk and inflation and interest
riskarisingfromoperating,financingandinvestingactivities.TheGroupdoesnotapplyhedgeaccounting.
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant
influence generally exists when the Group holds between 20% and 50% of the voting power, including potential voting rights, if any. Investments
inassociatesareinitiallyrecognisedatcost.
If the Group's share of loss exceeds its interest in an associate, the Group's carrying amount is reduced to zero and recognition of further losses
is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
If the associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals
theshareoflossesnotrecognised.
The Group's share of the total recognised gains and losses of associates is included in the financial statements of the Group on an equity
accountedbasis,fromthedatethesignificantinfluencecommencesuntil
thedateitceases.
An investment property is an asset which is specified for leasing to third parties, for returns or for both purposes. Investment properties are
initially recognised at cost and subsequently measured at fair value. Changes in fair value are recognised as gains or loss in the income
statement.
ConsolidatedFinancialStatements31December2021 72
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
98. Intangibleassets
a.
‐
‐
‐
‐
b.
c.
d.
13‐16years
10‐20years
3‐10years
99. Operatingleaseassets
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the
estimated future cash flows, discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time
valueofmoneyandtherisksspecifictotheassetorCGU.
AnimpairmentlossisrecognisedifthecarryingamountofanassetorCGUexceedsitsrecoverableamount.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU,
andthen
toreducethecarryingamountsoftheotherassetsintheCGUonaproratabasis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would h ave been determined, net of depreciation or amortisation, if no impairment
losshadbeenrecognised.
Assetcategories
TheGroupgroupsintangibleassetsintofourcategories:
Softwareandother
Customerrelationships
Customer relationships have been acquired as part of recent acquistions and are capitalised and amortised using the straight line method
overtheirusefullifeofmaximum16years.
Brands
Brands have been acquired as part of recent acquistions and are capitalised and a mortised using the straight line method over their useful
life,butnotexceeding20years.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is
largely independent of the cash inflows of other assets or cash generating units (CGUs). Goodwill arising from a business combination is
allocated
toCGUsorgroupsofCGUsthatareexpectedtobenefitfromthesynergiesofthecombination.
TheGrouphasnotdefinedanyinternallygeneratedintangibleassets.
Amortisation
Intangible assets with finite useful life are amortised using the straight‐line method over their estimated useful economic life, with the
amortisationrecognisedintheincomestatement.Theestimatedusefullifeofintangibleassetsisasfollows:
Softwareandother.....................................................................................................................................................................................
Depreciation of property and equipment and amortisation of intangible assets are presented together as a separate line item in administrative
expensesas
disclosedinnote10.Furtherbreakdownondepreciationofintangibleassetsisprovidedinnote28.
Softwarecompriseacquiredsoftwarelicencesandexternalcostsassociatedwiththedevelopmentofbespokeapplications.
Goodwill
Goodwill arises in business combinations. It is recognised as of the acquisition date and measured as the aggregate of (a) the fair value of the
consideration transferred, (b) the recognised amount of any non‐controlling interest in the acquiree, and (c) the fair value of any previously
held equity interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities
assumed, all measured as at the acquisition date. The consideration transferred includes the fair value of assets transferred, liabilities
incurred and equity interests issued by the Group. In addition, consideration transferred includes the fair value of any contingent
consideration.
Initialrecognition
The Group uses the cost model for measurement after recognition and intangible assets are carried at cost less any accumulated amortisation
and any accumulated impairment losses. Intangible assets are reviewed for indications of impairment or changes in estimated future economic
benefits at each reporting date. If such indications exist, then the asset's recoverable amount is estimated. Goodwill is tested annually for
impairment.
Intangibleassetsareinitiallyrecognisedatcost.
Subsequentmeasurement
Customerrelationships...............................................................................................................................................................................
Brands.........................................................................................................................................................................................................
Operating lease assets are recognised at cost less depreciation and impairment. Depreciation are calculated and recognised in the income
statementonastraight‐linebasi s ba sedonestimatedusefullife,takingintoaccounttheresidualvalue.
ConsolidatedFinancialStatements31December2021 73
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Notes to the Consolidated Financial Statements
74
100. Propertyandequipment
a.
‐
‐
b.
c.
d.
e.
15‐50years
3‐5years
101. Reinsuranceassets
102. Otherassets
103. Deposits
104. Technicalprovision
‐
‐
‐
Assetcategories
Reinsurance contracts are made in order to reduce the Group's risks. Reinsurance contracts can be either proportional or carry risk exceeding a
fixedamount.
Initialrecognition
Propertyandequipmentisinitiallyrecognisedatcost,whichincludesdirectexpensesrelatedtothepurchase.
Subsequentmeasurement
The Group uses the cost model for the measurement after recognition and property and equipment is carried at cost less any accumulated
depreciation and any accumulated impairment losses. Property and equipment is reviewed for indications of impairment or changes in
estimated future economic benefits at each reporting date. If such indications exist, the assets are analysed to assess whether their carrying
amountisfullyrecoverable.
Subsequentcost
The premium provision is the part of the premiums already written that cover insurance protection against events happening after the date of
the financial statements, taking into account expected cancellation of premiums. The premium provision is therefore the value of the insurance
protectionthattheGroup
isobligatedtofulfilafterthedateofthefinancialstatements.
The risk margin represents the cost of capital that an insurance company would require to take on the obligations of the company. The risk
marginwillnotbepaidunlesstheGrouporpartofitwillbesold.
The insurance companies of the Group have used the same method to estimate claims provision since 2014. The method is in accordance with
IFRS 4 and Act on Insurance No. 100/2016. The claims provision is the same as used in the Solvency calculations, but the estimates of the
premiumprovisionandriskmarginarenot.
Wherepartsofanitemofpropertyandequipmenthavedifferentusefullives,thosecomponentsareaccountedfor
separately.
Part of other a ssets are life‐insurance policies offered by TM líftryggingar hf. which consist of life‐insurance and contribution to investments
funds.Life‐insurancepolicyholderbearstheinvestmentrisk.
The technical provision in the Consolidated Financial Statements represents the Group's liability as a result of insurance contracts made and
consistsofthebestestimateoftheclaimsprovision,thepremiumprovisionandtheriskmargin.
The core of the claims provisions is an actuarial estimate of payments of incurred claims until they will be settled less what has already been
paid. According to Act on Insurance No. 100/2016 and related legislation, margins are added to the core of the claim’s provision. The margins
are:
Expectedsettlementexpensesnotallocatedtospecificclaims.Thiscostisrecognizedamongoperatingexpenseswhenitisdue.
Theeffectoffuture
inflationfromthedateofaccountstopayment.
Theeffectofdiscountingthefuturepaymentsusingarisk‐freeinterestratecurve.
Otherassetsaremeasuredatamortisedcost,exceptforcertainreceivableswhicharemeasuredatfairvalue.
Deposits consist of time deposits and demand deposits. Money market deposits are included in borrowings. Deposits are recognised at
amortisedcost,includingaccruedinterest.
