Kvika banki

Kvika banki hf. Consolidated Financial Statements 31 December 2024 Kvika banki hf. • Katrínartún 2 • 105 Reykjavík • Iceland • Reg. no. 540502-2930 Kvika banki hf. Table of Contents Page 1 2 7 10 11 12 13 15 16 17 19 21 26 37 55 59 63 Appendix - unaudited 78 84 EU Taxonomy Regulation .................................................................................................................................................. Statement on the Corporate Governance of Kvika banki hf. 2024 ................................................................................... - General information ...................................................................................................................................................... Consolidated Statement of Cash Flows ............................................................................................................................ - Significant accounting policies ....................................................................................................................................... - Risk management .......................................................................................................................................................... - Financial assets and financial liabilities ......................................................................................................................... - Income statement .......................................................................................................................................................... - Statement of Financial Position ..................................................................................................................................... - Other information .......................................................................................................................................................... - Segment information ..................................................................................................................................................... Independent Auditor's Report .......................................................................................................................................... Notes to the Consolidated Financial Statements ............................................................................................................. Consolidated Income Statement ...................................................................................................................................... Endorsement and Statement by the Board of Directors and the CEO ............................................................................. Kvika highlights ................................................................................................................................................................. Consolidated Statement of Comprehensive Income ....................................................................................................... Consolidated Statement of Financial Position .................................................................................................................. Consolidated Statement of Changes in Equity ................................................................................................................. Consolidated Financial Statements 31 December 2024 Kvika banki hf. Endorsement and Statement by the Board of Directors and the CEO About the Bank Operations during the year 2024 Financial position Status of the TM sales process Operational outlook The Group's external environment is expected to turn increasingly supportive. Growth is likely to recover in key markets, while market pricing suggests that nascent rate cutting cycles will continue throughout 2025 both in Iceland and the UK, which we expect to provide a further tailwind to the Group's operations via continued loan book growth, improved net interest margins and increased market activity. Additionally, in July 2024, Kvika issued ISK 500 million in Tier-2 subordinated bonds to further strengthen the Bank's capital base. This issuance was a tap on subordinated bonds originally issued in December 2023. These are the Consolidated Financial Statements of Kvika banki hf. ("Kvika" or the "Bank") and its subsidiaries (together the "Group") for the year 2024. Kvika operates as well as a house of brands that are highly focused and excel in their field. The main brands are Kvika, Kvika Asset Management, Auður, Aur, Lykill, Netgíró, and Straumur, as well as Ortus Secured Finance in the UK. Kvika is a specialized financial institution strategically positioned to increase competition and transform financial services in Iceland. Operating without a branch network, Kvika provides businesses, investors, and individuals with investment banking, insurance, asset management, payment, and banking services. The Bank is listed on the main list of Nasdaq OMX Iceland. Kvika operates in four business segments, two which are operated under the Kvika Bank brand, Commercial Banking and Investment Banking, and two in own-brand subsidiaries, Kvika Asset Management and Kvika Securities Ltd., the Group's operations in the UK. The insurance segment, operated through the subsidiary TM tryggingar hf. ("TM") has been sold to Landsbankinn hf. This transaction is currently pending approval from the Icelandic Competition Authority. Profit before taxes from continuing operations for the fourth quarter amounted to ISK 1,601 million (Q4 2023: ISK 363 million) and for the year it amounted to ISK 5,817 million (2023: ISK 3,009 million). Pre-tax annualised return on weighted tangible equity (RoTE) from continuing operations was 18.5% for the quarter and 18.8% for the full year compared to 10.2% in 2023, based on the tangible equity position of Kvika, net of TM, at the beginning of the year adjusted for changes in share capital and transactions with treasury shares during the year. Profit after taxes, including discontinued operations, for the fourth quarter amounted to ISK 3,447 million (Q4 2023: ISK 1,578 million) and for the year it amounted to ISK 8,150 million (2023: ISK 4,034 million). According to the Consolidated Statement of Financial Position, equity at the end of the year amounted to ISK 89,517 million (31.12.2023: ISK 81,958 million), and total assets amounted to ISK 354,594 million (31.12.2023: ISK 335,397 million). The Group's statement of financial position grew by ISK 19 billion or 5.7% during the year 2024. Loans to customers grew by ISK 14.0 billion or 10.3% during the year. Liquid assets amounted to ISK 105.7 billion at end of December 2024, which is equal to 28.9% of total assets and 70.3% of loans to customers. On 30 May 2024 the Bank announced that it had signed a purchase agreement with Landsbankinn hf., in which Landsbankinn hf. purchased 100% of the share capital in TM. On 17 March 2024, the Bank announced that it had received binding offers for the purchase of the share capital of TM. Due diligence review has been completed, and the purchase agreement has been signed with standard conditions of approval from The Financial Supervisory Authority of the Central Bank of Iceland and the Icelandic Competition Authority ("ICA"). On 26 September 2024, the Financial Supervisory Authority of the Central Bank of Iceland has published the results of its assessment, finding that Landsbankinn is eligible to control a qualifying holding in TM. The ICA has yet to conclude its review of the transaction. The purchase price according to the purchase agreement is ISK 28.6 billion and Landsbankinn hf. will pay for the share capital in cash. The purchase price is based on TM's balance sheet at the end of 2023. The final purchase price will be adjusted for changes in TM's tangible equity from the beginning of the year 2024 to the completion date, and the amount of the change will be added to or subtracted from the price according to the purchase agreement. The outlook for Kvika in 2025 is positive, underpinned by Kvika's multiple operating segments across its key markets in Iceland and the UK, which provide a diversified source of income. Kvika aims to build on its success in 2024, having already achieved revenue growth driven by loan book expansion, improved interest margins and a recovery in fees and commissions, while managing costs. The Group's net operating income during the year was ISK 17,184 million (2023: ISK 14,852 million). Net interest income amounted to ISK 9,681 million (2023: ISK 8,021 million). Net fee income amounted to ISK 6,137 million (2023: ISK 5,916 million). Other operating income amounted to ISK 1,367 million (2023: ISK 915 million). Administrative expenses during the period amounted to ISK 10,608 million (2023: ISK 10,785 million). During the period, the Group had a net impairment charge of ISK 605 million (2023: ISK 1,027 million). Previously, in May 2024, Kvika tapped an additional SEK 500 million in floating-rate bonds, priced at a 240-basis-point spread over the 3-month STIBOR. Compared to the 410-basis-point spread on issuances in 2023, both the May 2024 and the January 2025 transactions represent a significant improvement in Kvika's bond pricing. In mid-January 2025, Kvika completed the sale of 3.25-year floating-rate bonds totalling SEK 600 million and NOK 400 million. These bonds were priced at a spread of 200 basis points over 3-month STIBOR (for the SEK tranche) and 3-month NIBOR (for the NOK tranche). With over 20 investors participating, it marked Kvika's largest international bond issuance to date. Kvika's financial position remains strong, with robust liquidity and capital buffers well above regulatory requirements. It is expected to strengthen further following the sale of its insurance business, TM. The divestment will transform Kvika's capital position, allowing it to retain significant capital to take advantage of growth opportunities by expanding its loan book across all business units, while utilising internal infrastructure more efficiently. Growth in mortgage lending is expected to reduce the average risk weight of the loan book and positively impact NPL ratios in the coming year. Consolidated Financial Statements 31 December 2024 2 Kvika banki hf. Endorsement and Statement by the Board of Directors and the CEO Economic outlook Capital adequacy and dividends Growth in the Icelandic economy slowed markedly in 2024, with the economy unlikely to expand meaningfully for the year as a whole. Tight monetary policy has curbed domestic demand while exporting sectors have faced challenges due to slowing growth in tourism, weak capelin stocks and electricity rationing to heavy industry. However, the slowdown is expected to give way to a robust recovery, with growth projected to reach nearly 2% in 2025 and average 2.5% annually in subsequent years. Key drivers include a rebound in private consumption supported by stronger real wage growth and interest rate cuts, continued growth in tourism and green shoots in nascent exporting sectors. While global economic conditions remain uncertain, Iceland's economic outlook stands out favourably. Among advanced economies, growth prospects for Iceland compare positively, particularly against the backdrop of muted performance in the euro area. Iceland's energy independence, underpinned by its reliable renewable base load power, provides a significant competitive advantage. This stability has facilitated large investments in export- oriented sectors, particularly pharmaceuticals and land-based fish farming, which are expected to yield meaningful growth over a medium-term horizon. These developments underscore Iceland's strong positioning for sustainable growth and resilience in the face of global challenges. Asset markets have already seen a degree of recovery, with equities delivering strong returns towards the end of 2024, expected to drive increased trading volumes and rebounding performance-related fees in asset management. Furthermore, spreads on peers' Eurobonds have tightened markedly in the last year, potentially offering opportunities to lower funding costs by refinancing non-ISK debt in international markets in the coming year. Declining inflation is expected to allow the Group to maintain a lean cost base even as its operations grows, and balance sheet expands. Additionally, the Icelandic labour market has shown remarkable resilience amid the economic slowdown. While growth in employment has moderated compared to recent years, job creation remains positive, and unemployment seems to be stabilising at relatively low levels. This reflects the flexibility of the Icelandic labour market, which has benefitted from migration flows and close integration with the European labour market. Iceland's inflationary pressures have eased significantly over the past year. Headline inflation measured 4.8% in December, reflecting a three- percentage-point decline compared to the previous year. This progress has been broad-based, supported by slowing pressures on housing and goods prices. Encouragingly, inflation expectations have also moderated across various horizons. The outlook suggests a continued deceleration, with inflation expected to approach the Central Bank's 2.5% target by mid-2026. This environment is expected to support growth in purchasing power and provide a stronger foundation for economic growth and financial stability. A milestone was reached as the Central Bank initiated its first rate cut in over four years in October. With the key interest rate now at 8.0%, monetary policy has entered a phase of gradual easing. This shift marks a response to declining inflation and an evolving economic landscape. A downward sloping yield curve anticipates further rate reductions over the coming year, signalling optimism about a more accommodative monetary environment. These changes bode well for the Bank's lending and investment activities, as headwinds from restrictive policy subside. The Icelandic economy enters the coming year at an inflection point in the business cycle. The economy has remained resilient throughout a challenging period of disinflation and is on track to achieve a soft landing. Although growth has slowed markedly in the last year as restrictive monetary policy has weighed on domestic demand, Iceland is widely expected to avoid a recession and enter recovery from this year onward. Recent developments point to an encouraging trajectory for disinflation, setting the stage for greater economic stability, lower interest rates, and a more supportive backdrop for the financial sector. Despite the benign outlook, several risks warrant vigilance. Externally, geopolitical tensions, increased trade fragmentation, weak growth in key trading partners and the potential for renewed global inflationary pressures could pose challenges. Domestically, the labour market's response to evolving economic conditions, coupled with the pace of disinflation, will be critical. Additionally, fluctuations in tourism activity and global commodity prices remain pivotal factors influencing Iceland's economic trajectory. The Bank remains committed to monitoring these dynamics and ensuring preparedness to navigate any headwinds effectively. As Iceland hopefully enters a new period of growth, its disinflationary progress, the onset of monetary easing, and the anticipated economic recovery present opportunities for the Bank to continue driving value for stakeholders. The Group's solvency ratio at 31.12.2024 was 1.33 (31.12.2023: 1.25) with a regulatory minimum requirement of 1.0. The Bank's 2024 Annual General Meeting ("AGM") approved a motion from the Board of Directors ("BOD") permitting the Bank to purchase up to 10% of own shares subject to regulatory approvals. This authorisation applies until the next annual general meeting in 2025. In July 2024, the BOD decided to exercise a part of that authorisation and established a buy‐back programme to carry out the purchase of shares for a total consideration amount of ISK 1 billion but for no higher nominal amount than 100,000,000 shares. The buy-back programme was completed in September 2024 when the Bank had purchased shares for ISK 1 billion. The Central Bank's Resolution Authority presented the Group with their first minimum requirement for own funds and eligible liabilities (MREL) in January 2025. The MREL requirements, including the combined buffer requirement, are 28.4% of RWEA and 6.0% of total exposure amount ("TEM"). At the end of 2024 these ratios were 41.1% and 31.1% respectively. The Financial Supervisory Authority of the Central Bank published the results of the Supervisory Review and Evaluation Process ("SREP") for Kvika based on financial information at year-end 2023 on 10 July 2024. The capital requirement under Pillar II changed to 3.6% of total risk-weighted exposures amount ("RWEA"), a decrease of 0.4pp from the year before. On 4 December 2024 the systemic risk buffer decreased by 0.8pp due to a decrease by the Central Bank of Iceland. As of 31 December 2024, the systemic risk buffer decreased by a further 0.1pp due to changes in composition of risk weighted exposure amount between Iceland and UK. Hence Kvika's total capital requirement at 31.12.2024, taking into account all capital buffers, amounted to 18.0%. Kvika's capital adequacy ratio was 22.8% at the end of December 2024 (31.12.2023: 22.6%). Kvika's CET1 requirement was 12.9% compared to a CET1 ratio of 19.9% at the end of December 2024. Consolidated Financial Statements 31 December 2024 3 Kvika banki hf. Endorsement and Statement by the Board of Directors and the CEO Share capital and shareholders Shareholder 31.12.2024 31.12.2023 9.17% 9.56% 7.93% 7.89% 7.09% 7.01% 5.64% 5.43% 5.58% 6.00% 2.59% 2.55% 2.55% 3.54% 2.39% 1.28% 2.33% 2.30% 2.32% 2.31% 47.60% 47.86% Risk management Corporate governance Lífsverk lífeyrissjóður ..................................................................................................................................... Lífeyrissjóður starfsmanna ríkisins A-deild .................................................................................................... Stoðir hf. ......................................................................................................................................................... Gildi - lífeyrissjóður ........................................................................................................................................ Lífeyrissjóður verzlunarmanna ...................................................................................................................... The BOD proposes that a dividend of 0.44 ISK per share for a total amount of ISK 2,050 million, taking into account treasury shares held by the Group, will be paid in the year 2025 on 2024 operations. The dividend payment amounts to 25% of Profit after tax for the year, which is in line with the Bank's dividend policy. Additionally, the BOD will decide on a extraordinary dividend upon receipt of the purchase price for TM as well as initiating a share buy back programme, for which the Bank has received an approval from the Central Bank of Iceland that is contingent on the finalisation of the TM sale. Birta lífeyrissjóður .......................................................................................................................................... Stapi lífeyrissjóður ......................................................................................................................................... Landsbankinn hf. ............................................................................................................................................ Almenni lífeyrissjóðurinn ............................................................................................................................... Frjálsi lífeyrissjóðurinn ................................................................................................................................... Further information about the shareholders of the Bank is provided in note 67. The objective of risk management is to promote a good and efficient culture of risk awareness within the Group and to increase the understanding of employees and management on the Group's risk taking, in addition to an assessment process related to risk and capital position. An emphasis is placed on being up to speed on the latest developments and adoption of rules related to risk management, such as regarding capital- and liquidity management. The Group faces various risks associated with its operations as a financial conglomerate that arise from its day-to-day operations. Active risk management entails analysing risk, measuring it and taking actions to limit it, as well as monitoring risk factors across the Group. The Group's risk management and main operations are described in the notes accompanying the Consolidated Financial Statements. Refer to notes 42-58 on the analysis of exposure to various types of risk. Kvika is obliged to observe recognised corporate governance guidelines, pursuant to Par. 7 of Article 54 of Act No. 161/2002, on Financial Undertakings. The Bank complies with chapter VII of Act No. 161/2002 and in most respects with the Guidelines on Corporate Governance issued jointly in February 2021 by the Chamber of Commerce, Confederation of Icelandic Enterprise (SA) and Nasdaq Iceland. The Bank's annual general meeting in March 2024 approved a proposal to establish a Nomination Committee. The committee serves as an advisory role to facilitate informed decision-making be shareholders when selecting board members. Kvika has three times been recognized as a company which has achieved excellence in corporate governance following a formal assessment based on the Icelandic Guidelines on Corporate Governance issued by the Icelandic Chamber of Commerce, Confederation of Icelandic Enterprise (SA) and Nasdaq Iceland, first in 2018, in 2021 and in 2024. The recognition applies for three years at a time unless there have been significant changes to the BOD or the ownership of the Bank. The BOD intends to have such an assessment carried out on a regular basis and maintain the aforementioned recognition. Additionally, Kvika complies with Guidelines of the European Banking Authority (EBA) on Internal Governance (EBA/GL/2021/05), cf. Art. 15 of Regulation of the European Parliament and of the Council no. 1093/2010, which was incorporated into Icelandic law with Act no. 24/2017 on European Supervisory System on the Financial Market. In accordance with the Bank´s articles of association, five members and two alternate members are elected to the BOD each year at the annual general meeting. The eligibility of members of the BOD is subject to statutory law. It is the Bank´s policy concerning election of the BOD that the BOD collectively has sufficient knowledge, competency and experience to understand the Bank´s operations, including the main risk factors. The ratio of each gender of members of the BOD and alternate members shall be at least 40%. The election of BOD members and their eligibility is furthermore governed by the provisions of the Act on Public Limited Liability Companies No. 2/1995 and the Act on Financial Undertakings No. 161/2002. The Bank's issued share capital amounted to ISK 4,722 million as at 31 December 2024 (31.12.2023: ISK 4,781 million). At the end of the year the Bank held ISK 62 million treasury shares (31.12.2023: ISK 59 million). The shares were acquired through a share buy-back programme. The net change in the Bank's issued share capital amounted to a reduction in nominal value of ISK 59 million during the year (ISK 148 million reduction during the year 2023). The Bank had 2,741 shareholder at year-end 2024 (2023: 2,876), none of which held more than 10% of shares in the Bank (2023: 0). The ten largest shareholders are as follows: The 2024 AGM also approved a motion from the BOD to, subject to approval from the Financial Supervisory Authority of the Central Bank of Iceland, decrease the share capital of the Bank by 58,952,375 shares by cancelling treasury shares held by the Bank. In March 2024, the share capital reduction was carried out. Furthermore, the 2024 AGM approved a motion from the BOD that no dividend will be paid in the year 2024 on 2023 operations. Through the purchase of own shares in 2024, the Bank's dividend policy was met. The dividend policy states that the aim is for shareholders to be returned an annual dividend of at least 25% of last year's profit after taxes, whether in the form of dividends or through the purchase of own shares. In 2024, changes were made to the risk management framework regarding sustainability risk. Previously, sustainability risk was categorized under operational risk, but it has now been elevated within the risk management framework and is considered an independent risk factor. Consolidated Financial Statements 31 December 2024 4 Kvika banki hf. Endorsement and Statement by the Board of Directors and the CEO Further information about the Bank's corporate governance can be found in an appendix to these financial statements which contains a corporate governance statement. A copy of the statement is available on the Bank's website, www.kvika.is. Sustainability and non-financial reporting Kvika's strategy is to increase competition in financial services and simplify customers' financial affairs. Its core values are long-term thinking, simplicity, and courage. One of the guiding principles of the Group is to be a responsible participant in society and in 2022 a sustainability policy was issued, which remains in effect for Kvika Bank and the Group based on Kvika's ownership policy for key subsidiaries. Relevant supporting policies were subsequently developed or updated, such as policies on education and career development, equality, health, and human resources, as well as a response plan against bullying, harassment, and violence. There has been no need for a separate human rights policy at Kvika, given that the Group primarily operates in Iceland, where there is a clear legal framework for human rights issues. Kvika supports the UN Sustainable Development Goals (SDGs) and has selected six as priority areas: goal no. 3 – good health and well-being; goal no. 4 – quality education; goal no. 5 – gender equality; goal no. 9 – industry, innovation, and infrastructure; goal no. 13 – climate action; and goal 17 – partnerships for the goals. The Bank monitors progress on initiatives within the Group that align with these goals. Kvika is committed to reducing its carbon footprint and progress was made in the year 2024 in reducing greenhouse gas (GHG) emissions. Scope 1 emissions decreased by 38% year-over-year and Scope 3 by 51%. These reductions are attributed to initiatives such as transitioning from fossil-fuel- powered to electric vehicles, reducing employee flights and other measures. Overall, Kvika's total GHG emissions for 2024 were 282 tCO₂e. The main aspects of internal and external control and the Bank's management in connection with the accounting process are described in detail in the Statement on the Corporate Governance of Kvika. The BOD is responsible for the Group's risk management framework. It approves the Kvika Banki Group risk policy, which provides an efficient and transparent framework for managing risk and risk appetite in relation to identified risk factors. The Bank´s articles of association may be amended at lawfully convened shareholders´ meetings, provided that the notice of the meeting specifies that proposals for such amendments are scheduled and outlines the main substance of the amendments. An amendment takes effect only if approved by at least 2/3 of the votes cast and by shareholders controlling at least 2/3 of the shares represented at the meeting. However, the provisions of the articles of association regarding the voting rights of shareholders and equality among them cannot be amended except with the consent of all the shareholders who are subject to the curtailment of rights, cf. paragraph 3 of Article 94 of the Act on Public Limited Liability Companies No. 2/1995. The Board determines compensation for the CEO. The BOD emphasizes good corporate governance and adherence to accepted guidelines on corporate governance. The Board has laid down comprehensive rules in which the authority of the Board is defined and its scope of work in conjunction with the CEO. They address e.g. the competence of Board members to participate in individual decisions, confidentiality and information disclosure between the CEO and the Board. All Board members are independent of the Bank and its major shareholders, and no executive directors are on the Board. The Bank aims to promote gender equality, and two out of five board members are women. The BOD has delegated certain tasks to three separate subcommittees, the Risk Committee, Audit Committee and Remuneration Committee. The appointment of committee members shall always comply with currently applicable law. It is not permitted to appoint employees of the Bank to any subcommittee. Members shall have the necessary experience and knowledge for each committee's tasks according to applicable laws and rules. Each committee has incorporated procedural rules which have been confirmed by the BOD. A new sustainability risk policy for Kvika was approved by the Bank's BOD in the year that aligns with the guidelines from the Financial Supervisory Authority of the Central Bank of Iceland and the draft regulatory framework of the European Banking Authority (EBA) on sustainability risk (EBA/CP/2024/02). Sustainability risk according to the policy includes both Kvika's external risk exposure to various stakeholders and sustainability risk factors (inside-out risk) as well as the risk posed to Kvika by sustainability factors (outside-in risk). Sustainability risk may impact other risk categories within the Bank. No changes have been made to the sustainability risk policies of Kvika Asset Management and TM since 2023. The first step in the risk management process for monitoring sustainability risk is identifying key sustainability topics within Kvika's operations. This was achieved through a double materiality assessment (DMA) conducted in 2024, marking the first time Kvika has undergone such a process. The DMA is currently voluntary in Iceland as the analysis follows the requirements of the Corporate Sustainability Reporting Directive (CSRD), which is expected to be transposed into Icelandic law in the near future. The findings highlight the most significant sustainability topics for Kvika's operations and shape Kvika's approach to sustainability reporting. In line with these findings, Kvika is now publishing its first sustainability report considering the European Financial Reporting Advisory Group´s (EFRAG) standards known as the European Sustainability Reporting Standards (ESRS). These standards align with the CSRD and define rules for sustainability disclosures. Kvika aims to fully comply with all relevant data points in the ESRS when the CSRD becomes legally binding in Iceland. Kvika's sustainability disclosures under these requirements supplements the current legal requirements for non-financial reporting as outlined in Article 66 d of the Act on Annual Accounts no. 3/2006. The CEO reports to the Board and verifies the effectiveness of internal controls and risk management in the Consolidated Financial Statements. Internal controls and risk management applied in the preparation of the Consolidated Financial Statements are organised with a view to preventing any significant deficiencies in the accounting process. Kvika's BOD and control units regularly verify the effectiveness of internal controls and risk management. The Risk Committee has an advisory and supervisory role for the Bank's BOD, among other things, in determining its risk policy and risk appetite. The Audit Committee is intended to play an advisory and supervisory role for the Bank's BOD by, among other things, ensuring the quality of financial statements and other financial information from the Bank and the independence of its auditors. The Audit Committee supervises accounting procedures and the effectiveness of internal controls as well as internal and external auditing. The Remuneration Committee has an advisory and monitoring role for the BOD in relation to remuneration at the company and its Group and that they support its goals and interests. Consolidated Financial Statements 31 December 2024 5 Kvika banki hf. Endorsement and Statement by the Board of Directors and the CEO Statement by the Board of Directors and the CEO Sigurður Hannesson, Chairman Helga Kristín Auðunsdóttir, Deputy Chairman Ingunn Svala Leifsdóttir Guðjón Reynisson Sigurgeir Guðlaugsson Chief Executive Officer Ármann Þorvaldsson The Consolidated Financial Statements of Kvika banki hf. for the year ended 31 December 2024 are electronically certificated by the Board of Directors and the CEO. The Bank has established a policy on measures against financial crime, rules on managing conflicts of interest, regulations on gifts, rewards, and incentive payments, as well as policies concerning reputational and conduct risk. They state that no employee or third party acting on behalf of the Group shall give, promise, request, accept, or receive bribes or other undue benefits intended to influence decision-making in their professional capacity. Kvika has also implemented internal rules and procedures to strengthen its defences against bribery and corruption. Additionally, rules have been set regarding the segregation of duties, personal trading by employees, and whistleblower protection. These rules and policies, largely established at the Group level, form the foundation—along with the Bank's code of ethics—of Kvika's anti‐corruption and anti‐bribery measures. Through these measures Kvika seeks to prevent its operations and those of its subsidiaries from being used for financial or economic crimes. The Bank regularly conducts and reviews risk assessments related to money laundering across its operations and business relationships, utilizing the information technology system Lucinity, which employs modern technology and artificial intelligence to detect suspicious behaviour. The Consolidated Financial Statements of Kvika banki hf. for the year 2024 have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial Undertakings no. 161/2002 and rules on accounting for credit institutions no. 834/2003. To the best of our knowledge these Consolidated Financial Statements give a true and fair view of the Group's assets, liabilities and financial position as at 31 December 2024 and the financial performance of the Group and changes of cash flows for the year 2024. Furthermore, in our opinion the Consolidated Financial Statements and the Endorsement of the Board of Directors and the CEO give a fair view of the development and performance of the Group's operations and its position and describe the principal risks and uncertainties faced by the Group. In our opinion, the Consolidated Financial Statements of Kvika banki hf. for the year 2024 identified as "254900WR3I1Z9NPC7D84-2024-12-31-en" are prepared in all material respects, in compliance with the European Single Electronic Format Regulation (ESEF). The Board of Directors and the CEO of the Bank have today discussed the Consolidated Financial Statements for the year 2024 and confirmed them by the means of their signatures. Reykjavík, 12 February 2025. Board of Directors At Kvika, work has been carried out to implement the requirements of the Taxonomy Regulation and the Group publishes now for the second time information in accordance with Article 8 of the Taxonomy Regulation To comply with the regulation's provisions, an analysis of the Group's assets was conducted with regards to the Taxonomy Regulation's technical criteria, and the proportion of green assets (Green Asset Ratio or GAR) was calculated. This ratio represents the Group's assets that involve financing and investment in environmentally sustainable economic activities according to the criteria of the Taxonomy Regulation. Information on Kvika´s GAR can be found in an unedited appendix to this annual report. Kvika's Green Funding Framework was updated in 2024 to better align with the European Union's Taxonomy Regulation. By year-end 2024 Kvika's total green commitments amounted to ISK 8,526 million, covering issued green bonds and green deposits offered by the Bank. The Green Funding Framework enables Kvika to direct capital towards sustainable development and support the green transition in the economy. So far, all green commitments have been allocated within the asset category of clean transportation, specifically to Lykill's green car loans. Kvika's green assets at the end of 2024 amounted to ISK 10,530 million. Further information on sustainability and non-financial disclosures can be found in Kvika's 2024 Sustainability Report, which accompanies this annual account and is available on the Bank's website, www.kvika.is. Deloitte provides a limited assurance on selected data points in Kvika´s Sustainability Report for 2024 and on the disclosure in Kvika´s impact and allocation report that is a part of the Sustainability Report. Consolidated Financial Statements 31 December 2024 6 Kvika banki hf. Independent Auditor's Report To the Board of Directors and Shareholders of Kvika banki hf. Opinion Basis for Opinion Key Audit Matters Key Audit Matters How the matter was addressed in our audit Impairment charges for loans • • • • • • • • Our examination included the following elements: Testing of key controls over assumptions used in the expected credit loss models. Obtaining and substantively testing the evidence behind valuation of collateral with particular focus on post-model adjustments applied to collateral value. Measurement of loan impairment charges for loans and provisions for guarantees is deemed a key audit matter as the determination of assumptions for expected credit losses is highly subjective due to the level of judgement applied by Management. Substantively testing the PD models, related methodology and how they have been applied in the expected credit loss models. During our audit we have evaluated whether the Groups expected credit loss models are compliant to IFRS 9. We have audited the Consolidated Financial Statements of Kvika banki hf. for the year ended December 31, 2024 which comprise, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows for the year then ended and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying Consolidated Financial Statements give a true and fair view of the consolidated financial position of Kvika banki hf. as at December 31, 2024, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements, as applicable, in the Act on Annual Accounts, the Act on Financial Undertakings and rules on accounting for credit institutions. We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Consolidated Financial Statements of the current period. These matters were addressed in the context of our audit of the Consolidated Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Book value of loans to customers amounted to ISK 150,203 million at year end (2023: ISK 136,323 million) and the total expected credit loss for the group amounted to ISK 2,345 million (2023: ISK 2,234 million) against loans at amortized cost, unused credit facilities and guarantees at 31 December 2024. Based on our risk assessment and industry knowledge, we have examined the impairment charges for loans and provisions for undrawn loan commitments and evaluated the methodology applied as well as the assumptions made according to the description of the key audit matter. Our opinion in this report on the Consolidated Financial Statements is consistent with the content of the additional report that has been submitted to the company´s audit committee in accordance with the EU Audit Regulation 537/2014 Article 11. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of Kvika banki hf. in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Iceland, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA. Based on the best of our knowledge and belief, no prohibited services referred to in the EU Audit Regulation 537/2014 Article 5.1 has been provided. Post-model adjustments for particular high-risk exposures, which are not appropriately captured in the expected credit loss model. The most significant judgements are: Timely identification of exposures with significant increase in credit risk and credit impaired exposures. Valuation of collateral and assumptions of future cash flows on manually assessed credit-impaired exposures. We have reviewed the disclosures to the Consolidated Financial statements to confirm compliance with IFRS. Testing the appropriateness of forward looking information and how they have been applied in the expected credit loss models. Management has provided further information about expected credit losses and provisions for guarantees in notes 22, 46 and 82 to the Consolidated Financial Statements. Assumptions used in the expected credit loss models to incorporate macroeconomic uncertainties. Consolidated Financial Statements 31 December 2024 7 Kvika banki hf. Independent Auditor's Report Other information Responsibilities of the Board of Directors and the CEO for the Consolidated Financial Statements Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements • • • • • • As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the Consolidated Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Kvika banki hf.'s internal control. In preparing the Consolidated Financial Statements, the Board of Directors and the CEO are responsible for assessing Kvika banki hf.’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors and the CEO either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Board of Directors and the CEO are responsible for the other information. Other information comprises the report of board of directors, Statement of the Corporate Governance and Non-Financial information Evaluate the overall presentation, structure and content of the Consolidated Financial Statements, including the disclosures, and whether the Consolidated Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Consolidated and Separate Financial Statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except the confirmation regarding report of the board of directors as stated below. In accordance with Paragraph 2 article 104 of the Icelandic Financial Statement Act no. 3/2006, we confirm to the best of our knowledge that the accompanying report of the board of directors includes all information required by the Icelandic Financial Statement Act that is not disclosed elsewhere in the financial statements. The Board of Directors and the CEO are responsible for the preparation and fair presentation of the Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements in the Icelandic Financial Statement Act, and for such internal control as the Board of Directors and the CEO determines is necessary to enable the preparation of Consolidated Financial Statements that are free from material misstatement, whether due to fraud or error. The board of directors and the audit committee are responsible for overseeing the Kvika banki hf. financial reporting process. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Our objectives are to obtain reasonable assurance about whether the Consolidated Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Consolidated Financial Statements. Consolidated Financial Statements 31 December 2024 8 Kvika banki hf. Independent Auditor's Report Report on other legal and regulatory requirements Report on European single electronic format (ESEF Regulation) Deloitte ehf. State Authorized Public Accountant We also provide the Board of Directors and the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors and the Audit Committee, we determine those matters that were of most significance in the audit of the Consolidated Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Kópavogur, 12 February 2025. In addition to our work as the auditors of Kvika banki hf., Deloitte has provided the firm with permitted additional services such as review of interim financial statements, other assurance engagements and consultation on tax matters. Deloitte has in place internal procedures in order to ensure its independence before acceptance of additional services. Deloitte has provided to the audit commitee written confirmation that Deloitte is independent of Kvika banki hf. Deloitte was appointed auditor of Kvika banki hf. by the general meeting of shareholders on March 21st 2024. Deloitte have been elected since the general meeting 2016. Guðmundur Ingólfsson As part of our audit of the Consolidated Financial Statements of Kvika banki hf. we performed procedures to be able to issue an opinion on whether the Consolidated Financial Statements of Kvika banki hf. for the year 2024 with the file name „254900WR3I1Z9NPC7D84‐2024‐12‐31‐en.zip“is prepared, in all material respects, in compliance with laws no. 20/2021 disclosure obligation of issuers of securities and the obligation to flag relating to requirements regarding European single electronic format regulation EU 2019/815 which include requirements related to the preparation of the Consolidated Financial Statements in XHTML format and iXBRL markup. Management is responsible for preparing the Consolidated Financial Statements in compliance with laws no. 20/2021 disclosure obligation of issuers of securities and the obligation to flag. This responsibility includes preparing the Consolidated Financial Statements in a XHTML format in accordance to EU regulation 2019/815 on the European single electronic format (ESEF regulation). Our responsibility is to obtain reasonable assurance, based on evidence that we have obtained, on whether the Consolidated Financial Statements is prepared in all material respects, in compliance with the ESEF Regulation, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor's judgement, including the assessment of the risks of material departures from the requirement set out in the ESEF regulation, whether due to fraud or error. In our opinion, the Consolidated Financial Statements of Kvika banki hf. for the 2024 with the file name „254900WR3I1Z9NPC7D84‐2024‐12‐31‐en.zip“ is prepared, in all material respects, in compliance with the ESEF Regulation. We communicate with the Board of Directors and the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. The Consolidated Financial Statements of Kvika banki hf. for the year ended 31 December 2024 are electronically certificated by the auditor. Consolidated Financial Statements 31 December 2024 9 Kvika banki hf. Amounts are in ISK thousands Consolidated Income Statement For the year 2024 Notes Q4 2024 Q4 2023 2024 2023 6,804,898 6,086,605 28,864,791 22,425,240 (4,307,148) (3,755,508) (19,183,996) (14,404,510) Net interest income 5 2,497,750 2,331,096 9,680,795 8,020,729 1,765,252 1,692,180 6,787,614 6,455,647 (164,320) (114,583) (651,104) (539,199) Net fee and commission income 6 1,600,932 1,577,597 6,136,510 5,916,447 7 507,425 (10,613) 1,054,384 442,389 25 15,770 18,234 41,350 35,756 43,914 86,427 271,401 436,900 Other net operating income 567,109 94,048 1,367,135 915,045 Net operating income 4,665,791 4,002,741 17,184,440 14,852,222 9-12 (2,864,054) (2,778,784) (10,607,762) (10,784,684) 13 (91,084) (826,818) (604,972) (1,027,489) (109,927) (33,713) (154,247) (31,048) Profit before taxes from continuing operations 1,600,727 363,427 5,817,459 3,009,001 14 (45,016) 264,324 (766,485) (389,673) 15 18,919 32,918 (109,019) (82,026) 16 (46,816) (71,988) (252,056) (233,414) Profit for the year from continuing operations 1,527,814 588,681 4,689,899 2,303,887 Discontinued operations 3 1,918,966 989,816 3,460,071 1,730,389 Profit for the year 3,446,780 1,578,498 8,149,970 4,034,276 Notes Q4 2024 Q4 2023 2024 2023 3,446,783 1,581,676 8,143,442 4,018,503 24 (3) (3,178) 6,527 15,772 Profit for the year 3,446,780 1,578,498 8,149,970 4,034,276 Earnings per share 17 0.74 0.33 1.73 0.84 0.74 0.33 1.73 0.84 Quarterly information is unreviewed. The notes on pages 17 to 76 are an integral part of these Consolidated Financial Statements. Diluted earnings per share (ISK per share) ..................................................................... Income tax ...................................................................................................................... Attributable to the shareholders of Kvika banki hf. ....................................................... Attributable to non-controlling interest ........................................................................ Special tax on financial institutions ................................................................................ Special tax on financial activity ...................................................................................... Basic earnings per share (ISK per share) ........................................................................ Profit after tax from discontinued operations ............................................................... Other operating income ................................................................................................. Administrative expenses ................................................................................................ Net impairment .............................................................................................................. Revaluation of contingent consideration ....................................................................... Share in profit of associates, net of income tax ............................................................. Interest income .............................................................................................................. Interest expense ............................................................................................................. Fee and commission income .......................................................................................... Fee and commission expense ........................................................................................ Net financial income (expense) ...................................................................................... Consolidated Financial Statements 31 December 2024 10 Kvika banki hf. Amounts are in ISK thousands For the year 2024 Notes Q4 2024 Q4 2023 2024 2023 Profit for the year 3,446,780 1,578,498 8,149,970 4,034,276 241,297 503,664 346,520 (433,002) (13,951) 28,621 893 77,089 Changes to reserve for financial assets at fair value through OCI 227,346 532,285 347,413 (355,912) (59,381) 48,359 (7,055) 28,808 167,965 580,644 340,358 (327,105) Total comprehensive income for the year 3,614,745 2,159,142 8,490,328 3,707,171 Notes Q4 2024 Q4 2023 2024 2023 3,614,748 2,162,320 8,483,800 3,691,399 (3) (3,178) 6,527 15,772 Total comprehensive income for the year 3,614,745 2,159,142 8,490,328 3,707,171 Quarterly information is unreviewed. The notes on pages 17 to 76 are an integral part of these Consolidated Financial Statements. Consolidated Statement of Comprehensive Income Attributable to the shareholders of Kvika banki hf. .................................................. Attributable to non-controlling interest .................................................................... Exchange difference on translation of foreign operations ..................................... Changes in fair value of financial assets through OCI, net of tax ............................ Realized net (gain) loss transferred to the Income Statement, net of tax .............. Other comprehensive income that is or may be reclassified subsequently to profit and loss Consolidated Financial Statements 31 December 2024 11 Kvika banki hf. Amounts are in ISK thousands Consolidated Statement of Financial Position As at 31 December 2024 Assets Notes 31.12.2024 31.12.2023 18 28,319,192 23,681,453 19 64,794,561 64,977,406 20 5,432,254 3,857,480 21 12,601,026 16,852,313 22 150,202,696 136,323,481 23 1,196,744 2,497,877 25 112,855 96,194 26 21,693,399 21,906,363 27 215,168 530,144 543,413 618,361 14, 28 2,273,265 2,902,580 29 9,507,492 10,401,128 3 57,702,377 50,752,652 Total assets 354,594,442 335,397,432 Liabilities 50 163,377,879 142,565,905 30 14,389,515 15,024,098 31 37,123,285 45,715,427 32 5,628,982 5,993,084 33 153,001 131,745 34 42,035 4,230 23 2,932,429 2,196,904 28 466,096 272,615 35 13,634,905 16,594,010 3 27,329,028 24,941,611 Total liabilities 265,077,155 253,439,628 Equity 36 4,660,180 4,722,073 46,750,093 47,661,777 9,356,543 4,330,081 28,671,825 25,171,754 Total equity attributable to the shareholders of Kvika banki hf. 89,438,641 81,885,685 24 78,646 72,119 Total equity 89,517,287 81,957,804 Total liabilities and equity 354,594,442 335,397,432 The notes on pages 17 to 76 are an integral part of these Consolidated Financial Statements. Non-controlling interest ..................................................................................................................... Short positions held for trading ......................................................................................................... Short positions used for hedging ....................................................................................................... Share capital ....................................................................................................................................... Share premium ................................................................................................................................... Other liabilities ................................................................................................................................... Liabilities associated with assets classified as held for sale .............................................................. Deferred tax liabilities ........................................................................................................................ Derivatives .......................................................................................................................................... Cash and balances with Central Bank ................................................................................................ Other assets ........................................................................................................................................ Deferred tax assets ............................................................................................................................. Subordinated liabilities ...................................................................................................................... Derivatives .......................................................................................................................................... Fixed income securities ...................................................................................................................... Shares and other variable income securities ..................................................................................... Securities used for hedging ................................................................................................................ Loans to customers ............................................................................................................................ Investment in associates .................................................................................................................... Intangible assets ................................................................................................................................. Property and equipment .................................................................................................................... Assets classified as held for sale ........................................................................................................ Deposits ............................................................................................................................................. Borrowings ......................................................................................................................................... Other reserves .................................................................................................................................... Retained earnings ............................................................................................................................... Issued bonds ....................................................................................................................................... Operating lease assets ........................................................................................................................ Consolidated Financial Statements 31 December 2024 12 Kvika banki hf. Amounts are in ISK thousands Consolidated Statement of Changes in Equity For the year 2024 Deficit Trans- Restricted Total share- Non- Share Share Option reduction Fair value lation retained Retained holders' controlling Total 1 January 2024 to 31 December 2024 Notes capital premium reserve reserve reserve reserve earnings earnings equity interest equity 4,722,073 47,661,777 173,605 1,203,697 (930,231) 86,145 3,796,865 25,171,754 81,885,685 72,119 81,957,804 8,143,442 8,143,442 6,527 8,149,970 346,520 346,520 346,520 893 893 893 (7,055) (7,055) 0 (7,055) 0 0 0 0 347,413 (7,055) 0 8,143,442 8,483,800 6,527 8,490,328 4,744,782 (4,744,782) 0 0 5,795 (5,795) 0 0 (63,624) (936,376) (1,000,000) (1,000,000) 66 (59,921) 102,654 42,733 42,733 1,730 24,692 (4,553) 4,553 26,422 26,422 Equity as at 31 December 2024 4,660,180 46,750,093 109,131 1,203,697 (582,818) 79,090 8,547,443 28,671,825 89,438,641 78,646 89,517,287 The notes on pages 17 to 76 are an integral part of these Consolidated Financial Statements. (8,974,725) 19,421,065 109,131 1,124,606 (5,242,998) 79,090 8,438,311 27,468,129 78,646 Restricted due to development costs .......................................................... Treasury shares acquired as part of a buy-back programme ................... Other reserves Profit for the year ........................................................................................ Restricted due to subsidiaries and associates ............................................. Translation of foreign operations Exchange difference on translation of foreign operations ....................... Equity as at 1 January 2024 ......................................................................... Total comprehensive income for the year .................................................. Realized net loss transferred to the Income Statement .............................. Changes in fair value of financial assets through OCI ................................. Share options exercised ............................................................................ Transactions with owners of the Bank Share options ............................................................................................ Consolidated Financial Statements 31 December 2024 13 Kvika banki hf. Amounts are in ISK thousands Consolidated Statement of Changes in Equity For the year 2023 Deficit Trans- Restricted Total share- Non- Share Share Option reduction Fair value lation retained Retained holders' controlling Total 1 January 2023 to 31 December 2023 Notes capital premium reserve reserve reserve reserve earnings earnings equity interest equity 4,781,026 48,602,825 155,951 1,203,697 (574,319) 57,338 2,225,492 24,559,886 81,011,895 77,285 81,089,180 4,018,503 4,018,503 15,772 4,034,276 (433,002) (433,002) (433,002) 77,089 77,089 77,089 Translation of foreign operations 28,808 28,808 0 28,808 0 0 0 0 (355,912) 28,808 0 4,018,503 3,691,399 15,772 3,707,171 1,443,488 (1,443,488) 0 0 127,884 (127,884) 0 0 (58,952) (941,048) (1,000,000) (1,000,000) (1,912,410) (1,912,410) (1,912,410) 66 17,654 73,997 91,651 91,651 3,150 3,150 (20,938) (17,788) Equity as at 31 December 2023 4,722,073 47,661,777 173,605 1,203,697 (930,231) 86,145 3,796,865 25,171,754 81,885,685 72,119 81,957,804 The notes on pages 17 to 76 are an integral part of these Consolidated Financial Statements. Restricted due to development costs .......................................................... Other reserves Dividend paid to shareholders .................................................................. Changes in fair value of financial assets through OCI ................................. Realized net loss transferred to the Income Statement .............................. Profit for the year ........................................................................................ Exchange difference on translation of foreign operations ....................... Total comprehensive income for the year .................................................. Treasury shares acquired as part of a buy-back programme ................... Acquisition of non-controlling interest via merger ................................... Share options ............................................................................................ Restricted due to subsidiaries and associates ............................................. Transactions with owners of the Bank Other transactions Equity as at 1 January 2023 ......................................................................... Consolidated Financial Statements 31 December 2024 14 Kvika banki hf. Amounts are in ISK thousands Consolidated Statement of Cash Flows For the year 2024 Cash flows from operating activities Notes 2024 2023 8,149,970 4,034,276 6,446 (188,114) (41,350) (35,756) 1,106,068 1,109,490 (9,680,795) (8,020,729) 604,972 1,027,489 1,127,560 705,114 (3,488,141) 445,029 42,733 94,801 (2,172,537) (828,401) Changes in: 750,211 (21,211,295) (5,246,477) 227,425 4,251,287 (3,010,460) (11,224,223) (29,420,426) 1,301,132 2,442,861 225,235 194,187 772,611 484,156 20,413,165 19,684,527 2,360,802 2,166,335 59,062 (2,693,319) 713,124 529,292 (2,689,526) 8,286,647 11,686,403 (22,320,069) 27,993,291 21,389,947 (18,851,441) (13,561,855) (614,333) (494,455) Net cash from (to) operating activities 18,041,384 (15,814,832) Cash flows from investing activities 26 (608,412) (1,539,716) (90,974) (342,664) 19,806 27,493 1,237,755 (20,938) Net cash from (to) investing activities 558,174 (1,875,826) Cash flows from financing activities (2,072,443) (4,191,498) (8,592,142) 10,821,525 (300,000) 2,000,000 (1,000,000) (1,000,000) 26,422 0 0 (1,912,410) (407,716) (424,085) Net cash (to) from financing activities (12,345,879) 5,293,532 6,253,679 (12,397,126) 24,677,014 36,670,586 (539,354) 403,554 Cash and balances with Central Bank at the end of the year, including asset held for sale 30,391,339 24,677,014 (2,072,147) (995,561) Cash and balances with Central Bank at the end of the year 18 28,319,192 23,681,453 The notes on pages 17 to 76 are an integral part of these Consolidated Financial Statements. Net interest income ................................................................................................................................... Income tax and special tax on financial activity and institutions ............................................................. Profit for the year ......................................................................................................................................... Adjustments for: Indexation and exchange rate difference ................................................................................................. Share in profit of associates, net of income tax ........................................................................................ Depreciation and amortisation ................................................................................................................. Net impairment ......................................................................................................................................... Other assets ............................................................................................................................................... Operating lease assets ............................................................................................................................... Derivatives - liabilities ............................................................................................................................... Deposits .................................................................................................................................................... Insurance contract liabilities ..................................................................................................................... Short positions ........................................................................................................................................... Other liabilities .......................................................................................................................................... Other adjustments ..................................................................................................................................... Adjustment relating to assets held for sale ............................................................................................... Derivatives - assets .................................................................................................................................... Fixed income securities ............................................................................................................................. Shares and other variable income securities ............................................................................................ Securities used for hedging ....................................................................................................................... Loans to customers .................................................................................................................................... Effects of exchange rate fluctuations on cash and balances with Central Bank ......................................... Cash and balances with Central Bank at the beginning of the year, including assets held for sale ........... Cash and cash equivalents due to assets held for sale ................................................................................ Net change in cash and balances with Central Bank ................................................................................... Repayment of lease liabilities ...................................................................................................................... Issued bonds ................................................................................................................................................ Dividend paid to shareholders ..................................................................................................................... Subordinated loans ...................................................................................................................................... Borrowings ................................................................................................................................................... Dividend from associates ............................................................................................................................. Disposal (Acquisition) of subsidiary and associates, net of cash ................................................................. Interest received .......................................................................................................................................... Sale of own shares due to share options ..................................................................................................... Acquired own shares .................................................................................................................................... Additions of intangible assets ...................................................................................................................... Net acquisition of property and equipment ................................................................................................ Interest paid ................................................................................................................................................. Income tax paid ............................................................................................................................................ Consolidated Financial Statements 31 December 2024 15 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 0 General information Page Risk management Page 1 Reporting entity ............................................................................ 17 42 Risk management framework ........................................................ 37 2 Basis of preparation ..................................................................... 17 43 Hedging ........................................................................................... 38 3 Discontinued operations .............................................................. 18 44 Credit risk - overview ...................................................................... 39 45 Maximum exposure to credit risk .................................................. 40 Segment information 46 Credit quality of financial assets .................................................... 40 4 Business segments ....................................................................... 19 47 Loan-to-value ................................................................................. 45 48 Collateral against exposures to derivatives ................................... 45 Income statement 49 Large exposures .............................................................................. 45 5 Net interest income ...................................................................... 21 50 Liquidity risk ................................................................................... 46 6 Net fee and commission income .................................................. 21 51 Market risk ...................................................................................... 50 7 Net financial income (expense) .................................................... 22 52 Interest rate risk ............................................................................. 50 8 Foreign currency exchange difference ......................................... 22 53 Interest rate risk associated with trading portfolios ...................... 50 9 Administrative expenses .............................................................. 22 54 Interest rate risk associated with non-trading portfolios .............. 51 10 Salaries and related expenses ...................................................... 22 55 Exposure towards changes in the CPI ............................................ 52 11 Employment terms of the Board of Directors and management 23 56 Currency risk ................................................................................... 52 12 Auditor's fees ................................................................................ 23 57 Equity risk ....................................................................................... 54 13 Net impairment ............................................................................ 24 58 Operational risk .............................................................................. 54 14 Income tax .................................................................................... 24 15 Special tax on financial activity .................................................... 24 Financial assets and liabilities 16 Special tax on financial institutions .............................................. 24 59 Accounting classif. of financial assets and financial liabilities ....... 55 17 Earnings per share ........................................................................ 25 60 Financial assets and financial liabilities measured at fair value .... 56 61 Financial assets and financial liabilities Statement of Financial Position not measured at fair value ............................................................. 58 18 Cash and balances with Central Bank .......................................... 26 19 Fixed income securities ................................................................ 26 Other information 20 Shares and other variable income securities ............................... 26 62 Pledged assets ................................................................................ 59 21 Securities used for hedging .......................................................... 26 63 Related parties ............................................................................... 59 22 Loans to customers ...................................................................... 27 64 Remuneration policy ...................................................................... 60 23 Derivatives .................................................................................... 27 65 Incentive scheme ............................................................................ 60 24 Group entities ............................................................................... 28 66 Share-based payments ................................................................... 60 25 Investment in associates .............................................................. 28 67 Shareholders of the Bank ............................................................... 62 26 Intangible assets ........................................................................... 28 68 Others matters ............................................................................... 62 27 Operating lease assets .................................................................. 29 69 Events after the reporting date ...................................................... 62 28 Deferred tax assets and liabilities ................................................ 29 29 Other assets .................................................................................. 30 Significant accounting policies 63 30 Borrowings ................................................................................... 30 31 Issued bonds ................................................................................. 30 32 Subordinated liabilities ................................................................ 31 33 Short positions held for trading ................................................... 31 34 Short positions used for hedging ................................................. 31 35 Other liabilities ............................................................................. 31 36 Share capital ................................................................................. 32 37 Solvency of financial conglomerate ............................................. 33 38 Capital adequacy ratio (CAR) ........................................................ 34 39 Solvency of insurance activities ................................................... 35 40 Leverage ratio ............................................................................... 35 41 Minimum requirements for own funds and eligible liabilities (MREL) ....................................................... 36 Consolidated Financial Statements 31 December 2024 16 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 0 General information 1. Reporting entity 2. Basis of preparation a. Statement of compliance b. Basis of measurement - - - - - - - shared based payment is accounted for in accordance with IFRS 2; - - c. Functional and presentation currency d. Going concern e. Estimates and judgements f. Relevance and importance of notes to the reader Kvika banki hf. ("Kvika" or the "Bank") is a limited liability company incorporated and domiciled in Iceland, with its registered office at Katrínartún 2, Reykjavík. The Bank operates as a bank based on Act No. 161/2002, on Financial Undertakings, and is supervised by the Financial Supervisory Authority of the Central Bank ("FME"). The Group, comprised of Kvika and its subsidiaries, has been designated by the FME as a financial conglomerate as defined in Article no. 3 of Act no. 61/2017 on Additional Supervision of Financial Conglomerates. The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors and the CEO on 12 February 2025. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial Undertakings no. 161/2002 and rules on accounting for credit institutions no. 834/2003. The Consolidated Financial Statements have been prepared using the historical cost basis except for the following: The Consolidated Financial Statements for the year ended 31 December 2024 comprise Kvika banki hf. and its subsidiaries (together referred to as the Group). The subsidiary TM tryggingar hf. has been classified as a disposal group held for sale, insurance operations are therefore a discontinued operation and are no longer reported as an operating segment. The Group operates four business segments, Asset Management, Commercial Banking, Investment Banking and UK operations. Operating without a branch network, Kvika provides businesses, investors, and individuals with investment banking, insurance, asset management, payment, and banking services. fixed income securities are measured at fair value; shares and other variable income securities are measured at fair value; The Bank's management has assessed the Group's ability to continue as a going concern and is satisfied that the Group has the resources to continue its operations. The preparation of financial statements in accordance with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The Consolidated Financial Statements are prepared in Icelandic krona (ISK), which is the Group's functional currency. All financial information has been rounded to the nearest thousand, unless otherwise stated. securities used for hedging are measured at fair value; The Group's assets and liabilities which are denominated in other currency than ISK are translated to ISK using the exchange rate as at the end of day 31 December 2024. The estimates and underlying assumptions are based on historical results and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period and future periods if the revision affects both current and future periods. Information about areas of estimation uncertainty and critical judgements made by management in applying accounting policies that can have a significant effect on the amounts recognised in the Consolidated Financial Statements is provided in note 108. In order to enhance the informational value of the Consolidated Financial Statements, the notes are evaluated based on relevance and importance for the reader. This can result in information, that has been evaluated as neither important nor relevant for the reader, not being presented in the notes. derivatives are measured at fair value; short positions are measured at fair value. investment properties are measured at fair value; certain loans to customers which are measured at fair value; contingent consideration is measured at fair value; and Consolidated Financial Statements 31 December 2024 17 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 0 g. Change in presentation 3. Discontinued operations 2024 2023 Net interest income ..............................................................................................................................................................705,744 896,360 Net fee and commission income ..........................................................................................................................................(9,082) 24,243 Insurance revenue ................................................................................................................................................................20,860,983 19,582,351 Incurred claims and net expense from reinsurance contract held ......................................................................................(15,549,061) (14,859,842) Net financial income .............................................................................................................................................................2,401,751 799,836 Other operating income ........................................................................................................................................................117,128 133,484 Administrative expenses .......................................................................................................................................................(4,799,240) (4,523,638) Net impairment .....................................................................................................................................................................(2,976) 20,893 Revaluation of investment properties ..................................................................................................................................0 59,602 Income tax .............................................................................................................................................................................(403,858) (483,429)3,321,389 1,649,861 Gain on the sale of a subsidiary ............................................................................................................................................94,854 0 Administrative expenses, stranded costs .............................................................................................................................54,785 102,402 Income tax .............................................................................................................................................................................(10,957) (21,874)Profit for the year from discontinued operations3,460,071 1,730,389 As at 31 December 2024 the Group has changed where in the statement of financial position it presents money market deposits. It now presents them as a part of deposits, whereas they were previously presented as part of borrowings. The change has been made as the nature and type of the liabilities that money market deposits represent are more in line with deposits then borrowings. The comparative figures for 31 December 2023 in the statement of financial position and in the notes have been restated. The table below shows the effect of the reclassification on the Consolidated Statement of Financial Position at 31 December 2023: At year-end 2023, TM was classified as a disposal group held for sale and as a discontinued operation. TM is measured at the lower of carrying amount upon the date of reclassification and fair value less costs to sell. Restated31.12.2023 Reclassified 31.12.2023 Assets: All assets ....................................................................................................................................................335,397,432 0 335,397,432 Total assets335,397,432 0 335,397,432 Liabilities and Equity: Deposits .....................................................................................................................................................133,772,941 8,792,963 142,565,905 Borrowings .................................................................................................................................................23,817,062 (8,792,963) 15,024,098 All other liabilities and equity ...................................................................................................................177,807,429 0 177,807,429 Total liabilities and equity335,397,432 0 335,397,432 Lines in the Consolidated Statement of Cash Flows Deposits .....................................................................................................................................................20,669,844 (985,317) 19,684,527 Borrowings .................................................................................................................................................(5,176,815) 985,317 (4,191,498) The major classes of assets and liabilities of the discontinued operations are as follows: The results of the discontinued operations for the year are presented below: Assets 31.12.2024 31.12.2023 Cash and balances with Central Bank ...................................................................................................................................2,072,147 995,561 Fixed income securities .........................................................................................................................................................21,065,333 19,824,505 Shares and other variable income securities ........................................................................................................................20,607,557 14,543,128 Investment properties ..........................................................................................................................................................0 1,240,135 Intangible assets ...................................................................................................................................................................12,349,767 12,615,362 Other assets ..........................................................................................................................................................................1,607,573 1,533,960 Assets classified as held for sale57,702,377 50,752,652 Liabilities Insurance contract liabilities .................................................................................................................................................25,301,763 23,267,425 Deferred tax liabilities ...........................................................................................................................................................605,187 629,063 Other liabilities ......................................................................................................................................................................1,422,078 1,045,123 Liabilities associated with assets classified as held for sale27,329,028 24,941,611 Eliminations with the Group .................................................................................................................................................(55,207) 1,018,962 Net assets directly associated with disposal group30,318,142 26,830,002 Consolidated Financial Statements 31 December 2024 18 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 0 3. Discontinued operations (cont.) Segment information 4. Business segments - - - - Supporting units consist of the functions carried out by the Bank's support divisions, such as Risk Management, Finance, IT and Operations, etc. The information presented relating to the supporting units does not represent an operating segment. Asset Management Products and services offered include asset management involving both domestic and foreign assets, private banking and private pension plans. The management of a broad range of mutual funds, investment funds and institutional investor funds is included in this segment through the operations of Kvika eignastýring hf. Commercial Banking Commercial Banking offers various forms of banking services and related advisory services. Included in this operating segment is Lykill, the leasing operations of the Group, and the Group's fintech operations, such as Auður, Netgíró and Aur, as well as the payment facilitation operations of Straumur greiðslumiðlun hf. Investment Banking Investment Banking provide a range of professional services in the fields of specialised financing, securities and foreign exchange transactions and corporate finance services. The functions of Market Making and Treasury are also included in the segment although they are a part of Kvika's Finance division. UK operations The UK operations consist of asset management and corporate finance services through Kvika Securities Ltd. and specialised lending services through Ortus Secured Finance Ltd. UK operations is the only geographic area outside of Iceland and for the year 2024 it accounts for 17.0% (2023: 9.5%) of net operating income. Segment reporting is based on the same principles and structure as internal reporting to the CEO and the Board of Directors. Segment performance is evaluated on profit before tax and excludes income from discontinued operations. Reportable segments 2024 2023 Operating ..............................................................................................................................................................................5,160,908 4,779,187 Investing ................................................................................................................................................................................(4,077,085) (6,207,467) Financing ...............................................................................................................................................................................(605) (6,980)Net cash inflow/(outflow)1,083,218 (1,435,260) Amounts included in accumulated OCI: 31.12.2024 31.12.2023 Fair value of financial assets through OCI ............................................................................................................................(274,943) (387,416) Deferred tax on fair value reserve ........................................................................................................................................54,989 77,483 Reserve of disposal group classified as held for sale(219,955) (309,933) The net cash flows incurred by the discontinued operations are as follows: The subsidiary TM tryggingar hf. has been classified as a disposal group held for sale. Insurance operation are therefore a discontinued operations and are no longer reported as an operating segment. During the year 2024, the Group defined four reportable operating segments; Asset Management, Commercial Banking, Investment Banking, previously called Corporate Banking and Capital Markets, and UK operations. Consolidated Financial Statements 31 December 2024 19 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 0 4. Business segments (cont.) - Asset Commercial Investment UK Supporting 2024 Management Banking Banking operations units Total Net interest income .................................................11,406 4,102,924 3,867,666 1,736,526 (37,727) 9,680,795 Net fee and commission income .............................2,457,473 1,536,044 1,519,716 623,096 181 6,136,510 Net financial income (expense) ..............................95,578 (5,737) 414,078 554,025 (3,560) 1,054,384 Share in profit of associates ....................................- 41,350 - - - 41,350 Other operating income ..........................................33,036 217,339 - 13,956 7,070 271,401 Net operating income 2,597,493 5,891,920 5,801,460 2,927,603 (34,037) 17,184,440 Salaries and related expenses .................................(1,029,910) (978,785) (1,100,349) (748,253) (2,588,172) (6,445,469) Other operating expenses .......................................(77,761) (1,694,520) (287,696) (414,476) (1,687,841) (4,162,293)Administrative expenses (1,107,670) (2,673,305) (1,388,046) (1,162,729) (4,276,013) (10,607,762) Net impairment .......................................................(2,597) (342,568) (90,606) (169,200) - (604,972) Revaluation of contingent consideration ...............(5,288) - (148,959) - (154,247) Cost allocation .........................................................(730,042) (1,548,425) (1,129,795) (161,766) 3,570,029 -Profit (loss) before tax from continuing operations 751,895 1,327,622 3,193,013 1,284,950 (740,021) 5,817,459 Net segment revenue from external customers .............................................................2,609,653 158,213 9,897,054 4,535,057 (15,537) 17,184,440 Net segment revenue from other segments ...............................................................(12,159) 5,733,708 (4,095,595) (1,607,454) (18,500) - Asset Commercial Investment UK Supporting 2023 Management Banking Banking operations units Total Net interest income .................................................10,189 3,376,880 3,883,048 802,850 (52,238) 8,020,729 Net fee and commission income .............................2,475,130 1,373,071 1,577,910 474,892 15,445 5,916,447 Net financial income ...............................................70,982 1,666 242,588 127,153 0 442,389 Share in profit of associates ....................................(215) 35,732 239 0 - 35,756 Other operating income ..........................................52,127 281,480 13,757 - 89,536 436,900 Net operating income 2,608,213 5,068,829 5,717,542 1,404,895 52,743 14,852,222 Salaries and related expenses .................................(1,099,077) (863,879) (1,078,325) (612,421) (2,799,897) (6,453,599) Other operating expenses .......................................(101,411) (1,628,797) (302,209) (521,573) (1,777,095) (4,331,085)Administrative expenses (1,200,488) (2,492,676) (1,380,534) (1,133,994) (4,576,991) (10,784,684) Net impairment .......................................................- (312,534) (510,900) (204,496) 440 (1,027,489) Revaluation of contingent consideration ...............(31,048) - - - - (31,048) Cost allocation .........................................................(944,653) (1,649,936) (1,405,737) (328,058) 4,328,384 -Profit (loss) before tax from continuing operations 432,024 613,684 2,420,371 (261,654) (195,424) 3,009,001 Net segment revenue from external customers .............................................................2,618,572 1,311,187 8,389,039 2,465,677 67,748 14,852,222 Net segment revenue from other segments ...............................................................(10,359) 3,757,642 (2,671,496) (1,060,782) (15,005) - Consolidated Financial Statements 31 December 2024 20 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 4 Income statement 5. Net interest income Interest income is specified as follows: Interest expense is specified as follows: 6. Net fee and commission income Asset management fees are earned by the Group for trust and fiduciary activities where the Group holds or invests assets on behalf of the customers. Fee and commission income from capital markets and corporate finance include fees and commissions generated by miscellaneous corporate finance service, securities, derivatives and FX brokerage as well as market making. Fee and commission income from cards and payment solutions relate to the Group's payment facilitations services as well as the issuance of debit and credit cards. Fee and commission income from loans and guarantees include the Group's lending operations, notification and collection fees, as well as fees from issuing guarantees. * Thereof are lease liabilities' interest expense amounting to ISK 54 million (2023: ISK 65 million). Q4 2024 Q4 2023 2024 2023 Asset Management ..............................................................................................................................659,447 661,215 2,401,033 2,464,992 Capital markets and corporate finance ................................................................................................393,813 348,670 1,419,231 1,610,664 Cards and payment solutions ...............................................................................................................159,038 68,483 602,445 200,907 Loans and guarantees ..........................................................................................................................463,713 453,296 2,084,088 1,777,128 Other fee and commission income ......................................................................................................89,241 160,515 280,817 401,957 Total fee income 1,765,252 1,692,180 6,787,614 6,455,647 Fee and commission expense ..............................................................................................................(164,320) (114,583) (651,104) (539,199)Net fee and commission income 1,600,932 1,577,597 6,136,510 5,916,447 Q4 2024 Q4 2023 2024 2023 Cash and balances with Central Bank ..................................................................................................424,721 509,132 2,351,977 1,697,958 Derivatives ............................................................................................................................................391,509 398,514 2,779,205 1,571,640 Loans to customers ..............................................................................................................................4,691,963 4,250,260 19,537,955 15,315,986 Fixed income securities (FVOCI) ...........................................................................................................1,288,349 927,919 4,186,459 3,837,064 Other interest income ..........................................................................................................................8,356 780 9,194 2,593 Total 6,804,898 6,086,605 28,864,791 22,425,240 Fee income is disclosed based on the nature and type of fee income generated across business segments. Information on net fee and commission income by segment is disclosed in note 4. Q4 2024 Q4 2023 2024 2023 Deposits ...............................................................................................................................................2,689,830 2,553,795 11,058,951 8,442,963 Borrowings ...........................................................................................................................................678,260 271,473 2,743,783 1,885,625 Issued bonds .........................................................................................................................................696,100 789,220 3,331,894 3,329,984 Subordinated liabilities ........................................................................................................................87,999 121,037 597,162 529,637 Derivatives ............................................................................................................................................141,922 13,150 1,395,636 144,031 Other interest expense .......................................................................................................................13,038 6,833 56,570 72,271 Total 4,307,148 3,755,508 19,183,996 14,404,510 Net interest income 2,497,750 2,331,096 9,680,795 8,020,729 Total interest income recognised in respect of financial assets not carried at fair value through profit or loss amounts to ISK 21,772 million (2023: ISK 16,840 million). Total interest expense recognised in respect of financial liabilities not carried at fair value through profit or loss amounts to ISK 17,788 million (2023: ISK 14,260 million). Consolidated Financial Statements 31 December 2024 21 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 4 7. Net financial income (expense) Net financial income (expense) is specified as follows: 8. Foreign currency exchange difference Foreign currency exchange difference is specified as follows: 9. Administrative expenses Administrative expenses are specified as follows: 10. Salaries and related expenses Q4 2024 Q4 2023 2024 2023 Salaries and related expenses ..............................................................................................................1,705,064 1,635,531 6,445,469 6,453,599 Other operating expenses ....................................................................................................................871,414 825,580 3,056,225 3,221,595 Depreciation and amortisation ............................................................................................................230,642 261,601 871,976 900,191 Depreciation of right of use asset ........................................................................................................56,933 56,072 234,091 209,299 Total 2,864,054 2,778,784 10,607,762 10,784,684 According to Act No. 165/2011, passed in 2011, banks and other financial institutions providing VAT exempt services, must pay a tax based on salary payments, called tax on financial activity. The current tax rate is 5.50% (2023: 5.50%). The figures for number of employees exclude employees of TM as a result of the reclassification of TM as a discontinued operation and an asset held for sale. Salaries and related expenses are specified as follows:Q4 2024 Q4 2023 2024 2023 Salaries .................................................................................................................................................1,170,242 1,267,446 4,573,599 4,862,337 Performance based payments excluding share-based payments .......................................................170,485 32,360 477,506 175,326 Share-based payment expenses ..........................................................................................................7,015 15,032 32,510 59,004 Pension fund contributions ..................................................................................................................185,534 172,297 641,964 655,913 Tax on financial activity ........................................................................................................................78,900 71,482 272,526 277,969 Other salary related expenses ..............................................................................................................92,887 76,915 447,364 423,050 Total 1,705,064 1,635,531 6,445,469 6,453,599 Average number of full time employees during the year ....................................................................251 267 247 280 - Thereof full time equivalents outsourced to discontinued operations during the year ..................9 14 9 16 Total number of full time employees at year-end ...............................................................................253 270 253 270 2024 2023 (Loss) gain on financial instruments at fair value through profit and loss ...................................................................................(1,325,739) 49,333 Gain (loss) on other financial instruments ...................................................................................................................................1,319,292 (162,869)Total (6,446) (113,536) Q4 2024 Q4 2023 2024 2023 Net gain (loss) on financial assets and financial liabilities mandatorily measured at fair value through profit or loss Fixed income securities .....................................................................................................................86,802 124,431 309,546 (5,613) Financial assets at fair value through OCI .........................................................................................17,439 (35,735) (1,116) (96,479) Shares and other variable income securities ....................................................................................356,449 (26,331) 354,232 397,168 Derivatives .........................................................................................................................................7,477 6,069 460,248 431,731 Loans to customers ............................................................................................................................4,986 (12,002) (62,080) (170,882) Foreign currency exchange difference .................................................................................................34,273 (67,045) (6,446) (113,536)Total 507,425 (10,613) 1,054,384 442,389 Consolidated Financial Statements 31 December 2024 22 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 4 11. Employment terms of the Board of Directors and management 12. Auditor's fees Remuneration to the Group's auditors is specified as follows: The table above shows fees paid to Deloitte and other component auditors. Total fee paid to other component auditors for the year 2024 amounts to ISK 65 million (2023: ISK 56 million). 2024 2023 Audit of annual accounts ..............................................................................................................................................................188,678 184,627 Review of interim accounts ..........................................................................................................................................................30,626 27,130 Other audit related services .........................................................................................................................................................25,101 18,734 Total 244,406 230,491 Thereof to the auditors of the Bank .............................................................................................................................................179,838 174,166 The members of the BOD owned, or controlled, 18,961 thousand shares at year-end 2024. The CEO owned, or controlled, 4,842 thousand shares and options for 1,517 thousand shares in the Bank at year-end 2024. The members of the executive committee owned, or controlled, 67,467 thousand shares and options for 6,251 thousand shares at year-end 2024. Remuneration to the CEO, executive committee 2024 2023 and other key employeesPerformance Pension Performance Pension Salaries and based contribut- Salaries and based contribut- benefits payments ion Total benefits payments ion Total Ármann Þorvaldsson, CEO .....................................60,000 9,450 10,469 79,919 20,685 2,000 3,051 25,735 Marinó Örn Tryggvason, former CEO .....................0 0 0 0 32,653 0 4,870 37,524 Managing Directors (2024: 8 (on average 7.6),2023: 6 (on average: 7.0)) ....................................... 258,509 33,022 39,874 331,404 273,049 10,000 39,241 322,290 Former Managing Directors (2024: 1 (on average 0.5), 2023: 1 (on average: 0.8)) ...........24,956 0 3,805 28,761 28,325 0 3,810 32,135 Other key employees (2024:2, 2023:2) ...................49,074 0 7,350 56,423 48,893 0 10,300 59,193 Expensed notice payments .....................................59,935 0 8,990 68,925 86,700 0 12,420 99,120 Total 452,473 42,472 70,488 565,433 490,305 12,000 73,692 575,997 Salaries and benefits paid to the Board of Directors, the CEO, Managing Directors, including the Deputy CEO, and other key employees of the Bank for their work for companies within the Group are specified as follows: The Bank has adopted a remuneration policy which covers three remuneration components, base pay, performance based incentive scheme and other benefits, including pension fund contributions. Further information about the remuneration policy is provided in notes 64-66. Besides the CEO, the following were a part of the Bank's executive committee during 2024: i) Sigurður Viðarson, Deputy CEO, (until June), ii) Eiríkur Magnús Jensson, CFO, iii) Halldór Snæland, MD of Commercial Banking (from February), iv) Bjarni Eyvinds, MD Investment Banking, v) Lilja Jensen, General Counsel, vi) Anna Rut Ágústsdóttir, MD Operations and Development, vii) Elísabet G. Björnsdóttir, MD Risk Management and viii) Guðmundur Þórðarson, MD Business Development (from September). Expensed notice payments include payments during notice period for the CEO, members of executive committee and other key employees, as applicable, which left the Group during the respective year. Remuneration to the Board of Directors2024 2023 Board and Pension Board and Pension committee contribut- committee contribut- remunerat. ion Total remunerat. ion Total Sigurður Hannesson, Chairman of the Board and member of the Risk and Remuneration committees ......................................................21,075 3,161 24,237 18,709 2,806 21,516 Helga Kristín Auðunsdóttir, Deputy Chairman of the Board, chairperson of the Audit committee and member of the Remuneration committee .....21,165 3,094 24,259 16,124 2,366 18,489 Guðjón Karl Reynisson, Board member and chairperson of the Remuneration committee .................................................................12,659 1,899 14,558 10,684 1,603 12,287 Ingunn Svala Leifsdóttir, Board member, chairperson of the Risk committee and member of the Audit committee ......................15,528 2,329 17,857 13,437 1,814 15,251 Sigurgeir Guðlaugsson, Board member and member of the Risk committee ..................................................................................4,026 403 4,429 485 49 534 Helga Jóhanna Oddsdóttir, alternate Board member ..................................518 52 570 485 49 534 Guðmundur Þórðarson, former Board member and former chairperson of the Risk committee ..............................................................13,431 1,995 15,426 14,382 2,140 16,521 Total 88,403 12,933 101,336 74,306 10,826 85,132 Consolidated Financial Statements 31 December 2024 23 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 4 13. 