Arion Banki — Earnings Release 2014

Feb 24, 2015

Arion Bank?s 2014 financial results

Arion Bank?s 2014 financial results

Arion Bank reported net earnings of ISK 28.7 billion for the year 2014,

compared with ISK 12.7 billion for the year 2013. Return on equity was 18.6%,

compared with 9.2% in 2013. Total assets amounted to ISK 933.7 billion,

compared with ISK 938.9 billion at the end of 2013.

The Bank?s capital ratio at the end of 2014 was 26.3%, compared with 23.6% at

the end of 2013 and CET 1 was 21.8% compared with 19.2% in the previous year.

The Consolidated Financial Statements of Arion Bank have been audited by the

Bank?s auditor, Ernst & Young ehf.

Highlights of the annual financial statement

-- Net earnings of ISK 28.6 billion, compared with ISK 12.7 billion in 2013.

-- The capital ratio was 26.3% at the end of the year, compared with 23.6% at

the end of 2013.

-- Return on equity was 18.6%, compared with 9.2% in 2013.

-- Net interest income of ISK 24.2 billion, compared with ISK 23.8 billion in

-- Net commission income of ISK 13.3 billion, compared with ISK 11.2 billion

in 2013.

-- Operating income increased between years and amounted to ISK 54.0 billion,

compared with ISK 44.3 billion in 2013.

-- Net valuation change during the year is positive, amounting to ISK 2.1

billion, compared with a negative figure of ISK 0.7 billion in the previous

year.

-- Income tax and the bank levy amounted to ISK 7.3 billion, compared with ISK

6.0 billion in 2013.

-- Earnings from discontinued operations of ISK 6.8 billion, compared with ISK

0.4 billion in 2013.

-- The cost-to-income ratio was 50.1%, compared with 57.3% in 2013.

-- Total equity amounted to ISK 162.2 billion, compared with ISK 144.9 billion

at the end of 2013. The Bank paid a dividend of ISK 7.8 billion to its

shareholders in 2014.

Highlights of the fourth quarter

-- Net earnings in the fourth quarter amounted to ISK 6.0 billion, compared

with ISK 2.5 billion in the fourth quarter of 2013.

-- Return on equity in the fourth quarter was 14.8%, compared with 7.1% for

the same period in 2013.

Höskuldur H. Ólafsson, CEO of Arion Bank:

?The results for 2014 were positive. Regular operations were strong and the

results of all business segments exceeded expectations. Irregular items had a

positive impact on the financial results, in particular the sale of the Bank's

holding in HB Grandi and the successful listing of the company on NASDAQ

Iceland. Valuation changes also had a positive effect.

Arion Bank has been successful in increasing the diversification of its funding

and is now by far the largest issuer of covered bonds in Iceland.

It has been our expectation for a number of years that the Bank?s net interest

margin would decrease, narrowing in fact by 0.6 percentage points from 3.4% to

2.8% over a period of two years. We have therefore focused our efforts on

increasing the contribution of commission income in all the Bank?s business

segments. This we have achieved, commission income rising by almost 19% over

the year, mainly commission income in investment banking and in international

payment cards.

Arion Bank increased its holding in Valitor to 99% by acquiring a 38% stake

from Landsbanki. We have high expectations for Valitor. The company has been at

the forefront of developing the payment card system in Iceland and occupies a

key position in the operations, strategy and future vision of Arion Bank.

Valitor has recently been establishing itself internationally and it has an

exciting future ahead of it.

Irregular items will have less of an impact in the near term as the Bank's

operations are stable and debt recovery work, a legacy of the financial crisis,

decreases from one year to the next. One of our main priorities will be to

continue to enhance our services to our customers and in doing so consolidate

our regular operations and profitability. The focus will remain on commission

income and further rationalization through the continued development of our

service channels and digital banking services for our customers. Here I have in

mind the Arion banking app, which has proven highly popular amongst our

customers, and our new branch strategy as demonstrated in our new flagship

branch in Reykjavik.?

Conference call in English

Arion Bank will be hosting a conference call in English, Wednesday 25 February

at 9:15 GMT (10:15 CET), where Stefán Pétursson, CFO, will present the 2014

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. +354 856

7108.