TheGroupgroupstangibleassetsintotwocategories:
Realestate,whichincludesofficeandresidentialbuildings,landandbuildingrights
Otherpropertyandequipment,whichincludesautomobilesforownuse,furnitureandfixtures,computersandotherofficeequipment
The Group recognises in the carrying amount of an item of property and equipment the cost of replacing part of such an item when that cost is
incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be
measured reliably. The decision, if subsequent costs are added to the acquisition cost of property and equipment, is based on whether an
identified component, or part of such component, has been replaced or not, or if the nature of the subsequent cost means a contribution of a
newcomponent.Allothercostsareexpensedintheincomestatementwhenincurred.
Depreciation
Depreciation is recognised in the income statement on a straight‐line basis over the estimated useful lives of each component of an item of
propertyandequipment.Theestimatedusefullives
areasfollows:
Realestate..................................................................................................................................................................................................
Otherpropertyandequipment..................................................................................................................................................................
ConsolidatedFinancialStatements31December2021 74
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Notes to the Consolidated Financial Statements
74
105. Borrowings
106. Issuedbills
107. Issuedbonds
108. Subordinatedliabilities
109. Shortpositionsheldfortrading
110. Shortpositionsusedforhedging
111. Otherliabilities
112. Rightofuseassetandleaseliability
113. Financialguarantees
114. Sharecapital
a. Treasuryshares
b. Sharepremium
c. Dividendsonsharecapital
Issued bonds are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using
theeffectiveinterestmethod.Accruedinterestisincludedintheircarryingamount.
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a
specifieddebtorfailstomakepayment
whendueinaccordancewiththetermsofadebtinstrument.
Financial guarantee liabilities are initially recognised at their f air value. The guarantee liability is subsequently measured at the higher of the loss
allowance determined in accordance with IFRS 9 and the amount initially recognised less, when appropriate, the cumulative amount of income
recognisedinaccordancewiththeprinciplesofIFRS15.Liabilitiesarisingfromfinancialguaranteesareincludedwithprovisions.
Borrowings are mostly comprised of money market deposits. They are initially recognised at fair value less attributable transaction costs.
Subsequently,theyaremeasuredatamortisedcostusingtheeffectiveinterestmethod.Accruedinterestisincludedintheircarryingamount.
When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset, or a substantially similar asset, at a
fixed price at a f uture date ("repo" or "stock lending"), the arrangement is accounted for as a borrowing and the underlying asset continues to
berecognisedintheGroup’sstatementoffinancialposition.
Short positions are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short positions are
carriedatfairvaluethroughprofitorlosswithallfairvaluechangesrecognisedintheincomestatementundernetfinancialincome.
Short positions used for hedging are obligations of the Group to deliver financial assets borrowed b y the Group and sold to third parties. Short
positions u sed for hedging con si st of non‐derivative financial liabilities that are used to hedge the Group's risk exposure arising from derivative
contracts with customers. Short positions used for hedging are carried at fair value through profit or loss with all fair value changes recognised in
theincomestatementundernetfinancialincome.
Otherliabilitiesaremeasuredatamortisedcost,exceptforthecontingent
considerationwhichismeasuredatfairvalue.
Acquired own shares and other equity instruments (treasury shares) are deducted from equity. No gain or loss is recognised in income
statement on the purchase, sale, issue or cancellation of treasury shares. Consideration paid or received is recognised directly in equity.
Incrementaltransactioncostsoftreasurysharetransactionsareaccountedforasadeductionfromequity,netofanyrelatedincometaxbenefit.
Sharepremiumrepresentsexcessofpaymentabovenominalvalue(ISK1pershare)thatshareholdershavepaidforsharessoldbythe
Group.
DividendsonsharecapitalaredeductedfromequityintheperiodinwhichtheyareapprovedbytheGroup'sshareholdersmeetings.
Subordinated liabilities are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised
costusingtheeffectiveinterestmethod.Accruedinterestisincludedintheircarryingamount.
Issued bills are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using the
effectiveinterestmethod.Accruedinterestisincludedintheircarryingamount.
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right‐of‐use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short‐term leases and leases of low value
assets. For these leases, the Group recognises the lease payments as an operating expense on a straight‐line basis over the term of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by
using the Group's incremental borrowing rate. The right‐of‐use assets comprise the initial measurement of the corresponding lease liability.
Theyaresubsequentlymeasuredatcostlessaccumulateddepreciation.
ConsolidatedFinancialStatements31December2021 75
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
115. Natureandpurposeofequityreserves
a. Optionreserve
b. Warrantsreserve
c. Deficitreductionreserve
d. Translationreserve
e. Restrictedretainedearnings
f. Retainedearnings‐accumulateddeficit
116. Earningspershare
117. Newstandardsandinterpretations
A number of new standards, amendments to standards and interpretations were not yet effective for the year ended 31 December 2021 and
havenotbeenappliedinthepreparationofthesefinancialstatements.Earlyadoptionofnewstandardsandamendmentsisnotplanned.
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations,
untiltheoperationsare
sold,dissolvedorabandoned.
Retainedearnings(accumulateddeficitifnegative)consistsofundistributedprofitsandlossesaccumulated,lesstransferstootherreserves.
According to the Financial Statements Act No. 3/2006 the difference between share of profit of subsidiary or associate in excess of dividend
payment or dividend p ayment pending, shall be transferred to a restricted retained earnings reserve, net of tax, which is not subject to dividend
payments. When shareholding in subsidiary or associate is sold or written off the restricted retained earnings reserve shall be released and the
amounttransferredtoretainedearnings.
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
that is attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential
ordinaryshares,whichcompriseshareoptionsgrantedtoemployeesandissuedwarrants.
IFRS17InsuranceContractshasbeenissuedbutwillnottakeeffect
until1January2023.TheGrouphasnotassessedtheimpactofIFRS17.
The option reserve represents the cumulative charge to the income statement for options to purchase shares in the Bank granted under the
Bank'sRemunerationpolicy,whichisdiscussedinnotes70‐72.
Thewarrantsreserverepresentstheconsiderationreceivedforoutstandingwarrants,asdisclosedinnote42.
The d eficit reduction reserve was created as a part of a share capital reduction approved by the Bank's Annual General Meeting in April 2014.
Thereservehasnospecifiedpurposeandcanonlybeusedwith
theapprovalofashareholders'meeting.
ConsolidatedFinancialStatements31December2021 76
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
74
118. Useofestimatesandjudgements
a.
b.
c.
d.
e.
Judgement is required to determine the extent to which deferred tax assets are recognised in the statement of financial position, based on the
likelytimingandleveloffuturetaxableprofits.
Fairvalueoffinancialinstruments
The fair value of financial instruments that are not quoted in active markets is determined using valuation techniques which are reviewed
regularlyasdiscussedinnote65.
The areas where the use of judgements and estimates has the most significant effect on the amounts recognised in the statement of financial
positionortheincomestatementaredisclosedinthisnote.
Impairmentoffinancialassets
As outlined in note 89, the use of estimates and judgement is an important component of the calculation of impairment losses. The
methodology and assumptions used for estimating both the a mount and timing of future cash flows are reviewed regularly to reduce any
differences between loss estimates and actual loss experience. Unforeseen events could, however, result in further impairment losses which
wouldhaveamaterialeffectontheincomestatementand
statementoffinancialposition.
