Arion Bank hf. - Financial Statement Release

Arion Bank’s financial results for the first six months of 2012

Arion Bank reported net earnings of ISK 11.2 billion for the first half of
2012, compared with ISK 10.2 billion during the same period in 2011. Return on
equity was 18.8%, compared with 20.3% in the first half of 2011. Return on
equity on regular operations was 11.8%, compared 11.2% during the same period
in 2011. The interim financial statement for the first six months of 2012 has
been reviewed by the Bank's auditors. 

The Bank's capital ratio at the end of the period was 22.3%, compared with
21.4% at the end of the first half of 2011.  The Financial Supervisory
Authority (FME) stipulates a minimum capital ratio of 16%. 


Highlights of the interim financial statement:

  -- Net earnings in H1 of ISK 11.2 billion, compared with ISK 10.2 billion
     during the same period of 2011.
  -- Net earnings in Q2 of ISK 6.8 billion, compared with ISK 7.2 billion during
     the same period of 2011.
  -- Earnings from regular operations of ISK 7.0 billion, compared with ISK 5.8
     billion during the first half of 2011.
  -- Net operating income of ISK 24.9 billion, compared with ISK 24.5 billion
     during the first half of 2011.
  -- Net interest income of ISK 13.9 billion, compared with ISK 11.2 billion
     during the first half of 2011.
  -- Return on equity of 18.8%, compared with 20.3% during the first half of
     2011. Return on equity on regular operations was 11.8%, compared with 11.2%
     during the first half of 2011.
  -- The interest-rate differential as a percentage of the average
     interest-bearing assets was 3.4%, compared with 3.2% during the first half
     of 2011.
  -- Salary expenses increased by 12% between years mainly as a result of a new
     financial sector tax of 5.45% levied on the salaries of employees of
     financial companies.
  -- Income tax of ISK 2.9 billion, compared with ISK 2.5 billion during the
     same period in 2011. The increase is partly due to a new 6% tax on the
     earnings of financial companies in excess of ISK 1 billion.
  -- Capital ratio of 22.3%, compared with 21.4% at the end of the first half of
     2011.
  -- The Bank's liquidity ratio was 32%, which is well over the 20% minimum
     stipulated by the FME.
  -- The Bank's cash ratio was 14%, above the FME's minimum requirement of 5%. 
  -- Loans to customers of ISK 578.9 billion at the end of the period, compared
     with ISK 447.7 billion at the same time in 2011. This increase is primarily
     a result of the acquisition of Kaupthing Bank's mortgage portfolio at the
     end of 2011.
  -- Total assets of ISK 880.1 billion, compared with ISK 805.3 billion at the
     end of June 2011.
  -- Shareholders' equity of ISK 125.1 billion, compared with ISK 117.2 billion
     at the end of June 2011.



Höskuldur H. Ólafsson, CEO of Arion Bank:

“The Bank's results for the first six months of the year are satisfactory and
in line with our expectations. I am especially pleased with the stability
demonstrated by these results. The Bank's results from regular operations were
reasonable but we would nevertheless like to see an improvement in the Bank's
commission income and a reduction in operating expenses. We intend to focus on
these issues in the months ahead. 

During the first six months of 2012 we have sold holdings in companies that we
acquired in the restructuring process, including Hagar, N1, BM Vallá and
Penninn. The proceeds from these sales had a positive impact on the Bank's
results, raising earnings by ISK 2 billion. Valuation change on loans also
boosted earnings by ISK 3 billion. 

During the first few months of the year we have sought to diversify the Bank's
funding base by issuing covered bonds, with both inflation-linked and nominal
issues. The market has responded positively to the bond issues and the Bank
will continue along this path. 

As always, providing our customers with a broad range of high quality services
has been central to our endeavours. We continually seek new ways to improve
these services and a number of initiatives are under way to achieve this aim.
We have placed a strong focus on product development and we recently brought
out a new smartphone app which enables customers to perform various operations
simply and conveniently on their phones. The response from our customers has
been positive and it encourages us to strive even harder to improve in the
future.” 



For further information please contact Haraldur Gudni Eidsson of Arion Bank's
Communications division at haraldur.eidsson@arionbanki.is, or tel. +354 856
7108.

Attachments:

Financial Statements 1H 2012.pdf

Press Release Financial Statements 1H 2012.pdf