Arion Bank hf. - Financial Statement Release

Arion Bank's financial results for the first quarter of 2013

Arion Bank reported net earnings of ISK 1.4 billion for the first quarter of
2013, compared with ISK 4.5 billion for the same period in 2012. Return on
equity was 4.3%, compared with 16.5% in Q1 2012. Return on equity based on
regular operations was 6.3%, compared with 12.5% in Q1 2012. Total assets
amounted to ISK 907.5 billion, compared with ISK 900.7 billion at the end of
2012. 

The Bank's capital ratio at the end of Q1 2013 was 24.1%, compared with 24.3%
at the end of 2012. 


Highlights of the Q1 2013 interim financial statement:

  -- Net earnings of ISK 1.4 billion in Q1 2013, compared with ISK 4.5 billion
     in Q1 2012.
  -- Earnings from regular operations of ISK 2.1 billion, compared with ISK 3.6
     billion in Q1 2012.
  -- Operating income decreased between years on account of exchange rate losses
     to ISK 8.8 billion, compared with ISK 10.9 billion in Q1 2012.
  -- Net interest income of ISK 6.3 billion, virtually unchanged from Q1 2012.
  -- Net valuation change on loans of ISK 0.3 billion resulting from written
     down and written off loans of ISK 2.7 billion and a valuation increase of
     ISK 2.4 billion.
  -- Return on equity was 4.3%, compared with 16.5% in Q1 2012. Return on equity
     based on regular operations was 6.3%, compared with 12.5% in Q1 2012.
  -- The interest-rate differential as a percentage of the average
     interest-bearing assets was 3.1%, unchanged from Q1 2012.
  -- Cost-to-income ratio was 72.6%, compared with 53.1% in Q1 2012. The high
     ratio in this quarter is partly due to a provision for a fine imposed on
     Valitor by the Icelandic Competition Authority. The cost ratio on regular
     operations was 66.7%, compared with 51.4% in Q1 2012.
  -- Loans to customers of ISK 565.5 billion at the end of Q1 2013, virtually
     the same as at the end of 2012.
  -- Total assets of ISK 907.5 billion, compared with ISK 900.7 billion at the
     end of 2012.
  -- Shareholders' equity of ISK 132.3 billion, compared with ISK 130.9 billion
     at the end of 2012.



Höskuldur H. Ólafsson, CEO of Arion Bank:

“The first quarter results were below expectations. Although interest income
and commission income are broadly in line with projections, changes in the
value of loans and particularly in exchange rates have had a negative impact on
these results. The ISK 500 million fine imposed on Valitor by the Competition
Authority was expensed during the first quarter and this also adversely
affected the Bank's profitability. However, it is important that the Bank's
core activities and underlying financial position have remained stable. The
Bank's capital ratio is more than 24%, well in excess of the FME's stipulated
minimum, and this underlines the Bank's strong position. 

During the first quarter we focused on diversifying the Bank's funding. We
continued to issue non-indexed covered bonds in Iceland, and Arion Bank became
the first Icelandic financial institution since 2007 to issue bonds on the
international markets when it issued instruments denominated in Norwegian
kroner. While it was not a large issue, it was of great significance. It is
vital for the Icelandic business sector that the country's main financial
institutions have access to international credit markets. This represented an
important step in that direction. Since then we have sensed a greater interest
among international lenders in the Bank and developments in Iceland, which can
only be positive for us. 

Information technology represents a significant part of the Bank's activities
and its overall costs. Recently we completed an extensive upgrade of the Bank's
SAP business software. It required the participation of around 40 employees and
20 external advisers, both from Iceland and overseas. We estimate that more
than 6,000 working hours were expended on the project in the last few months
and that the total cost will be approximately ISK 230 million. Part of this sum
was expensed during the quarter. This upgrade makes the Bank's SAP systems
better adapted to Arion Bank's activities, increases data security and boosts
the efficiency of the systems."



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:

Press Release - Arion Banks Financial Statements Q1 2013.pdf

Arion Bank Interim Financial Statements 31.3.2013.pdf