Financial highlights for the second quarter 2024

• Arion Bank reports net earnings of ISK 5.5bn in Q2 2024, compared with ISK 7.1bn in Q2 2023
• Return on equity was 11.5%, compared with 15.5% in Q2 2023
• Earnings per share in ISK of 3.86 in Q2, compared with 4.84 in Q2 2023
• Net interest margin of 3.2%, the same as in Q2 2023
• Strong quarter for net commission income of ISK 4.0bn, compared with ISK 4.2bn in Q2 2023
• Core operating income, defined as net interest income, net commission income and insurance service results (excluding opex of the insurance operation), increased by 1%, compared with Q2 2023
• Operating expenses increased by 19.1%, compared with Q2 2023, largely due to a settlement fine with the FSA
• Effective tax rate was high, 32.6%, due to unfavorable combination of income and expenses
• Cost-to-core income ratio was 46.2%, compared with 39.4% in Q2 2023
• The balance sheet increased by 1.6% during the quarter
• Loans to customers increased by 2.0% during the quarter. The increase was 1.4% in corporate lending and 2.6% in loans to individuals, mainly mortgages
• Deposits from customers increased by 5.6% during the quarter
• Share buybacks of ISK 4.5bn in Q2 2024 and further buybacks of ISK 2.5bn initiated 26 July
• The Bank’s capital ratio was 22.8% and the CET1 ratio was 18.5% at the end of June. The ratios take into account the deduction of 50% of net earnings as foreseeable dividend in line with the Bank’s dividend policy and ISK 3.0bn buyback of own shares approved by the Board and FSA. These ratios comfortably exceed the requirements made by the FSA and Icelandic law

Financial highlights for the first 6 months 2024

• Arion Bank reports net earnings of ISK 9.9bn for 6M 2024, compared with ISK 13.4bn in 6M 2023
• Return on equity was 10.2%, compared with 14.5% in 6M 2023
• Earnings per share in ISK of 6.92, compared with 9.17 in 6M 2023
• Net interest margin of 3.1%, the same as in 6M 2023
• Net commission income of ISK 7.3bn for the first half of the year, a decrease from the previous year. Fees were strong in Q2 following an unusually subdued Q1
• Core operating income, defined as net interest income, net commission income and insurance service results (excluding opex of the insurance operation), decreased by 1% compared with 6M 2023
• Operating expenses increased by 9.8%, compared with H1 2023, partly due to a settlement fine with the regulator
• Effective tax rate was high, 35.1%, due to unfavorable combination of income and expenses
• Cost-to-core income ratio was 47.2%, compared with 43.0% in 6M 2023
• The balance sheet increased by 2.8% from year-end 2023
• Dividend payment of ISK 9.0 per share or a total of ISK 13.1bn in Q1 2024

Benedikt Gíslason, CEO of Arion Bank
“There is plenty to be positive about in the Bank’s financial results for the second quarter of 2024, even though we did not reach our 13% ROE target. Deposits are growing strongly, and interest income and fee income both increased year-over-year on the back of solid momentum in most areas of the business, particularly asset management, card services and loans. Assets under management grew 10% in the first six months of the year, breaking the ISK 1,500 billion barrier for the first time, and are now approaching the Group’s balance sheet in size. The insurance business also performed well, with income growing by 13% compared with the second quarter of 2023. Vörður posted positive financial results despite the fact that the largest single claim in the company’s history was made during the period, with the participation of reinsurers dampening the impact of the claim. The Bank remains strongly capitalized and Tier 1 capital is 18.5%, or 3.3 percentage points above the statutory minimum. Liquidity continues to be excellent, and the funding profile is well balanced.

One of the factors affecting return on equity in the period was a settlement which the Bank reached with the Financial Supervisory Authority of the Central Bank of Iceland towards the end of the quarter. Under this settlement, the Bank agreed to pay of fine of ISK 585 million. If it had not been for this settlement, the Bank’s ROE would have been 12.7% in the second quarter. The settlement with the FSA was made following an inspection by the FSA in the summer of 2022 of the Bank’s AML measures. The FSA’s inspection revealed shortcomings in the Bank’s practices. The Bank took these findings with the utmost seriousness and we undertook a comprehensive review of our practices. We have now significantly reinforced our money laundering defences by enhancing our systems and expanding our AML team which performs this vital role.

In recent years, Arion Bank has been a leader on the domestic corporate advisory market, and during the second quarter the Bank advised on the sole stock market listing of the year so far when Kaldvík was listed on First North. Arion Bank is also advising JBT on its takeover offer for Marel. If JBT’s plans come to fruition, it will be one of the largest deals completed in Iceland in recent decades.

Our focus on running a reliable business and providing outstanding financial services, with convenient digital services at the forefront, has resulted in Arion Bank having been named the bank of the year in Iceland for the last three years by The Banker magazine, a leading global finance news publication published by the Financial Times. In addition, Euromoney recently named Arion as bank of the year in Iceland for 2024 and as Iceland’s number one digital bank. These accolades mirror the results of a survey conducted by Maskína in June, which revealed that bank customers in Iceland rated the Arion app as the best banking app in Iceland for the eighth year in a row. We are grateful for this positive response to our efforts and it inspires us to do even better in the future. We aspire to be a digital leader, as clearly reflected by the diverse array of services available to customers in the Arion app. The app offers customers a simple overview of their finances, including credit card bills, savings, insurance, pensions, and securities holdings. The latest features include Arion Family, where parents can automatically view their children’s accounts and share viewing access to their own finances with their spouse, and Arion Refund which gives people who are customers of both Arion and Vörður the option of a 5% refund on their insurance premiums if they have a claims free year.

Arion Bank is continuing to work on the development of two key residential and commercial building sites in the Reykjavík area. The sites are being transformed into diverse residential communities with related services. Arion Bank owns 51% of the Arnarland site, where 500 residential units and 30,000 m2 of commercial and retail property are being constructed. The Blikastaðaland site is wholly owned by the Bank and covers 100 hectares. The first phase of the project provides for the construction of 1,200 residential units and infrastructure, such as schools and play schools, on 30-35 hectares. Both these projects are being carried out in close cooperation with the local authorities and will significantly boost the supply of residential property in the next few years.”

Investor meeting / webcast in English on 26 July at 10:30 CEST (8:30 GMT)
Arion Bank will be hosting a meeting at the Bank’s headquarters in Borgartún 19, Reykjavík, on Friday 26 July at 10:30 CEST (8:30 GMT) where CEO Benedikt Gíslason and CFO Ólafur Hrafn Höskuldsson will present the results and give an update on the economic environment.

The meeting will take place in English and will also be streamed live. The webcast will be accessible live on Lumiconnect and a link is also available on the Bank’s website under Investor Relations.

Participants attending virtually will be able to ask questions during the meeting through a message board on the same site. Answers will be provided by presenters at the end of the webcast.

Financial calendar
Arion Bank’s financial calendar is available on the Bank’s website.