14. Income tax Income tax recognized in the income statement is specified as follows: Reconciliation of effective tax rate: 15. Special tax on financial activity 16. Special tax on financial institutions The Bank and some of its subsidiaries will not pay income tax on its profit for 2024 due to the fact that Group has a tax loss carry forward that offsets the calculated income tax. At year-end 2024, the tax loss carry forward of the Group amounted to ISK 9.7 billion. A substantial part of the tax loss carry forward is utilisable until end of year 2028. Management is of the opinion that the Group's operations in the years to come will result in taxable results which will be offset with the tax loss carry forward. The Group has therefore recognised the tax loss carry forward as a deferred tax asset in the consolidated statement of financial position. Net impairment According to Act No. 155/2010 on Special Tax on Financial Institutions, certain types of financial institutions, including banks, must pay annually a tax based on the carrying amount of their liabilities as determined for tax purposes in excess of ISK 50 billion at year-end. The tax rate is set at 0.145% (2023: 0.145%) and the tax is not a deductible expense for income tax purposes. The tax is presented separately in the consolidated income statement. The special tax on financial activity is an additional income tax which becomes effective when the income tax base exceeds ISK 1,000 million. It is levied on the same entities as the tax on financial activity according to Act No. 90/2003. The tax rate is set at 6.0% (2023: 6.0%) and the tax is not a deductible expense for income tax purposes. The tax is presented separately in the consolidated income statement. Profit before tax amounts to ISK 5,817 million. Income tax amounts to ISK -766 million, resulting in an effective tax rate of 13.2%. This is substantially different from the Icelandic corporate tax rate of 21%, mainly due to non-taxable income from shares. 2024 2023 Profit before tax ...................................................................................................................................5,817,459 3,009,001 Income tax using the domestic corporation tax rate ...........................................................................21.0% (1,221,666) 20.0% (601,800) Effect of tax rates change reversed due to loss carry forwards ...........................................................(0.9%) 53,085 0.0% 0 Non-deductible expenses .....................................................................................................................0.4% (21,148) 1.0% (29,372) Tax exempt revenues / loss ..................................................................................................................(4.5%) 260,266 (7.5%) 225,272 Other changes ......................................................................................................................................(2.8%) 162,979 (0.5%) 16,226 Effective income tax 13.2% (766,485) 13.0% (389,673) Income tax is recognised based on the tax rates and tax laws enacted during the current year, according to which the domestic corporate income tax rate was 21.0% (2023: 20.0%). The temporary provision of the tax law to increase income tax to 21.0% on the tax base for the year 2024 had an insignificant impact on the Group due to loss carry forwards. Companies within the Group, which operate outside of Iceland, recognise income tax in accordance with the applicable tax laws in the country where they reside. Q4 2024 Q4 2023 2024 2023 Net change in impairment of loans ......................................................................................................(91,060) (826,687) (598,938) (1,025,266) Net change in impairment of other assets ...........................................................................................(795) 440 (3,960) 506 Net change in impairment of loan commitments, guarantees and unused credit facilities ...............772 (571) (2,073) (2,729)Total (91,084) (826,818) (604,972) (1,027,489) Consolidated Financial Statements 31 December 2024 24 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 4 17. Earnings per share Q4 2024 Q4 2023 Q4 2024 Q4 2023 Q4 2024 Q4 2023 Net earnings attributable to equity holders of the Bank 1,527,817 591,859 1,918,966 989,816 3,446,783 1,581,676 Weighted average number of outstanding shares .......................................4,658,450 4,722,073 4,658,450 4,722,073 4,658,450 4,722,073 Adjustments for stock options ......................................................................0 0 0 0 0 0 Total 4,658,450 4,722,073 4,658,450 4,722,073 4,658,450 4,722,073 Basic earnings per share (ISK) .......................................................................0.33 0.13 0.41 0.21 0.74 0.33 Diluted earnings per share (ISK) ....................................................................0.33 0.13 0.41 0.21 0.74 0.33 The calculation of basic earnings per share is based on earnings attributable to shareholders and a weighted average number of shares outstanding during the year. The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Bank has issued stock options that have a dilutive effect. Continuing operationsDiscontinued Continuing and operationsdiscontinued operations2024 2023 2024 2023 2024 2023 Net earnings attributable to equity holders of the Bank 4,683,371 2,288,115 3,460,071 1,730,389 8,143,442 4,018,503 Weighted average number of outstanding shares .......................................4,698,307 4,757,742 4,698,307 4,757,742 4,698,307 4,757,742 Adjustments for stock options ......................................................................0 279 0 279 0 279 Total 4,698,307 4,758,021 4,698,307 4,758,021 4,698,307 4,758,021 Basic earnings per share (ISK) .......................................................................1.00 0.48 0.74 0.36 1.73 0.84 Diluted earnings per share (ISK) ....................................................................1.00 0.48 0.74 0.36 1.73 0.84 Consolidated Financial Statements 31 December 2024 25 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 Statement of Financial Position 18. Cash and balances with Central Bank Cash and balances with Central Bank are specified as follows: 19. Fixed income securities Fixed income securities are specified as follows: 20. Shares and other variable income securities Shares and other variable income securities are specified as follows: 21. Securities used for hedging Securities used for hedging are specified as follows: 31.12.2024 31.12.2023 Deposits with Central Bank ...........................................................................................................................................12,758,682 13,479,131 Cash on hand .................................................................................................................................................................15,737 20,055 Balances with banks ......................................................................................................................................................9,725,772 6,356,998 Included in cash and cash equivalents 22,500,191 19,856,184 Restricted balances with Central Bank - fixed reserve requirement ............................................................................5,819,001 3,825,269 Total 28,319,192 23,681,453 The Bank holds mandatory reserve deposit accounts with the Central Bank of Iceland in compliance with the Central Bank’s Rules on Minimum Reserve Requirements No. 585/2018. Under these rules the reserve requirement is divided into two parts: a fixed reserve requirement bearing no interest and an average maintenance level requirement bearing the same interest as that on deposit-taking institutions’ current accounts with the Central Bank. The mandatory reserve deposit with the Central Bank and the receivables from the Central Bank are not available for the Group to use in its daily operations. Mandatorily measured at fair value through profit or loss 31.12.2024 31.12.2023 Listed government bonds and bonds with government guarantees ......................................................................... 2,713,853 2,515,820 Listed bonds ................................................................................................................................................................ 2,189,075 1,053,955 Unlisted bonds ............................................................................................................................................................ 722,405 114,075 Measured at fair value through other comprehensive incomeListed government bonds and bonds with government guarantees ......................................................................... 54,256,365 45,067,483 Listed treasury bills ..................................................................................................................................................... 3,453,441 14,675,118 Listed bonds ................................................................................................................................................................ 1,459,422 1,550,955 Total 64,794,561 64,977,406 31.12.2024 31.12.2023 Listed government bonds and bonds with government guarantees ............................................................................ 1,904,937 1,201,377 Listed bonds ..................................................................................................................................................................584,432 955,948 Listed shares ..................................................................................................................................................................9,669,279 14,258,492 Listed unit shares ...........................................................................................................................................................0 7,501 Unlisted unit shares .......................................................................................................................................................442,377 428,995 Total 12,601,026 16,852,313 Mandatorily measured at fair value through profit or loss 31.12.2024 31.12.2023 Listed shares ............................................................................................................................................................... 1,100,609 512,703 Unlisted shares ........................................................................................................................................................... 3,069,376 2,027,673 Unlisted unit shares .................................................................................................................................................... 1,262,269 1,317,103 Total 5,432,254 3,857,480 Consolidated Financial Statements 31 December 2024 26 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 22. Loans to customers 23. Derivatives Derivatives are specified as follows: The breakdown of the loan portfolio by individuals and corporates is specified as follows: The hedging gain recognised in OCI before tax is equal to the change in fair value used for measuring effectiveness. There is no ineffectiveness recognised in profit or loss. Set out below is the reconciliation of foreign currency translation reserve component of equity due to hedge accounting and the analysis of other comprehensive income: 31.12.2024 31.12.2023 Balance at the beginning of the year ............................................................................................................................(52,556) 0 Foreign currency revaluation of the net foreign operations ........................................................................................39,057 (65,695) Tax effect .......................................................................................................................................................................(7,811) 13,139 Total (21,310) (52,556) Gross Gross Grosscarrying Book carrying Book carrying Book 31.12.2023 amount value amount value amount valueLoans to customers at amortised cost ...............39,375,650 38,386,498 98,484,058 97,254,551 137,859,708 135,641,049 Loans to customers at FV through profit or loss 58,634 58,634 623,799 623,799 682,433 682,433 Total 39,434,283 38,445,131 99,107,858 97,878,350 138,542,141 136,323,481 Notional Carrying amount 31.12.2024 Assets Liabilities Assets Liabilities Interest rate derivatives ....................................................................................159,361 107,143 55,954 0 Cross - currency interest rate swaps .................................................................34,754,643 35,671,836 455,496 1,321,348 Currency forwards .............................................................................................13,022,277 13,000,436 40,291 18,480 Currency forwards used for hedge accounting .................................................0 7,386,404 0 282,967 Bond and equity total return swaps .................................................................13,586,028 14,533,627 645,003 1,309,635 Total 61,522,310 70,699,445 1,196,744 2,932,429 The Group presents finance lease receivables as part of loans to customers at amortised cost. As at 31 December 2024, the book value of finance lease receivables amounted to ISK 22,866 million (31.12.2023: ISK 21,504 million). Notional Carrying amount 31.12.2023 Assets Liabilities Assets Liabilities Interest rate derivatives ....................................................................................22,573,886 21,401,149 940,860 0 Currency forwards .............................................................................................38,881,527 34,034,527 461,388 121,213 Currency forwards used for hedge accounting .................................................0 4,855,756 0 152,182 Bond and equity total return swaps .................................................................17,837,698 18,895,783 880,434 1,923,509 Equity options ...................................................................................................0 0 215,196 0 Total 79,293,112 79,187,216 2,497,877 2,196,904 IndividualsCorporatesTotalGross Gross Grosscarrying Book carrying Book carrying Book 31.12.2024 amount value amount value amount valueLoans to customers at amortised cost ...............40,608,567 39,736,334 111,047,378 109,592,569 151,655,945 149,328,903 Loans to customers at FV through profit or loss 0 0 873,794 873,794 873,794 873,794 Total 40,608,567 39,736,334 111,921,172 110,466,363 152,529,739 150,202,696 IndividualsCorporatesTotal Consolidated Financial Statements 31 December 2024 27 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 24. Group entities 25. Investment in associates 26. Intangible assets The main subsidiaries held directly or indirectly by the Group are listed in the table below. * At 31 December 2023 TM tryggingar hf., Rafklettur ehf. and TM líftryggingar were classified as a disposal group held for sale in accordance with IFRS 5. Rafklettur ehf. was sold during the year 2024. Share Share Entity Nature of operations Domicile 31.12.2024 31.12.2023 FÍ Fasteignafélag GP ehf. ...................................Real estate fund management Iceland 100% 100% GAMMA Capital Management hf. .....................Fund management Iceland 100% 100% Kvika eignastýring hf. .........................................Asset management Iceland 100% 100% * Rafklettur ehf. .................................................Holding company Iceland - 100% Skilum ehf. .........................................................Debt Collection Iceland 100% 100%Straumur greiðslumiðlun hf. .............................Payment facilitatorIceland 100% 100% * TM líftryggingar hf. .........................................Insurance company Iceland 100% 100% * TM tryggingar hf. ............................................Insurance company Iceland 100% 100% AC GP 3 ehf. .......................................................Fund managementIceland 85% 85% Kvika Securities ltd. ............................................Business consultancy servicesUK 100% 100% Ortus Secured Finance ltd. ................................Lending operationsUK 80% 78% Intangible assets are specified as follows:Customer Software 31.12.2024 Goodwill relationships Brands and other Total Balance as at 1 January 2024 ....................................................17,782,646 1,731,905 264,327 2,127,485 21,906,363 Additions during the year .........................................................0 0 0 476,137 476,137 Discontinued .............................................................................0 0 0 (3,973) (3,973) Amortisation ..............................................................................0 (166,603) (45,805) (476,254) (688,662) Currency adjustments ...............................................................1,256 1,829 430 19 3,534 Balance as at 31 December 202417,783,902 1,567,131 218,952 2,123,415 21,693,400 Gross carrying amount ..............................................................17,783,902 2,097,644 369,526 4,021,898 24,272,969 Accumulated amortisation and impairment losses ..................0 (530,512) (150,573) (1,898,484) (2,579,569)Balance as at 31 December 202417,783,902 1,567,131 218,952 2,123,415 21,693,400 Customer Software 31.12.2023 Goodwill relationships Brands and other Total Balance as at 1 January 2023 ....................................................26,041,926 2,838,993 2,276,484 2,922,498 34,079,900 Additions during the year .........................................................0 315,558 0 1,224,158 1,539,716 Discontinued .............................................................................0 0 0 (20,338) (20,338) Amortisation ..............................................................................0 (262,726) (152,986)(700,617)(1,116,329) Reclassified as assets held for sale ...........................................(8,300,327)(1,160,429)(1,859,875)(1,294,732)(12,615,363) Currency adjustments ...............................................................41,046 509 705(3,484)38,776 Balance as at 31 December 202317,782,646 1,731,905 264,3272,127,48521,906,363 Gross carrying amount ..............................................................17,782,646 2,095,815 369,0963,617,92323,865,479 Accumulated amortisation and impairment losses ..................0 (363,910) (104,769)(1,490,438)(1,959,116)Balance as at 31 December 202317,782,646 1,731,905 264,3272,127,48521,906,363 a. Investment in associates is accounted for using the equity method and is specified as follows:Share Share Entity Nature of operations Domicile 31.12.2024 31.12.2023 Gláma fjárfestingar slhf. ....................................Holding companyIceland 24% 24% Moberg d. o. o. ..................................................Digital solutions providerCroatia 40% 40% The Group does not consider its associates material, neither individually nor as a group.b. Changes in investments in associates are specified as follows: 31.12.2024 31.12.2023 Balance at the beginning of the year ............................................................................................................................96,194 88,988 Dividend received ..........................................................................................................................................................(19,806) (27,493) Share in profit of associates, net of income tax ............................................................................................................41,350 35,756 Exchange rate difference ..............................................................................................................................................(4,884) (1,057)Total 112,855 96,194 Consolidated Financial Statements 31 December 2024 28 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 26. Intangible assets (cont.) b. Impairment testing 27. Operating lease assets Operating lease assets are specified as follows: 28. Deferred tax assets and liabilities Tax losses Tax losses 2018, expiring in 2028 ...............................................................................................................................................................8,748,112 Tax losses 2020, expiring in 2030 ...............................................................................................................................................................909,209 Total 9,657,320 At year end 2024, tax losses carried forward amount to ISK 9.7 billion, and are set to expire as follows: 31.12.2024 31.12.2023 Deferred tax assets ........................................................................................................................................................2,273,265 2,902,580 Deferred tax liabilities ...................................................................................................................................................(466,096) (272,615)Net 1,807,169 2,629,966 The Group's deferred tax assets (liabilities) are attributable to the following items:31.12.2024 31.12.2023 Property and equipment ...............................................................................................................................................41,393 71,166 Intangible assets ............................................................................................................................................................(78,674) (2,302) Other items ....................................................................................................................................................................(87,014) (30,814) Tax losses carried forward .............................................................................................................................................1,931,464 2,591,916 Total 1,807,169 2,629,966 Assets with indefinite useful life, such as goodwill, are not amortised but are subject to annual impairment testing as described in note 90. Goodwill is allocated to cash generating units ("CGUs") for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combinations in which the goodwill arose. Goodwill has been allocated to four CGUs, Asset Management, Commercial Banking, Investment Banking and UK operations. The goodwill impairment tests were performed at the end of 2024. Their results show that the recoverable values exceed the carrying values of goodwill. In addition to the base case testing, additional scenarios were tested where some key inputs had been stressed. In all scenarios tested the results show that there is sufficient headroom and that there are no triggers indicating that impairment is necessary. The cash flow projections for 2024 are derived from the Group's three year business plan which has been approved by the Board of Directors. In some instances, the Group's subsidiaries have prepared a three year business plan which has been approved by the Board of Directors of those companies. Management prepares a five year cash flow projection for each CGU, which is derived from the three year business plan and is also based on management assumptions. The following table shows the key assumptions used in the estimation of the recoverable amount. The recoverable amounts are calculated by discounting the estimated future cash flow of the CGUs. The time value of money and price of uncertainty are based on external market information about market risk, interest rates and CGU specific elements like country risk. Future Discount31.12.2024 growth rate rateBook value Asset Management ..........................................................................................................................3.5% 11.2%2,943,881 Commercial Banking ........................................................................................................................3.9% 11.3%11,826,735 Investment Banking .........................................................................................................................3.5% 11.2%1,199,761 UK operations ..................................................................................................................................3.5% 9.2%1,813,524 Total goodwill 17,783,902 Future Discount31.12.2023 growth rate rateBook value Asset Management ..........................................................................................................................3.5% 12.1%2,943,881 Commercial Banking ........................................................................................................................3.5% 11.3%11,826,735 Investment Banking .........................................................................................................................3.5% 12.1%1,199,761 UK operations ..................................................................................................................................3.5% 9.4%1,812,268 Total goodwill 17,782,646 31.12.2024 31.12.2023 Balance as at 1 January .................................................................................................................................................530,144 884,222 Additions .......................................................................................................................................................................35,693 63,792 Disposals ........................................................................................................................................................................(260,928) (257,979) Depreciation ..................................................................................................................................................................(89,741) (159,891)Total 215,168 530,144 Gross carrying amount ..................................................................................................................................................465,429 1,116,581 Accumulated depreciation ............................................................................................................................................(250,261) (586,437)Total 215,168 530,144 Consolidated Financial Statements 31 December 2024 29 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 29. Other assets Other assets are specified as follows: Right of use asset and lease receivables are specified as follows: 30. Borrowings Borrowings are specified as follows: 31. Issued bonds 2022 2024 At maturity 0 4,610,572 2022 2024 At maturity 0 1,292,489 2021 2024 At maturity 0 1,990,376 2021 2024 At maturity 0 4,517,330 2019 2024 Amortizing 0 1,003,675 2022 2025 At maturity 1,673,799 1,675,442 2023 2026 At maturity 9,832,220 3,770,724 2023 2026 At maturity 9,890,897 10,837,164 2023 2026 At maturity 6,325,047 6,839,052 2021 2027 At maturity 6,914,842 6,599,359 2022 2032 At maturity 2,486,481 2,373,037 2020 2024 Amortizing 0 206,206 Currency, nominal value Unsecured bonds: First issued Maturity Total37,123,285 45,715,427 Asset backed bonds: Terms of interest 31.12.2024 31.12.2023 Maturity type Floating, 3 month REIBOR + 1.25% Floating, 3 month STIBOR + 4.10% Floating, 3 month NIBOR + 4.10% Floating, 3 month STIBOR + 4.0% CPI-indexed, fixed 1.0% CPI-indexed, fixed 1.40% Fixed, 2.80% Issued bonds are specified as follows: Floating, 3 month STIBOR + 2.80% Floating, 3 month EURIBOR + 2.80% Float., 3 mon. ICE term SONIA+1.90% Floating, 3 month REIBOR + 0.90% Floating, 1 month REIBOR + 1.50% EMTN 24 0131, SEK 500 million ...... KVIKA 25 1201 GB ISK 1,660 million . Lykill 24 06, ISK 1,570 million ........... EMTN 26 0511, SEK 775 million * .... EMTN 26 0511, NOK 800 million ...... EMTN 26 1123 GB, SEK 500 m. ......... The Group has not had any defaults of principal, interest or other breaches with respect to its debt issued and other borrowed funds. Money market deposits were previously presented as part of borrowings but are now presented as part of deposits. Comparative figures have been restated. Reference is made to note 2 for further information. 31.12.2024 31.12.2023 Secured borrowings .......................................................................................................................................................13,809,473 13,691,834 Other borrowings ..........................................................................................................................................................580,042 1,332,264 Total 14,389,515 15,024,098 * Bond issued in two tranches, first tranche SEK 275 million was issued in May 2023 at a spread of STIBOR + 410 bps, the second tranche amounting to SEK 500 million was issued in May 2024 at a price corresponding to a spread of STIBOR + 240 bps. Right of use asset and lease receivables mostly consist of real estates for the Group's own use. The Group has entered into sublease contracts for parts of the real estates which it does not use for its operations. The lease receivables are immaterial at year end. Lease liability is specified in note 35. 31.12.2024 31.12.2023 Right of use asset and lease receivables as at 1 January ..............................................................................................1,320,983 1,576,582 Additions during the period ..........................................................................................................................................13,249 0 Termination of lease agreements .................................................................................................................................(14,968) 0 Indexation ......................................................................................................................................................................56,010 77,713 Currency adjustments ...................................................................................................................................................755 2,655 Depreciation and lease receivable instalment ..............................................................................................................(352,225) (335,967)Total 1,023,804 1,320,983 31.12.2024 31.12.2023 Accounts receivable ......................................................................................................................................................5,010,497 6,342,227 Unsettled transactions ..................................................................................................................................................2,860,925 2,262,226 Right of use asset and lease receivables .......................................................................................................................1,023,804 1,320,983 Sundry assets .................................................................................................................................................................612,265 475,693 Total 9,507,492 10,401,128 KVIKA 24 1119, GBP 11.4 million ..... KVIKA 32 0112, ISK 2,000 million ..... KVB 19 01, ISK 5,000 million ............ KVIKA 24 1216 GB, ISK 4,500 million EMTN 24 0204, EUR 8.5 million ...... KVB 21 02, ISK 5,400 million ............ Consolidated Financial Statements 31 December 2024 30 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 32. Subordinated liabilities a. Subordinated liabilities: 33. Short positions held for trading Short positions held for trading are specified as follows: 34. Short positions used for hedging Short positions used for hedging are specified as follows: 35. Other liabilities Other liabilities are specified as follows: At the interest payment date in May 2025 for TM 15 01, the annual interest rate increases from 5.25% p.a. to 6.25% p.a. At the interest payment date in May 2025 for TM 15 01, the Group has the right to repay the subordinated bond and on any subsequent interest payment dates until maturity. At the interest payment date in the year 2029 for KVIKA 34 1211 T2i, the Group has the right to repay the subordinated bond and on any subsequent interest payment dates until maturity. Subordinated liabilities are financial liabilities in the form of subordinated capital which, in case of the Group's voluntary or compulsory winding-up, will not be repaid until after the claims of ordinary creditors have been met. In the calculation of the capital ratio, they are included within Tier 2 and are a part of the equity base. The amount eligible for Tier 2 capital treatment is amortised on a straight-line basis over the final 5 years to maturity or up to 20% a year. The Group may only retire subordinated liabilities with the permission of the FME. b.Subordinated liabilities are specified as follows:31.12.2024 31.12.2023 Balance at the beginning of the year ............................................................................................................................5,993,084 3,686,451 Redemption of KVB 18 02 ..............................................................................................................................................(800,000) 0 Additions .......................................................................................................................................................................500,000 2,000,000 Paid interest ..................................................................................................................................................................(112,500) (164,833)Paid interests due to indexation ...................................................................................................................................(345,623) (58,171)Accrued interests and indexation .................................................................................................................................394,021 529,637 Total 5,628,982 5,993,084 31.12.2024 31.12.2023 Listed government bonds and bonds with government guarantees ............................................................................0 4,230 Listed bonds ..................................................................................................................................................................42,035 0 Total 42,035 4,230 First MaturityCurrency, nominal value issued Maturity type Terms of interest 31.12.2024 31.12.2023 KVB 18 02, ISK 800 million ...............2018 2028 At maturity CPI-Indexed, fixed 7.50% 0 1,123,778 KVIKA 34 1211 T2i, ISK 2,500 m. .......2023 2034 At maturity CPI-Indexed, fixed 6.25% 2,634,489 2,011,434 TM 15 1, ISK 2,000 million ................2015 2045 At maturity CPI-Indexed, fixed 5.25% 2,994,493 2,857,872 Total 5,628,982 5,993,084 31.12.2024 31.12.2023 Accounts payable and accrued expenses .....................................................................................................................7,531,359 9,326,840 Unsettled transactions ..................................................................................................................................................1,565,311 2,396,243 Salaries and salary related expenses ............................................................................................................................1,259,035 1,136,312 Lease liability .................................................................................................................................................................1,158,332 1,510,333 Withholding taxes .........................................................................................................................................................1,110,946 1,130,048 Special taxes on financial institutions and financial activities ......................................................................................376,753 304,045 Contingent consideration ..............................................................................................................................................319,660 404,762 Expected credit loss allowance for loan commitments, guarantees and unused credit facilities ...............................17,681 15,673 Other liabilities ..............................................................................................................................................................295,828 369,753 Total 13,634,905 16,594,010 31.12.2024 31.12.2023 Listed government bonds and bonds with government guarantees ............................................................................ 127,976 60,081 Listed bonds ..................................................................................................................................................................25,025 71,664 Total 153,001 131,745 Consolidated Financial Statements 31 December 2024 31 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 35. Other liabilities (cont.) Lease liability is specified as follows: 36. Share capital a. Share capital b. Changes made to the nominal amount of share capital c. Share capital increase authorisations According to the Bank's Articles of Association dated 21 March 2024, the Board of Directors is authorised to increase the share capital as follows: Temporary provision I to the Articles of Association authorises the Board of Directors to issue options or warrants for up to ISK 240 million in nominal value. To serve such instruments the Board of Directors is authorised to either increase the share capital accordingly or purchase own shares, as permitted by law. This authorisation is valid until 31 March 2027. The nominal value of shares issued by the Bank is ISK 1 per share. All currently issued shares are fully paid. The holders of shares are entitled to receive dividends as approved by the general meeting and are entitled to one vote per nominal value of ISK 1 at shareholders' meetings. Reference is made to the Bank's Articles of Association for more information about the share capital. The lease liability in mostly consist of real estates for the Group's own use. The end date of the lease agreement of the headquarter is November 2031 but with an exit clause in September 2027. The lease is linked to the Icelandic consumer price index. Right of use asset and lease receivables are specified in note 29. Temporary provision II to the Articles of Association authorises the Board of Directors to increase the share capital of the Bank in stages by up to ISK 70 million in nominal value, for the purposes of fulfilling stock option agreements in accordance with the Bank's stock option plan which has been approved by Iceland Revenue and Customs as provided for in Art. 10 of the Income Tax Act, No. 90/2003. This authorisation was valid until 31 December 2024. A copy of the Bank's Articles of Association, including the temporary provisions, is available on the Bank's website, www.kvika.is, reference is made to them for more information. During the year in 2024 the Bank's share capital was decreased by ISK 59 million in nominal value following a resolution by the AGM to cancel treasury shares. Furthermore, during the year, the Bank acquired treasury shares amounting to ISK 64 million in nominal value as a result of a share buy-back plan. Finally, the Bank sold treasury shares amounting to ISK 2 million in nominal value to fulfill its obligations related to the excercise of options. 31.12.2024 31.12.2023 Share capital according to the Bank's Articles of Association .......................................................................................4,722,073 4,781,026 Nominal amount of treasury shares .............................................................................................................................61,893 58,952 Authorised but not issued shares ..................................................................................................................................310,000 310,000 31.12.2024 31.12.2023 Lease liability as at 1 January ........................................................................................................................................1,510,333 1,827,582 Additions during the period ..........................................................................................................................................13,249 0 Termination of lease agreements .................................................................................................................................(14,629) 0 Currency adjustments ...................................................................................................................................................1,861 4,639 Instalment ......................................................................................................................................................................(408,492) (424,085) Indexation ......................................................................................................................................................................56,010 102,198 Total 1,158,332 1,510,333 Consolidated Financial Statements 31 December 2024 32 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 37. Solvency of financial conglomerate Solvency ratio of the Group as a financial conglomerate is specified as follows: The FME has designated the Group as a financial conglomerate as defined in Article no. 3 of Act no. 61/2017 on Additional Supervision of Financial Conglomerates. As a result of this designation, the Group's capital adequacy is calculated as the solvency ratio of a financial conglomerate. The Group furthermore calculates the consolidated capital adequacy ratio for entities not belonging to the insurance sector by excluding the insurance activities from calculation of risk-weighted exposures amount and capital base. The Group similarly calculates the solvency ratio of entities solely belonging to the insurance sector. In 2023, the Group introduced a change in treatment of deductions from capital base due to significant holdings in financial institutions and deferred tax assets. The calculations now take into account article 48 of the Capital Requirements Regulation no. 575/2013 of the EU. Solvency measures the Group's ability to take on setbacks, thus indicating its financial strength. The available capital and capital requirements of the Group is calculated as a financial conglomerate according to Articles 16, 17 and 18 of Act on Additional Supervision of Financial Conglomerates No. 61/2017. The Group's solvency ratio is 1.33, with a regulatory minimum requirement of 1.0. Own funds 31.12.2024 31.12.2023Own Funds eligible for non insurance activities ...........................................................................................................44,268,087 39,117,918 Own Funds eligible for insurance activities ..................................................................................................................18,531,702 14,754,678 Deduction from own funds not eligible ........................................................................................................................(4,551,933) (3,687,860)Total own funds 58,247,856 50,184,737 Capital requirements for insurance activities Solvency capital requirements (SCR) .............................................................................................................................10,930,329 9,622,063 Capital requirements for non insurance activities Statutory minimum capital requirement (Pillar I) .........................................................................................................15,507,507 13,826,577 Additional capital requirements (Pillar II) .....................................................................................................................6,978,378 6,913,288 Minimum capital requirement for non insurance activities 22,485,885 20,739,865 Additional capital protection buffers ............................................................................................................................12,386,621 11,579,758 Adjustments to capital requirements in conglomerate ................................................................................................(2,047,232) (1,724,074)Total capital requirements for non insurance activities 32,825,273 30,595,549 Total solvency capital requirements .....................................................................................................................43,755,602 40,217,612 Solvency ratio ................................................................................................................................................................1.33 1.25 Consolidated Financial Statements 31 December 2024 33 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 38. Capital adequacy ratio (CAR) The capital adequacy ratio of the Group, excluding entities which belong to the insurance sector, calculated in accordance with Article 84 of Act No. 161/2002 on Financial Undertakings, was 22.8%. The minimum requirement from the FME is 11.6%. The ratio is calculated as follows: The Icelandic Financial Supervisory Authority (FME) supervises the Bank on a consolidated basis and, as such, receives information on the capital adequacy of, and sets capital requirements for, the Bank as a whole. The Bank's regulatory capital calculations for credit risk and market risk are based on the standardised approach and the capital calculations for operational risk are based on the basic indicator approach. Minimum capital requirement is based on the Bank's Internal Capital Adequacy Assessment Process (ICAAP) and is reviewed by the FME through the Supervisory Review and Evaluation Process (SREP). The Bank's minimum regulatory capital requirement, based on SREP from 2024 is 11.6%. The minimum regulatory capital requirement including the additional capital buffers is 18.0% as at 31 December 2024. Own funds eligible for non insurance activities 31.12.2024 31.12.2023 Total equity ....................................................................................................................................................................89,517,287 81,957,804 Proposed dividend ........................................................................................................................................................(2,050,479) (1,004,626) Goodwill and intangibles ...............................................................................................................................................(28,827,742) (29,040,706) Shares in other financial institutions ............................................................................................................................(18,895,332) (16,420,475) Deferred tax asset .........................................................................................................................................................(1,076,620) (1,559,045)Common equity Tier 1 capital (CET 1) 38,667,113 33,932,952 Tier 2 capital ..................................................................................................................................................................5,600,973 5,915,278 Deductions from Tier 2 capital ......................................................................................................................................0 (730,312)Total own funds 44,268,087 39,117,918 Risk-weighted exposure amount (RWEA) Credit risk .......................................................................................................................................................................158,177,636 142,648,209 Market risk .....................................................................................................................................................................7,586,080 3,082,235 Operational risk .............................................................................................................................................................28,080,116 27,101,765 Total risk-weighted exposure amount 193,843,832 172,832,209 Capital ratios Capital adequacy ratio (CAR) .........................................................................................................................................22.8% 22.6% CET1 ratio ......................................................................................................................................................................19.9% 19.6% Minimum Capital adequacy ratio requirement ............................................................................................................11.6% 12.0% Minimum Capital adequacy ratio requirement including supervisory buffers ............................................................18.0% 18.7% Minimum CET 1 ratio requirement including supervisory buffers ...............................................................................12.9% 13.5% TM tryggingar hf. has been classified as a disposal group held for sale and as a discontinued operation. This does not affect the Group‘s capital adequacy calculation. Nonetheless, assuming a cash sale of the subsidiary, the Bank’s capital would increase. To what extent the capital adequacy ratio would increase depends on the final sale price as well as other factors, such as a potential special dividend payment or share buy-back following the sale. Consolidated Financial Statements 31 December 2024 34 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 39. Solvency of insurance activities At 31 December 2023, the insurance operation was classified as a disposal group held for sale and as a discontinued operation. 40. Leverage ratio The leverage ratio is calculated on the basis of the Group's consolidated numbers as per regulation no. 575/2013 of the EU, which excludes the Group's insurance subsidiary. According to Act no. 161/2002 on Financial Undertakings the minimum leverage ratio requirement is 3%. The Group calculates solvency capital and capital requirements for entities which belong to the insurance sector. The available capital and required capital is calculated in accordance with Articles 88 and 96 of the Act on Insurance Activity No. 100/2016. This brings the solvency ratio for entities which belong to the insurance sector to 1.70. Solvency capital requirements according to law is the minimum insurance companies have to meet. Own funds eligible for insurance activities 31.12.2024 31.12.2023Equity eligible for insurance activities ..........................................................................................................................23,232,582 19,811,796 Goodwill and intangibles ...............................................................................................................................................(5,131,678) (5,527,999) Difference between net technical provision in the financial statements and solvency rules ......................................430,798 470,881 Total own funds 18,531,702 14,754,678 Solvency capital requirements (SCR) Life insurance risk ..........................................................................................................................................................459,024 536,675 Health insurance risk .....................................................................................................................................................1,723,332 1,656,139 Non-life insurance risk ...................................................................................................................................................6,527,974 6,108,228 Market risk .....................................................................................................................................................................7,088,319 5,770,238 Counterparty default risk ..............................................................................................................................................998,278 1,169,357 Multifaceted effects ......................................................................................................................................................(4,988,191) (4,695,651)Basic Solvency capital requirements 11,808,737 10,544,986 Operational risk .............................................................................................................................................................819,301 754,058 Adjustment for the loss-absorbing capacity of deferred taxes ....................................................................................(1,697,709) (1,676,980)Total solvency capital requirements 10,930,329 9,622,063 Solvency ratio after dividend ........................................................................................................................................1.70 1.53 Eligible items to meet the minimum capital .................................................................................................................18,531,702 14,754,678 Minimum required capital (MRC) .................................................................................................................................4,778,469 4,520,510 Minimum required capital ratio after dividend ............................................................................................................3.88 3.26 The Group has revised the methodology it uses to calculate derivative exposures to better align with regulation no. 575/2013. The figure for 31.12.2023 has not been restated. The impact of the revised methodology on the leverage ratio for 31.12.24 is immaterial. 