Arion Bank hf. - Financial Statement Release

Arion Bank's financial results for the first quarter of 2014

Arion Bank reported net earnings of ISK 2.9 billion for the first three months
of 2014, compared with ISK 1.4 billion for the same period in 2013. Return on
equity was 7.8%, compared with 4.3% in the same period of 2013. Return on
equity based on core operations was 5.9%, compared with 7.6% in the same period
of 2013. Total assets amounted to ISK 933.1 billion, compared with ISK 938.9
billion at the end of 2013. 

The Bank's capital ratio at the end of the period was 22.5%, compared with
23.6% at the end of 2013. 

 Highlights of the Interim Financial Statements:

  -- Net earnings of ISK 2.9 billion, compared with ISK 1.4 billion during the
     same period of 2013.
  -- Income tax and the bank levy amounted to ISK 2.0 billion, compared with ISK
     0.7 billion during the same period of 2013.
  -- Earnings from core operations of ISK 1.6 billion, compared with ISK 2.1
     billion in the same period of 2013.
  -- Operating income of ISK 9.0 billion, compared with ISK 9.1 billion during
     the same period of 2013.
  -- Net interest income of ISK 5.5 billion, compared with ISK 6.3 billion
     during the same period of 2013. The decrease is largely due to lower
     inflation.
  -- Net commission income of ISK 3.1 billion, compared with ISK 2.4 billion
     during the same period of 2013. The increase is largely due to higher
     commission income from credit cards and asset management.
  -- Other operating expenses of ISK 2.7 billion, compared with ISK 3.3 billion
     during the same period of 2013.
  -- Positive net valuation change of ISK 2.0 billion, compared with a negative
     ISK 322 million in the same period last year. Net valuation change on
     corporate loans of ISK 2.0 billion during the first quarter and retail loan
     write-downs of ISK 0.8 billion. Valuation increase of other assets of ISK
     0.7 billion.
  -- Return on equity was 7.8%, compared with 4.3% in the same period of 2013.
     Return on equity based on core operations was 5.9%, compared with 7.6% in
     the same period of 2013.
  -- The net interest margin as a percentage of the average interest-bearing
     assets was 2.6%, compared with 3.1% in the same period of 2013.
  -- The cost-to-income ratio was 69.0%, compared with 72.6% in the first
     quarter of 2013. The cost-to-income ratio on core operations was 66.8%,
     compared with 66.7% in the first quarter of 2013.
  -- Total assets amounted to ISK 933.1 billion at the end of 2013, compared
     with ISK 938.9 billion at the end of 2013.
  -- Shareholders' equity amounted to ISK 147.8 billion, compared with ISK 144.9
     billion at the end of 2013.

Höskuldur H. Ólafsson, CEO of Arion Bank:

“Arion Bank's first quarter results are satisfactory. Net earnings increased
compared with the same period in 2013, despite increased taxation, and return
on equity was 7.8%. However, the Bank's income decreased, primarily as a result
of the lower net interest margin as inflation was lower in the first quarter
than during the same period last year. Furthermore, the market conditions have
led to a reduction in the value of the Bank's assets in securities and foreign
currency. We are satisfied with the growth in commission income compared with
last year following targeted efforts to consolidate the Bank's sources of
commission income. The increase is primarily generated by asset management and
payment card transactions. Over the last year the Bank has also made good
progress in reducing operating expenses, while the number of employees has also
decreased between periods. 

An important milestone was reached at the beginning of the year when Standard &
Poor's assigned Arion Bank a credit rating of BB+, the first Icelandic bank to
be rated by S&P since the financial crisis.  A credit rating from an
international agency will facilitate our access to the international credit
markets. Arion Bank is, however, fully funded and has no refunding requirements
in the next few years. Nevertheless, when the market conditions are right, we
will seek to secure credit with the aim of improving the quality of the Bank's
funding and reducing funding costs.” 


Conference call in English:

Arion Bank will be hosting a conference call in English tomorrow, Thursday 22
May at 13:00 GMT (15:00 CET), where Stefán Pétursson, CFO, will present the
annual results. 
Those who would like to participate in the conference call can send an e-mail
to ir@arionbanki.is and will then receive instructions with dial in details. 


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

Attachments:

Investor Presentation Arion Banks Interim Consolidated Financial Statements 31032014.pdf

Arion Banks Interim Consolidated Financial Statements 31032014.pdf

Press Release Arion Banks Interim Consolidated Financial Statements 31032014.pdf