Deferredtaxassets
In the process of applying the Group's accounting policies, management makes use of judgements and estimates which are based on various
assumptions.Thesejudgementsandestimatescanaffectthereportedamountsofassetsandliabilities,incomeandexpense.
Assumptions and estimates are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances, and are reviewed on an on‐going basis. The estimates form the basis for judgements about the carrying
value of assets and liabilities that are not readily available from other sources and actual results may differ. Judgement may also be required in
circumstancesnotinvolvingestimates,e.g.whendeterminingthesubstanceofaparticulartransaction,contractorrelationship.
Impairmentofintangibleassets
The carrying amount of intangible assets are reviewed annually to determine whether there is indication of impairment as disclosed in note 98.
If any such indication exists the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset
exceedsitsrecoverableamount.
Finalliabilitiesfrom
claims
The estimation of the expected final liability arising from claims made under insurance contracts is one of the Group's most critical accounting
estimate. There are several sources of uncertainty that need to be considered in the estimation of the ultimate liability. The main uncertainty is
in the assessment of damages of reported claims as well as assessment of unreported claims. The Group uses standard actuarial claims
projection techniques to estimate the ultimate claim cost. Risk related to life insurance, especially accident insurance, depends on many factors
thatcanmakethesensitivityanalysisdifficult.Referenceismadetonote33andnote104forfurtherinformation.
ConsolidatedFinancialStatements31December2021 77
78
Appendixes:
1. StatementontheCorporate
GovernanceofKvikabankihf.2021
2. Non‐FinancialInformation
regardingKvikabankihf.
Unaudited
Kvikabankihf. AmountsareinISKthousands
StatementontheCorporateGovernanceofKvikabankihf.2021
0
Insurance operations are operated through its subsidiary, TM Insurance, which has a rich history and over 60 years of experience. TM Insurance offers
a universal and highly diversified product offering to commercial and private customers and its main insurance categories include Motor, Property,
Marine, Liability, Accident and Life insurance. TM Insurance operates in accordance with Act no. 100/2016 on Insurance activities and is licensed in the
EuropeanEconomicAreaandintheFaroeIslands.
Businessstrategyandvalues
Kvika banki hf. (hereinafter referred to as “Kvika” or the “Company”) is a financial conglomerate based on four main pillars in the fields of insurance,
asset management, commercial banking and investment banking. Kvika’s purpose is to increase competition and simplify customers’ finances by
utilizing infrastructure and financial strength. Kvika’s vision is to transform financial services in Iceland with mutual benefits in mind. On that journey,
Kvika is guided by three values that contribute to the development of robust business relationships, long‐term results, and active innovation. Kvika’s
values are long‐term thinking, simplicity, and courage. In accordance with those values the Company places emphasis on thinking of the future and
contributing to a sustainable community through active participation. Emphasis is placed on putting ourselves in the customers’ shoes, rethinking
thingsandselectingprojectsthatprovidethemostlongtermvalueforcustomersandtheCompany.
Furthermore, Kvika is categorized by the Financial Supervisory Authority as a financial conglomerate and offers a wide range of financial and insurance
services through key subsidiaries such as Kvika eignastýring hf. (hereinafter referred to as “KES”) and TM tryggingar hf. (hereinafter referred to as“TM
Insurance”). Based on robust infrastructure and exceptional talent, Kvika as a financial conglomerate, generates income through four main business
segments.
Commercial Banking, which can be divided into three main areas of operation. The Banking division finances enterprises and the investments of
Kvika’s clients. Banking also utilises the Company’s infrastructure and network to broker loans to other institutional investors. Deposit and fintech
operations are mainly through the online deposit platform Auður, which offers competitive deposit rates by automating processes and offering limited
services. Finally, the Banking division, offers lease contracts and loans to individuals and companies to finance cars, heavy machinery and other
equipmentthroughitsbrandLykill.
Sustainabilityandsocialresponsibility
Kvika’s values are long‐
term thinking, simplicity, and courage. Kvika’s mergers with TM hf. and Lykill fjármögnun hf. in 2021, as well as the bank’s
acquisition of Netgiro hf. and Aur app ehf., have brought increased strength to the company and the operations bind minimal equity. Kvika’s strategy
was reviewed and updated at the end of 2021. The revised strategy stresses the bank’s intension to be a transformative force in financial services
guided by mutual gain. One of the guiding principles of the strategy is sustainability and social responsibility. In addition, one of the seven key goals of
Kvika,asoutlinedinthestrategy,istohavearealandmeasurableimpactonIceland’scarbonfootprintandclimateissuesingeneral.
Kvika places emphasis on sustainability in its governance structure and has, among other things, established a committee on social responsibility a nd
sustainability, which follows up on the implementation of sustainability on a consolidated basis. Also, Kvika has established variety of policies, rules,
and p rocedures that aim to implement sustainability thoroughly into Kvika’s operations. These include an environmental and transportation policy ,
which emphasizes that Kvika knows the environmental impact of its operations and seeks to reduce negative impacts its operations may have. The
bank has also established a Green Financing Framework and policies aimed at supporting and developing responsible product and service offering, in
accordancewiththebank’svaluesandoverallpolicies.
Kvika has been a member of the United Nations principles for Responsible Investment (UN PRI) since the autumn of 2020, and participates in various
collaborations in the field of sustainability, such as being a founding member of IcelandSIF, an organization for responsible investment, a member of
Festa Center of Social Responsibility, since 2017, and a sponsor of Grænvangur, a co‐operational forum between the business community and the
government,regardingclimateissuesandgreensolutions,since2021.
Kvika also provides a variety of grants that have a positive social impact. In recent years, Kvika has focused on supporting UNICEF in Iceland,
innovations of women with FrumkvöðlaAuður, and industrial and teacher education with Kvika’s Incentive Fund. It’s the bank’s opinion, that education
is one of the best long‐
term investments for communities and individuals. Environmental issues are considered in internal operations and Kvika’s
measuredtotalcarbonemissionshavebeenoffset.
Asset Management emphasises offering clients a broad range of services for investing in Iceland as well as on foreign markets. Its aim is to provide the
best asset and fund management services, guided by clients’ long‐term interests. Asset and fund management operations are handled by Kvika’s
subsidiaries,mainlyKES.
The inve stme nt banking segment consists of Capital Markets, Corporate Finance and the subsidiary Kvika Securities ltd. (hereinafter referred to as
“KSL”). Capital Markets offers clients comprehensive securities brokerage and FX market services. The Corporate Finance division provides various
types of advisory services in connection with investments and financing. Emphasis is placed on corporate acquisitions and divestments, as well as initial
public offerings. KSL is a subsidiary regulated in the United Kingdom by the Financial Supervisory Authority, established in 2017. KSL’s focus is on capital
raising and M&A Advisory, as well as fund and a sset management services. Further, KSL holds Kvika’s minority stake in property lender, Ortus Secured
Finance,whichKvikarecentlysignedheadsoftermstoacquireamajoritystakein.
Return on equity is determined by decisions made in accordance with the Company’s risk appetite, which reflects its profitability targets. Emphasis is
placed on utilising equity as efficiently as p ossible with regard to risk. Consequently, decisions regarding the optimal composition of the balance sheet
togenerateincomearerestrictedbyriskappetiteandfundingatanygiventime.Kvika’stargetisa
returnontangibleequityofatleast20%.