31.12.2024 31.12.2023 On-balance sheet exposures .........................................................................................................................................253,116,968 243,721,442 Derivative exposures ...................................................................................................................................................2,533,012 1,187,911 Off - balance sheet exposures .......................................................................................................................................800,313 210,534 Total exposure measure 256,450,293 245,119,887 Tier 1 capital ..................................................................................................................................................................38,667,113 33,932,952 Leverage ratio ................................................................................................................................................................15.1% 13.8% Consolidated Financial Statements 31 December 2024 35 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 17 41. Minimum requirements for own funds and eligible liabilities (MREL) Requirements were first set in January 2025 The Central Bank of Iceland's Resolution Authority presented the Group their first minimum requirement for own funds and eligible liabilities (MREL) in January 2025. According to Act No. 70/2020 on Resolution of Credit Institutions and Investment Firms, the Bank shall at all times meet the MREL funds as a percentage to the Group's total risk-weighted exposure amount (MREL-RWEA). The MREL-RWEA requirement must be met parallel to the combined buffer requirement (CBR). The Group must also meet a requirement of MREL funds as a percentage of the Group's total exposure amount (MREL-TEM). The decision of the Resolution Authority entails that the Bank must at all times maintain a minimum of 22% of MREL-RWEA and 6% of MREL-TEM. Own funds and eligible liabilities 31.12.202431.12.2023 Common equity Tier 1 capital (CET 1) ...........................................................................................................................38,667,113 33,932,402 Tier 2 capital ..................................................................................................................................................................5,600,973 5,915,278 Eligible liabilities ............................................................................................................................................................35,449,487 32,094,778 Total own funds and eligible liabilities 79,717,574 71,942,458 MREL-RWEA and CBR Risk-weighted exposure amount (RWEA) .....................................................................................................................193,843,833 172,832,209 Own funds and eligible liabilities as % of RWEA ...........................................................................................................41.1% - Minimum requirements for own funds (MREL) ..........................................................................................................22.0% - Combined buffer requirement (CBR) ............................................................................................................................6.4% -MREL-RWEA requirement including CBR 28.4% -MREL-TEM Total exposure amount .................................................................................................................................................256,450,293 245,119,887 Own funds and eligible liabilities as % of TEM ..............................................................................................................31.1% - MREL-TEM requirement ..............................................................................................................................................6.0% - Consolidated Financial Statements 31 December 2024 36 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 41 Risk management 42. Risk management framework a. Board of Directors b. Board of Directors sub-committees c. CEO and the Executive Committee The Executive Committee manages and supervises, as decided by the CEO, the day-to-day operations of the Bank in accordance with the policy formulated by the Bank's Board of Directors in collaboration with the CEO. The managing directors of subsidiaries and the managing directors/directors of individual units of the Bank are each responsible to their CEO/managing director and the boards of each company for risk- taking and risk management in the daily operations of their units. Furthermore, the CEO has established five committees within the Bank, which are, responsible to the CEO for, among other things, risk management of different risk factors and that the implementation of risk management is in accordance with the Board of Directors’ risk appetite. These committees are composed of the Bank’s employees. The Board of Directors is responsible for the governance of the Bank's Group, including determining the risk management framework. In this regard, the Board of Directors has, among other things, set a Group Governance Policy and approved a Group Risk Policy, which describes the framework that the Board of Directors has set for risk management and the Group's risk appetite. The Board of Directors is responsible for the framework for identifying, assessing, monitoring, managing and disclosing the Group's identified risk factors. The Board of Directors is also responsible for ensuring that the policy is implemented and instructs the CEO to implement and elaborate on its implementation in more detail. The Board of Directors defines the risk appetite, including in the form of the Group's key risk indicators, and defines risk tolerance and risk capacity. The Board of Directors also sets policies for the Bank's main risk factors. In order to ensure consistent and good governance on a consolidated basis, the Board of Directors has also set out ownership policies for those subsidiaries that are considered an important part of the Group's operations. According to the ownership policies, the boards of the relevant subsidiaries shall always provide the Bank with all necessary information to enable it to perform its supervisory role and the services provided by the Bank to the companies. As it is necessary to coordinate risk management on a consolidated basis, the relevant companies shall provide the Bank’s risk management with all necessary information to enable the Bank to fulfil its obligations as a parent company in a group. The Bank’s Chief Risk Officer and the Compliance Officer may request an direct audience of the boards of the relevant subsidiaries. The risk policy and the entire risk management framework are reviewed regularly with a view to adapting the framework to changes in market conditions and the Group’s operations. The Group, through training and management standards and procedures, continuously aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Bank's Board of Directors has established three sub-committees, the Risk Committee, the Audit Committee and the Remuneration Committee. In accordance with the Bank´s articles of association, members of the committees are appointed in accordance with applicable law, and each committee currently has three members. It is not permitted to appoint employees of the Bank to any committee. Members shall have the necessary experience and knowledge for each committee´s tasks according to applicable laws and rules. Each committee has incorporated procedural rules which have been confirmed by the Board of Directors. The Remuneration Committee has an advisory and supervisory role for the Bank´s Board of Directors in relation to remuneration and shall advise the Board on the Company's remuneration policy and independently assess the policy and its implementation. This includes, among other things, ensuring that bonuses support sound risk management and do not encourage excessive risk-taking. The committee also oversees the remuneration of the heads of internal audit, risk management and compliance. The CEO is responsible for the effective implementation risk management through the corporate governance structure and committees. The CEO appoints Managing Directors which, together with the CEO, form the Bank’s Executive Committee. Each Managing Director heads individual divisions within the Bank at any given time. The Bank’s Executive Committee together with the CEO of Kvika eignastýring hf. form the Group Executive Committee. The Risk Committee has an advisory and supervisory role for the Bank´s Board of Directors, including in formulating the Group's risk policy and risk appetite, and acts on behalf of the Bank's Board of Directors in supervising the implementation of the Group's Risk Policy. The Committee supervises the management of the Group's risk factors and the arrangement and effectiveness of risk management. The Committee shall discuss the Bank's risk culture and risk appetite. The Audit Committee has an advisory and supervisory role for the Bank's Board of Directors, including in ensuring the quality of the Bank's annual accounts and other financial information and the independence of the Bank's auditor. The Committee oversees the work process for preparing financial statements, the effectiveness of internal controls, and internal and external audits. Consolidated Financial Statements 31 December 2024 37 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 42 42. Risk management framework (cont.) d. Committees e. Risk management f. g. 43. Hedging Internal Audit The compliance function is an independent function that operates under the CEO, and the appointment of the Compliance Officer and his deputy is confirmed by the Board. The compliance function monitors the Bank's compliance risk on a permanent basis and that the measures, policies and procedures that have been put in place so that the Bank complies with its obligations are adequate and effective. The Compliance Officer is also responsible for coordinating and monitoring the Bank's compliance with applicable anti-money laundering and terrorist financing laws and regulations. The Compliance officer, further, manages provisions of applicable market abuse laws and regulations, regarding the handling of inside information and PDMR transactions, and oversees the complaints managements process. Compliance is operated on a consolidated basis and the employees responsible for compliance in the Bank’s subsidiaries report to and receive support from the Compliance Officer and the parent entity’s compliance function. Compliance Officer The internal audit (IA) activity of Kvika bank hf. operates according to Article 16 on the Act on financial companies no. 161/2002 and guiding recommendations of the Financial Supervisory Authority of the Central Bank of Iceland regarding the work of the audit activity of financial companies no. 3/2008. The IA department operates in accordance with the International Professional Practices Framework (IPPF standards). The position of IA in the organizational chart demonstrates the independence of the department. In accordance with the Internal Auditor's charter, the internal auditor has direct and unrestricted access to the Board and managers of the Bank and its subsidiaries. Kvika's IA activity must provide independent and objective assurance and advisory services on the Bank's activities on a consolidated basis, aimed at increasing its value. The department's activities assess and improve the effectiveness of risk management, control methods and governance through a systematic and disciplined way, thus contributing to Kvika group´s achieving its key goals. The Internal Auditor is responsible for effectively managing the IA activity in accordance with the audit charter and the IPPF standards. Securities held as a hedge against derivatives positions of customers make up a part of the Group's portfolio of assets. The Group hedges currency exposure between the Group's asset portfolio and its liabilities to the extent possible as part of managing its balance and keeping it within approved limits. The Group applies hedge accounting according to IAS 39 against translation of foreign operations. Currency swap agreements are used as a hedge instrument against translation difference arising from foreign operations. The Sustainability Committee, as a professional committee on sustainability and sustainability risk, is responsible for the implementation and execution of the part of the Group's risk policy that relates to sustainability risk. The Sustainability Committee informs the Group Risk Committee on the status of sustainability risk on a regular basis. The Risk Management department is an independent unit reporting to the CEO. It simultaneously fulfils the risk management functions of both the Bank and the entire Group. It monitors the identified risk factors across the Group and develops methods for systematically identifying, assessing, monitoring, and managing them. Risk Management supports other units in identifying and managing risks, ensuring compliance with internal and external regulations. The Risk Management department prepares reports for relevant professional committees and supervisory bodies, including compliance with the defined risk appetite. It provides direct information to the Group's Board and participates in shaping the Group Risk Policy. The Bank operates five committees that deal with the Bank’s risk management: the Group Risk Committee, the Asset and Liability Committee (ALCO), the Credit Committee, the Operations Committee and the Sustainability Committee. The Group Risk Committee oversees the implementation of and compliance with the Group’s risk policy and risk management framework. The committee has a comprehensive overview of the main risks faced by the Group and monitor that risk-taking is in accordance with the Board of Directors’ risk appetite. The Committee reviews the rules of procedure of other committees and ensures that procedures are coordinated between different committees and companies. ALCO, as a professional committee for the management of the balance sheet as well as capital, liquidity and funding, and market risks, is responsible for the implementation and execution of the part of the Group's risk policy that relates to capital, liquidity, funding and market risks. ALCO informs the Group's Risk Committee on the status of these risk factors on a regular basis. The Credit Committee, as a professional committee for the Bank's lending and credit risk, is responsible for the implementation and execution of that part of the Group's risk policy that relates to credit risk. The Credit Committee informs the Group's Risk Committee on the status of credit risk on a regular basis. The Operations Committee, as a professional committee for operations and operational risk, is responsible for the implementation and execution of the part of the Group's risk policy that relates to operational risk. The Operations Committee informs the Group's Risk Committee on the status of operational risk on a regular basis. Consolidated Financial Statements 31 December 2024 38 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 42 44. Credit risk - overview a. Definition b. Management c. Credit approval process d. Collateral e. Credit rating, control and provisioning f. Loan portfolio management g. Impairment h. Derivatives i. Securities used for hedging The Group offers derivative contracts in the form of swap contracts on highly liquid securities or currencies. On the day when the contract is entered into, the Group purchases the underlying asset and hedges its exposure to price changes. Collateral is primarily in the form of cash or listed, highly liquid securities. The risk management unit and ALCO set rules about the level of collateralisation and the risk management unit monitors the compliance to these rules. Contracts are closed if required levels of collateralisation are not met. The Group hedges itself for market risk of derivative contracts by purchasing the underlying securities at the commencement of the contract. Since the contracts require delivery of the underlying securities to the customer on the settlement day, the credit risk towards the issuer is immaterial. To ensure an effective diversification of the loan portfolio the board has set a limit framework defining maximum exposure as a ratio of the Group’s equity and/or the total size of the loan portfolio. These limits include limitation on joint exposure to associated clients, exposure to individual and associated industries, single regions and countries etc. It is the responsibility of risk management to monitor that these limits are not being violated and to report discrepancies to the credit committee. One of the Group's primary sources of risk is credit risk. Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The risk management unit monitors credit risk and is responsible for developing methodologies to systematically identify, assess, monitor, and manage it. The Group uses a variety of tools and processes to manage credit risk, including collaterals, hedges and loan portfolio management. To a very large extent the Group's loan portfolio consists of senior loans, most of which are highly collateralised. Securing loans with collateral is a traditional method to reduce credit risk. The Group uses different methods to reduce credit risk by obtaining collateral from customers where appropriate. Such collateral gives the Group right to the collateralised assets for current and future obligations incurred by the customer. The Group applies appropriate haircuts on all collateral in order to ensure proper risk mitigation. For all collateral in listed securities, the Group maintains the right to liquidate collateral in case its market value falls below a predefined limit. The risk management unit ensures that loans have a credit rating and is responsible for reviewing the loan portfolio. The Group monitors the value of collateral by listed securities on a real time basis and takes prompt action when necessary. The originating department prepares a proposal for each larger loan or credit line which is presented to the credit committee for approval. The proposal consists of a basic description of the client, the purpose of the loan, a simple credit assessment and arguments for or against granting the loan. The committee decides whether there is need for further credit assessment and on what terms the loan may be granted. For smaller loans the originating department obtains a general credit approval from the credit committee with respect to the process, terms, credit limits and total amount of the specific lending type. A more thorough credit assessment may be conducted if considered appropriate and can include an assessment of a borrower's fundamental credit strength as well as the value of any collateral. To assess the borrower's capacity to meet his or her obligations the committee can request stress test analysis of the borrower's cash flow or call for third party assessments. Provisioning for loan impairments is estimated on the basis of expected loss models assessing the portfolio as a whole as well as individual lending. Risk management unit suggest a level of provisioning for the portfolio, based on the expected loss assessment. Risk management unit reassess impairments in the event of collateral decay, delayed payments, indication of increased risk, or other early warning signs. Provisions require approval from the credit committee. Refer to note 82 in the financial statements for more information on the Group's impairment policy. Consolidated Financial Statements 31 December 2024 39 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 44 45. Maximum exposure to credit risk 46. Credit quality of financial assets Model parameters for UK portfolio31.12.2024Scenarios Base case Upside Downside SevereUnemployment rate (2 years) 4.1% 3.9% 5.8% 7.5%Inflation CPI index (2 years) 5.0% 4.7% 8.3% 16.4%Assigned weight 50.0% 20.0% 25.0% 5.0% There are no comparative figures available as the Group first implemented a formal economic forecast for its UK operations in 2024. Model parameters for Icelandic portfolio31.12.202431.12.2023Scenarios Base case Upside Downside Base case Upside DownsideUnemployment rate 4.2% 3.7% 4.9% 4.8% 4.4% 5.0%Inflation CPI index 3.7% 3.4% 5.5% 5.7% 6.0% 6.7%Assigned weight 50.0% 15.0% 35.0% 60.0% 10.0% 30.0% The book value of financial assets which fall under the impairment requirements of IFRS 9 are presented as net of expected credit losses ("ECL") in the statement of financial position. The ECL are recalculated for each asset on at least a quarterly basis. The assessment of ECL is based on calculations from PD, LGD and EAD models. Furthermore, the assessment is based upon management's assumptions regarding the development of macroeconomic factors over the coming twelve months. The assumptions for macroeconomic development are decided for three scenarios: a base case, an upside scenario, a downside scenario and for the UK portfolio there is a fourth scenario, severe downturn. Each scenario includes a probability weight, and the ECL is derived as a weighted average. The amount of ECL to be recognized is dependent on the Group's definition of significant increase in credit risk, which controls the impairment stage each asset is allocated to. The factors that are used to measure significant increase in credit risk include comparison of changes in PD values, annualized lifetime PD values, days past due and watch list. The maximum exposure to credit risk for on-balance sheet and off-balance sheet items, before taking into account any collateral held or other credit enhancements, is specified as follows: 31.12.2024 Public Financial Corporate On-balance sheet exposure entities institutions customers Individuals 31.12.2024 Cash and balances with Central Bank ..........................................................18,593,420 9,725,772 28,319,192 Fixed income securities ................................................................................62,660,260 1,888,815 245,486 64,794,561 Loans to customers ......................................................................................6,972 1,665 110,457,726 39,736,334 150,202,696 Derivatives ....................................................................................................1,000,775 144,011 51,958 1,196,744 Other assets ..................................................................................................549 1,114,688 7,226,916 141,535 8,483,688 81,261,202 13,731,715 118,074,138 39,929,827 252,996,882 Off-balance sheet exposure Loan commitments .......................................................................................7,000 2,331 5,037,623 1,013,114 6,060,067 Financial guarantee contracts ......................................................................801,065 801,065 Maximum exposure to credit risk 77,814,760 13,734,046 127,366,267 40,942,941 259,858,014 The Group utilises an economic forecast which is aligned with requirements for the calculation of expected credit loss. Following the Group's acquisition of Ortus Secured Finance ltd., the Group owns loan portfolios in two geographical segments, i.e. Iceland and the United Kingdom ("UK"). In general, the Group utilises the same ECL methodology for the portfolios in both segments, although in the UK it is to a larger extent based on an individual assessment by credit specialists and a separate macroeconomic forecast is used to reflect the UK economy. The following tables shows the first 12 month macro economic values for the variables used in the expected credit loss model. For the UK portfolio 24 month values are used.Reference is made to note 82 in the Consolidated Financial Statements for further information about the Group‘s impairment methodology. 31.12.2023 Public Financial Corporate On-balance sheet exposure entities institutions customers Individuals 31.12.2023 Cash and balances with Central Bank ..........................................................17,324,455 6,356,998 23,681,453 Fixed income securities ................................................................................63,928,567 944,255 104,584 64,977,406 Loans to customers ......................................................................................11,127 97,867,223 38,445,131 136,323,481 Derivatives ....................................................................................................1,981,114 466,082 50,680 2,497,877 Other assets ..................................................................................................394,137 1,184,368 5,179,519 2,322,122 9,080,146 81,658,286 10,466,735 103,617,408 40,817,934 236,560,362 Off-balance sheet exposure Loan commitments .......................................................................................4,175,306 1,029,698 5,205,004 Financial guarantee contracts ......................................................................211,940 211,940 Maximum exposure to credit risk 81,658,286 10,466,735 108,004,653 41,847,632 241,977,306 Consolidated Financial Statements 31 December 2024 40 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 46 46. Credit quality of financial assets (cont.) a. Breakdown of loans to customers by industry and information on collateral and other credit enhancements The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. For other types of assets the Group uses third party valuation where possible. Allocated collateralImpairment Listed UnlistedClaimdue to expectedCarrying Total securities andsecurities andResidential Commercial Industrial Unsecured 31.12.2024 value credit loss amount % collateral Deposits liquid funds other funds real estate real estate Automobiles equipment Guarantees Other claim value Public entities .................................................6,982 (10) 6,972 0.0% 10,303 0 0 0 0 0 9,994 0 0 308 201 Financial institutions .......................................1,669 (4) 1,665 0.0% 0 0 0 0 0 0 0 0 0 0 1,665 Corporate Real estate activities .................................. 45,564,368 (339,001) 45,225,367 30.1% 84,189,303 31,404 49,689 30,889 41,523,277 41,133,852 973,934 239,779 0 206,478 490,706 Construction .............................................. 16,412,343 (92,416) 16,319,928 10.9% 32,487,287 387 36 0 12,425,532 9,668,472 5,260,413 4,425,735 0 706,712 255,535 Service Activities ........................................ 16,067,877 (162,054) 15,905,824 10.6% 29,301,983 25,792 122,473 577,035 1,020,336 2,522,528 19,253,086 3,815,059 0 1,965,674 317,031 Accommodat. and Food Service Activit. ..... 11,491,746 (85,812) 11,405,934 7.6% 22,151,366 104,664 0 0 1,367,345 20,068,668 528,029 46,852 0 35,810 8,285 Activities of Holding Companies ................. 7,142,676 (653,572) 6,489,105 4.3% 20,066,039 13,417 201,232 9,761,948 4,863,693 3,343,574 216,524 183,137 1,467,788 14,726 1,434,099 Wholesale and Retail Trade ....................... 4,930,289 (55,744) 4,874,545 3.2% 7,473,811 24,075 0 0 246,700 913,378 3,601,133 1,952,169 100,000 636,356 383,870 Other ......................................................... 10,303,221 (66,197) 10,237,024 6.8% 29,558,579 342,028 7,208,007 162,634 3,389,662 11,277,426 2,176,217 2,189,640 21,500 2,791,466 415,340 Individual ........................................................40,608,567 (872,233) 39,736,334 26.5% 57,599,454 32,933 793,062 654,647 11,886,283 1,815,160 40,060,219 1,031,750 0 1,325,401 8,312,050 Total 152,529,739 (2,327,042) 150,202,696 100.0% 282,838,124 574,701 8,374,499 11,187,152 76,722,826 90,743,056 72,079,550 13,884,121 1,589,288 7,682,932 11,618,783 Collateral value is shown as the market- or accounting value of collateral allocated to exposures. Other collateral includes financial claims, inventories and receivables. Allocated collateralImpairment Listed UnlistedClaimdue to expectedCarrying Total securities andsecurities andResidential Commercial Industrial Unsecured 31.12.2023 value credit loss amount % collateral Deposits liquid funds other funds real estate real estate Automobiles equipment Guarantees Other claim value Public entities .................................................11,188 (61) 11,127 0.0% 11,553 0 0 0 0 0 11,226 0 0 327 2,917 Financial institutions .......................................0 0 0 0.0% 0 0 0 0 0 0 0 0 0 0 0 Corporate Real estate activities .................................. 31,508,020 (234,278) 31,273,742 22.9% 59,514,931 25,414 0 54,180 28,804,369 29,574,694 797,093 205,458 0 53,722 457,258 Construction .............................................. 20,585,501 (82,066) 20,503,434 15.0% 45,467,134 158,988 0 0 17,773,191 18,323,454 4,611,641 3,990,110 0 609,751 243,654 Service Activities ........................................ 14,131,242 (148,035) 13,983,207 10.3% 25,910,745 45,492 79,577 2,228,442 270,692 1,306,517 16,455,917 2,742,679 0 2,781,430 380,611 Activities of Holding Companies ................. 7,975,924 (576,301) 7,399,624 5.4% 23,080,630 48,409 347,097 10,610,025 7,001,067 3,572,982 219,871 200,625 805,971 274,582 123,335 Wholesale and Retail Trade ....................... 7,974,891 (55,417) 7,919,474 5.8% 12,230,309 23,658 312,321 0 4,660,937 1,330,258 3,447,895 1,502,756 100,000 852,484 53,298 Accommodat. and Food Service Activit. ..... 6,180,590 (11,206) 6,169,384 4.5% 12,829,867 73,657 0 0 2,887,040 9,307,016 504,811 0 0 57,343 24,105 Other ......................................................... 10,740,500 (122,143) 10,618,358 7.8% 23,724,577 267,508 6,391,784 939,372 4,084,596 4,721,067 2,312,012 3,488,403 693,755 826,082 524,143 Individual ........................................................39,434,283 (989,152) 38,445,131 28.2% 55,469,271 13,328 1,023,000 601,250 9,311,354 2,961,368 39,589,466 1,760,237 0 209,268 8,918,673 Total 138,542,141 (2,218,660) 136,323,481 100.0% 258,239,017 656,453 8,153,779 14,433,268 74,793,246 71,097,357 67,949,932 13,890,267 1,599,726 5,664,989 10,727,994 Consolidated Financial Statements 31 December 2024 41 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 46 46. Credit quality of financial assets (cont.) b. 88,207 The following tables show financial assets subject to the impairment requirements of IFRS 9 broken down by credit quality bands where band i denotes the lowest credit risk and band iv the highest credit risk. Assets measured at fair value through profit or loss are not subject to the stage classification requirements of IFRS 9 but are nevertheless included in the tables in order to give a more complete picture of the credit quality of loans to customers and reconcile the tables to the carrying amount on the balance sheet. The Bank has primarily used calibrated external credit ratings to assess the default probability of its customers. Some of the larger borrowers are furthermore individually assessed by credit specialists. The Bank has implemented internal credit rating models for part of the loan portfolio and intends to continue this development in 2025. Credit quality of financial assets by credit quality band 31.12.2024 Loans to customers:Stage 1 Stage 2 Stage 3 FVTPL Total Credit quality band I .............................................................................89,427,181 1,265,779 16,862 90,709,821 Credit quality band II ............................................................................40,153,181 3,159,469 43,312,650 Credit quality band III ...........................................................................6,609,379 2,003,621 8,613,000 Credit quality band IV ..........................................................................226,827 380,710 607,537 In default ..............................................................................................572 0 7,940,092 114,000 8,054,664 Non-rated .............................................................................................286,623 202,511 742,932 1,232,066 Gross carrying amount 136,703,762 7,012,091 7,940,092 873,794 152,529,739 Expected credit loss .............................................................................(366,642) (189,275) (1,771,126) (2,327,042)Book value 136,337,121 6,822,816 6,168,967 873,794 150,202,696 Loan commitments, guarantees and unused credit facilities:Stage 1 Stage 2 Stage 3 FVTPL Total Credit quality band I .............................................................................4,675,341 2,690 4,678,031 Credit quality band II ............................................................................1,567,638 464 1,568,102 Credit quality band III ...........................................................................562,954 5,839 568,793 Credit quality band IV ..........................................................................1,821 542 2,363 In default ..............................................................................................33,741 10,048 43,790 Non-rated .............................................................................................53 53 Total off-balance sheet amount 6,807,754 9,589 33,741 10,048 6,861,132 Expected credit loss .............................................................................(10,716) (149) (6,837) (17,701)Net off-balance sheet amount 6,797,038 9,440 26,905 10,048 6,843,431 31.12.2023Loans to customers:Stage 1 Stage 2 Stage 3 FVTPL Total Credit quality band I .............................................................................84,252,096 744,843 427,849 85,424,788 Credit quality band II ............................................................................33,627,994 2,687,909 39,319 36,355,221 Credit quality band III ...........................................................................6,503,029 1,977,002 8,480,030 Credit quality band IV ..........................................................................769,496 485,101 1,254,597 In default ..............................................................................................70,248 118,140 5,999,315 215,265 6,402,968 Non-rated .............................................................................................624,537 0 624,537 Gross carrying amount 125,847,398 6,012,995 5,999,315 682,433 138,542,141 Expected credit loss .............................................................................(367,895) (127,520) (1,723,244) (2,218,660)Book value 125,479,503 5,885,474 4,276,072 682,433 136,323,481 Loan commitments, guarantees and unused credit facilities:Stage 1 Stage 2 Stage 3 FVTPL Total Credit quality band I .............................................................................3,773,821 3,773,821 Credit quality band II ............................................................................920,679 1,211 921,890 Credit quality band III ...........................................................................586,052 41,972 628,024 Credit quality band IV ..........................................................................3,407 1,594 5,002 In default ..............................................................................................351 1 87,855 Non-rated .............................................................................................0 0 Total off-balance sheet amount 5,284,311 44,778 87,855 0 5,416,944 Expected credit loss .............................................................................(13,897) (538) (1,253) (15,688)Net off-balance sheet amount 5,270,413 44,240 86,602 0 5,401,255 Consolidated Financial Statements 31 December 2024 42 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 46 46. Credit quality of financial assets (cont.) c. Breakdown of loans to customers into not past due and past due d. Allowance for expected credit loss on loans to customers and loan commitments, guarantees and unused credit facilities 31.12.2024 Expected credit loss allowance for loans to customers 31.12.2024 Claim Expected Carryingvalue credit loss amount Not past due .............................................................................................................................................137,349,325 (624,970) 136,724,356 Past due 1-30 days ....................................................................................................................................7,723,558 (104,273) 7,619,285 Past due 31-60 days ..................................................................................................................................2,321,498 (72,912) 2,248,585 Past due 61-90 days ..................................................................................................................................697,974 (16,044) 681,930 Past due 91-180 days ................................................................................................................................2,179,700 (820,218) 1,359,481 Past due 181-360 days ..............................................................................................................................809,344 (248,026) 561,318 Past due more than 360 days ...................................................................................................................1,448,340 (440,599) 1,007,741 Total 152,529,739 (2,327,042) 150,202,696 The following tables show changes in the expected credit loss allowance of loans to customers and for loan commitments, guarantees and unused credit facilities during the year. 31.12.2023 Claim Expected Carryingvalue credit loss amount Not past due .............................................................................................................................................127,943,377 (571,621) 127,371,756 Past due 1-30 days ....................................................................................................................................2,443,573 (50,506) 2,393,067 Past due 31-60 days ..................................................................................................................................1,933,845 (195,102) 1,738,744 Past due 61-90 days ..................................................................................................................................1,757,416 (74,920) 1,682,496 Past due 91-180 days ................................................................................................................................1,494,409 (601,446) 892,963 Past due 181-360 days ..............................................................................................................................1,912,571 (197,428) 1,715,143 Past due more than 360 days ...................................................................................................................1,056,951 (527,638) 529,313 Total 138,542,141 (2,218,660) 136,323,481 Expected credit loss allowance totalStage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2024 381,793 128,058 1,724,497 2,234,348 Transfer to Stage 1 - (Initial recognition) ..................................................................103,709 (21,728) (81,980) 0 Transfer to Stage 2 - (significantly increased credit risk) .........................................(16,599) 30,091 (13,492) 0 Transfer to Stage 3 - (credit impaired) .....................................................................(32,445) (35,343) 67,787 0 Net remeasurement of loss allowance ..........................................................................(174,510) 15,696 844,723 685,909 New financial assets, originated or purchased ..............................................................270,830 120,489 223,571 614,890 Derecognitions and maturities ......................................................................................(155,102) (46,969) (581,259) (783,330) Write-offs .......................................................................................................................(319) (871) (405,885) (407,074)Balance as at 31 December 2024 377,357 189,424 1,777,962 2,344,743 Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2024 367,895 127,520 1,723,244 2,218,660 Transfer to Stage 1 - (Initial recognition) ..................................................................103,031 (21,403) (81,628) 0 Transfer to Stage 2 - (significantly increased credit risk) .........................................(16,554) 30,023 (13,469) 0 Transfer to Stage 3 - (credit impaired) .....................................................................(32,223) (35,288) 67,512 0 Net remeasurement of loss allowance ..........................................................................(173,549) 15,760 843,243 685,453 New financial assets, originated or purchased ..............................................................267,848 120,449 219,213 607,510 Derecognitions and maturities ......................................................................................(149,489) (46,916) (581,102) (777,507) Write-offs .......................................................................................................................(319) (871) (405,885) (407,074)Balance as at 31 December 2024 366,642 189,275 1,771,126 2,327,042 Consolidated Financial Statements 31 December 2024 43 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 46 46. Credit quality of financial assets (cont.) Expected credit loss allowance for loan commitments, guarantees and unused credit facilities 31.12.2023 Expected credit loss allowance total Expected credit loss allowance for loans to customers Expected credit loss allowance for loan commitments, guarantees and unused credit facilities Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2024 13,897 538 1,253 15,688 Transfer to Stage 1 - (Initial recognition) ..................................................................677 (325) (352) 0 Transfer to Stage 2 - (significantly increased credit risk) .........................................(45) 68 (23) 0 Transfer to Stage 3 - (credit impaired) .....................................................................(221) (54) 276 0 Net remeasurement of loss allowance ..........................................................................(961) (63) 1,480 456 New financial assets, originated or purchased ..............................................................2,982 39 4,359 7,380 Derecognitions and maturities ......................................................................................(5,613) (53) (156) (5,823)Balance as at 31 December 2024 10,716 149 6,837 17,701 Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2023 269,605 256,810 2,139,852 2,666,267 Transfer to Stage 1 - (Initial recognition) ..................................................................67,581 (51,505) (16,076) 0 Transfer to Stage 2 - (significantly increased credit risk) .........................................(10,766) 17,183 (6,416) 0 Transfer to Stage 3 - (credit impaired) .....................................................................(32,752) (70,485) 103,237 0 Net remeasurement of loss allowance ..........................................................................(93,507) 3,002 840,190 749,685 New financial assets, originated or purchased ..............................................................284,314 84,645 655,505 1,024,464 Derecognitions and maturities ......................................................................................(102,625) (111,119) (881,568) (1,095,312) Write-offs .......................................................................................................................(57) (471) (1,110,229) (1,110,757)Balance as at 31 December 2023 381,793 128,058 1,724,497 2,234,348 Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2023 258,197 255,541 2,139,595 2,653,333 Transfer to Stage 1 - (Initial recognition) ..................................................................67,521 (51,445) (16,076) 0 Transfer to Stage 2 - (significantly increased credit risk) .........................................(10,685) 17,102 (6,416) 0 Transfer to Stage 3 - (credit impaired) .....................................................................(32,750) (69,985) 102,736 0 Net remeasurement of loss allowance ..........................................................................(91,795) 2,716 840,191 751,112 New financial assets, originated or purchased ..............................................................278,426 84,474 654,771 1,017,672 Derecognitions and maturities ......................................................................................(100,961) (110,411) (881,328) (1,092,700) Write-offs .......................................................................................................................(57) (471) (1,110,229) (1,110,757)Balance as at 31 December 2023 367,895 127,520 1,723,244 2,218,660 Stage 1 Stage 2 Stage 3 TotalTransfers of financial assets:Balance as at 1 January 2023 11,408 1,269 258 12,935 Transfer to Stage 1 - (Initial recognition) ..................................................................61 (61) 0 Transfer to Stage 2 - (significantly increased credit risk) .........................................(81) 81 0 Transfer to Stage 3 - (credit impaired) .....................................................................(2) (500) 502 0 Net remeasurement of loss allowance ..........................................................................(1,712) 286 (1) (1,427) New financial assets, originated or purchased ..............................................................5,888 171 734 6,792 Derecognitions and maturities ......................................................................................(1,664) (708) (239) (2,611)Balance as at 31 December 2023 13,897 538 1,253 15,688 Consolidated Financial Statements 31 December 2024 44 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 46 47. Loan-to-value a. General b. Breakdown 48. Collateral against exposures to derivatives 49. Large exposures In accordance with regulation no. 575/2013 of the European Union on prudential requirements for credit institutions, which was incorporated into Icelandic law with Act No. 38/2022, total exposure towards a customer is classified as a large exposure if it exceeds 10% of the financial institution's Tier 1 capital (see note 38). According to the regulation a single exposure, net of risk adjusted mitigation, cannot exceed 25% of the eligible Tier 1 capital. Based on Icelandic rules no. 789/2022 on the Application of Optional Provisions and Authorisations Pursuant to the Act on Financial Undertakings, the value of exposures towards financial institutions shall not exceed 25% of the eligible Tier 1 capital or 10 bn. ISK, whichever is higher. Single large exposures net of risk adjusted mitigation take into account the effects of collateral and other credit enhancements held by the financial institution, and other credit enhancements, in accordance with regulation no. 575/2013. The loan-to-value ratio (LTV) is the ratio of the gross amount of the loan to the value of the collateral, if any. The general creditworthiness of a customer is viewed as the most reliable indicator of credit quality of a loan. Besides collateral included in the LTV ratios the Group uses other risk mitigation measures, such as guarantees, negative pledge, cross-collateral and collateralization of non-quantifiable assets. The breakdown of loans to customers by LTV is specified as follows: Amounts have been adjusted to exclude collateral in excess of claim value, i.e. overcollateralisation. The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. Haircuts are applied to account for liquidity and other factors which may affect the collateral value of the asset. 31.12.2024 31.12.2023 Large exposures before risk adjusted mitigation Number Amount Number Amount 10-20% of capital base ...................................................................................................2 11,132,873 3 12,343,465 20-25% of capital base ...................................................................................................0 0 0 0 Exceeding 25% of capital base .......................................................................................0 0 0 0 Total 2 11,132,873 3 12,343,465 Thereof nostro accounts with other banks which are part of the Group's liquidity management .............................................................................1 6,521,624 0 0 Large exposures net of risk adjusted mitigation ............................................................1 6,702,213 1 4,002,353 Fixed Variable Other income income Real fixed Deposits securities securities estate assets Other 31.12.2023 Financial institutions ..............................1,077,011 137,593 710,208 1,924,812 Corporate customers ..............................789,728 70,988 1,812,452 2,673,168 Individuals ..............................................66,501 43,028 109,529 Total 1,933,241 208,581 2,565,687 0 0 0 4,707,509 Fixed Variable Other income income Real fixed Deposits securities securities estate assets Other 31.12.2024 Financial institutions ..............................548,356 113,888 161,262 823,506 Corporate customers ..............................709,058 27,860 1,401,213 2,138,131 Individuals ..............................................61,660 16,377 80,400 158,436 Total 1,319,073 158,125 1,642,874 0 0 0 3,120,073 31.12.2024 % 31.12.2023 % Less than 50% .................................................................................................................41,225,065 27.4% 40,343,153 29.6% 50-70% ............................................................................................................................57,209,422 38.1% 43,106,020 31.6% 70-90% ............................................................................................................................33,497,440 22.3% 37,703,829 27.7% 90-100% ..........................................................................................................................2,958,378 2.0% 2,996,007 2.2% 100-125% ........................................................................................................................3,461,194 2.3% 2,390,159 1.8% 125-200% ........................................................................................................................1,505,210 1.0% 726,535 0.5% Greater than 200% .........................................................................................................1,378,437 0.9% 493,460 0.4% No or negligible collateral: Other loans with no collateral ..................................................................................8,967,551 6.0% 8,564,319 6.3% Total 150,202,696 100.0% 136,323,481 100.0% Consolidated Financial Statements 31 December 2024 45 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 49 50. Liquidity risk a. Definition b. Management ISKForeign currencyTotal31.12.2023Unweighted Weighted Unweighted Weighted Unweighted Weighted Liquid assets level 1 .................................................................61,248,977 61,248,977 14,679,969 14,679,969 75,928,946 75,928,946 Liquid assets level 2 .................................................................353,146 300,174 353,146 300,174 Total liquid assets 61,602,122 61,549,150 14,679,969 14,679,969 76,282,091 76,229,119 Deposits ...................................................................................111,263,406 27,328,035 6,915,793 3,406,552 118,179,199 30,734,587 Other borrowings ....................................................................109,333 109,333 1,109 1,109 110,442 110,442 Other outflows ........................................................................14,896,187 11,083,491 8,222,931 887,195 23,119,118 11,970,686 Total outflows (0-30 days) 126,268,925 38,520,859 15,139,834 4,294,857 141,408,759 42,815,715 Short-term deposits with other banks ....................................196,556 196,556 6,312,949 6,312,949 6,509,505 6,509,505 Other inflows ...........................................................................13,029,061 4,955,339 818,468 473,124 13,847,529 5,428,462 Restrictions on inflows ............................................................(3,564,930)Total inflows (0-30 days) 13,225,617 5,151,895 7,131,417 3,221,142 20,357,034 11,937,968 Liquidity coverage ratio ...........................................................184% 1367% 247% 31.12.2024 31.12.2023 NSFR total .............................................................................................................................................................................144% 141% ISKForeign currencyTotal31.12.2024 Unweighted Weighted Unweighted Weighted Unweighted Weighted Liquid assets level 1 .................................................................68,949,963 68,949,963 3,458,943 3,458,943 72,408,906 72,408,906 Liquid assets level 2 .................................................................823,384 699,877 823,384 699,877 Total liquid assets 69,773,348 69,649,840 3,458,943 3,458,943 73,232,290 73,108,783 Deposits ...................................................................................122,659,515 23,181,070 8,568,256 4,253,944 131,227,770 27,435,014 Other borrowings ....................................................................17,389 17,389 17,389 17,389 Other outflows ........................................................................13,201,433 8,729,875 2,471,047 411,573 15,672,480 9,141,447 Total outflows (0-30 days) 135,878,337 31,928,334 11,039,303 4,665,517 146,917,639 36,593,850 Short-term deposits with other banks ....................................691,525 691,525 9,867,085 9,867,085 10,558,610 10,558,610 Other inflows ...........................................................................16,441,026 4,838,298 1,321,647 879,390 17,762,673 5,717,688 Restrictions on inflows ............................................................(7,247,337)Total inflows (0-30 days) 17,132,551 5,529,823 11,188,731 3,499,138 28,321,283 16,276,298 Liquidity coverage ratio ...........................................................264% 297% 360% Liquidity risk is the risk that the Group will encounter difficulty in meeting contractual payment obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. This risk mainly arises from mismatches in the timing of cash flows. The Group has internal rules that require certain matching of the maturities of assets and liabilities. Furthermore, to ensure the ability to meet liquidity needs, the Group maintains a stock of highly liquid unencumbered assets, e.g. cash, treasury bills and treasury bonds. Liquidity is managed by treasury and monitored by risk management. Liquidity position is reported to the ALCO committee. The Central Bank of Iceland sets minimum requirements for the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The minimum 30 day LCR regulatory requirement is 100% for LCR total, 50% minimum requirement for LCR in ISK and 80% minimum requirement for LCR in EUR. The minimum requirement for LCR EUR only applies when the Group‘s commitments in EUR represent 10% or more of the Group´s total commitments. The minimum regulatory requirement for NSFR total is 100%. Consolidated Financial Statements 31 December 2024 46 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 49 50. Liquidity risk (cont.) c. LCR deposit categories The Group's deposit base is divided into different categories depending on customer type according to the LCR methodology. Different run off rates are applied on each category representing their level of stickiness, which measures the stability of the deposit. Deposits with maturity over 30 days are defined as term deposits within the LCR calculations, other as demand deposits. Run off rates are applied on each category of demand deposits and the expected cash outflow over the next 30 days under stressed conditions calculated. The higher the run off rate, the more high quality liquid assets the Group must hold to ensure it can meet its obligations and maintain stability during a crisis. The table below shows the Group's deposit base divided into different categories depending on customer type and run off rates according to the LCR methodology. Pledged deposits do not have any run off rate according to liquidity rules. Money market deposits were previously presented as part of borrowings but are now presented as part of deposits. Comparative figures have been restated. Reference is made to note 2 for further information. 