Arion Bank hf. - Financial Statement Release

ARION BANK’S H1 2015 FINANCIAL RESULTS

Arion Bank reported net earnings of ISK 19.3 billion for the first six months
of 2015, compared with ISK 17.4 billion for the same period of 2014. Arion
Bank's net earnings for the first half of 2015 were significantly affected by
irregular items, as in the first half of 2014. The main factors were one-off
events such as the Bank's sale of shares in the real estate company Reitir and
the international drinks manufacturer Refresco Gerber and the subsequent stock
market listing of these companies. Return on equity was 22.8%, compared with
23.4% in the same period of 2014. Net earnings from regular operations amounted
to ISK 8.7 billion for the first six months of 2015, compared with ISK 6.0
billion for the same period last year. Return on equity from regular operations
was 10.8%, compared with 8.1% for the first half of 2014. Total assets amounted
to ISK 974.8 billion, compared with ISK 933.7 billion at the end of 2014. 

The Bank's capital ratio at the end of the period was 23.2%, compared with
26.3% at the end of 2014. The decrease is mainly related to a dividend payment
of ISK 12.8 billion and the prepayment of a subordinated loan of ISK 20 billion
during the period. Tier 1 was 21.8%, the same as at the end of 2014. 

Highlights of the Interim Financial Statements

  -- Net earnings of ISK 19.3 billion, compared with ISK 17.4 billion during the
     same period of 2014.
  -- Net earnings from regular operations amounted to ISK 8.7 billion, compared
     with ISK 6.0 billion for the same period last year.
  -- The capital ratio was 23.2% at the end of the period, compared with 26.3%
     at the end of 2014.
  -- Return on equity was 22.8%, compared with 23.4% in the same period of 2014.
     Return on equity from regular operations was 10.8% during the first six
     months of 2015, compared with 8.1% during the same period last year.
  -- Net interest income of ISK 13.2 billion, compared with ISK 12.2 billion
     during the same period of 2014.
  -- Net commission income of ISK 7.4 billion, compared with ISK 6.6 billion
     during the same period of 2014.
  -- Operating income increased between years and amounted to ISK 36.1 billion,
     compared with ISK 25.7 billion during the same period of 2014. This sharp
     increase is related to the profit from the sale and valuation change of
     shareholdings in the real estate company Reitir fasteignafélag hf. and in
     Refresco Gerber in connection with the listing of the companies.
  -- Net valuation change during the period was negative, amounting to ISK 0.1
     billion, compared with a positive valuation change of ISK 2.0 billion
     during the same period of 2014. Net valuation change was negatively
     affected during the period by an additional impairment of the loan
     portfolio of the subsidiary AFL - sparisjóður amounting to ISK 1.7 billion.
     Net valuation change of other loans in the Group was positive by a similar
     amount.
  -- Income tax amounted to ISK 2.4 billion, compared with ISK 2.5 billion
     during the same period of 2014.
  -- The cost-to-income ratio was 36.5%, compared with 50.5% in the same period
     of 2014. The cost-to-income ratio for regular operations was 50.3%,
     compared with 60.2% during the same period of 2014.
  -- Total equity amounted to ISK 168.4 billion, compared with ISK 162.2 billion
     at the end of 2014.

Höskuldur H. Ólafsson, CEO of Arion Bank:

“Arion Bank's financial results for the first six months of the year were good.
One-off events from the first quarter, when the Bank sold holdings in Reitir
and the international soft drinks manufacturer Refresco Gerber and the
companies were subsequently listed, continue to have a positive effect on the
results. The strong results in the second quarter were primarily driven by the
Bank's regular operations. The Bank's operations continue to gain strength and
commission income, chiefly from the corporate sector, grew 13% between years.
We are also seeing the effects of the improved economic situation and greater
economic activity reflected in the growth in corporate loans, particularly to
property developers, the transportation and tourism industries, and the fishing
sector, which is very positive. 

Standard & Poor's recently raised Arion Bank's credit rating and the Bank is
now in an investment grade which further improves access to the international
funding markets. This followed the upgrade by Standard & Poor's of the
Icelandic sovereign rating after the government announced its plans to lift the
capital controls. The agreement made by the authorities and the creditors will
result in changes to Arion Bank's financial position, but it has long been
clear that we are well positioned to deal with changes resulting from the
lifting of the capital controls. 

Since Arion Bank gained control of AFL - sparisjóður, it has come as a surprise
to see what a serious situation the savings bank finds itself in. Independent
advisors were brought in to evaluate a major segment of its loan portfolio and
it has proven necessary to make additional impairments of ISK 1.7 billion in
the first half of the year. However, other valuation changes in the Group's
loans are positive by a similar amount and the combined effect of valuation
changes has a limited effect on the financial results."



Conference call in English

Arion Bank will be hosting a conference call in English on Thursday 27 August
at 14:00 BST (15:00 CET), where Stefán Pétursson CFO, will present the 2015
first half 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 of Arion Bank's
Communications division at haraldur.eidsson@arionbanki.is, or tel. +354 444
7108.

Attachments:

Press release Arion Bank 6 M 2015.pdf

Investor presentation Arion Bank 6 M 2015.pdf

Arion Bank - Interim Consolidated Financial Statements 30 June 2015.pdf