Kvika’s objective is to deliver to shareholders an annual compensation equivalent to a minimum of 25% of profit, whether in the form of dividend
payments or share repurchases, under a formal buy‐back programme, as authorised by applicable laws and decisions made at shareholders’ meetings.
When deciding on the amount of dividends or, as the case may be, the funds allocated for share buy‐backs, care is taken to maintain Kvika’s strong
financial position, bearing in mind risks in the internal and external environment and growth prospects, to ensure that the Company maintains a solid
capital ratio and liquidity for the future. Dividend payments are always subject to assessments of the opportunities offered by reinvesting profits in
Kvika’soperationsandgrowth.
ConsolidatedFinancialStatements31December2021 79
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StatementontheCorporateGovernanceofKvikabankihf.2021
0
Kvika’sBoardofDirectorsandcontrolunitsregularlyverifytheeffectivenessofinternalcontrolsandriskmanagement.
The Board has established rules on risk management of the financial conglomerate of Kvika which are rules on risk and apply to Kvika as a financial
conglomerate in whole. The purpose of the rules is to harmonize risk management within the consolidation to ensure it is systematic and effective and
geared to enhance transparency within the consolidation’s risk taking at all levels of management, from the Board of Directors of Kvika to Boards of
subsidiaries, the operating units and individuals who directly participate in daily management and decision‐making regarding risk. The rules on risk of
the financial conglomerate of Kvika stipulate that the Company and its subsidiaries shall establish a risk policy. The risk policy of the Company and each
subsidiary shall implement what is stated in the rules on risk and further define risk‐taking within Kvika and each subsidiary. The Board of Directors has
establishedariskpolicyfortheCompany.
Compliancewithcorporategovernanceguidelines
At Kvika’s AGM in 2019, shareholders agreed to entrust the Board of Directors at the time with analysing the advantages and disadvantages of
appointing a nomination committee for the Company, inviting shareholders to express their views on the question and draft a proposal if this was
considered advisable. The Board subsequently examined the matter and announced the results of its assessment to shareholders at the Company’s
2020 AGM. Part of the analysis involved a review of actions taken by other companies and discussing the matter with shareholders and representatives
of companies where nomination committees operate. In this connection, it should be mentioned that special rules apply to financial undertakings
regarding assessment of the composition of their boards. Each year, the Board of Directors carries out a self‐assessmen t with regard to its composi tion,
assisted by external consultants. Bearing this in mind, the Board was of the opinion that the need for a nomination committee was not as great as
mightexistinothercompanies.
Furthermore, Kvika’s activities comply with the recognised standards and rules of the European Banking Authority (EBA) regarding the internal
governanceoffinancialundertakings.
The Board of Directors of Kvika has adopted code of conduct and rules on conflicts of interest to support good working a nd business practices. Kvika
also offers its employees a healthy, sound, and positive working environment, characterised by equal opportunities. The focus is on professionalism
andensuringthatdecisionsconsider
thebank´svalueoflong‐termthinking.
Sustainability is covered thoroughly in a summary with the Board of Director’s report and in the sustainability report of the bank for the year of 2021,
which is published alongside this financial statement. The sustainability report is based on Nasdaq’s UFS guidelines (ESG Reporting Guide 2.0), and in
additiontheGRIStandardsareconsidered,andrelevantindicatorsareanswered.ThisisthefirstsustainabilityreportthatKvikapublishesinthisform.
TheCEOreportstotheBoardandverifiestheeffectivenessofinternalcontrolsandriskmanagementintheConsolidatedFinancial
Statements.Internal
controls and risk management applied in the preparation of the Consolidated Financial Statements are organised with a view to preventing any
significantdeficienci esintheaccountingprocess.
Kvika’s Finance division prepares annual financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted bythe
EU, and additional requirements, as applicable, in the Act. on Annual Accounts no. 3/2006, the Act on Financial Undertakings no. 161/2002 and rules
onaccountingforcreditinstitutionsno.834/2003.TheannualfinancialstatementsareauditedbyKvika’sexternalauditors,Deloitte.
Kvika is obliged to observe recognised corporate governance guidelines, pursuant to Par. 7 of Article 54 of Act No. 161/2002, on Financial Undertakings.
The Company complies with the Guidelines on Corporate Governance issued jointly in February 2021 by the Chamber of Commerce, NASDAQ Iceland
and the Confederation of Icelandic Employers in most respects. The Guidelines are available on the website of the Chamber of Commerce www.vi.is.
Kvika’sonlydeviationfromtheguidelinesisthatithasnotappointedanominationcommitteenordecidedhowoneshouldbeappointed.
Regulatoryframework
Kvika is a financial undertaking subject to p rovisions of Act No. 161/2002, on Financial Undertakings, Act No. 115/2021, on The Market for Financial
Instruments, Act No 100/2016 on Insurance Activity, Act No. 2/1995 on Limited Liability Companies, the Competition Act, No. 44/2005, Act No.
114/2021, on Payment Services, Act No. 3/2006, on Annual Financial Statements, Act No.140/2018, on Measures against Money Laundering and
Terrorist Financing and others. Moreover, Kvika is obliged to guarantee the safety of the personal data it processes in its activities, in accordance with
Act No. 90/2018, on the Protection of Privacy as regards the Processing of Personal Data. Kvika has an operating licence from the Financial Supervisory
Authority of the Central Bank of Iceland (“FME“), which supervises the activities of the Company. Kvika’s activities are therefore governed by the rules
and instructions of the FME and Central Bank of Iceland as well as other legal provisions regarding the financial market. More details about FME and an
overviewoftheprincipallegislationandrulesthatapplytotheCompanyatanygiventimecanbefoundonthewebsiteofFMEwww.en.fme.is.
Themainelementsofinternalcontrol,riskmanagementandaccounting
The Board of Directors is responsible for ensuring that an active system of internal controls is in place within the Company, based on three lines of
defence: The first line of defence consists of the management and the employees of business and principal units in charge of the Company’s daily
management and organization. Their main responsibility is to ensure the functionality and implementation of internal control measures in d aily
operations. The second line of defence is comprised of the internal control units of the Company, principally the Compliance Officer, who is in charge
of ensuring that laws and regulations are observed, and Risk Management, which, among other things, measures and assesses risk according to the
Company’s criteria. Other units may also be given control functions. The third line of d efence are the internal auditor and sub‐committees, which
ensure internal auditing is in place and functioning. Among other things, they prepare independent surveys and reports for the Board of Directors and
AuditCommittee.
The implementation and functioning of internal controls is the responsibility of the management of the Company and its control units. Internal control
is founded on risk assessment and control measures intended to reduce risk factors in the operations of the Company. Internal control includes
documentedandformal
procedureswhichKvika’semployeesfollowintheirdailyworkandwhichareexaminedbythecontrolunits.
The Board of Directors determines the risk policy and risk appetite of the consolidation with rules on risk management of the financial conglomerate of
Kvika, which define risk factors in Kvika’s operations, including their nature and acceptable volume. The Board hires an Internal Auditor, signs his/her
formal statement of duties and annually approves the audit plan. The CEO appoints the Compliance Officer with the approval of the Board and signs
his/herformalstatementofduties.ThereportsandfindingsoftheInternalAuditorandComplianceOfficerarepresenteddirectlytotheBoard.