31.12.2023 Run off date 0-30 days Over 30 days Total Individuals ............................................................................................................................5%-100% 93,213,408 10,902,425 104,115,833 Small and medium sized corporates ....................................................................................5%-100% 4,105,620 263,015 4,368,635 Large corporates ..................................................................................................................20%-40% 8,642,983 87,667 8,730,650 Public entities .......................................................................................................................40% 150,408 88,009 238,416 Financial entities ..................................................................................................................100% 12,066,781 6,888,095 18,954,876 Other * .................................................................................................................................6,113,855 43,640 6,157,495 Total 124,293,054 18,272,850 142,565,905 31.12.2024 Run off date 0-30 days Over 30 days Total Individuals ............................................................................................................................5%-100% 103,372,251 15,898,871 119,271,122 Small and medium sized corporates ....................................................................................5%-100% 5,807,269 199,576 6,006,845 Large corporates ..................................................................................................................20%-40% 11,124,000 48,335 11,172,335 Public entities .......................................................................................................................40% 81,008 82,903 163,911 Financial entities ..................................................................................................................100% 10,843,243 12,439,204 23,282,447 Other * .................................................................................................................................3,440,134 41,085 3,481,219 Total 134,667,905 28,709,974 163,377,879 Consolidated Financial Statements 31 December 2024 47 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 49 50. Liquidity risk (cont.) d. Maturity analysis of financial assets and financial liabilities 1 31.12.2024 Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying Financial assets by type month months months years years (outflow) amount Non-derivative assets Cash and balances with Central Bank ............28,320,372 28,320,372 28,319,192 Fixed income securities ..................................17,597,452 10,341,336 7,441,664 25,482,060 3,932,049 64,794,561 64,794,561 Shares and other variable income securities .1,680,808 3,751,446 5,432,254 5,432,254 Securities used for hedging ............................12,601,026 12,601,026 12,601,026 Loans to customers ........................................10,753,174 13,421,261 52,863,444 98,218,396 4,717,898 179,974,173 150,202,696 Other assets ....................................................4,540,215 2,397,217 1,543,015 3,241 8,483,688 9,507,492 75,493,048 26,159,814 65,599,568 123,703,697 8,649,948 299,606,074 270,857,221 Derivative assets Inflow ........................................................ 13,278,709 143,152 2,346,210 919,853 1,035,591 17,723,515 Outflow ..................................................... (12,289,408) (97,836) (2,328,850) (796,329) (940,293) (16,452,715)989,301 45,317 17,360 123,524 95,298 1,270,801 1,196,744 Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying Financial liabilities by type month months months years years (outflow) amount Non-derivative liabilities Deposits .........................................................(134,688,378) (15,129,906) (10,446,751) (3,739,302) (546,778) (164,551,115) 163,377,879 Borrowings .....................................................(1,116) (300,900) (1,131,757) (17,271,191) (18,704,964) 14,389,515 Issued bonds ...................................................(17,389) (535,356) (3,318,805) (34,010,395) (2,556,883) (40,438,829) 37,123,285 Subordinated liabilities ..................................(336,219) (1,399,210) (9,303,663) (11,039,092) 5,628,982 Short positions held for trading .....................(153,001) (153,001) 153,001 Short positions used for hedging ...................(42,035) (42,035) 42,035 Other liabilities ...............................................(1,418,300) (9,218,530) (1,121,501) (1,927,215) (13,685,545) 13,634,905 (136,320,219) (25,184,692) (16,355,033) (58,347,313) (12,407,324) (248,614,581) 234,349,602 Derivative liabilities Inflow ........................................................ 12,103,681 142,466 6,321,400 24,413,219 42,980,766 Outflow ..................................................... (12,967,739) (144,687) (6,240,000) (26,505,659) (45,858,085)(864,059) (2,221) 81,400 (2,092,440) 0 (2,877,319) 2,932,429 Unrecognised financial itemsLoan commitments Inflow ........................................................ 147,100 48,777 2,796,249 3,721,970 6,714,096 Outflow ..................................................... (6,060,067) (6,060,067)Financial guarantee contracts Inflow ........................................................ 1,000 756,021 36,976 7,068 801,065 Outflow ..................................................... (801,065) (801,065)(6,714,033) 49,777 3,552,270 3,758,946 7,068 654,029 Summary Non-derivative assets .....................................75,493,048 26,159,814 65,599,568 23,703,697 8,649,948 299,606,074 Derivative assets .............................................989,301 45,317 17,360 123,524 95,298 1,270,801 Non-derivative liabilities ................................(136,320,219) (25,184,692) (16,355,033) (58,347,313) (12,407,324) (248,614,581) Derivative liabilities ........................................(864,059) (2,221) 81,400 (2,092,440) (2,877,319)Net assets (liabilities) excluding unrecognised items (60,701,930) 1,018,218 49,343,296 63,387,468 (3,662,078) 49,384,974 Net unrecognised items .................................(6,714,033) 49,777 3,552,270 3,758,946 7,068 654,029 Net assets (liabilities) (67,415,962) 1,067,995 52,895,566 67,146,414 (3,655,010) 50,039,003 Consolidated Financial Statements 31 December 2024 48 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 49 50. Liquidity risk (cont.) It should be noted that the Group's expected cash flows sometimes vary considerably from the contractual cash flows, most significantly in that demand deposits from customers are expected to remain stable or increase in the long term. In this case the presentation used reflects the worst case scenario from the Group's perspective. Furthermore, the analysis does not consider any measures that could be taken to convert long-term assets to cash through sale. Cash flows relating to unrecognised balance sheet items (unused loan commitments and financial guarantee contracts) are presented separately from financial assets and financial liabilities. Both contractual outflows and inflows are shown, to fully reflect the nature of these items. Maturity analysis of financial assets and financial liabilities is based on contractual cash flows or, in the case of held for trading securities, expected cash flows. If an amount receivable or payable is not fixed, e.g. for inflation indexed assets and liabilities, the maturity analysis uses estimates based on current conditions. Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying Financial liabilities by type month months months years years (outflow) amount Non-derivative liabilities Deposits .........................................................(124,647,550) (8,418,189) (5,690,526) (4,287,362) (384,513) (143,428,141) 142,565,905 Borrowings .....................................................(7,920) (347,982) (2,640,035) (19,139,199) (22,135,136) 15,024,098 Issued bonds ...................................................(109,333) (6,881,308) (9,407,820) (32,874,868) (2,457,149) (51,730,478) 45,715,427 Subordinated liabilities ..................................(354,804) (2,465,385) (8,399,596) (11,219,785) 5,993,084 Short positions held for trading .....................(71,664) (60,081) (131,745) 131,745 Short positions used for hedging ...................(4,230) (4,230) 4,230 Other liabilities ...............................................(3,308,385) (11,197,785) (1,652,495) (492,619) (16,651,283) 16,594,010 (128,144,851) (26,845,264) (19,745,680) (59,259,434) (11,305,569) (245,300,798) 226,028,498 Derivative liabilities Inflow ........................................................ 15,157,017 1,721,575 4,653,591 21,532,182 Outflow ..................................................... (16,222,964) (1,759,667) (4,886,823) (859,631) (23,729,086)(1,065,948) (38,092) (233,233) (859,631) 0 (2,196,904) 2,196,904 Unrecognised financial items by typeLoan commitments Inflow ........................................................ 211,062 61,502 1,464,611 4,579,989 140,836 6,458,000 Outflow ..................................................... (5,205,004) (5,205,004)Financial guarantee contracts Inflow ........................................................ 163,896 40,976 7,068 211,940 Outflow ..................................................... (211,940) (211,940)(5,205,882) 61,502 1,628,507 4,620,965 147,905 1,252,996 Summary Non-derivative assets .....................................73,542,019 17,325,666 71,698,723 109,832,080 9,498,441 281,896,929 Derivative assets .............................................857,879 464,402 1,117,978 57,617 2,497,877 Non-derivative liabilities ................................(128,144,851) (26,845,264) (19,745,680) (59,259,434) (11,305,569) (245,300,798) Derivative liabilities ........................................(1,065,948) (38,092) (233,233) (859,631) (2,196,904)Net assets (liabilities) excluding unrecognised items (54,810,901) (9,093,288) 52,837,788 49,770,632 (1,807,128) 36,897,103 Net unrecognised items .................................(5,205,882) 61,502 1,628,507 4,620,965 147,905 1,252,996 Net assets (liabilities) (60,016,783) (9,031,786) 54,466,295 54,391,597 (1,659,223) 38,150,099 31.12.2023 Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying Financial assets by type month months months years years (outflow) amount Non-derivative assets Cash and balances with Central Bank ............23,681,967 23,681,967 23,681,453 Fixed income securities ..................................20,151,355 1,974,339 21,340,000 18,908,801 2,602,910 64,977,406 64,977,406 Shares and other variable income securities .1,222,894 411,609 2,222,977 3,857,480 3,857,480 Securities used for hedging ............................16,852,313 16,852,313 16,852,313 Loans to customers ........................................7,839,447 10,674,108 47,315,427 90,723,103 6,895,531 163,447,617 136,323,481 Other assets ....................................................3,794,043 4,265,609 820,319 200,175 9,080,146 10,401,128 73,542,019 17,325,666 71,698,723 109,832,080 9,498,441 281,896,929 256,093,262 Derivative assets Inflow ........................................................ 8,779,563 12,775,096 6,974,032 58,519 28,587,210 Outflow ..................................................... (7,921,683) (12,310,694) (5,856,054) (902) (26,089,333)857,879 464,402 1,117,978 57,617 0 2,497,877 2,497,877 Consolidated Financial Statements 31 December 2024 49 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 50 51. Market risk a. Definition b. Management 52. Interest rate risk a. Definition b. Management 53. Interest rate risk associated with trading portfolios a. Breakdown b. Sensitivity analysis The Group performs monthly sensitivity analysis on financial assets and liabilities in trading portfolios that are subject to interest rate risk. The sensitivity analysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the Group's pre-tax profit and equity, assuming all other risk factors remain constant: Shift in 31.12.2024 31.12.2023 basis points Downward Upward Downward Upward Indexed .....................................................................................................50 53,265 (51,070) 25,032 (24,632)Non-indexed .............................................................................................100 67,180 (64,264) 41,408 (39,687)Total 120,445 (115,334) 66,440 (64,319) Market risk constitutes risk due to changes in the market prices of financial instruments and comprises interest rate risk, currency risk and other price risk. Notes 52-57 relate to market risk exposure. The Group has a strict policy on controlling market risk and to keep the exposure within set limits. The risk management unit monitors market risk limits on a daily basis and reports regularly to the ALCO committee and to the CEO. The Group's exposure to interest rate risk is twofold. On the one hand, the Group has a proprietary portfolio of bonds, where market rates affect prices and any fluctuations are recognised in the income statement. On the other hand, the Group has mismatch in assets and liabilities with fixed interest terms. These include loans and swap contracts for securities on the asset side and borrowings and deposits on the liability side. This mismatch does not create an immediate effect on the income statement but nevertheless affects the Group's economic value. The Group takes measures to minimise interest rate risk by matching the interest rate profile and duration of assets with the Group's liabilities as well as using derivative and non-derivative financial instruments to manage effectively the risk of an adverse impact on the Group's earnings. Proprietary positions which are subject to interest rate risk fall under the scope of the Group's market risk management. Up to 1 1-3 3-12 1-5 Over 5 month months months years years 31.12.2024 Fixed income securities ....................................................21,513 54,416 548,207 3,180,837 1,538,440 5,343,413 Short positions - fixed income securities .........................(676) (6,875) (803) (28,575) (116,073) (153,001)Net imbalance 20,837 47,541 547,404 3,152,263 1,422,367 5,190,412 Up to 1 1-3 3-12 1-5 Over 5 month months months years years 31.12.2023 Fixed income securities ....................................................14,750 36,695 280,459 3,063,674 1,033,718 4,429,295 Short positions - fixed income securities .........................(3,730) (5,396) (32,720) (89,899) (131,745)Net imbalance 14,750 32,964 275,063 3,030,954 943,820 4,297,551 The breakdown of financial assets and liabilities in trading portfolios by the earlier of interest repricing time or maturity is specified as follows: Consolidated Financial Statements 31 December 2024 50 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 50 54. Interest rate risk associated with non-trading portfolios a. Breakdown 31.12.2024 b. Sensitivity analysis The Group performs monthly sensitivity analysis on financial assets and liabilities in non-trading portfolios subject to interest rate risk. The sensitivity analysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the Group's pre-tax profit and equity, assuming all other risk factors remain constant: The breakdown of financial assets and liabilities in non-trading portfolios by the earlier of interest repricing time or maturity is specified as follows: Shift in 31.12.2024 31.12.2023 Currency basis points Downward Upward Downward Upward ISK, indexed ..............................................................................................50 (24,819) 25,519 (245,435) 228,724 ISK, non-indexed ......................................................................................100 450,303 (438,734) 396,558 (385,418)Other currencies .......................................................................................20 (3,692) 3,693 1,223 (1,215)Total 421,792 (409,522) 152,346 (157,909) Financial assets Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Cash and balances with Central Bank ..............................28,319,192 28,319,192 Fixed income securities ....................................................11,157,729 10,433,596 9,183,578 25,307,850 3,368,394 59,451,148 Loans to customers ..........................................................136,380,297 3,761,468 3,954,878 5,748,139 357,915 150,202,696 Financial assets excluding derivatives 175,857,218 14,195,065 13,138,456 31,055,989 3,726,308 237,973,036 Effect of derivatives ..........................................................23,021,460 23,306,321 8,407,845 927,578 889,917 56,553,122 Total 198,878,678 37,501,386 21,546,301 31,983,567 4,616,225 294,526,157 31.12.2023Financial assets Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Cash and balances with Central Bank ..............................23,681,453 23,681,453 Fixed income securities ....................................................13,234,607 2,813,780 22,531,739 18,795,625 3,172,359 60,548,110 Loans to customers ..........................................................118,422,687 5,472,017 5,631,528 6,488,964 308,287 136,323,481 Financial assets excluding derivatives 155,338,747 8,285,797 28,163,267 25,284,589 3,480,645 220,553,045 Effect of derivatives ..........................................................24,309,020 33,360,561 13,512,749 945,276 803,219 72,930,826 Total 179,647,767 41,646,358 41,676,016 26,229,865 4,283,865 293,483,870 Financial liabilities Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Deposits ...........................................................................125,028,062 8,291,367 5,230,860 3,830,892 184,724 142,565,905 Borrowings .......................................................................15,024,098 15,024,098 Issued bonds .....................................................................7,093,090 29,547,945 184,841 6,664,263 2,225,289 45,715,427 Subordinated liabilities ....................................................341,008 2,071,885 3,580,191 5,993,084 Financial liabilities excluding derivatives 147,145,250 37,839,312 5,756,708 12,567,040 5,990,203 209,298,514 Effect of derivatives ..........................................................26,099,269 21,434,697 11,957,255 59,491,221 Total 173,244,520 59,274,009 17,713,963 12,567,040 5,990,203 268,789,735 Total interest repricing gap 6,403,247 (17,627,651) 23,962,053 13,662,825 (1,706,339) 24,694,136 Financial liabilities Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Deposits ...........................................................................135,369,956 14,930,417 9,593,996 3,258,929 224,580 163,377,879 Borrowings .......................................................................14,389,515 14,389,515 Issued bonds .....................................................................17,361 28,435,412 84,486 6,500,774 2,085,253 37,123,285 Subordinated liabilities ....................................................2,963,334 2,665,648 5,628,982 Financial liabilities excluding derivatives 149,776,832 43,365,829 12,641,816 12,425,350 2,309,833 220,519,661 Effect of derivatives ..........................................................20,828,415 17,231,242 10,150,728 48,210,385 Total 170,605,247 60,597,072 22,792,544 12,425,350 2,309,833 268,730,046 Total interest repricing gap 28,273,431 (23,095,685) (1,246,243) 19,558,217 2,306,392 25,796,112 Consolidated Financial Statements 31 December 2024 51 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 50 55. Exposure towards changes in the CPI a. Definition b. Management c. Balance of CPI linked assets and liabilities d. Sensitivity to changes in CPI 56. Currency risk a. Definition b. Management c. Hedge accounting d. Exchange rates The following exchange rates have been used by the Group in the preparation of these financial statements: Exposure towards changes in CPI is the risk that fluctuations in the Icelandic Consumer Price Index (CPI) will affect the balance and cash flow of indexed financial instruments. The Group is exposed to inflation indexation of assets and liabilities denominated in ISK. All indexed assets and liabilities are valued according to the CPI measure at any given time and changes in CPI are recognised in the income statement. The Group controls its indexation risk through derivatives contracts and sales and purchases of indexed bonds, mostly government bonds, and thus keeps its exposure to the CPI within the limits set by the ALCO committee. Given the net balance of CPI linked assets and liabilities, a 1% change in the CPI would, with other things constant, result in the following changes to the Group's pre-tax profit. Currency risk arises when financial instruments are not denominated in the functional currency of the respective Group entity and can affect both the Group's income statement and statement of financial position. A part of the Group's financial assets and liabilities is denominated in foreign currencies. Currency positions are monitored by risk management and reported to the ALCO committee. Any mismatch between assets and liabilities in each currency is monitored closely and managed within limits. The Group is subject to limits set by the Central Bank of Iceland regarding the maximum open currency position. At 31 December 2024 and 31 December 2023 the Group's position in foreign currencies was within those limits. Closing Average Closing Average 31.12.2024 2024 31.12.2023 2023 EUR/ISK ...........................................................................................................................143.9 149.3 150.5 149.2 USD/ISK ..........................................................................................................................138.2 138.0 136.2 137.9 GBP/ISK ...........................................................................................................................173.3 176.4 173.2 171.5 The Group applies hedge accounting according to IAS 39 against translation of foreign operations. Currency swap agreements are used as a hedge instrument against translation difference arising from foreign operations. 31.12.2024 31.12.2023 -1% 1% -1% 1% Government bonds ........................................................................................................(55,330) 55,330 (58,667) 58,667 Other fixed income securities ........................................................................................(30,608) 30,608 (21,561) 21,561 Loans to customers ........................................................................................................(277,692) 277,692 (236,126) 236,126 Derivatives ......................................................................................................................(20,627) 20,627 (32,251) 32,251 Short positions ...............................................................................................................206 (206) 683 (683) Deposits ..........................................................................................................................86,020 (86,020) 81,464 (81,464) Issued bonds ..................................................................................................................94,013 (94,013) 89,710 (89,710) Subordinated liabilities ..................................................................................................56,290 (56,290) 59,913 (59,913)(147,728) 147,728 (116,834) 116,834 The effect on equity would be the same. 31.12.2024 31.12.2023 Assets ............................................................................................................................................................................38,425,712 34,860,451 Liabilities .......................................................................................................................................................................(23,652,914) (23,177,052)Total 14,772,798 11,683,398 Consolidated Financial Statements 31 December 2024 52 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 56 56. Currency risk (cont.) e. Breakdown of financial assets and financial liabilities denominated in foreign currencies 31.12.2024 31.12.2023 1 1 Financial assets Other EUR USD GBP NOK currencies Total Cash and balances with Central Bank ....................................6,671,025 1,381,888 1,217,366 110,103 340,147 9,720,529 Fixed income securities .........................................................3,592,590 3,592,590 Shares and other variable income securities ........................112,855 936,331 2,752,783 13,954 1,551 3,817,474 Securities used for hedging ...................................................35,917 2,186,597 1,553 2,994 79,410 2,306,470 Loans to customers ................................................................4,057,957 37,222,091 19,852 41,299,900 Intangible assets ....................................................................2,450,910 2,450,910 Other assets ...........................................................................712,599 1,601,697 588,647 2,902,943 Financial assets excluding derivatives 11,590,352 9,699,102 44,233,350 127,051 440,960 66,090,816 Derivatives .............................................................................4,967,412 908,301 1,635,532 9,959,027 16,156,032 33,626,303 Total 16,557,764 10,607,403 45,868,882 10,086,079 16,596,992 99,717,119 Financial liabilities Other EUR USD GBP SEK currencies Total Deposits ................................................................................2,409,529 7,888,477 756,682 28,189 281,357 11,364,235 Borrowings .............................................................................14,816,743 14,816,743 Issued bonds ..........................................................................1,292,489 1,990,376 15,220,348 0,837,164 29,340,377 Other liabilities .......................................................................527,123 669,394 803,960 5 4,616 2,005,098 Financial liabilities excluding derivatives 4,229,142 8,557,872 18,367,762 15,248,542 11,123,136 57,526,454 Derivatives .............................................................................15,861,328 10,352,601 22,199,121 1,692,775 105,127 50,210,951 Total 20,090,469 18,910,472 40,566,883 16,941,318 11,228,263 107,737,405 Net currency position Other EUR USD GBP NOK currencies Total Financial assets ......................................................................16,557,764 10,607,403 45,868,882 10,086,079 16,596,992 99,717,119 Financial liabilities ..................................................................(15,696,452) (10,699,548) (45,087,724) (10,018,787) (16,484,525) (97,987,037) Financial guarantee contracts ...............................................703,501 703,501 Total 1,564,813 (92,145) 781,158 67,292 112,467 2,433,583 Financial liabilities Other EUR USD GBP NOK currencies Total Deposits ................................................................................5,162,192 3,580,603 598,790 64,822 200,210 9,606,616 Borrowings .............................................................................13,700,192 13,700,192 Issued bonds ..........................................................................9,890,897 16,157,267 26,048,164 Other liabilities .......................................................................200,836 634,341 467,041 4,766 110,017 1,417,002 Financial liabilities excluding derivatives 5,363,028 4,214,944 14,766,024 9,960,485 16,467,493 50,771,974 Derivatives .............................................................................10,333,424 6,484,604 30,321,700 58,302 17,032 47,215,062 Total 15,696,452 10,699,548 45,087,724 10,018,787 16,484,525 97,987,037 Financial assets Other EUR USD GBP SEK currencies Total Cash and balances with Central Bank ....................................2,922,506 657,800 2,109,634 79,125 255,219 6,024,284 Fixed income securities .........................................................1,503,990 13,834,864 15,338,855 Shares and other variable income securities ........................88,400 242,497 1,539,466 12,880 1,883,243 Securities used for hedging ...................................................657,191 1,167,816 1,413 1,656,645 2,703 3,485,768 Loans to customers ................................................................2,280,065 478,715 28,876,368 47,414 31,682,562 Intangible assets ....................................................................2,540,412 2,540,412 Other assets ...........................................................................849,032 1,236,043 718,974 163 2,804,212 Financial assets excluding derivatives 8,301,183 17,617,736 35,786,267 1,748,651 305,498 63,759,336 Derivatives .............................................................................11,811,725 1,328,055 4,467,242 15,253,051 0,870,463 43,730,536 Total 20,112,909 18,945,791 40,253,509 17,001,701 11,175,962 107,489,872 Net currency position Other EUR USD GBP SEK currencies Total Financial assets ......................................................................20,112,909 18,945,791 40,253,509 17,001,701 11,175,962 107,489,872 Financial liabilities ..................................................................(20,090,469) (18,910,472) (40,566,883) (16,941,318) (11,228,263) (107,737,405) Financial guarantee contracts ...............................................75,250 75,250 Total 97,689 35,319 (313,374) 60,384 (52,302) (172,283) Consolidated Financial Statements 31 December 2024 53 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 56 56. Currency risk (cont.) f. Sensitivity to currency risk 57. Equity risk a. Definition b. Sensitivity analysis of equity risk 58. Operational risk a. Definition b. Management The individual business units within the Group are primarily responsible for managing their respective operational risk. The risk management unit is furthermore responsible for identifying, monitoring and reporting the Group's operational risk. Operational risk can be reduced through staff training, process re-design and enhancement of the control environment. The risk management unit monitors operational risk by tracking loss events, quality deficiencies, potential risk indicators and other early-warning signals. The unit takes an active role in internal control and quality management. Operational risk is the risk of direct or indirect loss from inadequate or failed internal processes or systems, from human error or external events that affect the Group's reputation and operational earnings. Equity risk is the risk that the fair value of equites decreases as the result of changes in the value of shares and other variable income securities in the Group’s portfolio. The analysis below calculates the effect of possible movements in equity prices that affect the Consolidated Financial Statements. A negative amount in the table reflects a potential net reduction in the Consolidated Income Statement or equity, while a positive amount reflects a potential net increase. Investments in associates are excluded. 31.12.2024 31.12.2023 -10% +10% -10% +10% Listed shares ........................................................................................................................(110,061) 110,061 (51,270) 51,270 Unlisted shares ....................................................................................................................(306,938) 306,938 (202,767) 202,767 Unlisted unit shares in funds ...............................................................................................(126,227) 126,227 (131,710) 131,710 Total (543,225) 543,225 (385,748) 385,748 Given the net currency position, a 10% change in the value of the ISK would, with other things constant, result in the following changes to the Group's Consolidated Income Statement or equity.31.12.2024 31.12.2023 Assets and liabilities denominated in foreign currencies -10% +10% -10% +10% EUR ......................................................................................................................................156,481 (156,481) 9,769 (9,769) USD ......................................................................................................................................(9,215) 9,215 3,532 (3,532) GBP ......................................................................................................................................78,116 (78,116) (31,337) 31,337 NOK ......................................................................................................................................6,729 (6,729) (2,537) 2,537 SEK .......................................................................................................................................3,554 (3,554) 6,038 (6,038) Other currencies ..................................................................................................................7,692 (7,692) (2,693) 2,693 Total 243,358 (243,358) (17,228) 17,228 Consolidated Financial Statements 31 December 2024 54 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 58 Financial assets and financial liabilities 59. Accounting classification of financial assets and financial liabilities Manda- 31.12.2024 Fair value torily at Total Financial assets Amortised through fair value carrying cost OCI through P/L amount Cash and balances with Central Bank ...........................................................................28,319,192 28,319,192 Fixed income securities .................................................................................................59,169,229 5,625,332 64,794,561 Shares and other variable income securities ................................................................5,432,254 5,432,254 Securities used for hedging ...........................................................................................12,601,026 12,601,026 Loans to customers .......................................................................................................149,328,903 873,794 150,202,696 Derivatives ....................................................................................................................1,196,744 1,196,744 Other assets ..................................................................................................................9,507,492 9,507,492 Total 187,155,586 59,169,229 25,729,150 272,053,965 Manda- Fair value torily at Total Financial liabilities Amortised through fair value carrying cost OCI through P/L amount Deposits ........................................................................................................................163,377,879 163,377,879 Borrowings ....................................................................................................................14,389,515 14,389,515 Issued bonds .................................................................................................................37,123,285 37,123,285 Subordinated liabilities .................................................................................................5,628,982 5,628,982 Short positions held for trading ....................................................................................153,001 153,001 Short positions used for hedging ..................................................................................42,035 42,035 Derivatives ....................................................................................................................2,649,463 2,649,463 Derivatives used for hedge accounting ........................................................................282,967 282,967 Other liabilities ..............................................................................................................13,315,245 319,660 13,634,905 Total 233,834,906 282,967 3,164,159 237,282,032 The accounting classification of financial assets and financial liabilities is specified as follows: Manda- 31.12.2023 Fair value torily at Total Financial assets Amortised through fair value carrying cost OCI through P/L amount Cash and balances with Central Bank ...........................................................................23,681,453 23,681,453 Fixed income securities .................................................................................................61,293,556 3,683,849 64,977,406 Shares and other variable income securities ................................................................3,857,480 3,857,480 Securities used for hedging ...........................................................................................16,852,313 16,852,313 Loans to customers .......................................................................................................135,641,049 682,433 136,323,481 Derivatives ....................................................................................................................2,497,877 2,497,877 Other assets ..................................................................................................................10,401,128 10,401,128 Total 169,723,630 61,293,556 27,573,952 258,591,138 Manda- Fair value torily at Total Financial liabilities Amortised through fair value carrying cost OCI through P/L amount Deposits ........................................................................................................................142,565,905 142,565,905 Borrowings ....................................................................................................................15,024,098 15,024,098 Issued bonds .................................................................................................................45,715,427 45,715,427 Subordinated liabilities .................................................................................................5,993,084 5,993,084 Short positions held for trading ....................................................................................131,745 131,745 Short positions used for hedging ..................................................................................4,230 4,230 Derivatives ....................................................................................................................2,044,723 2,044,723 Derivatives used for hedge accounting ........................................................................152,182 152,182 Other liabilities ..............................................................................................................16,189,247 404,762 16,594,010 Total 225,487,761 152,182 2,585,460 228,225,403 Consolidated Financial Statements 31 December 2024 55 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 58 60. Financial assets and financial liabilities measured at fair value a. - - - b. c. d. Valuation techniques For more complex instruments, the Group uses proprietary models, which usually are developed from recognised valuation models. Some or all of the inputs into these models may not be market observable and are derived from market prices or rates or are estimated based on assumptions. When entering into a transaction, the financial instrument is recognised initially at the transaction price, which is the best indicator of fair value, although the value obtained from the valuation model may differ from the transaction price. This initial difference, usually an increase in fair value, indicated by valuation techniques is recognised in income depending upon the individual facts and circumstances of each transaction and no later than when the market data becomes observable. The value produced by a model or other valuation technique is adjusted to allow for a number of factors as appropriate, because valuation techniques cannot appropriately reflect all factors market participants take into account when entering into a transaction. Valuation adjustments are recorded to allow for model risks, bid-ask spreads, liquidity risks, as well as other factors. Management believes that these valuation adjustments are necessary and appropriate to fairly state financial instruments carried at fair value in the statement of financial position. Valuation techniques include recent arm's length transactions between knowledgeable, willing parties, if available, reference to the current fair value of other instruments that are substantially the same, the discounted cash flow analysis and option pricing models. Valuation techniques incorporate all factors that market participants would consider in setting a price and are consistent with accepted methodologies for pricing financial instruments. Periodically, the Group calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the same instrument, without modification or repackaging, or based on any available observable market data. The fair value of financial assets and liabilities that are traded in active markets are based on quoted market prices. For other financial instruments the Group determines fair value using various valuation techniques. IFRS 13 specifies a fair value hierarchy based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources whereas unobservable inputs reflect the Group's market assumptions. These two types of inputs result in the following fair value hierarchy: The Group uses widely recognised valuation techniques, including net present value and discounted cash flow models, comparison with similar instruments for which market observable prices exist, Black-Scholes and other valuation models. Fair value hierarchy Fair value hierarchy classification The fair value of financial assets and financial liabilities measured at fair value in the statement of financial position is classified into the fair value hierarchy as follows: Valuation process The Bank's Credit committee is responsible for fair value measurements of financial assets and financial liabilities classified as level 2 or level 3 instruments. The valuation is carried out by personnel from respective departments under supervision from Risk. The valuations are revised at least quarterly, or when there are indications of significant changes in the underlying inputs. Inputs are quoted market prices (unadjusted) in active markets for identical instruments. Level 1 Level 2 31.12.2024 Financial assets Carrying Level 1 Level 2 Level 3 amount Mandatorily measured at fair value through profit and loss Fixed income securities ..............................................................................................4,907,870 106,337 611,126 5,625,332 Shares and other variable income securities .............................................................1,922,016 54,674 3,455,564 5,432,254 Securities used for hedging ........................................................................................12,601,026 12,601,026 Loans to customers ....................................................................................................873,794 873,794 Derivatives ..................................................................................................................1,196,744 1,196,744 Measured at fair value through other comprehensive income Fixed income securities ..............................................................................................59,169,229 59,169,229 Total 78,600,141 1,357,755 4,940,483 84,898,379 Inputs are not observable or unobservable inputs have a significant effect on the valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments are required to reflect the differences between the instruments. Inputs are not quoted market prices but are observable either directly, i.e. as prices, or indirectly, i.e. derived from prices. This category includes financial instruments valued using quoted prices in active markets for similar instruments, quoted prices for similar or identical instruments in markets that are considered less than active and other instruments which are valued using techniques which rely primarily on inputs that are directly or indirectly observable from market data. Level 3 Consolidated Financial Statements 31 December 2024 56 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 58 60. Financial assets and financial liabilities measured at fair value (cont.) 31.12.2024 31.12.2023 e. Shares and Fixed other var. income income Loans to Other 31.12.2024 securities securities customers Derivatives liabilities Total Balance as at 1 January 2024 114,075 2,517,343 682,433 (859,631) (404,762) 2,049,457 Total gains and losses in profit or loss ............................... 6,829 362,034 69,096 (168,150) (5,288) 264,521 Additions ............................................................................ 604,297 612,349 1,216,646 Repayments ........................................................................ (620,667) 88,707 90,391 (441,569)Disposals ............................................................................. (36,162) (36,162)Reclassification ................................................................... (114,075) 742,932 628,857 Balance as at 31 December 2024 611,126 3,455,564 873,794 (939,074) (319,660) 3,681,749 Reconciliation of changes in Level 3 fair value measurements Financial liabilities Carrying Level 1 Level 2 Level 3 amount Mandatorily measured at fair value through profit and loss Short positions held for trading .................................................................................131,745 131,745 Short positions used for hedging ...............................................................................4,230 4,230 Derivatives ..................................................................................................................1,185,091 859,631 2,044,723 Other liabilities ...........................................................................................................404,762 404,762 Measured at fair value through other comprehensive income Derivatives used for hedge accounting ......................................................................152,182 152,182 Total 135,975 1,337,273 1,264,394 2,737,641 Financial assets Carrying Level 1 Level 2 Level 3 amount Mandatorily measured at fair value through profit and loss Fixed income securities ..............................................................................................3,465,191 104,584 114,075 3,683,849 Shares and other variable income securities .............................................................1,237,775 102,362 2,517,343 3,857,480 Securities used for hedging ........................................................................................16,852,313 16,852,313 Loans to customers ....................................................................................................682,433 682,433 Derivatives ..................................................................................................................2,497,877 2,497,877 Measured at fair value through other comprehensive income Fixed income securities ..............................................................................................61,293,556 61,293,556 Total 82,848,836 2,704,822 3,313,851 88,867,508 Financial liabilities Carrying Level 1 Level 2 Level 3 amount Mandatorily measured at fair value through profit and loss Short positions held for trading .................................................................................153,001 153,001 Short positions used for hedging ...............................................................................42,035 42,035 Derivatives ..................................................................................................................1,710,389 939,074 2,649,463 Other liabilities ...........................................................................................................319,660 319,660 Measured at fair value through other comprehensive income Derivatives used for hedge accounting ......................................................................282,967 282,967 Total 195,036 1,993,356 1,258,734 3,447,126 Shares and Fixed other var. income income Loans to Other 31.12.2023 securities securities customers Derivatives liabilities Total Balance as at 1 January 2023 615,304 7,437,283 1,210,390 (691,713) (373,715) 8,197,550 Total gains and losses in profit or loss ............................... 130,943 987,969 10,173 (11,159) (31,048) 1,086,879 Additions ............................................................................ 380,542 1,085,457 40,000 (156,759) 1,349,240 Repayments ........................................................................ (162,024) (578,130) (740,155)Disposals ............................................................................. (2,246,400) (2,246,400)Reclassified as assets held for sale ..................................... (850,690) (4,746,966) (5,597,656)Balance as at 31 December 2023 114,075 2,517,343 682,433 (859,631) (404,762) 2,049,457 Consolidated Financial Statements 31 December 2024 57 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 58 60. Financial assets and financial liabilities measured at fair value (cont.) f. g. 61. Financial assets and financial liabilities not measured at fair value Deposits and other borrowings are typically either short-term or have variable interest rates. Other liabilities consist primarily of accounts payables, unsettled transactions, withholding taxes and other short-term payables. The carrying amount of these liabilities is therefore considered a reasonable approximation of their fair value. The Group holds financial instruments which are not measured at fair value. Except for loans to customers, the Group believes that the best estimate of the fair value of these financial instruments is equal to the carrying amount at the reporting date and does therefore not report a fair value for these financial instruments. Loans to customers measured at amortised cost are classified as level 3, in the fair value hierarchy, and have a book value of ISK 149,329 million at end of December 2024. The estimated fair value of loans to customers measured at amortised cost at end of December 2024 is ISK 149,121 million. Cash and balances with Central Bank includes several components as detailed in note 18. These assets are either balances available on-demand or on very short notice, or other assets easily converted to cash. Other financial assets consist primarily of short-term receivables. The carrying amount of these assets is therefore a reasonable approximation of their fair value. The Group believes its estimates represent appropriate approximations of fair value and that the use of different valuation methodologies and reasonable changes in assumptions or unobservable inputs would not significantly change the estimates. A 10% change in the estimates would have the following effect on profit before taxes: Given the methods used, the possible range of the significant unobservable inputs is wide. When determining the values used the Group considers the financial strength of the entity in question, recent trades if any and multipliers for comparable instruments. The effect of unobservable inputs in Level 3 fair value measurements Book value Asset classMethodSignificant unobservable inputRange31.12.2023 Unlisted bonds Expected recoveryValue of assets0-95%114,075 Unlisted variable income securitiesMarket priceRecent trades-2,517,343 Loan to customersExpert modelValue of assets and collateral-682,433 Total 3,313,851 +10% -10% Fixed income securities ...................................................................................................................................................61,113 (61,113) Shares and other variable income securities ..................................................................................................................345,556 (345,556) Loans to customers ..........................................................................................................................................................87,379 (87,379)Total 494,048 (494,048) Fair value measurements for Level 3 financial assets Level 3 assets consist primarily of unlisted bonds, shares and share certificates and loans measured at fair value. Each asset is evaluated separately but assets within an asset group share a valuation method. The following valuation methods are in use: Book value Asset classMethodSignificant unobservable inputRange31.12.2024 Unlisted bondsExpected recoveryValue of assets0-95%611,126 Unlisted variable income securitiesMarket priceRecent trades-3,455,564 Loans to customersExpert modelValue of assets and collateral-873,794 Total 4,940,483 Consolidated Financial Statements 31 December 2024 58 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 61 Other information 62. Pledged assets 63. Related parties a. Definition of related parties b. Arm's length c. Balances with related parties Further information about salaries and benefits paid to the Board of Directors, the CEO and Managing Directors is provided in note 11. Transactions with related parties are carried out at arm's length and subject to an annual review by the Bank's internal auditor. The Group has pledged assets, in the ordinary course of banking business, to the Central Bank of Iceland to secure general settlement in the Icelandic clearing system. Cash pledged to secure the borrowing of securities from other counterparties than the Central Bank of Iceland is classified as other assets. 