Íslandsbanki hf. - Annual Financial Report

Islandsbanki hf. : 2011 Consolidated financial statements

Highlights:

  * Profit after tax from regular operations was ISK 13.9bn, compared to ISK
    17.8bn in 2010.  Profit after tax, including one-off items like goodwill
    impairment, costs associated with the Byr merger, loan portfolio net
    valuation change, and fair value gains from shares, was ISK 1.9bn, compared
    to ISK 29.4bn in 2010.
  * The entire goodwill from the acquisition of Byr was impaired at year-end
    2011 which resulted in a one-off charge to the comprehensive income
    statement of ISK 17.9bn.
  * Net valuation change of the loan portfolio resulted in a loss of ISK 1.3bn
    in 2011, compared to a gain of ISK 14.5bn in 2010. The expected cost of the
    Supreme Court ruling of 15 February 2012 is ISK 12.1bn. Significant
    uncertainty still remains on the ruling's precedential value and the method
    of recalculating the interest on loans affected by the ruling.
  * Return on equity of regular operations was 11.0%. Taking into account one-
    off items, return on equity was 1.5%.

  * Around 17,600 individuals and 2,700 corporates have received write offs,
    debt forgiveness or some form of debt correction since the Bank's
    establishment, totalling ISK 343bn.

  * Total assets were ISK 795.9bn at year-end 2011, compared to ISK 683.2bn in
    2010. The increase is a result of the Byr merger.
  * Total deposits were 525.8bn at year-end 2011, compared to ISK 423.4bn in
    2010.
  * An important step towards funding diversification reached when Íslandsbanki
    was the first bank to list ISK 4bn worth of covered bonds in the NASDAQ OMX
    Iceland.
  * Equity was ISK 123.7bn at year-end and increased by 2% throughout the year.
    Total capital ratio was 22.6%, which is well above the 16% regulatory
    minimum set by the Icelandic Financial Services Authority.


Birna Einarsdóttir, Chief Executive Officer of Íslandsbanki"2011  was  an  eventful  year  for  Íslandsbanki  and important milestones were
reached  in strengthening operations.  The merger of  Íslandsbanki and Byr was a
great  success, increasing market share significantly  and setting the scene for
future  income and synergy effects that have  started to emerge in 2012 but will
be  fully  realised  in  2013. Furthermore,  an  important  step towards funding
diversification was reached when Íslandsbanki was the first bank to list covered
bonds on the NASDAQ OMX Iceland since the fall of 2008.

The   full-year  results  show  an  acceptable  return  on  equity  for  regular
operations.  The Bank's  balance sheet  and capital  position is sound which has
allowed  us  to  efficiently  meet  challenges  in  our  ever changing operating
environment.  The entire  goodwill from  the acquisition  of Byr was impaired at
year  end  2011, resulting  in  a  one-off  charge  to  the comprehensive income
statement.  The fourth quarter  was also affected  by the recent Supreme Court's
ruling on FX loans. It is of great importance, that the uncertainty regarding FX
loans be resolved as quickly as possible.

We  have strived to work with our customers  in restructuring in such a way that
they  continue as good customers and value our customer relationship. Our effort
has  proved  well  as  Íslandsbanki's  customers  were the most satisfied in the
Icelandic   financial   sector   according   to   customer  satisfaction  survey
Ánægjuvogin.  I firmly believe that 2012 will mark the turnaround where our hard
work  over the  past three  years will  start to  bear fruit  and render  a more
normalised business environment."

Please find the full financial announcment and 2011Consolidated financial
statments attached.



For further information:

Investor Relations - Tinna Molphy, tinna.molphy@islandsbanki.is  and tel:
+354 440 3187.

Media Relations - Guðný Helga Herbertsdóttir,
gudny.helga.herbertsdottir@islandsbanki.is and tel: +354 440 3678.






[HUG#1595644]

Attachments:

Íslandsbanki 2011 Consolidated Financial Statements.pdf

Íslandsbanki FY2011 Results Announcement.pdf