ConsolidatedFinancialStatements31December2021 80
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StatementontheCorporateGovernanceofKvikabankihf.2021
0
The members of Kvika’s Executive Committee, in addition to the CEO are the following employees: Ármann Þorvaldsson, Deputy CEO; Ragnar Páll Dyer,
Managing Director of Finance and Operations; Magnús Ingi Einarsson, Managing Director of Banking; Bjarni Eyvinds, Managing Director of Capital
Markets; Lilja Jensen, General Counsel; and Baldur Stefánsson, Managing Director of Corporate Finance. More details about the Executive Committee
areaccessibleonKvika’swebsitewww.kvika.is.
TheCEOcanprovidemoredetailedinformationontherulesofprocedureandtheoperationsoftheboardandsub‐committees.
InformationonBoardmembers
Sigurður Hannesson is the chairman of the Board. He was appointed to Kvika’s Board of Directors in March 2020. He was born in 1980 and is currently
the Director General of the Federation of Icelandic Industries. From 2013‐2017, Sigurdur worked as a managing director of Kvika asset management
(previously MP Bank). In 2015, Sigurdur was the Vice‐Chairman of the Government Task Force on lifting of capital controls and in 2013 the Chairman of
the Expert Group on household debt relief. From 2010‐2013, Sigurdur worked as CEO of Jupiter fund management company, now Kvika Asset
Management, and in Capital Markets at Straumur Investment Bank from 2007‐2010. Sigurdur holds a DPhil degree in mathematics from the University
of Oxford, a BS degree in mathematics from the University of Iceland and is a certified securities broker. Sigurður also sits on the boards of NSA
Ventures, Grænvangur (Green by Iceland), Reykjavík University, Auðna‐Tæknitorg ehf., Akkur SI, SI 1 ehf., Sundaboginn slhf., Íslenski
byggingarvettvangurinn, Seapool ehf., BBL 39 ehf. and the Icelandic Cancer Society. Sigurður owns 8,550,107 shares in the Company through
shareholding in the private limited company BBL 39 ehf., but does not have interest links with major clients, competitors or big shareholders in the
senseoftheCorporateGovernanceGuidelines.
Kvika has not established a specific policy on the diversity of its Board of Directors, Executive Committee and senior management with regard to age,
gender or educational and professional background. However, the Company has adopted a policy for assessing the eligibility of its directors and CEO as
provided for in EBA guidelines and pursuant to Art. 52 of Act No. 161/2002, on Financial Undertakings, provisions of Rules No. 150/2017, on
assessment of eligibility of managing directors and directors of financial undertakings and the guidelines. The composition of the Board is also dealt
with in Kvika's Articles of Association, which state, among other things, that its Board shall be so comprised that its members jointly possess adequate
expertise, skills and experience to understand the activities of the Company, including key risk factors. The Articles also state that the proportionof
each gender on the Board and among alternates shall not be lower than 40%. Kvika has also adopted a Human Resources and Equality Policy.
According to the Company’s equality policy, non‐discrimination and diversity shall characterise all its operations. All employees should have the
opportunity to make good use of their abilities at work and be valued on their own merit, have equal opportunities and enjoy the same rights in their
workandforcareeradvancement,regardlessofgender,ageandorigin.
Kvika’sBoardofDirectorshasthreesub‐commi ttees,theAuditCommittee,RiskCommitteeandRemunerationCommittee.
The members of the Audit Committee are Ingunn Svala Leifsdóttir, as chairperson, Helga Kristín Auðunsdóttir, Hrönn Sveinsdóttir and Inga Björg
Hjaltadóttir. The committee operates on a consolidated basis and is intended to play an advisory and supervisory role for Kvika’s Board of Directors by,
among other things, ensuring the quality of financial statements and other financial information from the Company and the independence of its
auditors. The committee supervises accounting procedures and the effectiveness of internal controls as well as internal and external auditing. The
committeemet14timesin2021.
The members of the Risk Committee are Guðmundur Þórðarson, who is chairperson, Sigurður Hannesson and Sigríður Mogensen. The committee’s role
has an advisory and supervisory role for the Company’s Board of Directors, among other things, in determining its risk policy and risk appetite. The
committee also monitors the organisation and effectiveness of risk management, management of credit risk, market risk, liquidity risk, operating risk,
reputationalriskandotherrisks,asthecasemaybe.Thecommitteemet
11timesin2021.
The members of the Remuneration Committee are Guðjón Reynisson, who is chairperson, Sigurður Hannesson and Helga Kristín Auðunsdóttir. The
committee has an advisory and supervisory role for the Company’s Board of Directors regarding salaries and other remuneration, ensuring that this
supportsitsobjectivesandinterests.Thecommitteemetsixtimesin2021.
All the Board’s sub‐committees have established rules of procedure prescribing the implementation of their tasks in detail and endorsed by the Board.
The Board appoints sub‐committee members by majority vote from its own ranks and nominates the chairpersons. Because of the nature of the
committees, neither the CEO nor other employees can serve on them. The rules of procedure of the committees and the Board are accessible on
Kvika’swebsitewww.kvika.is.
CompositionandactivitiesoftheBoardofDirectors,ExecutiveCommitteeandsub‐committees
EachyearKvika’sAGMelectsaBoardofDirectorsconsistingoffiveboardmembersandtwo
alternatesforaone‐yearterm.
Directors come f rom varied backgrounds and all possess extensive experience and expertise. In accordance with the Company’s gender equality policy
and the Act on Limited Liability Companies, care is taken to ensure at least 40% representation of each gender on the Board, which is currently
comprised of three men and two women. The CEO is appointed by the Board of Directors. Board meetings are generally held once a month. In 2021, 24
boardmeetingswereheldandallboardmembersattendedallboardmeetings.
The Board of Directors is the supreme authority in the affairs of the Company between shareholders’ meetings. Its main duties are to supervise all
Kvika’s operations and ensure that they are in good order at all times. The Board is responsible for Kvika’s policy making and shall ensure that the
accounting and handling of the Company’s assets are properly supervised. The Board prepares plans for Kvika in line with its objectives and in
accordance with its Articles of Association and determines the strategies to be followed to achieve the objectives set. The Board appoints the CEO and
supervises his work, e.g., by receiving regular reports from him at board meetings. The Board annually evaluates the CEO’s work in a documented
manner. The Board also represents the Company before courts and government authorities and allocates authority to sign and to commit the
Company.
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Sigurgeir Guðlaugsson and Helga Jóhanna Oddsdóttir are alternate members of Kvika’s Board of Directors. In the opinion of the Board, they are also
independentmembersoftheBoardofDirectorswithinthemeaningoftheCorporateGovernanceGuidelines.
TheBoardofDirectorsconsidersallboardmemberstobeindependentdirectorsasdefinedbytheCorporateGovernanceGuidelines.
Guðjón Reynisson was appointed to Kvika’s Board of Directors in March 2018. He was born in 1963 and works as an independent investor and board
member. Between 2008 and 2017 he served as CEO of Hamleys of London. From 2003 to 2008, he served as managing director of the 10‐11 stores.