31.12.2023 Assets Liabilities Management ......................................................................................................................................................................5,861 77,974 Associates ...........................................................................................................................................................................0 28,639 Total 5,861 106,613 The Group has a related party relationship with the board members of the Bank, the CEO of the Bank and key employees (together referred to as management), associates as disclosed in note 25, shareholders with significant influence over the Bank, close family members of individuals identified as related parties and entities under the control or joint control of related parties. Settlement and Securities Asset backed 31.12.2024 committed facilities borrowing securities Total Cash and balances with Central Bank ...............................................................................0 1,773,821 0 1,773,821 Fixed income securities .....................................................................................................10,263,379 93,500 0 10,356,879 Loans to customers ...........................................................................................................21,053,056 0 0 21,053,056 Other assets .......................................................................................................................0 29,978 0 29,978 Total31,316,435 1,897,299 0 33,213,734 31.12.2024 Assets Liabilities Management ......................................................................................................................................................................2,231 124,252 Associates ...........................................................................................................................................................................0 40,605 Total 2,231 164,857 Settlement and Securities Asset backed 31.12.2023 committed facilities borrowing securities Total Cash and balances with Central Bank ...............................................................................0 973,538 27,853 1,001,391 Fixed income securities .....................................................................................................6,392,856 249,194 0 6,642,050 Loans to customers ...........................................................................................................21,340,531 0 1,118,990 22,459,521 Other assets .......................................................................................................................0 52,979 0 52,979 Total27,733,387 1,275,711 1,146,843 30,155,941 d. Transactions with related partiesInterest Interest Other Other 2024 income expense income expense Management .....................................................................................................................0 5,886 599 1,296 Associates ..........................................................................................................................0 0 0 340,921 Total 0 5,886 599 342,217 Interest Interest Other Other 2023 income expense income expense Management .....................................................................................................................0 2,836 9,122 4,981 Associates ..........................................................................................................................0 0 0 251,998 Total 0 2,836 9,122 256,979 Consolidated Financial Statements 31 December 2024 59 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 61 64. Remuneration policy 65. Incentive scheme a. Description 66. Share-based payments a. Description - - - - The Board of Directors has adopted a remuneration policy at the proposal of the Remuneration Committee. The Bank's Annual General Meeting approved the Bank's current remuneration policy in March 2024. The Board of Directors will submit an updated remuneration policy for approval at the Bank's Annual General Meeting in 2025. The remuneration policy applies on a consolidated basis. However, it does not apply to the Bank's subsidiaries that, based on the activities carried out by the subsidiaries, are subject to independent legal requirements regarding remuneration policies and/or the granting of bonuses, except to the extent required by law. Kvika shall strive to ensure that the remuneration policies of subsidiaries take into account the Bank's remuneration policy as possible. The Bank's subsidiaries subject to independent legal requirements have, thus, each implemented own remuneration policies. The Bank has issued share options in accordance with authorisations of its annual general meeting, the Group's remuneration policy and incentive scheme. At year end 2024, there were outstanding share options based on the Bank's incentive scheme. In 2022, the Bank, on the basis of an authorisation by the Annual General Meeting of Kvika banki hf., held on 31 March 2022, granted share options to certain employees of the Group on the basis of the Bank´s incentive scheme. The share options were granted in order to align the long- term interests of the Group and said employees. The employees paid for the share options with a deferred part of performance based payments. For the share options the employees paid a total of ISK 94.5 million by using deferred performance based payments. The cost of these share option agreements is ISK 94.5 million based on the Black-Scholes calculation model but in return previously expensed performance based payments were cancelled. The main terms of the share options from 2022 are as follows: The exercise price of the share options is ISK 22.495 per share, which is equivalent to the weighted average price in transactions with shares of the company on Nasdaq OMX Iceland for ten business days prior to the contract date, with 7.5% annual interest over the period, and the exercise price shall be adjusted for dividends that may be decided until the exercise period begins. The options do not allow for cash settlement. The share options may be exercised in 2025, during an exercise period of three months where in that period the strike continues to accrue with 7.5% annual interest until the option is exercised. In general, share options shall lapse if the share option holder's employment relationship with the company is terminated until the beginning of the exercise period. The remuneration policy conforms to Articles 57 a and 57 b of Act No. 161/2002 on Financial Undertakings, Act No. 2/1995 on Public Limited Companies and other applicable rules and guidelines, as well as Act No. 25/2023 on Sustainable Finance Disclosure. A more detailed description of the policy can be found on the Bank's website, www.kvika.is. The Board of Directors has approved a performance based incentive scheme at the proposal of the Remuneration Committee. The scheme forms a part of the remuneration policy adopted by the Bank. As described above it does not apply to the Bank's subsidiaries that are subject to independent legal requirements regarding remuneration policies and/or granting of bonuses. The Bank's subsidiaries subject to independent legal requirements have, thus, each implemented own incentive schemes. c. On-balance sheet deferred performance based payments31.12.2024 31.12.2023 Deferred cash payments .....................................................................................................................................................129,619 37,016 Total 129,619 37,016 The Bank's incentive scheme is set forth in accordance with Article 57 b of Act No. 161/2002 on Financial Undertakings. Performance based payments may consist, in part or in full, of shares or share-linked instruments, such as warrants or stock options for shares in the Bank. Payments according to the scheme are based on key performance indicators (KPIs) that reflect the goals of the Bank, the division and the employee. The basis for performance based pay reflects sound risk management and does not induce excessive risk taking. Performance based pay to individual employees shall not exceed 25% of their annual salary and 40% of the performance based pay shall be deferred for three years. Performance based pay that does not exceed 10% of annual salary is not subject to deferral. A more detailed description of the scheme can be found in the Bank's remuneration policy on it's website, www.kvika.is. Incentive schemes of the Icelandic subsidiaries are similar to the Bank's due to specific Icelandic legal requirements that are similar for the operations of the Bank and these subsidiaries. UK law has not implemented similar restrictions for incentive schemes and, therefore, the incentive scemes of the UK subsidiaries differ from the Bank and the Icelandic subsidiaries. b. Performance based payments through profit and loss 2024 2023 Cash Cash Non-deferred ......................................................................................................................................................................398,533 157,334 Deferred ..............................................................................................................................................................................78,974 17,992 Salary related expenses ......................................................................................................................................................69,375 38,269 Total 546,881 213,595 Consolidated Financial Statements 31 December 2024 60 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 61 66. Share-based payments (cont.) - - - - - - - - - - b. The following share options are in existence at year end The Bank's CEO, deputy CEO and the executive management of the group commit to retain, until the end of their employment, shares which market value correspond to profit after taxes of utilised share options until the value of the shares owned by those individuals is equivalent to 12 months’ salary for Kvika´s CEO and deputy CEO and six months’ salary for other members of the executive management. The value of the share options was determined by an independent specialist and the value is in line with the laws and rules applicable to bonus payments of financial undertakings. In certain instances, the Group is entitled to revoke the share options in part or in whole in line with applicable rules. In 2023, the Bank, on the basis of the same authorisation from the Annual General Meeting in 2022, granted share options to four employees of the Group on the basis of the Bank´s incentive scheme. The share options were assigned as a a deferred part of recruitment bonuses that were granted between December 2022 to April 2023. The stock options are granted in order to align the long-term interests of the company and said employees. The cost of these share option agreements is ISK 14.7 million based on the Black-Scholes calculation model. The main terms of the share options from 2023 are as follows: The exercise price of the share options is ISK 20.107 per share, which is equivalent to the weighted average price in transactions with shares of the company on Nasdaq OMX Iceland for ten business days prior to the contract date, with 7.5% annual interest over the period, and the exercise price shall be adjusted for dividends that may be decided during the vesting period. In certain instances, the Group is entitled to revoke the share options in part or in whole in line with applicable rules. The options do not allow for cash settlement. The vesting period of the share options is 36 months from grant date of the share options. Following that the share options may be exercised for a period of three months where in that period the strike continues to accrue with 7.5% annual interest until the option is exercised. However, in the event of a merger involving a dissolution of the company or if there is a change in the company's control, the share options will become fully vested. In general, share options shall lapse if the share option holder's employment relationship with the company is terminated before the end of the vesting period. Executive managers within the Group commit to retain, until the end of their employment, shares which market value correspond to profit after taxes of utilised share options until the value of the shares owned by those individuals is equivalent to six months’ salary. The value of the share options was determined by an independent specialist and the value is in line with the laws and rules applicable to bonus payments of financial undertakings. As of December 2024, a three year general share option plan, set forth in accordance with Article 10 of the Income Tax Act No. 90/2003, has lapsed. There are thus no share options outstanding on the basis of said general share option plan. No decision has been made whether or not another general stock option plan, cf. Art. 10 of Act No. 90/2003, will be implemented. Number of Exercise ExerciseShare optionssharesyear price Issued in 2022 - Other share options, cf. the Bank´s incentive scheme ...................................................37,292 2025 21.69 Issued in 2023 - Other share options, cf. the Bank´s incentive scheme ...................................................5,059 2026 20.1742,350 Average Share c. Movements in the number of share options outstanding and their related weighted average exercise pricesexercise price options per share(thousands) At 1 January 2023 ................................................................................................................................................................23.85 88,099 Granted in 2023 ..................................................................................................................................................................18.00 9,086 Forfeited in 2023 .................................................................................................................................................................24.81 (27,707)At 31 December 202322.24 69,478 Exercised in 2024 ................................................................................................................................................................15.27 (1,730) Forfeited in 2024 .................................................................................................................................................................23.93 (25,397)At 31 December 202421.51 42,350 Exercisable share options at 31 December 2024 ...............................................................................................................0 Consolidated Financial Statements 31 December 2024 61 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 61 67. Shareholders of the Bank 68. Other matters Status of TM sales process Tax treatment of warrants sold by the Bank 69. Events after the reporting date There are no material events after the reporting date. As the Iceland revenue and customs has not yet concluded its review, the Bank has not charged any amount to its income statement nor made any changes to the tax returns for the respective years. The Bank is aware of that the Iceland revenue and customs ("Skatturinn") is currently reviewing the tax treatment of warrants that the Bank sold during the years 2017 to 2019. The Iceland revenue and customs is looking into whether the warrants should be taxed as perquisites instead of as a financial instruments. Should that be the case, then the Bank would be required to pay the respective social security tax and tax on financial activity. The Bank would however be able to deduct the amount of salary related expenses, as well as the amount of the perquisites, from its tax base for the respective years in question, and thereby increase its deferred tax losses. On 30 May 2024 the Bank announced that it had signed a purchase agreement with Landsbankinn hf., in which Landsbankinn hf. purchased 100% of the share capital in TM. On 17 March 2024, the Bank announced that it had received binding offers for the purchase of the share capital of TM. Due diligence review has been completed, and the purchase agreement has been signed with standard conditions of approval from The Financial Supervisory Authority of the Central Bank of Iceland and the Icelandic Competition Authority ("ICA"). On 26 September 2024, the Financial Supervisory Authority of the Central Bank of Iceland has published the results of its assessment, finding that Landsbankinn is eligible to control a qualifying holding in TM. The ICA has yet to conclude its review of the transaction. The purchase price according to the purchase agreement is ISK 28.6 billion and Landsbankinn hf. will pay for the share capital in cash. The purchase price is based on TM's balance sheet at the end of 2023. The final purchase price will be adjusted for changes in TM's tangible equity from the beginning of the year 2024 to the completion date, and the amount of the change will be added to or subtracted from the price according to the purchase agreement. Beneficial owners are defined as owners holding a share of 10% or greater, directly or indirectly. The information presented is, among other things, based on publicly available information. 31.12.2024 31.12.2023ShareholderCountry % %Beneficial owners Lífeyrissjóður verzlunarmanna ........................Iceland9.17% 9.56% Lífeyrissjóður starfsmanna ríkisins A-deild .....Iceland7.93% 7.89% Stoðir hf. ..........................................................Iceland7.09% 7.01% Gildi - lífeyrissjóður .........................................Iceland5.64% 5.43% Birta lífeyrissjóður ...........................................Iceland5.58% 6.00% Lífsverk lífeyrissjóður ......................................Iceland2.59% 2.55% Stapi lífeyrissjóður ...........................................Iceland2.55% 3.54% Landsbankinn hf. .............................................Iceland2.39% 1.28% Almenni lífeyrissjóðurinn ................................Iceland2.33% 2.30% Frjálsi lífeyrissjóðurinn ....................................Iceland2.32% 2.31% Arion banki hf. .................................................Iceland1.96% 1.92% Lífeyrissjóður starfsmanna ríkisins B-deild .....Iceland1.71% 1.78% Íslandsbanki hf. ...............................................Iceland1.70% 0.41% Sigla ehf. ..........................................................Iceland1.45% 1.43%Tómas Kristjánsson (100%) Vanguard Total International S .......................USA1.36% 1.21%Investment fund managed by The Vanguard Group, Inc. Fossar fjárfestingarbanki hf. ............................Iceland1.30% 1.45% Vanguard Emerging Markets Stock .................USA1.30% 1.25%Investment fund managed by The Vanguard Group, Inc. SNV Holding ehf. .............................................Iceland1.29% 1.27%Svanhildur Nanna Vigfúsdóttir (100%) Stefnir - Innlend hlutabréf hs. .........................Iceland1.03% 1.60%Investment fund managed by Stefnir hf. Others, each less than 1% ...............................37.98% 38.57% 2024: 2722, 2023: 285798.69% 98.77% Treasury shares ...............................................1.31% 1.23%Total100% 100% Consolidated Financial Statements 31 December 2024 62 Kvika banki hf. Amounts are in ISK thousands Notes to the Consolidated Financial Statements 0 Significant accounting policies Page 70 Basis of consolidation ............................................................................ 64 71 Foreign currency .................................................................................... 65 72 Interest income and expense ................................................................. 65 73 Fee and commission income and expense ............................................ 65 74 Net financial income (expense) ............................................................. 66 75 Dividend income .................................................................................... 66 76 Administrative expenses ........................................................................ 66 77 Employee benefits ................................................................................. 66 78 Income tax .............................................................................................. 66 79 Financial assets and financial liabilities ................................................. 67 80 Offsetting ............................................................................................... 68 81 Determination of fair value .................................................................... 68 82 Impairment ............................................................................................ 69 83 Cash and balances with Central Bank .................................................... 71 84 Fixed income securities .......................................................................... 71 85 Shares and other variable income securities ......................................... 71 86 Securities used for hedging .................................................................... 71 87 Loans to customers ................................................................................ 72 88 Derivatives .............................................................................................. 72 89 Investments in associates ...................................................................... 72 90 Intangible assets .................................................................................... 72 91 Operating lease assets ........................................................................... 73 92 Property and equipment ........................................................................ 73 93 Other assets ........................................................................................... 74 94 Deposits ................................................................................................. 74 95 Borrowings ............................................................................................. 74 96 Issued bonds .......................................................................................... 74 97 Subordinated liabilities .......................................................................... 74 98 Short positions held for trading ............................................................. 74 99 Short positions used for hedging ........................................................... 74 100 Other liabilities ....................................................................................... 74 101 Assets and disposal groups held for sale ............................................... 74 102 Right of use asset and lease liability ...................................................... 75 103 Financial guarantees .............................................................................. 75 104 Share capital ........................................................................................... 75 105 Nature and purpose of equity reserves ................................................. 75 106 Earnings per share .................................................................................. 75 107 New standards and interpretations ....................................................... 76 108 Use of estimates and judgements ......................................................... 76 Consolidated Financial Statements 31 December 2024 63 Kvika banki hf. Notes to the Consolidated Financial Statements 69 Significant accounting policies 70. Basis of consolidation a. Subsidiaries b. Business combinations c. Non-controlling interest d. Fiduciary services e. Transactions eliminated on consolidation f. Structured entities The accounting policies set out below have been applied consistently to all periods presented in these Consolidated Financial Statements, and have been applied consistently by Group entities. The Group provides custody services, fund management and discretionary and advisory investment management services which require the Group to make decisions on the handling, acquisition or disposal of financial instruments on behalf of its clients. The financial statements of managed funds and investment portfolios managed by the Group on behalf of customers are not included in the financial statements, as they do not constitute assets or liabilities of the Group. Intra-group balances, income and expenses, and unrealised gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group's interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. This also applies to subsidiaries classified as disposal groups held for sale. The Group acts as investment manager or investment advisor, for example, to a number of investment funds operated by the fund management company Kvika eignastýring hf. The purpose of such a fund management company is to generate fees from managing assets on behalf of third‐party investors by providing investment strategies. These investment funds are financed through the issue of units to investors. The Group has no contractual obligation to provide financial support to these structured entities. From time to time, the Group makes seed capital investments in certain fund products in order to establish track records for new products, to test new investment strategies or to launch new products at a viable minimum size. The Group has set up a formal procedure to assess whether or not to consolidate investment funds managed and administered by the Group on behalf of its customers and other investors in the consolidated financial statements. As part of this assessment, the Group reviews all facts and circumstances including the purpose and design of the investment fund, to determine whether the Group, as fund manager, is acting as agent or principal. The Group is deemed to be a principal when the Group acts as fund manager and cannot be removed without cause, has variable returns through significant holdings and is able to influence the returns of the funds by exercising its power. Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is account for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit and loss. Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses its relationship with an entity when there is a change in one or more of the elements of control. The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value, at the date of exchange, of the assets given, liabilities incurred or assumed and equity instruments issued. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised immediately in the income statement. Non-controlling interest represent the portion of profit or loss and equity not owned, directly or indirectly, by the Bank. Non-controlling interest is presented separately in the income statement and is included in equity in the statement of financial position, separately from equity attributable to owners of the Bank. The Group chooses on an acquisition-by-acquisition basis whether to measure non-controlling interest in an acquiree at fair value or according to the proportion of non-controlling interests in the acquiree's net assets. Changes in the Bank's ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances the carrying amounts of the controlling and non- controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Bank. Consolidated Financial Statements 31 December 2024 64 Kvika banki hf. Notes to the Consolidated Financial Statements 69 71. Foreign currency a. Foreign currency transactions b. Foreign operations 72. Interest income and expense Effective interest rate Amortised cost and gross carrying amount Presentation - - - - 73. Fee and commission income and expense - - - - - - - derivatives The Group earns income from providing various services to its customers. This includes fees for managing assets on behalf of customers, commissions received for equity and bond transactions and fees and commissions for various other financial services. Fee and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. financial assets and liabilities measured at amortised cost the parties to the contract have approved the contract and are committed to perform their respective obligations performance obligations have been established for services to be transferred the payment terms have been established for the services to be transferred the transaction price can be allocated to each individual service in the agreement it is probable that a consideration will be collected in exchange for the services that will be transferred to the customer The following applies to recognition of income for various types of fees and charges: The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any expected credit loss allowance. Transactions in foreign currencies are translated into the functional currency of the respective Group's entity using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the exchange rate at the date the fair value was determined. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the functional currency at spot exchange rate current at the reporting date. The income and expenses of foreign operations are translated into the functional currency at the spot exchange rates at the dates of the transactions. Fee and commission income and expense are recognised in the income statement when an agreement with a customer meets all of the following criteria: Fees that are earned gradually as the services are performed, such as management fees in asset management, are recognised as income at the rate these services are delivered. In practice, these are on a straight line basis financial assets at fair value through other comprehensive income (FVOCI) Interest income and expense presented in the income statement includes interest on: Foreign currency differences are posted as a separate line item under net financial income as disclosed in notes 7 and 74. Fees attributable to a specific service or action are recognised as income when the service has been performed. Examples of such fees are brokerage and payment commissions financial assets at fair value through profit and loss Translation differences on foreign operations are presented as a separate category in the statement of changes in equity. Interest income and expense are recognised in the income statement using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the financial asset or the amortised cost of the financial liability. When calculating the effective interest rate for financial instruments other than purchased or originated credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial instrument but not ECL. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including ECL. Consolidated Financial Statements 31 December 2024 65 Kvika banki hf. Notes to the Consolidated Financial Statements 69 74. Net financial income (expense) - - - - - - - 75. Dividend income 76. Administrative expenses 77. Employee benefits a. Short-term employee benefits b. Defined contribution plans c. Share-based payments 78. Income tax Administrative expenses comprise expenses other than interest expenses, fee and commission expenses and expenses related to fair value changes. A breakdown of administrative expenses is provided in note 9. Obligations for contributions to defined contribution plans are expensed in profit or loss as the related service is provided. The Group has no further obligations once those contributions have been paid. Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at grant date. The grant date fair value of equity-settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. Income tax comprises current and deferred tax. Income tax is recognised in the income statement, except to the extent that it relates to items recognised directly in other comprehensive income or equity, in which case it is recognised there. Realised and unrealised gains or losses from price changes of variable income securities Interest income from fixed income securities carried at fair value through profit or loss Dividends Fair value changes in derivatives Foreign exchange difference Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities. Dividends are presented as a component of net financial income. Net financial income comprises the following: Realised and unrealised gains or losses from price changes of fixed income securities measured at fair value Current tax liabilities include the estimated tax payable next year on current year's profit according to the tax rates prevailing at reporting date, in addition to corrections on tax from previous years. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised. The deferred income tax asset and/or liability has been calculated and recognised in the statement of financial position. The calculation is based on the difference between assets and liabilities as presented in the tax return on the one hand, and in the consolidated financial statements on the other, taking into consideration tax losses carried forward. This difference is due to the fact that the tax assessment is based on premises that differ from those governing the financial statements, mostly due to temporary differences arising from the recognition of revenue and expense in the tax returns and in the financial statements. Deferred tax assets and tax liabilities are offset in the statement of financial position when there is a legal right to settle on a net basis and they are levied by the same taxing authority on the same entity or on different entities subject to joint taxation. Fair value changes of loans to customers held at fair value Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Consolidated Financial Statements 31 December 2024 66 Kvika banki hf. Notes to the Consolidated Financial Statements 69 79. Financial assets and financial liabilities a. Recognition b. Classification Financial assets Financial assets at amortised cost Financial assets at fair value through other comprehensive income (FVOCI) Financial assets at fair value through profit or loss (FVTPL) Business model assessment - - - - - how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated objective for managing the financial assets is achieved and how cash flows are realised. Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at fair value through profit or loss because they are neither held to collect contractual cash flows nor held to both collect contractual cash flows and to sell financial assets. Financial assets classified at fair value through profit or loss are all other financial assets which are not classified at amortised cost or at fair value through other comprehensive income. This includes financial assets classified mandatorily at fair value through profit or loss and financial assets which are irrevocably designated by the Group at initial recognition as at fair value through profit or loss that would otherwise meet the requirements to be measured at amortised cost or at fair value through other comprehensive income. The Group may designate financial assets as at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Fixed income securities may be classified as financial instruments measured at fair value through other comprehensive income ("FVOCI") when they meet the classification criteria. Interest income is calculated using the effective interest rate. Interest income and foreign exchange gains or losses are recognised in the Consolidated Statement of Comprehensive Income. Fixed income securities classified as FVOCI are subject to impairment measurement using the expected credit loss approach. Fair value measurements are recognised in Other Comprehensive Income while on derecognition, cumulative gains (losses) recognised in Other Comprehensive Income are reclassified to the Consolidated Statement of Income. the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; The Group's financial assets are classified into one of three measurement categories, i.e. i) at amortised cost, ii) at fair value through other comprehensive income or iii) at fair value through profit or loss. The measurement basis of individual financial assets is determined based on an assessment of the cash flow characteristics of the assets and the business models under which they are managed. The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are originated. All other financial assets and liabilities are initially recognised on the trade date, which is the date when the Group becomes a party to the contractual provisions of the instrument. A financial asset is measured at amortised cost if the contractual terms of the financial asset give rise to cash flows that are solely payment of principal and interest and the asset is held within a business model whose objective is to collect contractual cash flows, i.e. Held to collect. After initial measurement, financial assets in this category are carried at amortised cost using the effective interest rate method. Amortisation is included in interest income in the Consolidated Income Statement. The majority of the Group's loans to customers are carried at amortised cost using the effective interest rate method. Interest on loans to customers is recognised as interest income. The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets; how the performance of the portfolio is evaluated and reported to the Group's management; Impairment on financial assets measured at amortised cost is calculated using the expected credit loss approach. Loans and debt securities measured at amortised cost are presented net of allowance for credit losses in the Consolidated Statement of Financial Position. Financial assets at fair value through profit or loss are measured in the Consolidated Statement of Financial Position at fair value. Loans to customers which are measured at fair value through profit or loss are assets whose cash flows do not represent payments that are solely payments of principal and interest but are non-trading assets. Interest on loans to customers measured at fair value through profit or loss is recognised as interest income. Changes in fair value, as well as any gains or losses realised on disposal, are recognised in the line item Net financial income (expense) in the Consolidated Income Statement. Consolidated Financial Statements 31 December 2024 67 Kvika banki hf. Notes to the Consolidated Financial Statements 69 79. Financial assets and financial liabilities (cont.) Cash flow characteristics assessment Reclassifications Financial liabilities Derecognition Financial assets Financial liabilities 80. Offsetting 81. Determination of fair value Where the contractual terms introduce exposure to other risk or variability of cash flows that are inconsistent with a basic lending arrangement, the related financial asset is classified and measured at fair value through profit or loss. Financial assets held within the business models Held to collect and Held to collect and sell are assessed to evaluate if their contractual cash flows are comprised of solely payments of principal and interest (SPPI). SPPI payments are those which are consistent with a basic lending arrangement. Principal is the fair value of the financial asset at initial recognition and may change over the life of the instruments, e.g. due to repayments. Interest relates to basic lending returns, including compensation for the time value of money and credit risk associated with the principal amount outstanding and for other basic lending risks (expected losses, liquidity risks and administrative costs), as well as a profit margin. Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model and if the change is significant to the Group's operations. The Group's financial liabilities are classified into one of two measurement categories, i.e. at amortised cost or at fair value through profit or loss. Financial liabilities held for trading are measured at fair value through profit or loss, all other financial liabilities are measured at amortised cost. Financial liabilities measured at amortised cost are initially recognised at fair value, which is typically equal to cost, i.e. cash advanced less any transaction costs. They are subsequently measured at amortised cost using the effective interest method. Accrued interest, in the case of interest bearing liabilities is included in the carrying amount. Interest expense is recognised in net interest income. Income and expenses are presented on a net basis for gains and losses arising from a group of similar transactions, such as in the Group's trading activity, or other circumstances permitted by International Financial Reporting Standards. A financial asset is derecognised when the contractual rights to the cash flows from the asset expire, or when the Group enters into a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. Examples of such transactions are securities lending and sale and repurchase agreements. Financial liabilities are derecognised when the obligation of the Group is discharged, cancelled or expires. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. For further information on valuation techniques, refer to notes 60 - 61. Consolidated Financial Statements 31 December 2024 68 Kvika banki hf. Notes to the Consolidated Financial Statements 69 82. Impairment Expected Credit Loss - - - - - - 1. 2. 3. 12-month expected credit losses are a portion of the lifetime expected credit losses. They are calculated by multiplying the probability of a default occurring on the instrument in the next 12 months by the total (lifetime) expected credit losses that would result from that default. They are not the expected cash shortfalls over the next 12 months. They are also not the credit losses on financial instruments that are forecast to actually default in the next 12 months. Expected credit losses are defined as the difference between all the contractual cash flows that are due to an entity and the cash flows that it actually expects to receive (‘cash shortfalls’). This difference is discounted at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets). contract assets; loan commitments issued; and financial guarantee contracts issued. For trade receivables and contract assets without a significant financing component a simplified (lifetime expected loss) approach can be applied. For assets that are credit-impaired at purchase or origination lifetime expected loss approach shall be applied. For other assets/exposures a general (or three-stage) approach shall be applied. The Group estimates an ECL for each of these types of assets or exposures. However, IFRS 9 specifies three different approaches depending on the type of asset or exposure: debt instruments measured at fair value through other comprehensive income; finance lease receivables measured at amortised cost; The Group recognises loss allowances for ECL on the following financial instruments that are not measured at FVTPL: debt instruments measured at amortised cost; Stage 2 covers financial assets that have deteriorated significantly in credit quality since initial recognition (unless the low credit risk simplification has been applied and is relevant) but that do not have objective evidence of a credit loss event. Stage 1 covers financial assets that have not deteriorated significantly in credit quality since initial recognition or (where the optional low credit risk simplification is applied) have low credit risk. The Group measures the ECL on each balance sheet date according to a three-stage expected credit loss impairment model. The general approach Stage 3 covers financial assets that have objective evidence of a credit loss event at the reporting date. 12-month expected credit losses are recognised in stage 1, while lifetime expected credit losses are recognised in stages 2 and 3. IFRS 9 draws a distinction between financial instruments that have not deteriorated significantly in credit quality since initial recognition and those that have. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. An asset moves from 12-month expected credit losses to lifetime expected credit losses when there has been a significant deterioration in credit quality since initial recognition. Hence the ‘boundary’ between 12-month and lifetime losses is based on the change in credit risk not the absolute level of risk at the reporting date. There is also an important operational simplification that permits companies to stay in ‘12‐month expected credit losses’ if the absolute level of credit risk is ‘low’. This applies even if the level of credit risk has increased significantly. There is also a third stage. This applies to assets for which there is objective evidence of impairment. In Stage 3 the credit loss allowance is still based on lifetime expected losses but the calculation of interest income is different. In the periods subsequent to initial recognition, interest is calculated based on the amortised cost net of the loss provision, whereas the calculation is based on the gross carrying value in Stages 1 and 2. Finally, it is possible for an instrument for which lifetime expected credit losses have been recognised to revert to 12-month expected credit losses should the credit risk of the instrument subsequently improve so that the requirement for recognising lifetime expected credit losses is no longer met. Lifetime expected credit losses Lifetime expected credit losses are the expected shortfalls in contractual cash flows, taking into account the potential for default at any point during the life of the financial instrument. Expected credit losses 12 month expected credit losses Consolidated Financial Statements 31 December 2024 69 Kvika banki hf. Notes to the Consolidated Financial Statements 69 82. Impairment (cont.) - - - - - - 1. 2. Origination grade 1 2 3 4 5 6 7 8 9 re‐financing of borrower’s exposures is expected and has been confirmed. the borrower is considered to be unlikely to pay as determined by the Bank's Risk Management department. Events that are likely to lead to default as determined by the Risk Management department include the following: - breach of covenants of loan commitments; - loan concessions or stressed restructuring; or - High risk classification based on Risk Management's internal risk assessment. the borrower has been in default in accordance with above at any point for the previous three months or previous 12 months if loan was granted forbearance measures while being classified in default. the borrower is more than 90 days past due of one of his exposures with the Bank; the borrower is registered as in delinquency by Creditinfo (Icelandic: vanskilaskrá) and has payment more than 30 days delinquency with the Group; The Group considers a financial asset to be in default if one of the following applies: Quantitative SICR assessment Grading migrations – SICR has occurred if the current grade has increased compared to the origination grade. For the domestic portfolio, more or equal to the following thresholds are considered to be significant increase in credit risk: Significant increase in credit risk The Group utilises internal and external Probability of Default models (PD models). Internal models are developed using internal default data along with demographic and other explanatory variables. External models are developed by Creditinfo, an Icelandic credit bureau, for the domestic corporate and invidiual portfolios. The Creditinfo PD models are calibrated to the default rate of the underlying portfolios. The PD models calculate a 12 month PD and a lifetime PD is calculated for stage 2 loans. All PD models use an economic regression model which uses forecasted macro variables to adjust the PD values for economic scenarios. Threshold grade Qualitative SICR assessment 8 9 10 Probability of default and credit risk rating 7 8 The Risk Management department can manually override automatic default triggers if the following applies: the reason for reported default triggers is known to the Bank and not considered to be lack of willingness or ability to pay. The Group utilises an economic forecast and the current 12 month PD for the purpose of estimating lifetime PD for loans in stage 2. The 12 month PD is adjusted with a survival rate for each year until maturity with the following formula: PD t = PD 12 * SR t where PD 12 is the 12 month PD from the credit rating model and SR t is the survival rate at time t, which is calculated recursively as SR t = SR t-1 * (1-PD t ). The Group monitors the appropriateness of the assumption as a part of it’s yearly validation and monitoring process. The PD assessment for portfolios in the UK is primarily individually assessment done by credit specialists based on payment history and general creditworthiness where performing customers are ranked in three different risk classes. When considering whether a significant increase in credit risk (SICR) has occurred the Group considers both quantitative and qualitative factors. In general the Group will rely on a quantitative analysis based on the PD model but will additionally consider qualitative factors based on the information available to the Group. The Group has defined the following criteria’s for SICR: Over 30 days past due of any of the client's exposures or client is in Creditinfo's default registry Definition of default 7 7 7 7 Migration of corporations by one or two risk grades in the PD model is considered to be a significant increase in risk and therefore warrant a transfer to stage 2, depending on the origination grade. However, the Group considers risk grade 6 and lower for corporations to be low risk and therefore excludes any movement between categories that does not result in a rating above that level. If the borrower is in Creditinfo's default registry then he moves to stage 3 if he is more than 30 days delinquent but stage 2 otherwise. Risk Management is responsible for managing the credit risk of the Group which includes a qualitative SICR assessment. Risk Management reviews on a monthly basis large exposures, unsecured loans and loans that are past due on a loan by loan basis. Consolidated Financial Statements 31 December 2024 70 Kvika banki hf. Notes to the Consolidated Financial Statements 69 82. Impairment (cont.) Forward looking probability weighted scenarios 83. Cash and balances with Central Bank 84. Fixed income securities 85. Shares and other variable income securities 86. Securities used for hedging Cash and balances with Central Bank are carried at amortised cost in the statement of financial position. Cash and balances with Central Bank include notes and coins on hand, balances held with the Central Bank and other financial institutions, and highly liquid financial assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Discount rate. This is used to discount an expected loss to present value at the reporting date using the effective interest rate (EIR) at initial recognition. The Group's management has identified and probability weighted three macro‐economic scenarios for the purpose of calculating expected credit loss. The medium term domestic forecasts of macro‐economic variables and scenario weights are based on the Group‘s management judgement and are applied for the loan portfolios that are affected by the macro-economic variables. The Group incorporates the following forward‐looking macro‐ economic variables into its probability weighted expected credit loss calculations: (i) unemployment rate and (ii) inflation rate. The Group has not developed macro-economic forecasts for the UK portfolio, but macro-economic forecasts effect the LGD assessment. Loss Given Default (LGD). This is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from any collateral. It is expressed as a percentage of EAD and derived from value of underlying collaterals. Lifetime definition IFRS 9 requires the Group to determine an expected credit loss (ECL) amount on a probability-weighted basis as the difference between the cash flows that are due to the Group in accordance with the contractual terms of a financial instrument and the cash flows that the Group expects to receive. The Group has implemented an ECL model which is consistent with regulatory and best practices. The model is based on four components. Probability of Default (PD). This is an estimate of the likelihood of default over a given time horizon. The Bank uses an external PD model developed by CreditInfo for the domestic portfolio and individual assessment done by credit specialists in special cases and for the UK portfolio. Fixed income securities are initially measured at fair value and subsequently accounted for depending on their classification as discussed in note 79. Exposure at Default (EAD). This is an estimate of the exposure at a future date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities. Shares and other variable income securities consist of equity investments and unit shares in mutual funds. Shares and other variable income securities are initially measured at fair value and subsequently accounted for depending on their classification as discussed in note 79. Securities used for hedging consist of non-derivative financial assets that are used to hedge the Group's exposure arising from derivative contracts with customers. Securities used for hedging are measured at fair value as discussed in note 79. Committed facilities The Group considers the lifetime of each exposure to be the contractual maturity of each loan. The Group considers this to be the case as any lending subsequent to that period would be based on an independent lending decision at that time based on the prevailing market terms. The Group only considers contractual cash flows when estimating exposure at default. The average lifetime of the Group's exposures is relatively short and it does therefore not consider the likelihood of prepayment when concluding on the lifetime of the assets. Exposure at default Expected credit loss measurement The Group considers the off-balance portion of exposure at default to be 50% (credit conversion factor) of any facilities not drawn upon that are considered committed. Such facilities include overdrafts, credit cards and guarantees. The credit conversion factor is subject to expert review on a case by case basis. The Bank does not consider credit line facilities to be committed facilities as disbursements are subject to predetermined conditions and constitute a separate credit review. These predetermined conditions will in most cases lead directly to an increase in posted collateral and disbursements therefore stay within acceptable collateral coverage. Consolidated Financial Statements 31 December 2024 71 Kvika banki hf. Notes to the Consolidated Financial Statements 69 87. Loans to customers 88. Derivatives - - - 89. Investments in associates 90. Intangible assets a. - - - - - Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence generally exists when the Group holds between 20% and 50% of the voting power, including potential voting rights, if any. Investments in associates are initially recognised at cost. If the Group's share of loss exceeds its interest in an associate, the Group's carrying amount is reduced to zero and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. The Group's share of the total recognised gains and losses of associates is included in the financial statements of the Group on an equity accounted basis, from the date the significant influence commences until the date it ceases. The Group groups intangible assets into four categories: Software and other Derivative assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position. Derivatives with positive fair values are classified as financial assets and derivatives with negative fair values as financial liabilities. Revenue from derivatives is split into interest income and net income from financial instruments at fair value and presented in the corresponding line items in the income statement. Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include loans provided by the Group to its customers, participation in loans from other lenders and purchased loans that are not quoted in an active market and which the Group has no intention of selling immediately or in the near future. Finance lease receivables are a part of the line item Loans to Customers. Loans are initially recognised at fair value, which is the cash advanced, plus any transaction costs. Subsequently, they are measured at amortised cost using the effective interest method. Accrued interest is included in the carrying amount of the loans and advances. The carrying amount of impaired loans is reduced through the use of an allowance account. When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset, or a substantially similar asset, at a fixed price at a future date ("reverse repo" or "stock borrowing"), the arrangement is accounted for as a loan and the underlying asset is not recognised in the Group's statement of financial position. A derivative is a financial instrument or another contract that falls under the scope of IFRS 9 and generally has the following three characteristics: Its value changes due to changes in an underlying variable, such as bond price, share price, security or price index (including CPI), foreign currency exchange rate or interest rate Settlement takes place at a future date The Group uses derivatives for trading purposes and to hedge its exposure to market price risk, foreign exchange risk and inflation and interest risk arising from operating, financing and investing activities. The contract requires no initial investment or an initial investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors Goodwill arises in business combinations. It is recognised as of the acquisition date and measured as the aggregate of (a) the fair value of the consideration transferred, (b) the recognised amount of any non-controlling interest in the acquiree, and (c) the fair value of any previously held equity interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as at the acquisition date. The consideration transferred includes the fair value of assets transferred, liabilities incurred and equity interests issued by the Group. In addition, consideration transferred includes the fair value of any contingent consideration. Software comprise acquired software licences and external costs associated with the development of bespoke applications. Goodwill Asset categories Customer relationships Development cost that has been capitalised is amortized on the day that the product is launched using the straight line method over their useful life, but not exceeding 14 years. Brands Brands have been acquired as part of recent acquisitions and are capitalised and amortised using the straight line method over their useful life, but not exceeding 20 years. Customer relationships have been acquired as part of recent acquisitions and are capitalised and amortised using the straight line method over their useful life of maximum 16 years. Consolidated Financial Statements 31 December 2024 72 Kvika banki hf. Notes to the Consolidated Financial Statements 69 90. Intangible assets (cont.) b. c. d. 7-16 years 4-20 years 3-14 years 91. Operating lease assets 92. Property and equipment a. - - b. c. d. Subsequent measurement The Group uses the cost model for the measurement after recognition and property and equipment is carried at cost less any accumulated depreciation and any accumulated impairment losses. Property and equipment is reviewed for indications of impairment or changes in estimated future economic benefits at each reporting date. If such indications exist, the assets are analysed to assess whether their carrying amount is fully recoverable. Other property and equipment, which includes automobiles for own use, furniture and fixtures, computers and other office equipment The Group recognises in the carrying amount of an item of property and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. The decision whether subsequent costs are added to the acquisition cost of property and equipment is based on whether an identified component, or part of such component, has been replaced or not, or if the nature of the subsequent cost means a contribution of a new component. All other costs are expensed in the income statement when incurred. The Group groups tangible assets into two categories: Real estate, which includes office and residential buildings, land and building rights The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Subsequent cost Software and other ..................................................................................................................................................................................... Depreciation of property and equipment and amortisation of intangible assets are presented together as a separate line item in administrative expenses as disclosed in note 9. Further breakdown on depreciation of intangible assets is provided in note 26. Amortisation Intangible assets with finite useful life are amortised using the straight-line method over their estimated useful economic life, with the amortisation recognised in the income statement. The estimated useful life of intangible assets is as follows: Initial recognition Property and equipment is initially recognised at cost, which includes direct expenses related to the purchase. Initial recognition The Group uses the cost model for measurement after recognition and intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Intangible assets are reviewed for indications of impairment or changes in estimated future economic benefits at each reporting date. If such indications exist, then the asset's recoverable amount is estimated. Goodwill is tested annually for impairment. Intangible assets are initially recognised at cost. Subsequent measurement For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or cash generating units (CGUs). Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. Asset categories Customer relationships ............................................................................................................................................................................... Brands ......................................................................................................................................................................................................... Operating lease assets are rental agreements on vehicles and heavy equipments where the bank is the lessor. Operating lease assets are recognised at cost less depreciation and impairment. Depreciation is calculated and recognised in the income statement on a straight-line basis based on estimated useful life, taking into account the residual value. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Consolidated Financial Statements 31 December 2024 73 Kvika banki hf. Notes to the Consolidated Financial Statements 69 92. Property and equipment (cont.) e. 15-50 years 3-5 years 93. Other assets 94. Deposits 95. Borrowings 96. Issued bonds 97. Subordinated liabilities 98. Short positions held for trading 99. Short positions used for hedging 100. Other liabilities 101. Assets and disposal groups held for sale Issued bonds are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using the effective interest method. Accrued interest is included in their carrying amount. Depreciation Borrowings are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using the effective interest method. Accrued interest is included in their carrying amount. Other assets are measured at amortised cost. When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset, or a substantially similar asset, at a fixed price at a future date ("repo" or "stock lending"), the arrangement is accounted for as a borrowing and the underlying asset continues to be recognised in the Group’s statement of financial position. Where parts of an item of property and equipment have different useful lives, those components are accounted for separately. Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each component of an item of property and equipment. The estimated useful lives are as follows: Real estate .................................................................................................................................................................................................. Other property and equipment .................................................................................................................................................................. Deposits consist of time deposits and demand deposits, as well as money market deposits. They are recognised at amortised cost, including accrued interest. Other liabilities are measured at amortised cost, except for the contingent consideration which is measured at fair value. The Group classifies an asset or disposal group as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset or disposal group and the sale must be highly probable. Immediately before classification as held for sale, the measurement of the qualifying assets and all assets and liabilities in a disposal group is brought up-to-date in accordance with applicable IFRS. Then, on initial classification as held for sale, assets and disposal groups are recognized at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in the Income Statement, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement. Revaluation through the reversal of impairment in subsequent periods is limited so that the carrying amount of the held for sale, assets or disposal groups does not exceed the carrying amount that would have been determined had no impairment loss been recognized in prior years. Short positions are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short positions are carried at fair value through profit or loss with all fair value changes recognised in the income statement under net financial income. Short positions used for hedging are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short positions used for hedging consist of non-derivative financial liabilities that are used to hedge the Group's risk exposure arising from derivative contracts with customers. Short positions used for hedging are carried at fair value through profit or loss with all fair value changes recognised in the income statement under net financial income. Subordinated liabilities are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using the effective interest method. Accrued interest is included in their carrying amount. Consolidated Financial Statements 31 December 2024 74 Kvika banki hf. Notes to the Consolidated Financial Statements 69 102. Right of use asset and lease liability 103. Financial guarantees 104. Share capital a. Treasury shares b. Share premium c. Dividends on share capital 105. Nature and purpose of equity reserves a. Option reserve b. Deficit reduction reserve c. Fair value reserve d. Translation reserve e. Restricted retained earnings f. Retained earnings - accumulated deficit 106. Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss that is attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares, which comprise share options granted to employees and issued warrants. When development cost is capitalized a corresponding amount is transferred from retained earnings to restricted retained earnings according to the Financial Statements Act No. 3/2006. The reserve is then transferred back to retained earnings in line with amortization of the asset through income statement. The option reserve represents the cumulative charge to the income statement for options to purchase shares in the Bank granted under the Bank's Remuneration policy, which is discussed in notes 64-66. Retained earnings (accumulated deficit if negative) consists of undistributed profits and losses accumulated, less transfers to other reserves. Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are initially recognised at their fair value. The guarantee liability is subsequently measured at the higher of the loss allowance determined in accordance with IFRS 9 and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15. Liabilities arising from financial guarantees are included with provisions. According to the Financial Statements Act No. 3/2006 the difference between share of profit of subsidiary or associate in excess of dividend payment or dividend payment pending, shall be transferred to a restricted retained earnings reserve, net of tax, which is not subject to dividend payments. When shareholding in subsidiary or associate is sold or written off the restricted retained earnings reserve shall be released and the amount transferred to retained earnings. Acquired own shares and other equity instruments (treasury shares) are deducted from equity. No gain or loss is recognised in income statement on the purchase, sale, issue or cancellation of treasury shares. Consideration paid or received is recognised directly in equity. Incremental transaction costs of treasury share transactions are accounted for as a deduction from equity, net of any related income tax benefit. Share premium represents excess of payment above nominal value (ISK 1 per share) that shareholders have paid for shares sold by the Group. Dividends on share capital are deducted from equity in the period in which they are approved by the Group's shareholders meetings. The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, until the operations are sold, dissolved or abandoned. The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the Group's incremental borrowing rate. The right-of-use assets comprise the initial measurement of the corresponding lease liability. They are subsequently measured at cost less accumulated depreciation. The fair value reserve represents fair value changes, net of tax, for assets held at fair value through other comprehensive income. The reserve is released in correlation with realization of gains or losses of financial assets upon sale or derecognition. The deficit reduction reserve was created as a part of a share capital reduction approved by the Bank's Annual General Meeting in April 2014. The reserve has no specified purpose and can only be used with the approval of a shareholders' meeting. Consolidated Financial Statements 31 December 2024 75 Kvika banki hf. Notes to the Consolidated Financial Statements 69 107. New standards and interpretations 108. Use of estimates and judgements a. b. c. d. f. Judgement is required to determine the extent to which deferred tax assets are recognised in the statement of financial position, based on the likely timing and level of future taxable profits. Fair value of financial instruments The fair value of financial instruments that are not quoted in active markets is determined using valuation techniques which are reviewed regularly as discussed in note 60. A number of new standards, amendments to standards and interpretations were not yet effective for the year ended 31 December 2024 and have not been applied in the preparation of these financial statements. Early adoption of new standards and amendments is not planned. The areas where the use of judgements and estimates has the most significant effect on the amounts recognised in the statement of financial position or the income statement are disclosed in this note. Impairment of financial assets As outlined in note 82, the use of estimates and judgement is an important component of the calculation of impairment losses. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Unforeseen events could, however, result in further impairment losses which would have a material effect on the income statement and statement of financial position. Deferred tax assets In the process of applying the Group's accounting policies, management makes use of judgements and estimates which are based on various assumptions. These judgements and estimates can affect the reported amounts of assets and liabilities, income and expense. Assumptions and estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are reviewed on an on-going basis. The estimates form the basis for judgements about the carrying value of assets and liabilities that are not readily available from other sources and actual results may differ. Judgement may also be required in circumstances not involving estimates, e.g. when determining the substance of a particular transaction, contract or relationship. Impairment of intangible assets The carrying amount of intangible assets are reviewed annually to determine whether there is indication of impairment as disclosed in note 90. If any such indication exists the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Assets and discontinued operations held for sale are measured at the lower of carrying amount and fair value, less cost to sell. As outlined in note 3, this applies to a subsidiary of the Group. The fair value at the date of classification of the subsidiary was calculated using valuation models based on discounted future cash flows that incorporated significant non-market observable inputs and assumptions. The use of reasonably possible alternative inputs and assumptions to these models, in particular changes to the discount rate employed (representing the required rate of return on equity), could have an impact on the value of these disposal groups. Assets and disposal groups held for sale Consolidated Financial Statements 31 December 2024 76 Appendix 1: Statement on the Corporate Governance of Kvika banki hf. 2024 Unaudited Kvika banki hf. Statement on the Corporate Governance of Kvika banki hf. 2024 0 Business strategy and values Kvika banki hf. (hereinafter referred to as “Kvika” or the “Bank”) is categorized as a financial conglomerate by the Financial Supervision of the Central Bank of Iceland (hereinafter referred to as “FME”). Kvika’s purpose is to increase competition and simplify customers’ finances by utilizing infrastructure and financial strength. Kvika’s vision is to transform financial services in Iceland with mutual benefits in mind. On that journey, Kvika is guided by three values that contribute to the development of robust business relationships, long-term results, and active innovation. Kvika’s values are long-term thinking, simplicity, and courage. In accordance with those values the Bank places emphasis on thinking of the future and contributing to a sustainable community through active participation. Emphasis is placed on putting ourselves in the customer’s shoes, rethinking things and selecting projects that provide the most long-term value for customers and the Bank. Kvika offers its customers diversified financial services through four business segments: Commercial Banking, Investment Banking, Asset Management and UK operations. The business segments Asset Management and the UK operations are operated in the subsidiaries Kvika eignastýring hf. and Kvika Securities Ltd. Kvika is also the owner of the insurance company TM tryggingar hf. In May 2024 the company was sold to Landsbankinn hf. and the company is treated as an asset held for sale until the sales process is concluded. Sustainability Kvika’s purpose, as previously stated, is to increase competition in financial services and simplify customers’ finances. The Bank emphasizes long-term thinking and promoting a sustainable society through active participation. In 2022, a specific sustainability policy was established, and relevant supporting policies formulated or updated, such as education and professional development policy, gender equality, health, and human resources policy. Kvika takes the independence of its licenced subsidiaries, both with regards to management and day-to-day operations, seriously. However, Kvika, as a parent company, is responsible for internal governance on a consolidated basis. In that context Kvika has laid down ground rules for its subsidiaries, both in terms of administrative structure and internal governance, through ownership policies for its significant subsidiaries and requires regular and ad hoc information from the subsidiaries to the parent company. Kvika requires harmonized and professional work ethics within the Kvika group, harmonized corporate culture, coordinated human resources working under the same conditions and that Kvika’s values are maintained within the group to the extent allowed by law. Further reference is made to annual reports of the Bank’s subsidiaries, available at www.skatturinn.is. Asset Management emphasises on offering clients a broad range of services for investing in Iceland as well as in foreign markets. Its aim is to provide the best asset and fund management services, guided by clients’ long‐term interests. Asset and fund management operations are mostly handled by Kvika’s subsidiary, Kvika eignastýring hf. (hereinafter referred to as “KES”). Return on equity is determined by decisions made in accordance with the Bank’s risk appetite, which reflects its profitability targets. Consequently, decisions regarding the optimal composition of the balance sheet to generate income are restricted by risk appetite. Kvika’s target is a return on tangible equity of at least 20% and keeping the capital adequacy ratio (CAR) 2-4% above legal and regulatory requirements set by FME. Kvika’s objective is to deliver to shareholders an annual compensation equivalent to a minimum of 25% of profit, whether in the form of dividend payments or share repurchases, under a formal buy-back programme, as authorised by applicable laws and decisions made at shareholders’ meetings. When deciding on the amount of dividends or, as the case may be, the funds allocated for share buy-backs, care is taken to maintain Kvika’s strong financial position, bearing in mind risks in the internal and external environment and growth prospects, to ensure that the Bank maintains a solid capital ratio and liquidity for the future. Dividend payments are always subject to assessments of the opportunities offered by reinvesting profits in Kvika’s operations and growth. Commercial Banking provides businesses, institutions, and investors with general banking services. Customer’s daily banking transactions are handled mostly via Kvika’s online banking system. Kvika’s specialized brands provide diverse financial services to customers. Aur provides individuals with access to a variety of banking services and Auður offers the same group with a selection of savings accounts. In 2024, Auður also began offering corporate accounts for legal entities and announced plans to start mortgage lending under the Auður brand in 2025. Lykill makes financing in the form of loan and lease agreements for cars, machinery, and equipment available for individuals and companies. Kvika also operates the brand Framtíðin exclusively online and provides mortgages to individuals in the form of secondary mortgages. Lastly, Kvika provides payment services to customers through its brands Netgíró and Straumur. The Sustainability policy adopts six of the United Nations Sustainable Development Goals (SDGs) to focus on in Kvika’s operations: SDG 3 on good health and safety; SDG 4 on quality education; SDG 5 on gender equality; SDG 9 on industry, innovations, and infrastructure; SDG 13 on climate action and SDG 17 on partnership for the goals. Investment Banking provides a range of professional services in the fields of specialised financing, securities and foreign exchange transactions and corporate finance services. Capital Markets provide customers with comprehensive services in securities and foreign exchange brokerage. The Corporate Finance segment provides advice on the acquisition, sale and merger of companies and business entities, financing businesses via stock or bond auctions, listing and delisting stocks and bonds. The Corporate Lending segment provides businesses, institutions, and investors with specialised lending to finance such things as real estate, real estate development, securities transactions and other investments. The division also uses the Bank’s infrastructure to distribute loans to other institutional investors. Kvika’s UK operations are operated through the subsidiary Kvika Securities Ltd. (hereinafter referred to as “KSL”). KSL, established in 2017, is a subsidiary regulated in the United Kingdom by the Financial Supervisory Authority. KSL’s focus is on corporate finance, as well as fund and asset management services. Further, the property lender Ortus Secured Finance Lmited, is a subsidiary of KSL and specializes in property backed lending in the UK. A special sustainability committee is in place at Kvika and is now composed of the CEO, CFO and managing directors of most divisions of the bank and KES, as well as the Director of Sustainability. The subject area falls under the Operation and Development Division. In 2024, a sustainability risk policy for the Kvika group was approved by the BOD, replacing the sustainability risk framework for the Kvika group from 2023. The policy forms part of the Bank’s overall risk management framework, with the Risk Management Division overseeing sustainability risk. As part of the updates to the risk management framework in 2024, a position of a specialist in sustainability risk was added to the Risk Management Division. Additionally, sustainability risk was elevated within the framework, becoming an independent risk factor and one of the Bank’s key risk factors. Consolidated Financial Statements 31 December 2024 78 Kvika banki hf. Statement on the Corporate Governance of Kvika banki hf. 2024 0 A proposal to create a Nomination Committee was accepted at the Bank’s annual general meeting in March 2024. The committee’s rules of procedure were also adopted, and the Bank’s Articles of Association were amended to reflect the decision. The Nomination Committee serves as an advisory body to help shareholders make well-informed decisions when choosing board members. The goal is to guarantee that board members have a wide range of experience and knowledge that can help the business in its strategic planning and management, taking into account the operating environment. The majority of the three members of the Nomination Committee must be independent of the business and its top executives. They are selected to one- year terms. Helga Melkorka Óttarsdóttir and Jóhann Ásgeir Baldurs were elected to the Nomination Committee at the Annual General Meeting. According to the rules of procedure, the newly elected board also appointed Jakobína Hólmfríður Árnadóttir. Furthermore, Kvika’s activities comply with the recognised standards and rules of the European Banking Authority (EBA), including guidelines on internal governance (EBA/GL/2021/05), cf. Article 15 of regulation of the European Parliament and of the Council No. 1093/2010, which was incorporated into Icelandic law with act no. 24/2017 on a European Financial Supervisory System (hereinafter “EBA Guidelines”). The EBA Guidelines can be found on FME’s website www.fme.is and on EBA’s website https://www.eba.europa.eu/homepage. Kvika awards a variety of grants that have a positive social impact, and the selection of projects reflects the six UN SDGs that have been adopted. In recent years, support has been provided to UNICEF in Iceland; women and innovation with FrumkvöðlaAuður, and industrial studies and teacher training with allocations from Kvika’s Incentive Fund. Educational support is considered to be one of the best long-term investments for both societies and individuals. The year 2024 marked the final round of grants awarded by Kvika’s Incentive Fund, as applications for industrial studies and teacher training programs have increased significantly since the fund’s establishment, achieving the objective for its founding. A more detailed discussion of the scope, position, and impact of the group regarding environmental, social and governance matters (also known as “ESG factors”) can be found in Kvika’s sustainability report, which is published together with Kvika’s annual financial statement. The report is largely based on the European Sustainability Reporting Standards of the CSRD legislation (Corporate Sustainability Reporting Directive), which has not yet been implemented in Iceland. Compliance with corporate governance guidelines In 2024, work began with external consultants on a double materiality assessment, which is the first step in the Risk Management Division’s risk management process for monitoring sustainability risk. The result of the double materiality assessment will form the foundation for further work in the sustainability area in the coming year and will also serve as the basis for Kvika’s sustainability reporting for 2024. In 2024, as part of the Model Company in Corporate Governance (“Fyrirmyndarfyrirtæki í stjórnarháttum”), the bank hired consultants to conduct a corporate governance review. Based on the review’s findings, Kvika was recognized in August for good corporate governance. Kvika is obliged to observe recognised corporate governance guidelines, pursuant to Par. 7 of Article 54 of Act No. 161/2002, on Financial Undertakings. The Bank complies with chapter VII of Act No. 161/2002, on Financial Undertakings, and with the Guidelines on Corporate Governance issued jointly in February 2021 by the Chamber of Commerce, NASDAQ Iceland, and SA – Business Iceland. The Guidelines are available on the website of the Chamber of Commerce www.vi.is. Kvika is a member of the United Nations Principles for Responsible Investment (UN PRI) and is working on integrating the principles of the UN PRI into it’s operations, particularly within KES. Kvika is one of the founding members of IcelandSIF, an organisation for responsible investments, is a member of Festa Centre for Sustainability and supports Grænvangur, which is a co-operation forum between industry and government on climate issues and green solutions. Kvika is a member of the Partnership for Carbon Accounting Financials (PCAF), an industry-led initiative to enable financial institutions to consistently measure and disclose GHG emissions financed by their loans and investments. In 2024, Kvika conducted its second assessment of estimated financed emission using the PCAF methodology and, for the first time, released a report detailing greenhouse emissions financed through its loans and investments for the years 2021 and 2022. Regulatory framework Kvika is a financial undertaking subject to provisions of Act No. 161/2002, on Financial Undertakings, Act No 61/2017, on Additional Supervision of Financial Conglomerates, Act No. 115/2021, on The Market for Financial Instruments, Act No. 60/2021, on Measures against Market Abuse, Act No. 108/2007, on takeovers, Act No. 45/2020, on Alternative Investment Funds, Act No. 116/2021 on undertakings for collective investment in transferable securities, Act No. 14/2020, on Prospectus for Public Offering or Admission to Trading on a Regulated Market, Act No. 33/2013, on Consumer Lending, Act No. 118/2016, on mortgage lending to consumers, Act No. 100/2016 on Insurance Activity, Act No. 2/1995 on Limited Liability Companies, the Competition Act, No. 44/2005, Act No. 114/2021, on Payment Services, Act No. 3/2006, on Annual Financial Statements, Act No. 140/2018, on Measures against Money Laundering and Terrorist Financing and others. Moreover, Kvika is obliged to guarantee the safety of the personal data it processes in its activities, in accordance with Act No. 90/2018, on the Protection of Privacy as regards the Processing of Personal Data and follows Act No. 25/2023 on Sustainable Finance Disclosure. Kvika has an operating licence from FME, which supervises the activities of the Bank. Kvika’s activities are therefore governed by the rules and instructions of the FME and Central Bank of Iceland. Kvika is also subjective to further extensive legislation and secondary acts that apply to the financial market, mostly originated from Europe, and incorporated in Icelandic law through various means. More details about FME and an overview of the principal legislation and rules that apply to the Bank at any given time can be found on the website of FME www.fme.is. Consolidated Financial Statements 31 December 2024 79 Kvika banki hf. Statement on the Corporate Governance of Kvika banki hf. 2024 0 The BOD is the supreme authority in the affairs of the Bank between shareholders’ meetings. Its main duties are to supervise all of Kvika’s operations and ensure that they are in good order at all times. The BOD is responsible for Kvika’s policy making and shall ensure that the accounting and handling of the Bank’s assets is properly supervised. The BOD prepares plans for Kvika in line with the Bank’s objectives and in accordance with its Articles of Association and determines the strategies to be followed to achieve the objectives set. The BOD appoints the CEO and supervises his work, e.g., by receiving regular reports from the CEO at board meetings. The BOD annually evaluates the CEO’s work in a documented manner. The BOD also represents the Bank before courts and government authorities and allocates authority to sign and to commit the Bank. Kvika’s BOD and control units regularly verify the effectiveness of internal controls and risk management. Composition and activities of the BOD, Executive Committee, and sub-committees Each year Kvika’s annual general meeting elects the BOD consisting of five board members and two alternates. Board members come from varied backgrounds, and all possess extensive experience and expertise. In accordance with the Act on Limited Liability Companies No. 2/1995, the Bank’s Articles of Association and Kvika’s policy for assessing the eligibility of its board members and CEO care is taken to ensure at least 40% representation of each gender on the BOD and mong the alternates. The BOD is currently comprised of three men and two women. In 2024, Guðmundur Örn Þórðarson, deputy chairman of the BOD, was appointed to the new position of Managing Director of Business Development and stepped down as board member simultaneously. Sigurgeir Guðlaugsson, alternate board member, assumed his position as board member and Helga Kristín Auðunsdóttir was elected deputy chairperson of the BOD. Regular board meetings are generally held once a month and, as the case may be, additional meetings in between to discuss specific matters. In 2024, 21 board meetings were held and all current board members attended all board meetings, except for two meetings where one board member was absent in each instance. The Chairman attended all meetings of the BOD. Kvika’s BOD has three sub‐committees, the Audit Committee, Risk Committee and Remuneration Committee. The members of the Audit Committee are Helga Kristín Auðunsdóttir, as chairperson, Ingunn Svala Leifsdóttir and Margrét G. Flóvenz. The committee is intended to play an advisory and supervisory role for Kvika’s BOD by, among other things, ensuring the quality of financial statements and other financial information from the Bank and the independence of its auditors. The committee supervises accounting procedures and the effectiveness of internal controls as well as internal and external auditing. The committee met nine times in 2024 and all members attended all meetings . The members of the Risk Committee are Ingunn Svala Leifsdóttir, as chairperson, Sigurgeir Guðlaugsson, which assumed a seat in the committee after he became board member in August 2024, and Sigurður Hannesson. The committee has an advisory and supervisory role for the Bank’s BOD, among other things, in determining its risk policy and risk appetite. The committee also monitors the organisation and effectiveness of risk management, management of credit risk, market risk, liquidity risk, operating risk, reputational risk, and other risks, as the case may be. The committee met 11 times in 2024 and all members attended all meetings. Guðmundur Þórðarson, previous committee member and chairman, attended seven meetings and Sigurgeir Guðlaugsson attended four meetings. The main elements of internal control, risk management and accounting The BOD is responsible for ensuring that an active system of internal control is in place within the Bank, which is based on three lines of defence. The first line of defence consists of the management and the employees of business and supporting units in charge of the Bank’s daily management and organization. The main responsibility of the first line of defence is to ensure the functionality and implementation of internal control measures in daily operations. The second line of defence is comprised of the internal control units of the Bank, principally the Compliance Officer and Risk Management. The Compliance Officer is responsible for the training of employees and the BOD, monitors and regularly assesses compliance with relevant legislation, monitors compliance risk, as well as consulting on implementation of laws and regulations in Kvika’s operations. Risk Management, among other things, measures and assesses risk according to the Bank’s risk appetite and carries out regular reporting to supervisory entities. Other units may also be assigned a supervisory role in the second line of defence, in line with Kvika’s policy on internal control. The third line of defence is the internal auditor, operating independently from other units within Kvika’s organization and directly under the control of the BOD, according to a formal statement of duties and job description of the internal audit function. The internal audit function assesses the effectiveness of risk management, control methods and internal governance in an independent and objective manner and in accordance with internal auditing standards. Among other things, the function prepares independent audits, verifications, and advice to the BOD and the Audit Committee. The implementation and functioning of internal control are the responsibility of the management of the Bank. Internal control is based on risk assessments and control measures intended to reduce risk factors in the operations of the Bank. Internal control includes documented and formal procedures which Kvika’s employees follow in their daily work, and which are reviewed by the control units. The BOD determines the risk policy and risk appetite of the group within Kvika Group’s Risk Policy, which also defines main risk factors in Kvika’s operations, including their nature and acceptable volume. The purpose of the policy is to establish an effective and transparent framework for managing the group’s risk and risk appetite, ensuring that risk management is aligned across the group on a consolidated basis. The Kvika Group Risk Policy stipulates that the Bank and its subsidiaries must ensure that the policy is implemented in their daily operations where applicable. It further states that Kvika and its subsidiaries shall establish risk policies addressing the main risk factors relevant to their activities. These policies must define a risk appetite within the framework of the risk appetite outlined in the Kvika Group Risk Policy. The CEO reports to the BOD and verifies the effectiveness of internal controls and risk management in the Consolidated Financial Statements. Internal controls and risk management applied in the preparation of the Consolidated Financial Statements are organised with a view to preventing any significant deficiencies in the accounting process. Kvika’s Finance division prepares annual financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial Undertakings no. 161/2002 and rules on accounting for credit institutions no. 834/2003. The annual financial statements are audited by Kvika’s external auditors, Deloitte. The BOD hires an Internal Auditor, signs his/her formal statement of duties, and annually approves the internal audit plan. The CEO appoints the Compliance Officer, and the BOD confirms the appointment. The CEO appoints the Managing Director of the Risk Management function. The reports and findings of the internal control function are presented directly to the BOD. Consolidated Financial Statements 31 December 2024 80 Kvika banki hf. Statement on the Corporate Governance of Kvika banki hf. 2024 0 The members of Kvika’s Executive Committee, in addition to the CEO are the following employees: Anna Rut Ágústsdóttir, Managing Director of Operations and Development, Bjarni Eyvinds Þrastarson, Managing Director of Investment Banking, Elísabet Guðrún Björnsdóttir, Managing Director of Risk Management, Eiríkur Magnús Jensson, CFO, Guðmundur Þórðarson, Managing Director of Business Development, Halldór Snæland, Managing Director of Commercial Banking, and Lilja Jensen, General Counsel. Additionally in the group’s Executive Committee is Hannes Frímann Hrólfsson, CEO of KES. More details about the Executive Committee are accessible on Kvika’s website www.kvika.is. The CEO can provide more detailed information on the rules of procedure and the operations of the BOD and sub-committees. Information on Board members Sigurður Hannesson is the chairman of the BOD. He was appointed to Kvika’s BOD in March 2020. He was born in 1980 and is currently the Director General of the Federation of Icelandic Industries. From 2013-2017, Sigurdur worked as a managing director of Kvika’s (previously MP Bank’s) asset management division. In 2015, Sigurdur was the Vice-Chairman of the Government Task Force on lifting of capital controls and in 2013 the Chairman of the Expert Group on household debt relief. From 2010-2013, Sigurdur worked as CEO of Jupiter fund management company, now Kvika eignastýring, and in Capital Markets at Straumur Investment Bank from 2007-2010. Sigurdur holds a DPhil degree in mathematics from the University of Oxford, a BS degree in mathematics from the University of Iceland and is a certified securities broker. Sigurður also sits on the boards of Iceland Symphony Orchestra, Grænvangur (Green by Iceland), Reykjavík University, Skólastræti and the Icelandic Cancer Society. Sigurður owns 8,550,107 shares in the Bank through shareholding in the private limited company BBL 39 ehf., but does not have interest links with major clients, competitors, or big shareholders in the sense of the corporate governance guidelines and is also independent from the bank in sense of the guidelines. Kvika has adopted a policy for assessing the eligibility of its board members and CEO as provided for in EBA guidelines and pursuant to Art. 52 of Act No. 161/2002 on Financial Undertakings, provisions of Rules No. 150/2017 on assessment of eligibility of managing directors and directors of financial undertakings and the guidelines. It addresses, inter alia, Kvika’s policy on the diversity of its BOD, Executive Committee, and senior management with regard to age, gender and educational and professional background. The composition of the BOD is also dealt with in Kvika’s Articles of Association, which state, among other things, that its BOD shall be so comprised that its members jointly possess adequate expertise, skills, and experience to understand the activities of the Bank, including key risk factors. Kvika has also adopted a Human Resources Policy and Equality Policy. According to the Bank’s Equality Policy, non-discrimination and diversity shall characterise all its operations. All employees should have the opportunity to make good use of their abilities at work and be valued on their own merit, have equal opportunities, and enjoy the same rights in their work and for career advancement, regardless of gender, age and origin. The status and opportunities of individuals shall be equal regardless of gender, race, nationality, religion, age, or other irrelevant factors when it comes to employment in management positions and participation in working groups, boards and committees. Guðjón Reynisson was appointed to Kvika’s BOD in March 2018. He was born in 1963 and works as an independent investor and board member. Between 2008 and 2017 he served as CEO of Hamleys of London. From 2003 to 2008, he served as managing director of the 10-11 stores. From 1998 to 2003 he was the managing director of the sales division of Tal, an Icelandic phone company. He graduated with an MBA degree from the University of Iceland in 2002. He graduated with an Operations and Business degree from the Continuing Education Study of the University of Iceland in 1999 and graduated with a degree as a licensed physical education teacher from the University of Iceland in 1986. Guðjón has been on the board of directors of Festi hf. since 2014, of Securitas hf. since 2018 and of Dropp ehf. since 2020. In 2024 Guðjón also took seat on the board of the private equity fund Harpa Capital Partners II. Guðjón controls 10,410,789 shares in Kvika through his private limited company, Hakk ehf., but does not have interest links with major clients, competitors, or big shareholders in the sense of the corporate governance guidelines and is also independent from the bank in sense of the guidelines. Helga Kristín Auðunsdóttir is the deputy chairperson of the BOD. She was appointed to Kvika’s BOD in April 2021. She was born in 1980. Helga Kristín is a doctor in Law from Fordham University in New York. In her doctoral studies at Fordham University she researched corporate governance and hedge fund investments. Helga Kristín graduated with BS in Business Law from Bifröst University in 2004 and with a master’s degree in law from the same university in 2006. She graduated with an LL.M degree in law from the University of Miami, with a focus on international business law and contracts in 2010. Helga Kristín is an assistant professor at the Department of Law at Reykjavík University. Before that, she worked as a director and assistant professor at Bifröst University, as a lawyer for Stoðir hf., as a lawyer for FGM/Auðkenni, now part of the Central Bank of Iceland and as a lecturer at the faculty of law at University of Miami. Helga Kristín has been a member of the board of directors of TM tryggingar hf. from 2023 and in the years 2020- 2021. She was also an appointed alternate on the board of directors of Tryggingamiðstöðin hf. in 2012-2015. Helga Kristín does not own shares in the Bank and does not have interest links with major clients, competitors, or big shareholders in the sense of the corporate governance guidelines and is also independent from the bank in sense of the guidelines. The members of the Remuneration Committee are Guðjón Reynisson, as chairperson, Sigurður Hannesson, and Helga Kristín Auðunsdóttir. The committee has an advisory and supervisory role for the Bank’s BOD regarding salaries and other remuneration, ensuring that this supports the Bank’s objectives and interests. The committee met eight times in 2024 and all members attended all meetings. All the BOD’s sub-committees have established rules of procedure prescribing the implementation of their tasks in detail and endorsed by the BOD. The BOD appoints sub-committee members by majority vote from its own ranks and nominates the chairpersons. Because of the nature of the committees, neither the CEO nor other employees can serve on them. The rules of procedure of the committees and the BOD are accessible on Kvika’s website www.kvika.is. Consolidated Financial Statements 31 December 2024 81 Kvika banki hf. Statement on the Corporate Governance of Kvika banki hf. 2024 0 Communications between shareholders and the BOD Information is provided to shareholders on a non-discriminatory basis and is mainly limited to shareholders’ meetings or the communication of harmonised information to all shareholders simultaneously. News of the Bank’s operations are posted on Kvika’s website and press releases are issued in accordance with disclosure obligations of issuers of shares when newsworthy events in the Bank’s operations take place. A detailed presentation of the Bank’s operations over the past year is also provided at its AGM and information on the Bank’s operations is published in Kvika’s annual report and financial statements. This statement on the corporate governance practices of Kvika banki hf. was reviewed and approved by the BOD on 12 February 2025. The BOD annually evaluates its performance. It evaluates the performance of tasks and work of the BOD for the previous year. The focus of the assessment is on strategic planning, disclosure and future vision, the size and composition of the BOD, performance of board members, the work of sub-committees and performance of the CEO, the internal auditor, and the secretary of the BOD. The development of the Bank is reviewed to assess whether it is line with objectives. Following the annual performance assessment, the BOD defines tasks in areas where improvements are needed. The last performance assessment was conducted in December 2024. The BOD also regularly conducts special self-assessments on its composition in accordance with the guidelines of the European Banking Authority (EBA), and last did so in December 2024. Information on the CEO of Kvika and his main duties Ármann Þorvaldsson became CEO of Kvika in August 2023. Ármann was born in 1968 and previously worked as CEO in the years 2017-2019 and Deputy CEO in the years 2019-2022. Ármann has worked in the financial market for nearly thirty years. From 1997 until 2005 he was Head of Corporate Finance at Kaupthing and in 2005 until 2008 he was CEO of Kaupthing Singer & Friedlander in London. Later he worked at Ortus Secured Finance in London until 2015 when he joined Virðing. Ármann headed up Virðing’s Corporate Finance division before joining Kvika. Ármann has an MBA degree from Boston University and a BA degree in history from the University of Iceland. Ármann controls 759.892 shares in Kvika and has also entered into call option agreements with Kvika in accordance with Kvika’s remuneration policy and incentive scheme. Further, Ármann and his family own the company BMA ehf. which controls 4,082,158 shares in the Bank. He does not have interest links with major clients, competitors or major shareholders as defined by the corporate governance guidelines. The CEO oversees the daily operations of Kvika and in so doing follows the policies and instructions which have been laid down by the Bank’s BOD. Daily operations do not include unusual or major arrangements. The CEO shall ensure that Kvika’s accounts are kept in accordance with laws and customs and that the Bank’s assets are handled in a secure manner. The CEO appoints and dismisses employees of the Bank. Furthermore, he is required to follow all of the BOD’s instructions. The CEO shall provide Kvika’s external auditors with all requested information. Information on violations of laws and regulations, determined by the relevant supervisory body or adjudicating entity Kvika has not been subject to withdrawal, revocation or dismissal of registration, authorization, membership, or permissions to perform certain trades, operations or work. Kvika was not fined by any supervisory body in the year 2023. As per usual the FME performed onsite inspections in 2024. Results are still pending in individual cases. No court cases or arbitration proceedings which may have significant effects on the Bank, or the Group, were ongoing or pending at the end of the year. Ingunn Svala Leifsdóttir was appointed to Kvika’s BOD in September 2021. Ingunn was born in 1976. She graduated with a BS degree in Business from the University of Iceland in 1999, with a focus on accounting and finance, and with a Cand. Oecon business degree from the same University in 2001, with a focus on accounting and management. Ingunn Svala completed the Advanced Management program (AMP) from the IESE Business School in New York in 2018. Ingunn Svala currently works as a chief executive officer at Olís. Prior to that she worked as a COO for Dohop and as an executive director of operations at Reykjavík University. Ingunn Svala also has extensive experience from the financial sector. She worked for the Kaupthing’s Resolution Committee as Chief Financial Officer from 2009 to 2011 as well as working as a Global Business Controller in Investment Banking at Kaupþing bank in 2007 to 2009. Ingunn Svala also worked within the Actavis Group PTC consolidation in 2006 to 2007 as a CFO for four subsidiaries, namely Actavis hf., Medís ehf., Actavis Group hf. and Actavis Group PTC ehf. Ingunn Svala has extensive experience of serving as a board member and has previously served on the boards of Ósar – lifeline of health hf. and of its subsidiary, Parlogis ehf., as well as Slippurinn Akureyri and Lífís, a subsidiary of VÍS. Ingunn Svala does not own shares in the Bank and does not have interest links with major clients, competitors, or big shareholders in the sense of the corporate governance guidelines and is also independent from the bank in sense of the guidelines. Main factors in the BOD’s performance evaluation Helga Jóhanna Oddsdóttir is an alternate member of the BOD. In the opinion of the BOD, she is also an independent member of the BOD within the meaning of the corporate governance guidelines. The BOD considers all board members to be independent as defined by the corporate governance guidelines. Sigurgeir Guðlaugsson, who was elected as an alternate board member at Kvika’s AGM in 2024, joined Kvika’s BOD in August 2024. Sigurgeir was born in 1976. He graduated with a B.Sc. degree in international business from the Copenhagen Business School in 1999 and was CEO of biotechnology company Genís hf. until at year-end 2024. Sigurgeir worked for the corporate banking division of Fjárfestingabanki atvinnulífsins, later Íslandsbanki, between 1999-2003. He also worked for Actavis Group between 2003-2006 where he was head of global mergers and acquisitions. Sigurgeir was managing director of investments in the healthcare industry for Novator between 2006-2009. He founded the consulting company Citalfort Consulting slf. at year-end 2009 and worked for the company until year-end 2021, when he assumed the position of CEO of Genís, excluding the years between 2013-2016, when he was partner and employee of H.F. Verðbréf hf. in the year 2013, and CEO of biotechnology company Zymetech ehf. between 2014- 2016. Sigurgeir has, among others, been a member of the board of directors of Straumur fjárfestingarbanki hf., Coripharma Holding hf., Actavis Group hf., Actavis Inc., Enzymatica AB, 3Z ehf., FlyOver Iceland ehf. and Scandinavian Biogas AB. Today Sigurgeir is the chairman of the board of directors of Citalfort Consulting slf., Altius ehf., Citius ehf. and Ögurás ehf. Sigurgeir does not own any shares in the Bank and does not have interest links with major clients, competitors, or big shareholders in the sense of the corporate governance guidelines and is also independent from the bank in sense of the guidelines. Consolidated Financial Statements 31 December 2024 82 Appendix 1: EU Taxonomy Regulation Unaudited Kvika banki hf. Amounts are in ISK thousands EU Taxonomy Regulation Loans to companies Loans to individuals Limitations of the 2024 Reporting 2 The delegated regulation on the technical criteria that economic activities must meet to be considered as significantly contributing to climate change mitigation and adaptation, and determining when an economic activity causes significant harm to one or more of the regulation's objectives. During the year work continued on implementing Regulation (EU) No. 2020/852 (hereinafter referred to as the "EU Taxonomy") and delegated regulations that have entered into force in Iceland into the Bank's operations. The EU Taxonomy was incorporated into Icelandic law with Act No. 25/2023 on Sustainability Disclosure in Financial Services and the Classification System for Sustainable Investments. According to Article 8 of the EU Taxonomy companies subject to its provisions, including Kvika, are required to disclose how and to what extent their activities are linked to economic activities considered environmentally sustainable. Kvika is now reporting its Green Asset Ratio (GAR) for the second time in accordance with the requirements of the EU Taxonomy. The information is presented in templates specified in the annexes to the EU’s delegated regulations, 1 as provided later in this document for the Bank and Kvika Asset Management. The templates were recently updated and now reflect all six environmental objectives of the EU Taxonomy. However, Kvika is only disclosing information for the first two environmental objectives—climate change mitigation and climate change adaptation—as the remaining four objectives did not take effect in Iceland until January 1, 2025. Information covering all six environmental objectives will be included in the sustainability disclosures for the financial year 2025. Eligible assets under the EU Taxonomy are assets linked to activities specified in the delegated regulations of the EU Taxonomy, for which technical criteria exist to assess whether the activity is environmentally sustainable and therefor taxonomy aligned. Kvika’s eligible assets, as defined by Delegated Regulation (EU) No. 2021/2139, 2 include loans to companies subject to the non-financial reporting obligation under Article 66(d) of the Annual Accounts Act No. 3/2006, as well as loans to households (primarily loans for motor vehicles and residential real estate). For eligible assets to be considered environmentally sustainable and included in Kvika’s GAR calculation, they must meet four key criteria. Companies subject to the non-financial reporting obligation under Article 66(d) of the Annual Accounts Act are those considered large and of public interest. They are also required by law to disclose information and key performance indicators in accordance with the requirements of the EU Taxonomy. Companies that fall under this definition published such information for the first time in 2024 for the financial year 2023. Financial institutions are required to use counterparty data to calculate their GAR and must therefore rely on the information from such companies that are included in their investment and loan portfolios. Kvika’s loan portfolio is structured in such a way that a large portion of its corporate loans are granted to small and medium-sized companies that do not meet the aforementioned criteria. As a result, a very small portion of Kvika´s corporate loans are eligible to be put under the alignment test and Kvika´s GAR calculation. Loans related to motor vehicles (6.5: transport with motorcycles, passenger cars, and light commercial vehicles) are considered eligible activities, as previously mentioned. A significant portion of Kvika’s loans to individuals fall under this category. However, not all loans are included, as only those issued after June 1, 2023, qualify, which is when the EU Taxonomy came into effect in Iceland. For a loan for motor vehicles to be classified as environmentally sustainable and as significantly contributing to climate change mitigation, the emissions of the vehicles in question must be below 50g CO₂/km. Additionally, the activity must not cause harm to other environmental objectives. To assess this, information on various aspects of the underlying vehicles, such as their equipment and specifications, must be collected. However, such information is not always readily available. For this reason, Kvika has not classified this type of loan as environmentally sustainable and they are excluded from the Bank´s GAR. Kvika maintains a relatively modest portfolio of real estate-backed loans. While these loans fall within the scope of the EU Taxonomy as loans related to eligible activities, they are currently not considered environmentally sustainable and taxonomy aligned. For a mortgage to be classified as environmentally sustainable, information on the energy efficiency of the buildings associated with the loan is required. Energy efficiency is based on energy performance certificates as defined in EU Directive No. 2010/31 on the energy performance of buildings. However, Iceland is exempt from implementing this directive. No formal energy performance certificates have therefore been issued for Icelandic buildings. Due to this lack of data, mortgages do not meet the technical screening criteria to be classified as environmentally sustainable and are therefore excluded from Kvika’s GAR calculations. - The activity related to the loan must significantly contribute to one or more of the environmental objectives of the EU Taxonomy (so far only two of the six objectives have been considered at Kvika, as required by law). - The activity must comply with the technical screening criteria set out in the delegated regulations. - The activity must be conducted in accordance with minimum safeguards. - The activity must not significantly harm other environmental objectives established in the EU Taxonomy. The implementation and follow-up of the EU Taxonomy is still evolving, and it is anticipated it will take time to enhance data flow and develop data collection, analysis, and reporting. As companies gain experience with the disclosure requirements associated with the EU Taxonomy it will become clearer how effective key indicators, such as the GAR, will be. The technical criteria tailored to different industries will also prove useful in considering green financing in the future. Kvika will continue to monitor the development of the EU Taxonomy both in Iceland and in Europe as part of the company’s sustainability journey. 