From 1998 to 2003 he was the managing director of the sales division of Tal, an Icelandic phone company. He graduated with an MBA degree from the
University of Iceland in 2002. He graduated with an Operations and Business degree from the Continuing Education Study of the University of Iceland
in 1999 and also graduated with a degree as a licensed physical education teacher from the University of Iceland in 1986. Guðjón has been on the
board of directors of Festi hf. since 2014, of Securitas hf. since 2018 and of Dropp ehf. since 2020. Guðjón controls 10,410,789 shares in Kvika through
his private limited company, Hakk ehf., but does not have interest links with major clients, competitors or big shareholders in the sense of the
CorporateGovernanceGuidelines.
Helga Kristín Auðunsdóttir was born in 1980. Helga Kristín holds a doctor’s degree in Law from Fordham University in New York. Helga Kristín
graduated with a BS degree in Business Law from Bifröst University in 2004 and with a Master’s degree in Law from the same university in 2006. She
graduated with an LL.M degree in Law from the University of Miami, with a focus on international business law and contracts. Helga Kristín also studied
law at University of Thessaloniki, in Greece. In her d octoral studies at Fordham University she researched hedge fund investments and what factors
influence how they act as shareholders in listed companies. Helga Kristín has worked as a director and lecturer at Bifröst University for the p ast nine
years. Prior to that, she worked as a lawyer at FGM/Auðkenni, now part of the Central Bank of Iceland, as a lawyer at Stoðir hf., prior FL Group, and as a
lecturer at the faculty of law at University of Miami in 2010‐2011. Helga Kristín was a board member of TM hf. from 2020 and was an appointed
alternate on the Board of Directors of Tryggingamiðstöðin hf. in 2012‐2015. Helga Kristín does not own shares in the Company and does not have
interestlinkswithmajorclients,competitorsor
bigshareholdersininthesenseoftheCorporateGovernanceguidelines.
Ingunn Svala Leifsdóttir was appointed to Kvika’s Board of Directors in September 2021. Ingunn was born in 1976. She graduated with a BS degree in
Business from the University of Iceland in 1999, with a focus on accounting and finance, and with a Cand. Oecon business degree from the same
University in 2001, with a focus on accounting and management. Ingunn Svala completed the Advanced Management program (AMP) from the IESE
Business School in New York in 2018. Ingunn Svala currently works as the executive director of operations at Reykjavík University and sits on the
university´s executive board. Ingunn Svala has extensive experience of serving as a board member. She has served as a board member of Slippurinn
Akureyri ehf. since 2015, as a board member of the logistics company Parlogis ehf. since 2014 and as a board member of Ósar – lifeline of health hf.
since 2021. Ingunn Svala sat on the Audit Committee of VÍS in 2019 to 2021 and was a board member of Líftryggingafélags Íslands (Lífís) from 2017 to
2021. Ingunn Svala has also established and operated her own business, including in accounting and real estate. Ingunn Svala also has extensive
experience from the financial sector. She worked for the Kaupthing´s Resolution Committee as Chief Financial Officer from 2009 to 2011 as well as
working as a Global Business Controller in Investment Banking at Kaupþing bank in 2007 to 2009. Ingunn Svala also worked within the Actavis Group
PTC consolidation in 2006 to 2007 as a CFO for four subsidiaries, namely Actavis hf., Medís ehf., Actavis Group hf. and Actavis Group PTC ehf. Ingunn
Svala does not own shares in the Company and does not have interest links with major clients, competitors or big shareholders in in the sense of the
CorporateGovernanceguidelines.
MainfactorsintheBoard’sperformanceevaluation
Guðmundur Þórðarson is the deputy chairperson of the Board. He was appointed to Kvika’s Board of Directors in March 2017. Guðmundur was born in
1972. He graduated from the University of Iceland with a Cand. oecon business degree in 1997. He has also completed a securities brokerage and asset
management exam in the UK. Guðmundur’s main focus is on managing his own investments. From 1997 to 2000 he worked in Asset Management at
Landsbréf hf. From 2000 to 2003, he worked as a specialist in the development and corporate advisory division of Íslandsbanki hf. From 2003 to 2007
he worked as Managing Director of Corporate Finance at Straumur fjárfestingarbanki hf. Guðmundur also sits on the boards of Hedda eignarhaldsfélag
ehf., Skel Investments ehf. and Attis ehf., as well as serving as an alternate in the board of Bílaleiga BTF ehf. Guðmundur holds 66,750,000 shares in the
Company through the private limited company Attis ehf. Guðmundur does not have interest links with major clients, competitors or big shareholders in
thesenseoftheCorporateGovernanceGuidelines.
The Board of Kvika annually evaluates its performance. It evaluates the performance of tasks and work of the Board for the previous year. The focus of
the assessment is on strategic planning, disclosure and future vision, the size and composition of the Board, performance of Board members, the work
of sub‐committees and performance of the CEO. The development of the Company is examined with a view to assessing whether it is line with
objectives. Following the annual performance assessment, the Board defines tasks in areas where improvements are needed. The last performance
assessment was conducted in January 2022. The Board also regularly conducts special self‐assessments on its composition in accordance with the
guidelinesoftheEuropeanBankingAuthority(EBA),andlastdidsoinJanuary2022.
InformationontheCEOofKvikaandhismainduties
Marinó Örn Tryggvason became CEO of Kvika in May 2019. Marinó was born in 1978 and from August 2017 acted as Kvika’s Deputy CEO. Prior to this,
Marinó worked in asset management at Arion banki and the bank's forerunner from 2002. Between 2014‐2017, Marinó was the Deputy Managing
Director of Asset Management at Arion banki and between 2007 and 2014 was the head of institutional asset management. Marinó sat on the board of
the Vörður insurance company between 2016‐2017. Marinó holds a BSc in business studies from the University of Iceland and possesses a diploma in
securities trading. Marinó controls 3,426,559 shares in Kvika, and he also has subscription rights for shares in the Company. Marinó has also entered
into a call option agreement with Kvika in accordance with the employees’ general stock option plan. He does not have interest links with major clients,
competitorsormajorshareholdersasdefinedbytheCorporateGovernanceGuidelines.
The CEO oversees the daily operations of Kvika and in so doing follows the policies and instructions which have been laid down by the Company’s
Board of Directors. Daily operations do not include unusual or major arrangements. The CEO shall ensure that Kvika’s accounts are kept in accordance
with laws and customs and that the Company’s assets are handled in a secure manner. The CEO appoints and dismisses employees of the Company.
Furthermore,heisobligedtofollowalloftheBoard’sinstructions.TheCEOshallprovideKvika’sexternalauditorswithallrequestedinformation.
ConsolidatedFinancialStatements31December2021 82
Kvikabankihf. AmountsareinISKthousands
StatementontheCorporateGovernanceofKvikabankihf.2021
0
CommunicationsbetweenshareholdersandtheBoard
In 2021 Kvika made an agreement on settlement with the Financial Supervisory Authority regarding violations of paragraph 2 of Art. 8, paragraph 1 of
Art. 14, paragraph 1 of Art. 15 and paragraph 1 of Art. 21. of the then applicable Act No. 108/2007 on Securities Transactions regarding marketing and
saleofacertainfinancialinstrumentintheyears2018and2019.Inthesettlement,KvikaagreedtopayafineoftheamountofISK18,000,000.
Kvika has not been subject to withdrawal, revocation or dismissal of registration, authorization, membership or permissions to perform certain trades,
operations or work. No legal or arbitration proceedings which may have significant effects on the Company or the Group were ongoing or pending at
theendoftheyear.
Information is provided to shareholders on a non‐discriminatory basis and is mainly limited to shareholders’ meetings or the communication of
harmonised information to all shareholders simultaneously. News of the Company’s operations are posted on Kvika’s website and press releases are
issued when newsworthy events in the Company’s operations take place. A detailed presentation of the Company’s operations over the past year is
alsoprovidedatitsAGMandinformationontheCompany’soperations
ispublishedinKvika’sannualreportandfinancialstatements.
ThisstatementonthecorporategovernancepracticesofKvikabankihf.wasreviewedandapprovedbytheBoardofDirectorson24February2022.
Informationonviolationsoflawsandregulations,determinedbytherelevantsupervisorybodyoradjudicatingentity
ConsolidatedFinancialStatements31December2021 83
Kvikabankihf.
Non-Financial Information regarding Kvika banki hf.
From the beginning of the Covid‐19 pandemic, Kvika has provided societal support through offering temporary deadline extensions to loan payments
for companies and individuals, offering approval as second mortgagee following changes in conditions due to the pandemic. The Bank has also
participatedinsupportiveactionsoftheIcelandicgovernmenttosoftentheblowonborrowersduethepandemic.
Policies
In meeting the challenges of the Covid‐19 pandemic, recommendations of national authorities have been followed to ensure protective hygiene
measures and the safety of employees. A special working group has monitored and managed reactions to the pandemic within the Group. Most
employees worked remotely part of the year, using online meeting services and communication software. This development has brought increased
flexibility,andatthesametimereducedenvironmentalimpactsasthefrequencyofemployeetravelsbyairandroadhasdiminished.
Kvika has published a social responsibility policy that was approved by the bank ‘s executive management in October 2020 and shall be revised at least
every four years. The policy is intended to offer a common vision of the Bank ‘s priorities concerning investments and business practices, society,
humanresourcesandtheenvironment.
Other relevant policies that have been adopted and related to sustainability, are a policy on human resources and equality, environmental and
transport policy, policy on responsible lending and investment, policy on responsible product and services offering, code of conduct for suppliers,and
codeofconduct
foremployees.
The Group supports Icelandic a nd international strategies to combat climate change as well as the goal of the Icelandic governments to be climate
neutral by 2040. In September 2020 Kvika signed a declaration of intent ‐ Investment for a Sustainable Recovery ‐ along with the government and other
keypartiesontheIcelandicfinancialmarket.
KvikaisamemberoftheUNPRI,onbehalfoftheGroup,andafoundingmemberofIcelandSIF,theIcelandicassociationforresponsibleinvestments.
Additional information on the scope, status, and impact of the Group on environmental, societal, and human resource matters can be found in Kvika’s
sustainability report, which is issued alongside this annual account. The report follows Nasdaq’s ESG Reporting Guide 2.0 and, to a limited extent, the
GRIStandards.
As the Group operates in large part in Iceland, which has clear laws and a legal framework for human rights issues, a specific policy f or human rights has
not been deemed necessary. Kvika‘s committee f or social responsibility and sustainability is responsible for ensuring that policies related to the
Group´s journey towards increased sustainability and social responsibility are followed, while the project manager of sustainability follows up onthe
committee´swork.Thecompositionofthecommitteeisacrossthe
unitsoftheGroupandincludesthedeputyCEOofKvika.
As outlined in Kvika‘s ownership policies, the Bank, as the mother company, defines the general principles for i ts subsidiaries on governance and
matters concerning sustainability and social responsibility. These include, amongst others, human rights, and environmental issues. Kvika encourages
itssubsidiariestobeopentoinnovationthatenhancessustainability,notablyininvestmentsandbusinesspractices.
In October 2021 Kvika issued its first Green Financing Framework, which outlines the Bank’s policy for environmentally responsible financing and
lending. The framework has received a positive second‐party opinion from the global ratings firm Sustainalytics. Kvika has offered green car loans
through its brand Lykill, and these loans fall under the terms of the Green Financing Framework as eligible assets. Following the issuing of the
framework Kvika started offering green deposit accounts through its brand Audur. In addition, Kvika issued its first green bond in December 2021, also
underthetermsoftheframework.
AboutKvika
Kvika banki hf. (hereafter “Kvika” or the “Bank”) is a public company listed on the main list of Nasdaq OMX Iceland. Kvika’s subsidiaries are TM
Insurances hf . (“TM”), Kvika Asset Management hf. (“Kvika Asset Mana gement”), GAMMA Capital Management hf. (“GAMMA”), Aur app ehf. (“Aur”),
Netgíró hf. (“Netgíró”) and Kvika Securities Ltd. (“KSL”) in the UK (together the “Group”). The Group´s non‐financial disclosure is limited to the Group´s
operations in Iceland, not in the United Kingdom. Policies have to some extent been co‐ordinated between countries, however, not measured
indicatorssofar.
The Group operates four business segments, Asset Management, Commercial Banking, Insurance Services, and Investment Banking. Kvika‘s operations
aim at increasing competition of Icelandic financial services and simplifying the finances of its clients by using infrastructure, financial strength and
offering diversified services. The Group provides businesses, investors and individuals with comprehensive investment banking, insurance, and asset
management
services,aswellasselectedretailbankingservices.
The Group´s values are long‐term thinking, simplicity, and courage. Kvika’s mergers with TM hf. (“TM”) and Lykill fjármögnun (“Lykill”) in 2021, as well
as the Bank’s acquisition of Netgiro and Aur, have brought increased strength to the Group and the operations bind minimal equity. The Group´s
strategy was reviewed and updated at the end of 2021. The revised strategy stresses Kvika´s intension to be a transformative force in financial services
guided by mutual gain. One of the guiding principles of the strategy is sustainability and social responsibility. In addition, one of the seven key goa ls of
Kvika,asoutlinedinthestrategy,istohavearealandmeasurableimpactonIceland’scarbonfootprintandclimateissuesingeneral.
The monitoring of the health and safety of employees, and the associated communication, has been increased, e.g., through online employee
meetings. Operations have continued successfully despite the Covid‐19 pandemic. Providing clients with the option of signing contracts and other
documentselectronically,wheneverpossible,wasoneoftheproposedsolutionstomeetthe
challengesofthepandemic.
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Kvikabankihf.
Non-Financial Information regarding Kvika banki hf.
Kvika is a commercial bank that focuses on and is leading in fintech solutions, with sustainability as one of its guiding principles. As an example of the
result of automation of processes and services, Kvika, through its brand Lykill, was the first company in Iceland to register mortgage bonds
electronically.Theservicehasseveralsocietalandenvironmentalbenefitsincludingreductionoftheuseofpaper,transportation,andtime.
Other technical solutions of Kvika, such as solutions of the brand Audur and the subsidiaries Netgiro and Aur, have been developed from the start using
digital technology and without operating branches with the associated carbon footprint. In addition, the insurance company TM is also very advanced
indigitalsolutionsandoffers,amongstothers,fullyelectronicclaimshandling.