1 The information has been prepared in accordance with the templates in the annexes to Delegated Regulation (EU) No. 2021/2178, which specifies the content and presentation of disclosures that companies must provide regarding environmentally sustainable economic activities and the methodology for complying with this disclosure obligation. Regulation 2021/2178 was implemented in Iceland through Regulation 10/2024 on the classification system for sustainable investments. On January 1, 2024, Regulation 10/2024 was amended by Regulation 1207/2024, which, among other things, incorporated Delegated Regulation (EU) No. 2023/2486 on additions to the EU Taxonomy and Regulation (EU) 2021/2178. Regulation 2023/2486 introduces additions to the EU Taxonomy by establishing technical screening criteria to determine the conditions under which economic activities are considered to contribute significantly to the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, or the protection and restoration of biodiversity and ecosystems. It also defines whether such activities cause significant harm to any other overarching environmental objectives. Additionally, it includes amendments to Regulation (EU) 2021/2178 regarding specific public disclosure requirements for these economic activities. The delegated regulation sets out the technical criteria that economic activities must meet to be considered as significantly contributing to climate change mitigation and adaptation, as well as when an economic activity causes significant harm to one or more of the regulation’s objectives. Consolidated Financial Statements 31 December 2024 84 Kvika banki hf. Amounts are in ISK thousands Annex VI - Template for the KPIs of credit institutions Name * For credit institutions that do not meet the conditions of Article 94(1) of the CRR or the conditions set out in Article 325a(1) of the CRR ** Fees and Commissions and Trading Book KPIs shall only apply starting 2026. SMEs´inclusion in these KPI will only apply subject to a positive result of an impact assessment. 0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation Total environmentally sustainable assets KPI* KPI % of assets excluded from the numerator of the GAR (Article 7(2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7(1) and Section 1.2.4 of Annex V) 31.12.2024 Main KPI Green asset ratio (GAR) stock 0.0% 0.0% 65.2% 24.6% 31.12.2023 Main KPI Green asset ratio (GAR) stock 0.0% 0.0% - - Total environmentally sustainable activities KPI KPI % of assets excluded from the numerator of the GAR (Article 7(2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7(1) and Section 1.2.4 of Annex V) Additional KPIs GAR (flow) 0.0% 0.0% Trading book Financial guarantees 0.0% 0.0% Assets under management 0,8% 1.0% Fees and commissions income * For credit institutions that do not meet the conditions of Article 94(1) of the CRR or the conditions set out in Article 325a(1) of the CRR Fees and commissions income from services other than lending and AuM *** % of assets covered by the KPI over banks´ total assets based on the Turnover KPI of the counterparty *based on the CapEx KPI of the counterparty, except for lending activities where for general lending Turnover KPI is used Note 1: Across the reporting templates: cells shaded in black should not be reported. 548,621 0 0 2 GAR sector information Template number 0 Summary of KPIs 1 Assets for the calculation of GAR 3 GAR KPI stock 4 GAR KPI flow 5 KPI off-balance sheet exposures 6 KPI on fees and commissions income from services other than lending and asset management 7 KPI Trading book portfolio % coverage (over total assets) % coverage (over total assets) 75.4% 74.8% 0 38,4% 0 Consolidated Financial Statements 31 December 2024 85 Kvika banki hf. Amounts are in ISK thousands 1. Assets for the calculation of GAR - Turnover-based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which adaptation Of which enabling Of which Use of Proceeds Of which transitional/ adaptation Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 36,033,801 12,464,828 12,464,828 2 Financial undertakings 1,256,872 3 Credit institutions 1,665 4 Loans and advances 1,665 5 Debt securities, including UoP 0 6 Equity instruments 0 7 Other financial corporations 1,255,207 8 of which investment firms 0 9 Loans and advances 0 10 Debt securities, including UoP 0 11 Equity instruments 0 12 of which management companies 1,255,207 13 Loans and advances 1,255,207 14 Debt securities, including UoP 0 15 Equity instruments 0 16 of which insurance undertakings 0 17 Loans and advances 0 18 Debt securities, including UoP 0 19 Equity instruments 0 20 Non-financial undertakings 66,811 21 Loans and advances 66,811 22 Debt securities, including UoP 0 23 Equity instruments 0 24 Households 33,209,208 12,464,828 12,464,828 25 of which loans collateralised by residential immovable property 1,674,898 1,674,898 1,674,898 26 of which building renovation loans 0 27 of which motor vehicle loans** 20,089,250 10,789,929 10,789,929 28 Local governments financing 1,465,916 29 Housing financing 30 Other local government financing 1,465,916 31 Collateral obtained by taking possession: residential and commercial immovable properties 0 32 Assets excluded from the numerator for GAR calculation (covered in the denominator) 231,175,055 ISK Thousand Disclosure 31.12.2024 Total gross carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) Consolidated Financial Statements 31 December 2024 86 Kvika banki hf. Amounts are in ISK thousands 1. Assets for the calculation of GAR - Turnover-based (cont.) a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which adaptation Of which enabling Of which Use of Proceeds Of which transitional/ adaptation Of which enabling 33 Financial and Non-financial undertakings 115,644,045 34 SMEs and NFCs (other than SMEs) not subject to NFRD disclosure obligations 78,017,062 35 Loans and advances 78,017,062 36 of which loans collateralised by commercial immovable property 30,408,596 37 of which building renovation loans 0 38 Debt securities 0 39 Equity instruments 0 40 Non-EU country counterparties not subject to NFRD disclosure obligations 37,626,982 41 Loans and advances 37,626,982 42 Debt securities 0 43 Equity instruments 0 44 Derivatives 13,797,770 45 On demand interbank loans 9,725,772 46 Cash and cash-related assets 15,737 47 Other categories of assets (e.g. Goodwill, commodities etc.) 91,991,731 48 Total GAR assets 267,284,618 12,464,828 12,464,828 49 Assets not covered for GAR calculation* 87,339,675 50 Central governments and Supranational issuers 63,335,139 51 Central banks exposure 18,577,682 52 Trading book 5,426,854 53 Total assets 354,594,543 12,464,828 12,464,828 54 Financial guarantees 33,177 0 55 Assets under management *** 73,033,583 10,563,881 548,621 468,457 10,563,881 548,621 468,457 56 Of which debt securities 26,444,660 1,619,340 542,001 461,837 1,619,340 542,001 461,837 57 Of which equity instruments 46,588,924 8,944,541 6,620 6,620 8,944,541 6,620 6,620 Households include all retail loans issued to individuals Motor vehicle loans for households include cars in vehicle groups (M1) and (N1) For motor vehicle loans, only exposures generated after 1 June 2023 (the date of application of the disclosure) are included *** Assets held within portfolios managed by Kvika Asset Management that are subject to Non-Financial Reporting Directive (NFRD) disclosure obligations 1) GAR - Covered assets in both numerator and denominator: Accounting categories of financial assets used for the calculation of the green asset ratio. 32) 49) Other assets not covered for GAR calculation: The exposures to central governments, central banks and supranational issuers shall be excluded from the calculation of the numerator and denominator of key performance indicators of financial undertakings. Other assets excluded from the numerator for GAR calculation (covered in the denominator): Certain assets are excluded from the numerator e.g. financial assets held for trading, on-demand interbank loans, derivates and exposures to undertakings that are not obliged to publish non-financial information pursuant to Article 19a or 29a of Directive 2013/34/EU. Off-balance sheet exposures - Corporates subject to NFRD disclosure obligations Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) ISK Thousand Disclosure 31.12.2024 Total gross carrying amount Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) Consolidated Financial Statements 31 December 2024 87 Kvika banki hf. Amounts are in ISK thousands 1. Assets for the calculation of GAR - Turnover-based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which adaptation Of which enabling Of which Use of Proceeds Of which transitional/ adaptation Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 36,234,799 8,921,941 2 Financial undertakings 1,938,213 3 Credit institutions 1,819 4 Loans and advances 1,819 5 Debt securities, including UoP 0 6 Equity instruments 0 7 Other financial corporations 1,936,393 8 of which investment firms 0 9 Loans and advances 0 10 Debt securities, including UoP 0 11 Equity instruments 0 12 of which management companies 1,936,393 13 Loans and advances 1,936,393 14 Debt securities, including UoP 0 15 Equity instruments 0 16 of which insurance undertakings 0 17 Loans and advances 0 18 Debt securities, including UoP 0 19 Equity instruments 0 20 Non-financial undertakings 61,267 21 Loans and advances 61,267 22 Debt securities, including UoP 0 23 Equity instruments 0 24 Households 32,676,440 8,921,941 8,921,941 25 of which loans collateralised by residential immovable property 1,930,717 1,930,717 1,930,717 26 of which building renovation loans 0 27 of which motor vehicle loans** 6,991,224 6,991,224 6,991,224 28 Local governments financing 1,558,880 29 Housing financing 30 Other local government financing 1,558,880 31 Collateral obtained by taking possession: residential and commercial immovable properties 0 32 Assets excluded from the numerator for GAR calculation (covered in the denominator) 214,574,302 Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) ISK Thousand Disclosure 31.12.2023 Total gross carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which environmentally sustainable (Taxonomy- aligned) Consolidated Financial Statements 31 December 2024 88 Kvika banki hf. Amounts are in ISK thousands 1. Assets for the calculation of GAR - Turnover-based (cont.) a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which adaptation Of which enabling Of which Use of Proceeds Of which transitional/ adaptation Of which enabling 33 Financial and Non-financial undertakings 34 SMEs and NFCs (other than SMEs) not subject to NFRD disclosure obligations 72,202,993 35 Loans and advances 72,202,993 36 of which loans collateralised by commercial immovable property 0 37 of which building renovation loans 0 38 Debt securities 0 39 Equity instruments 0 40 Non-EU country counterparties not subject to NFRD disclosure obligations 29,436,644 41 Loans and advances 29,436,644 42 Debt securities 0 43 Equity instruments 0 44 Derivatives 19,350,190 45 On demand interbank loans 6,356,998 46 Cash and cash-related assets 20,055 47 Other categories of assets (e.g. Goodwill, commodities etc.) 87,207,422 48 Total GAR assets 250,809,101 8,921,941 8,921,941 49 Assets not covered for GAR calculation* 84,588,331 50 Central governments and Supranational issuers 63,426,450 51 Central banks exposure 17,304,400 52 Trading book 3,857,480 53 Total assets 335,397,432 8,921,941 8,921,941 54 Financial guarantees 2,500 55 Assets under management *** 105,753,957 56 Of which debt securities 66,417,080 57 Of which equity instruments 39,336,876 Households include all retail loans issued to individuals Motor vehicle loans for households include cars in vehicle groups (M1) and (N1) For motor vehicle loans, only exposures generated after 1 June 2023 (the date of application of the disclosure) are included *** Assets held within portfolios managed by Kvika Asset Management that are subject to Non-Financial Reporting Directive (NFRD) disclosure obligations 1) GAR - Covered assets in both numerator and denominator: Accounting categories of financial assets used for the calculation of the green asset ratio. 32) 49) Other assets not covered for GAR calculation: The exposures to central governments, central banks and supranational issuers shall be excluded from the calculation of the numerator and denominator of key performance indicators of financial undertakings. Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) Off-balance sheet exposures - Corporates subject to NFRD disclosure obligations Other assets excluded from the numerator for GAR calculation (covered in the denominator): Certain assets are excluded from the numerator e.g. financial assets held for trading, on-demand interbank loans, derivates and exposures to undertakings that are not obliged to publish non-financial information pursuant to Article 19a or 29a of Directive 2013/34/EU. ISK Thousand Disclosure 31.12.2023 Total gross carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Consolidated Financial Statements 31 December 2024 89 Kvika banki hf. Amounts are in ISK thousands 1. Assets for the calculation of GAR - Cap-Ex based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which adaptation Of which enabling Of which Use of Proceeds Of which transitional/ adaptation Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 36,033,801 12,464,828 12,464,828 2 Financial undertakings 1,256,872 3 Credit institutions 1,665 4 Loans and advances 1,665 5 Debt securities, including UoP 0 6 Equity instruments 0 7 Other financial corporations 1,255,207 8 of which investment firms 0 9 Loans and advances 0 10 Debt securities, including UoP 0 11 Equity instruments 0 12 of which management companies 1,255,207 13 Loans and advances 1,255,207 14 Debt securities, including UoP 0 15 Equity instruments 0 16 of which insurance undertakings 0 17 Loans and advances 0 18 Debt securities, including UoP 0 19 Equity instruments 0 20 Non-financial undertakings 66,811 0 0 0 21 Loans and advances 66,811 22 Debt securities, including UoP 0 23 Equity instruments 0 24 Households 33,209,208 12,464,828 12,464,828 25 of which loans collateralised by residential immovable property 1,674,898 1,674,898 1,674,898 26 of which building renovation loans 0 27 of which motor vehicle loans** 20,089,250 10,789,929 10,789,929 28 Local governments financing 1,465,916 29 Housing financing 30 Other local government financing 1,465,916 31 Collateral obtained by taking possession: residential and commercial immovable properties 0 32 Assets excluded from the numerator for GAR calculation (covered in the denominator) 231,175,055 Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) ISK Thousand Disclosure 31.12.2024 Total gross carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which environmentally sustainable (Taxonomy- aligned) Consolidated Financial Statements 31 December 2024 90 Kvika banki hf. Amounts are in ISK thousands 1. Assets for the calculation of GAR - Cap-Ex based (cont.) a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which adaptation Of which enabling Of which Use of Proceeds Of which transitional/ adaptation Of which enabling 33 Financial and Non-financial undertakings 115,644,045 34 SMEs and NFCs (other than SMEs) not subject to NFRD disclosure obligations 78,017,062 35 Loans and advances 78,017,062 36 of which loans collateralised by commercial immovable property 30,408,596 37 of which building renovation loans 0 38 Debt securities 0 39 Equity instruments 0 40 Non-EU country counterparties not subject to NFRD disclosure obligations 37,626,982 41 Loans and advances 37,626,982 42 Debt securities 0 43 Equity instruments 0 44 Derivatives 13,797,770 45 On demand interbank loans 9,725,772 46 Cash and cash-related assets 15,737 47 Other categories of assets (e.g. Goodwill, commodities etc.) 91,991,731 48 Total GAR assets 267,284,618 10,607,330 10,607,330 49 Assets not covered for GAR calculation* 87,339,675 50 Central governments and Supranational issuers 63,335,139 51 Central banks exposure 18,577,682 52 Trading book 5,426,854 53 Total assets 354,594,543 12,464,828 12,464,828 54 Financial guarantees 33,177 0 55 Assets under management *** 73,033,583 15,440,240 745,523 745,523 15,440,240 745,523 745,523 56 Of which debt securities 26,444,660 1,966,481 461,837 461,837 1,966,481 461,837 461,837 57 Of which equity instruments 46,588,924 13,473,759 283,686 283,686 13,473,759 283,686 283,686 Households include all retail loans issued to individuals Motor vehicle loans for households include cars in vehicle groups (M1) and (N1) *For motor vehicle loans, only exposures generated after 1 June 2023 (the date of application of the disclosure) are included *** Assets held within portfolios managed by Kvika Asset Management that are subject to Non-Financial Reporting Directive (NFRD) disclosure obligations 1) GAR - Covered assets in both numerator and denominator: Accounting categories of financial assets used for the calculation of the green asset ratio. 32) 49) Other assets not covered for GAR calculation: The exposures to central governments, central banks and supranational issuers shall be excluded from the calculation of the numerator and denominator of key performance indicators of financial undertakings. Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which environmentally sustainable (Taxonomy- aligned) Off-balance sheet exposures - Corporates subject to NFRD disclosure obligations Other assets excluded from the numerator for GAR calculation (covered in the denominator): Certain assets are excluded from the numerator e.g. financial assets held for trading, on-demand interbank loans, derivates and exposures to undertakings that are not obliged to publish non-financial information pursuant to Article 19a or 29a of Directive 2013/34/EU. ISK Thousand Disclosure 31.12.2024 Total gross carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Consolidated Financial Statements 31 December 2024 91 Kvika banki hf. Amounts are in ISK thousands 2. GAR sector information a b c d e f g h i j k l m ISK Thousand Of which environmentally sustainable (CCM) ISK Thousand Of which environmentally sustainable (CCM) ISK Thousand Of which environmentally sustainable (CCA) ISK Thousand Of which environmentally sustainable (CCA) ISK Thousand Of which environmentall y sustainable (CCM + CCA) ISK Thousand Of which environmentally sustainable (CCM + CCA) 31.12.2024 1 C2442 - Aluminium production 7,517 7,517 31.12.2023 1 C2442 - Aluminium production 8,902 8,902 TOTAL (CCM + CCA) Non-Financial corporates (Subject to NFRD) SMEs and other NFC not subject to NFRD Non-Financial corporates (Subject to NFRD) Climate Change Adaptation (CCA) SMEs and other NFC not subject to NFRD Non-Financial corporates (Subject to NFRD) SMEs and other NFC not subject to NFRD 4. This table only covers exposures to non-financial corporates subject to disclosure obligations according to article 8 of the EU Taxonomy. For the first reporting year the Group cannot disclose which corporates classify as an activity under the objectives of "climate change mitigation" (CCA) og "climate change adaptation" (CCA), as that is dependent on the public disclosures by said corporates, and therefore the results are published as a total for both objectives. 1. Credit institutions shall disclose in this template information on exposures in the banking book towards those sectors covered by the Taxonomy (NACE sectors 4 levels of detail), using the relevant NACE Codes on the basis of the principal activity of the counterparty. 2. The sector breakdown by activity is only applicable to activities covered by the delegated acts that have been adopted in Iceland. 3. The breakdown by sector is based on ISAT 2008 mapping onto NACE codes, by the principal activity of the counterparty available in public records, the Group expects this to possibly change next year as more companies publish their Taxonomy disclosures in 2024. Gross carrying amount Gross carrying amount Gross carrying amount Gross carrying amount Gross carrying amount Gross carrying amount Breakdown by sector - NACE 4 digits level (code and label) Climate Change Mitigation (CCM) Consolidated Financial Statements 31 December 2024 92 Kvika banki hf. Amounts are in ISK thousands 3. GAR KPI stock - Turnover-based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 34.6% 34.6% 10.2% 2 Financial undertakings 0.0% 0.0% 0.4% 3 Credit institutions 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.4% 8 of which investment firms 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.4% 13 Loans and advances 0.0% 0.0% 0.4% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 20 Non-financial undertakings 0.0% 0.0% 0.0% 21 Loans and advances 0.0% 0.0% 0.0% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 23 Equity instruments 0.0% 0.0% 0.0% 24 Households 37.5% 37.5% 9.4% 25 of which loans collateralised by residential immovable property 100.0% 100.0% 0.5% 26 of which building renovation loans 0.0% 0.0% 0.0% 27 of which motor vehicle loans 53.7% 53.7% 5.7% 28 Local governments financing 0.0% 0.0% 0.4% 29 Housing financing 0.0% 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.4% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 32 Total GAR assets 4.7% 4.7% 75.4% % (compared to total covered assets in the denominator) Disclosure 31.12.2024 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Consolidated Financial Statements 31 December 2024 93 Kvika banki hf. Amounts are in ISK thousands 3. GAR KPI stock - Turnover-based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 24.6% 24.6% 10.8% 2 Financial undertakings 0.0% 0.0% 0.6% 3 Credit institutions 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.6% 8 of which investment firms 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.6% 13 Loans and advances 0.0% 0.0% 0.6% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 20 Non-financial undertakings 0.0% 0.0% 0.0% 21 Loans and advances 0.0% 0.0% 0.0% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 23 Equity instruments 0.0% 0.0% 0.0% 24 Households 27.3% 27.3% 9.7% 25 of which loans collateralised by residential immovable property 100.0% 100.0% 0.6% 26 of which building renovation loans 0.0% 0.0% 0.0% 27 of which motor vehicle loans 100.0% 100.0% 2.1% 28 Local governments financing 0.0% 0.0% 0.5% 29 Housing financing 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.5% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 32 Total GAR assets 3.6% 3.6% 74.8% Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) % (compared to total covered assets in the denominator) Disclosure 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Consolidated Financial Statements 31 December 2024 94 Kvika banki hf. Amounts are in ISK thousands 3. GAR KPI stock - Cap-Ex based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 34.6% 34.6% 10.2% 2 Financial undertakings 0.0% 0.0% 0.4% 3 Credit institutions 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.4% 8 of which investment firms 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.4% 13 Loans and advances 0.0% 0.0% 0.4% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 20 Non-financial undertakings 0.0% 0.0% 0.0% 21 Loans and advances 0.0% 0.0% 0.0% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 23 Equity instruments 0.0% 0.0% 0.0% 24 Households 37.5% 37.5% 9.4% 25 of which loans collateralised by residential immovable property 100.0% 100.0% 0.5% 26 of which building renovation loans 0.0% 0.0% 0.0% 27 of which motor vehicle loans 53.7% 53.7% 5.7% 28 Local governments financing 0.0% 0.0% 0.4% 29 Housing financing 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.4% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 32 Total GAR assets 4.7% 4.7% 75.4% Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) % (compared to total covered assets in the denominator) Disclosure 31.12.2024 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Consolidated Financial Statements 31 December 2024 95 Kvika banki hf. Amounts are in ISK thousands 4. GAR KPI flow - Turnover-based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 100.0% 100.0% 38.4% 2 Financial undertakings 0.0% 0.0% 0.0% 3 Credit institutions 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.0% 8 of which investment firms 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.0% 13 Loans and advances 0.0% 0.0% 0.0% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 20 Non-financial undertakings 100.0% 100.0% 0.2% 21 Loans and advances 100.0% 100.0% 0.2% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 23 Equity instruments 0.0% 0.0% 0.0% 24 Households 39.1% 39.1% 38.1% 25 of which loans collateralised by residential immovable property 100.0% 100.0% 0.7% 26 of which building renovation loans 0.0% 0.0% 0.0% 27 of which motor vehicle loans 100.0% 100.0% 37.4% 28 Local governments financing 0.0% 0.0% 0.0% 29 Housing financing 0.0% 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.0% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 32 Total GAR assets 15.5% 15.5% 38.4% Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) % (compared to flow of total eligible assets) Disclosure 31.12.2024 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total new assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Consolidated Financial Statements 31 December 2024 96 Kvika banki hf. Amounts are in ISK thousands 4. GAR KPI flow -Turnover-based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 2 Financial undertakings 3 Credit institutions 4 Loans and advances 5 Debt securities, including UoP 6 Equity instruments 7 Other financial corporations 8 of which investment firms 9 Loans and advances 10 Debt securities, including UoP 11 Equity instruments 12 of which management companies 13 Loans and advances 14 Debt securities, including UoP 15 Equity instruments 16 of which insurance undertakings 17 Loans and advances 18 Debt securities, including UoP 19 Equity instruments 20 Non-financial undertakings 21 Loans and advances 22 Debt securities, including UoP 23 Equity instruments 24 Households 25 of which loans collateralised by residential immovable property 26 of which building renovation loans 27 of which motor vehicle loans 28 Local governments financing 29 Housing financing 30 Other local government financing 31 Collateral obtained by taking possession: residential and commercial immovable properties 32 Total GAR assets Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) % (compared to flow of total eligible assets) Disclosure 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total new assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Consolidated Financial Statements 31 December 2024 97 Kvika banki hf. Amounts are in ISK thousands 4. GAR KPI flow - Cap-Ex based a b c d e f g h i j k l m n o p Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 66.9% 66.9% 38.4% 2 Financial undertakings 0.0% 0.0% 0.0% 3 Credit institutions 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.0% 8 of which investment firms 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.0% 13 Loans and advances 0.0% 0.0% 0.0% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 20 Non-financial undertakings 100.0% 100.0% 0.2% 21 Loans and advances 100.0% 100.0% 0.2% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 23 Equity instruments 0.0% 0.0% 0.0% 24 Households 39.1% 39.1% 38.1% 25 of which loans collateralised by residential immovable property 100.0% 100.0% 0.7% 26 of which building renovation loans 0.0% 0.0% 0.0% 27 of which motor vehicle loans 100.0% 100.0% 37.4% 28 Local governments financing 0.0% 0.0% 0.0% 29 Housing financing 0.0% 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.0% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 32 Total GAR assets 15.5% 0.0% 38.4% Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) % (compared to flow of total eligible assets) Disclosure 31.12.2024 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total new assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Consolidated Financial Statements 31 December 2024 98 Kvika banki hf. Amounts are in ISK thousands 5. KPI off-balance sheet exposures a b c d e f g h i j k l m n o Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 1 Financial guarantees (FinGuar KPI) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 Assets under management (AuM KPI) 0.14 0.01 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.14 0.01 0.00 0.00 0.01 1 Financial guarantees (FinGuar KPI) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 Assets under management (AuM KPI) 0.21 0.01 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.21 0.01 0.00 0.00 0.01 1. Institution shall dislcose in this template the KPIs for off-balance sheet exposures (financial guarantees and AuM) calculated based on the data disclosed in template 1, on covered assets, and by applying the formulas proposed in this template. Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) % (compared to flow of total eligible assets) Disclosure 31.12.2024 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) 31.12.2024 - Turnover-based 31.12.2024 - Cap-Ex based Consolidated Financial Statements 31 December 2024 99 Kvika banki hf. Amounts are in ISK thousands Disclosure by credit institutions under EU Taxonomy Regulation Article 8 and underlying Delegated Act (EU) 2021/2178, Article 10. Annex XI QUALITATIVE DISCLOSURES FOR ASSET MANAGERS, CREDIT INSTITUTIONS, INVESTMENT FIRMS AND INSURANCE AND REINSURANCE UNDERTAKINGS Additional or complementary information in support of the financial undertaking’s strategies and the weight of the financing of Taxonomy-aligned economic activities in their overall activity. For credit institutions that are not required to disclose quantitative information for trading exposures, qualitative information on the alignment of trading portfolios with Regulation (EU) 2020/852, including overall composition, trends observed, objectives and policy. The disclosure of quantitative KPIs shall be accompanied by the following qualitative information to support the financial undertakings’ explanations and markets’ understanding of these KPIs: Contextual information in support of the quantitative indicators including the scope of assets and activities covered by the KPIs, information on data sources and limitation. The Group has derived that the following assets can be considered as taxonomy‐eligible; loans and advances to financial and non‐financial corporates that are subject to non‐financial disclosures according to Article 66 d of the Annual Accounts Act and loans to households, in particular motor vehicle loans (activity 6.5: Purchase, financing, renting, leasing) and residential real estate (mortgages, activity 7.7: Acquisition and ownership of buildings). Kvika has employed external data sourced from a third party, adhering to the criteria outlined in Article 66 d of the Annual Accounts Act. This information has been complemented, where needed, with data directly collected from the annual reports of corporate customers and counterparties. Kvika’s estimation of how and to what extent its activities are associated with taxonomy-aligned economic activities is dependent upon and limited to its counterparties’ reporting. Explanations of the nature and objectives of Taxonomy-aligned economic activities and the evolution of the Taxonomy aligned economic activities over time, starting from the second year of implementation, distinguishing between business-related and methodological and data-related elements. Not applicable for financial year 2024 Description of the compliance with Regulation (EU) 2020/852 in the financial undertaking’s business strategy, product design processes and engagement with clients and counterparties. In 2024, Kvika updated it Green Funding Framework to better adhere to recent developments in sustainability related regulations, including the EU Taxonomy. The updated Framework, which follows the most recent market practice, supports Kvika's strategic goal to have a real and measurable impact on Iceland's carbon footprint and climate issues. Kvika has mapped applicable categories to EU environmental objectives and example of economic activities under the EU Taxonomy. Where possible, applicable eligibility criteria have been designed to comply with the technical screening criteria set out in the EU Taxonomy Delegated Act as at the time of this Framework publication. Consolidated Financial Statements 31 December 2024 100 Kvika banki hf. Amounts are in ISK thousands Kvika Asset Management Turnover-based: % 0.1% Turnover-based: [monetary amount] 617,517 CapEx—based: % 0.2% CapEx-based: [monetary amount] 952,792 Coverage: % 88.8% The value in monetary amounts of derivatives. 399,311,281 Percentage (%) 0.1% [monetary amount] 397,438 For non-financial undertakings: 40.4% For non-financial undertakings: [monetary amount] 161,191,879 For financial undertakings: 22.9% For financial undertakings: [monetary amount] 91,503,580 For non-financial undertakings: 4.3% For non-financial undertakings: [monetary amount] 17,303,212 For financial undertakings: 4.4% For financial undertakings: [monetary amount] 17,400,149 For non-financial undertakings: 8.5% For non-financial undertakings: [monetary amount] 33,853,335 For financial undertakings: 10.6% For financial undertakings: [monetary amount] 42,151,736 Percentage (%) 8.9% [monetary amount] 35,509,952 Percentage (%) 56.0% [monetary amount] 223,743,143 Percentage (%) [monetary amount] The weighted average value of all the investments that are directed at funding, or are associated with taxonomy-aligned economic activities relative to the value of total assets covered by the KPI, with following weights for investments in undertakings per below: The weighted average value of all the investments that are directed at funding, or are associated with taxonomy-aligned economic activities, with following weights for investments in undertakings per below: Additional, complementary disclosures: breakdown of denominator of the KPI The percentage of derivatives relative to total assets covered by the KPI. The value in monetary amounts of derivatives. Kvika Asset Management publishes the following information pursuant to Article 8 of the EU Taxonomy. The information is set forward in a template from Annex IV and Annex XI of the Delegated Regulation No. 2021/2178, as subsequently changed with Delegated Regulation (EU) No. 2023/2486, covering asset managers, alongside Kvika Asset Management annual accounts for 2024. The calculation of key figures is based on the data used in Kvika Asset Management’s financial statement for 2024. Key performance indicators published for the first time in 2024 According to the Delegated Regulation no. 2021/2178 asset managers are to disclose the proportion of investment in taxonomy‐aligned economic activities out of the total value of all investments managed by them. This ratio is based on key performance indicators of investees (turnover and capex), which they published according to the EU Taxonomy for the first time in Iceland in 2024 for the financial year 2023. Kvika Asset Management is dependent upon and limited to the investees’ taxonomy disclosures, and therefore publishes now for the first time the ratio of investments in environmentally sustainable economic activities. ANNEX IV TEMPLATE FOR THE KPI OF ASSET MANAGERS Standard template for the disclosure required under Article 8 of Regulation (EU) 2020/852 (asset managers) The value of all the investments that are funding economic activities that are not taxonomy-eligible relative to the value of total assets covered by the KPI: Value of all the investments that are funding economic activities that are not taxonomy-eligible: The value of all the investments that are funding taxonomy-eligible economic activities, but not taxonomy-aligned relative to the value of total assets covered by the KPI: Value of all the investments that are funding Taxonomy eligible economic activities, but not taxonomy aligned: The proportion of exposures to financial and non-financial undertakings subject to Articles 19a and 29a of Directive 2013/34/EU over total assets covered by the KPI: Value of exposures to financial and non-financial undertakings subject to Articles 19a and 29a of Directive 2013/34/EU: The proportion of exposures to other counterparties over total assets covered by the KPI: Value of exposures to other counterparties: The percentage of assets covered by the KPI relative to total investments (total AuM). Excluding investments in sovereign entities. The monetary value of assets covered by the KPI. Excluding investments in sovereign entities. The proportion of exposures to financial and non-financial undertakings from non- EU countries not subject to Articles 19a and 29a of Directive 2013/34/EU over total assets covered by the KPI: Value of exposures to financial and non-financial undertakings from non-EU countries not subject to Articles 19a and 29a of Directive 2013/34/EU: The proportion of exposures to EU financial and non-financial undertakings not subject to Articles 19a and 29a of Directive 2013/34/EU over total assets covered by the KPI: Value of exposures to EU financial and non-financial undertakings not subject to Articles 19a and 29a of Directive 2013/34/EU: Consolidated Financial Statements 31 December 2024 101 Kvika banki hf. Amounts are in ISK thousands Kvika Asset Management Turnover-based: % 0.1% Turnover-based: [monetary amount] 617,517 CapEx—based: % 0.2% CapEx-based: [monetary amount] 952,792 For financial undertakings: For financial undertakings: Turnover-based: % 0.0% Turnover-based: [monetary amount] 0 CapEx—based: % 0.0% CapEx-based: [monetary amount] 0 Turnover-based: % 0.0% Turnover-based: [monetary amount] 0 CapEx—based: % 0.0% CapEx-based: [monetary amount] 0 Turnover: 0.1% Transitional activities: A% (Turnover; CapEx) 0.0% Capex: 0.2% Enabling activities: B% (Turnover; CapEx) 100.0% Turnover: 0.0% Transitional activities: A% (Turnover; CapEx) 0.0% Capex: 0.0% Enabling activities: B% (Turnover; CapEx) 0.0% Turnover: 0.0% Transitional activities: A% (Turnover; CapEx) 0.0% Capex: 0.0% Enabling activities: B% (Turnover; CapEx) 0.0% Turnover: 0.0% Transitional activities: A% (Turnover; CapEx) 0.0% Capex: 0.0% Enabling activities: B% (Turnover; CapEx) 0.0% Turnover: 0.0% Transitional activities: A% (Turnover; CapEx) 0.0% Capex: 0.0% Enabling activities: B% (Turnover; CapEx) 0.0% Turnover: 0.0% Transitional activities: A% (Turnover; CapEx) 0.0% Capex: 0.0% Enabling activities: B% (Turnover; CapEx) 0.0% Explanatory notes 'taxonomy-aligned activities' 'not taxonomy-aligned' 'taxonomy-eligible activities' For credit institutions that are not required to disclose quantitative information for trading exposures, qualitative information on the alignment of trading portfolios with Regulation (EU) 2020/852, including overall composition, trends observed, objectives and policy. Does not apply to asset managers. economic activities that do not qualify as environmentally sustainable under EU Taxonomy i.e. do not fulfil the criteria set out in the delegated acts activity that has a corresponding criteria in the EU Taxonomy delegated acts to be assessed against ANNEX XI QUALITATIVE DISCLOSURES FOR ASSET MANAGERS, CREDIT INSTITUTIONS, INVESTMENT FIRMS AND INSURANCE AND REINSURANCE UNDERTAKINGS The disclosure of quantitative KPIs shall be accompanied by the following qualitative information to support the financial undertakings’ explanations and markets’ understanding of these KPIs: Contextual information in support of the quantitative indicators including the scope and activities covered by the KPIs, information on data sources and limitation. The calculation of key indicators uses total assets under management (AuM), excluding exposures to central governments, central banks and supranational issuers. Investments in companies which are not obliged to disclose non‐financial information under the Act on Annual Accounts should also be excluded. Furthermore, the calculations of Kvika Asset Management’s Taxonomy KPIs depend upon and are limited to investee companies’ 2024 Taxonomy disclosures for the financial year 2023. Explanations of the nature and objectives of Taxonomy-aligned economic activities and the evolution of the Taxonomy-aligned economic activities over time, starting from the second year of implementation, distinguishing between business-related and methodological and data-related elements. As according to investee companies’ 2024 Taxonomy disclosures, all Taxonomy- aligned economic activities are enabling activities, i.e. they all enable other activities to make a substantial contribution to climate change mitigation. Description of the compliance with Regulation (EU) 2020/852 in the financial undertaking’s business strategy, product design processes and engagement with clients and counterparties. Kvika Asset Management expects to increasingly consider the EU Taxonomy e.g. in product development as well as in communication with customers, additionally there has been increased education to employees on the topic. 5) Pollution prevention and control 6) The protection and restoration of biodiversity and ecosystems economic activities that qualify as environmentally sustainable under EU Taxonomy 1) Climate change mitigation 2) Climate change adaptation 3) The sustainable use and protection of water and marine resources 4) The transition to a circular economy The proportion of taxonomy-aligned exposures to other counterparties in over total assets covered by the KPI: Value of taxonomy-aligned exposures to other counterparties: Breakdown of the numerator of the KPI per environmental objective Taxonomy-aligned activities –: ANNEX IV (cont.) Additional, complementary disclosures: breakdown of numerator of the KPI The proportion of Taxonomy-aligned exposures to financial and non-financial undertakings subject to Articles 19a and 29a of Directive 2013/34/EU over total assets covered by the KPI: Value of Taxonomy-aligned exposures to financial and non-financial undertakings subject to Articles 19a and 29a of Directive 2013/34/EU: For non-financial undertakings: For non-financial undertakings: Consolidated Financial Statements 31 December 2024 102 Kvika banki hf. Amounts are in ISK thousands Group alignment Computation of weighted averages of KPIs on Taxonomy-aligned activities of Groups ISK Thousand Revenue Proportion of total group revenue KPI (Turnover) KPI (CapEx) KPI (Turnover) weighted KPI (CapEx) weighted Asset management 2,597,493 15.12% 0.14% 0.21% 0.021% 0.032% Banking activities 14,586,947 84.88% 0% 0% 0% 0% Insurance undertakings - - 0% 0% 0% 0% Total 17,184,440 Average KPI 0.021% 0.032% KPI per business segment Consolidated Financial Statements 31 December 2024 103 254900WR3I1Z9NPC7D842024-09-012024-12-31254900WR3I1Z9NPC7D842023-09-012023-12-31254900WR3I1Z9NPC7D842024-01-012024-12-31254900WR3I1Z9NPC7D842023-01-012023-12-31254900WR3I1Z9NPC7D842024-12-31254900WR3I1Z9NPC7D842023-12-31254900WR3I1Z9NPC7D842023-12-31ifrs-full:IssuedCapitalMember254900WR3I1Z9NPC7D842024-01-012024-12-31ifrs-full:IssuedCapitalMember254900WR3I1Z9NPC7D842024-12-31ifrs-full:IssuedCapitalMember254900WR3I1Z9NPC7D842023-12-31ifrs-full:SharePremiumMember254900WR3I1Z9NPC7D842024-01-012024-12-31ifrs-full:SharePremiumMember254900WR3I1Z9NPC7D842024-12-31ifrs-full:SharePremiumMember254900WR3I1Z9NPC7D842023-12-31ifrs-full:ReserveOfSharebasedPaymentsMember254900WR3I1Z9NPC7D842024-01-012024-12-31ifrs-full:ReserveOfSharebasedPaymentsMember254900WR3I1Z9NPC7D842024-12-31ifrs-full:ReserveOfSharebasedPaymentsMember254900WR3I1Z9NPC7D842023-12-31KVI:DeficitReductionReserveMember254900WR3I1Z9NPC7D842024-01-012024-12-31KVI:DeficitReductionReserveMember254900WR3I1Z9NPC7D842024-12-31KVI:DeficitReductionReserveMember254900WR3I1Z9NPC7D842023-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember254900WR3I1Z9NPC7D842024-01-012024-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember254900WR3I1Z9NPC7D842024-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember254900WR3I1Z9NPC7D842023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember254900WR3I1Z9NPC7D842024-01-012024-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember254900WR3I1Z9NPC7D842024-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember254900WR3I1Z9NPC7D842023-12-31KVI:RestrictedReserveMember254900WR3I1Z9NPC7D842024-01-012024-12-31KVI:RestrictedReserveMember254900WR3I1Z9NPC7D842024-12-31KVI:RestrictedReserveMember254900WR3I1Z9NPC7D842023-12-31ifrs-full:RetainedEarningsMember254900WR3I1Z9NPC7D842024-01-012024-12-31ifrs-full:RetainedEarningsMember254900WR3I1Z9NPC7D842024-12-31ifrs-full:RetainedEarningsMember254900WR3I1Z9NPC7D842023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember254900WR3I1Z9NPC7D842024-01-012024-12-31ifrs-full:EquityAttributableToOwnersOfParentMember254900WR3I1Z9NPC7D842024-12-31ifrs-full:EquityAttributableToOwnersOfParentMember254900WR3I1Z9NPC7D842023-12-31ifrs-full:NoncontrollingInterestsMember254900WR3I1Z9NPC7D842024-01-012024-12-31ifrs-full:NoncontrollingInterestsMember254900WR3I1Z9NPC7D842024-12-31ifrs-full:NoncontrollingInterestsMember254900WR3I1Z9NPC7D842022-12-31ifrs-full:IssuedCapitalMember254900WR3I1Z9NPC7D842023-01-012023-12-31ifrs-full:IssuedCapitalMember254900WR3I1Z9NPC7D842022-12-31ifrs-full:SharePremiumMember254900WR3I1Z9NPC7D842023-01-012023-12-31ifrs-full:SharePremiumMember254900WR3I1Z9NPC7D842022-12-31ifrs-full:ReserveOfSharebasedPaymentsMember254900WR3I1Z9NPC7D842023-01-012023-12-31ifrs-full:ReserveOfSharebasedPaymentsMember254900WR3I1Z9NPC7D842022-12-31KVI:DeficitReductionReserveMember254900WR3I1Z9NPC7D842023-01-012023-12-31KVI:DeficitReductionReserveMember254900WR3I1Z9NPC7D842022-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember254900WR3I1Z9NPC7D842023-01-012023-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember254900WR3I1Z9NPC7D842022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember254900WR3I1Z9NPC7D842023-01-012023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember254900WR3I1Z9NPC7D842022-12-31KVI:RestrictedReserveMember254900WR3I1Z9NPC7D842023-01-012023-12-31KVI:RestrictedReserveMember254900WR3I1Z9NPC7D842022-12-31ifrs-full:RetainedEarningsMember254900WR3I1Z9NPC7D842023-01-012023-12-31ifrs-full:RetainedEarningsMember254900WR3I1Z9NPC7D842022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember254900WR3I1Z9NPC7D842023-01-012023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember254900WR3I1Z9NPC7D842022-12-31ifrs-full:NoncontrollingInterestsMember254900WR3I1Z9NPC7D842023-01-012023-12-31ifrs-full:NoncontrollingInterestsMember254900WR3I1Z9NPC7D842022-12-31iso4217:ISKiso4217:ISKxbrli:shares

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