Theriskcommitteeisoneofthreesub‐committees of the Board of Directors. The risk committee’s role is to provide advice and monitoring on behalf of
the Board. Its updated rules and procedures were approved in May 2021. The committee monitors the organization and effectiveness of risk
management,managescredi trisk,marketrisk,solvencyrisk,operationalrisk,reputationriskandotherrisksthatmay
berelevant.
Environmentalissues
Operational risk is the risk associated with the potential financial loss due to insufficient internal processes, systems, and human mistakes or due to
external events. Such risk includes social or governance factors, such as inadequate protection against cyber‐attacks and data protection or
inappropriatepaymentstomanagers.
Kvika has adopted a risk policy and rules on risk management, as well as procedures for managing operational risk. The Operations Committee regularly
submits proposals to the Bank’s Executive Committee for adjustments and/or improvement projects to reduce Kvika’s operational risk and follows up
on improvement projects. Risk Management, in collaboration with the Operations Committee, sees to the collection, classification and documentation
of operating incidents, together with an evaluation of their severity and possible financial loss. The Bank emphasizes that key processes in connection
withoperationalriskaredocumentedandreviewedregularly.
Sustainability risk, which is now included under operational risk, concerns the risk of being negatively affected by factors related to environmental and
climate issues, social or governance factors. Following the recommendations of the Task Force on Climate‐related Financial Disclosures (TCFD)
sustainabilityriskisevaluatedinthecontextofgovernance,strategy,riskman agement,metrics,andtargets.
Climate risk, along with social and governance factors, form the framework for the risk management of this area. Climate risk can be divided into two
key categories, on the one hand physical risk directly linked to climate change and, on the other hand, transition risk which concerns measures taken to
meetthisrisk.
Work is underway on further enhancing Kvika’s response to sustainability risk and integrating the relevant factors into risk management and related
risk processes in line with the recommendations of the TCFD. Risk management informs Kvika´s Board of Directors of climate related risks in the bank’s
annualICAAPreportandclimaterelatedmattersarealso
partofthegeneralagendaoftheBank´sBoard.
Keynon‐financialindicatorsandperformance
Oneofthethreesub‐committees of Kvika´s Board of Directors is the audit committee, which serves an advisory and monitoring role for the Board,
amongst its responsibilities is ensuring the quality of annual accounts and other financial information of Kvika, as well as the independence of the
Bank’s auditors. The committee supervises the process for the issuing of financial accounts, the effectiveness of internal control and the internal and
externalauditingprocess.InJune2021theBoardofDirectorsapprovedtheupdatedrulesofprocedureforKvika’sauditcommittee.
The external auditors are elected at the annual meeting, and these are auditors of Deloitte in Iceland, which has been the company’s auditing firm
since 2016. In addition to financial auditing, Deloitte will also provide a limited assurance of the non‐financial information included in Kvika’s
sustainability report for 2021. This entails providing an opinion of selected information and indicators (ESG/GRI) that are included in the report and
outlining the development of the key ESG topics that have been selected through Kvika’s materiality assessment by Kvika´s committee on social
responsibilityandsustainability.
Operationalriskandsustainabilityrisk
DueDiligence
Kvika operates in accordance with laws and regulations that apply to the operations. Kvika has established rules on the prevention of conflicts of
interest that aim to increase credibility and protect the Bank's reputation and prevent or deal with conflicts of interest that may occur, among other
things, in connection with the offering of investment or additional services. Prevention of conflicts of interest has also been strengthened throughthe
issuance of rules on gifts, rewards, and on incentives, as well as through policies on reputation risk and conduct risk, rules on d ivision of fields of work,
and rules on employees' own business. These rules and policies are implemented on a consolidated basis, and in addition to the code of ethics, lay the
foundationforKvika'sprotectionagainstcorruptionandbribery.
The Bank has as well‐established rules and appropriate procedures and surveillance for measures against money laundry and terrorist financing, in
accordance with applicable Law. Kvika performs risk assessments on all of its operations and all clients of the bank must complete an appropriate due
diligence form before establishing a contractual relationship. For regular transaction surveillance, Kvika uses the Lucinity software, which usesmodern
technologyandartificialintelligencetodetectsuspiciousbehavior.
During2021KvikaunderwentanauditandreceivedacertificationfromtheauditcompanyBSIthatthecompany’smanagementsystemforinformation
security is in line with the international information management standard ISO 27001. Kvika is also certified against the equal payment standard IST
085:2012,since2020.
Keyrisksandriskmanagementassociatedwithnon‐financial
information
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Kvikabankihf.
Non-Financial Information regarding Kvika banki hf.
Further information about aspects related to governance and the relevant ESG and GRI indictors can be found on pages 20‐21 and on p age 24 of Kvika’s
sustainabilityreportfor2021.AlsointheannualgovernancestatementpublishedintheannualaccountsandonKvika'swebsite.
Socialissues
With the merger of Kvika with TM and Lykill, and with the acquisition of Netgiro and Aur, the Group has further enhanced its societal support and
increased the amount of grants for various projects. The total amount of grants in 2021 was ISK 87,168,268. Kvika also renewed its collaboration with
UNICEFinIcelandduringtheyear.TheorganizationconsiderthepartnershipswithKvikatobeoneoftheirmostfruitfulcollaborations.
Turnover of full‐time employees at the Group in 2021 was 11.5%, which is in some part due to a re‐organization within the Group following Kvika’s
merger with TM and Lykill. The proportion of women in the company is 47% and the proportion of women in the position of directors and managers is
36%.
Kvika follows approved guidelines on corporate governance in accordance with the Act on Financial Undertakings no. 161/2002. The company conducts
its corporate governance in accordance with the Corporate Governance Guidelines issued in 2004 by the Iceland Chamber of Commerce, Nasdaq
IcelandandtheConfederationofIcelandicEmployers,andupdatedinJuly2021.
Governance
Further information about social aspects and the relevant ESG and GRI indictors can be found on pages 11‐13 and on page 23 of Kvika’s sustainability
reportfor2021.
Every year a workplace survey is sent to employees of the Group with questions about employee engagement, work satisfaction, stress, equality, work‐
life balance, bullying and harassment among other topics. Following such surveys, the results are analyzed, and an action plan is developed. A
workplace survey was sent to employees at the end of 2021. Among results was an average level of employee satisfaction of 4.38 out of 5, and average
employeeengagementwas4.05.
In December 2021 all employees were offered to participate in a stock option program which was approved by Kvika’s Board of Directors on 10
November2021,andbytaxauthoritieson9December2021.
Further information on the relevant ESG and GRI indicators related to environmental matters can be found on page 19 and pages 22‐23 in Kvika‘s
sustainabilityreportfor2021.
Thetablebelowshowsgreenhousegasemissionsin2021andemployees'emissiondemand.
Scope1and2(volumeintonnesofCO2equivalent)
Scope3(volumeintonnes
ofCO2equivalent)
Employeeemissioncapacity
52.2tCO2í
160.1tCO2í
671.5kgCO2/perfulltimeposition
GreenhouseGasEmission
ConsolidatedFinancialStatements31December2021 86