Financial highlights for the third quarter of 2025

• Arion Bank reports net earnings attributable to shareholders of Arion Bank of ISK 8.2bn in Q3 2025, compared with ISK 7.9bn in Q3 2024
• Return on equity attributable to shareholders of Arion Bank was 16.0%, compared with 16.1% in Q3 2024
• Earnings per share in ISK of 5.95, compared with 5.62 in Q3 2024
• Net interest margin of 3.3%, compared with 3.1% in Q3 2024
• Net commission income was ISK 4.0bn, compared with ISK 3.9bn in Q3 2024
• Operation of Vördur contributed a standalone profit of ISK 0.7bn in the third quarter of 2025, compared with ISK 1.7bn in the previous year
• Core income, defined as net interest income, net commission income and insurance service results (excluding opex of the insurance operation), increased by 6.9%, compared with Q3 2024
• Operating expenses increased by 2.9%, compared with Q3 2024
• Effective tax rate was 26.3% during the quarter
• Total cost-to-core income ratio was 36.3%, compared with 37.5% in Q3 2024
• Cost-to-income ratio was 32.6%, compared with 34.4% Q3 2024
• The balance sheet increased by 1.4% during the quarter
• Loans to customers increased by ISK 29.2bn or 2.3% during the quarter, primarily to corporates

Consumer Association’s class-action lawsuit
Following the Supreme Court judgment on 14 October regarding consumer loans with variable interest rates, Arion Bank has reassessed its maximum potential loss in cases brought against the Bank. Arion Bank estimates the maximum potential loss on the Banks non-indexed consumer loans at just under ISK 500 million before tax, assuming the Supreme Court’s decision is applied to the Bank’s loans. Similarly, the potential maximum loss on indexed consumer loans is now estimated at about ISK 4.5 billion before tax, based on calculations that assume the lowest market interest rates published by the Central Bank will be used as a benchmark. The Bank has not made any provisions due to the significant uncertainty about the final decision made by the courts but will keep this under review.

Financial highlights for the first 9 months of 2025

• Arion Bank reports net earnings attributable to shareholders of Arion Bank of ISK 24.4bn for 9M 2025, compared with ISK 17.8bn in 9M 2024
• Return on equity attributable to shareholders of Arion Bank was 16.0%, compared with 12.2% in 9M 2024
• Earnings per share in ISK of 17.55, compared with 12.45 in 9M 2024
• Net interest margin of 3.3%, compared with 3.1% 9M 2024
• Net commission income of ISK 13.1bn for the first nine months, compared with ISK 11.2bn in 9M 2024
• Other operating income was ISK 4.7bn due to a valuation increase in development assets
• Operation of Vördur contributed a standalone profit of ISK 0.9bn, compared with ISK 2.0bn in 9M 2024
• Core income increased by 13.9% compared with 9M 2024
• Operating expenses have decreased by 1.2% compared with 9M 2024
• The effective tax rate was high, 28.8%, due to an unfavorable combination of income
• Total cost-to-core income ratio was 38.3%, compared with 43.8% in 9M 2024
• Cost-to-income ratio was 32.8%, compared with 40.6% in 9M 2024
• The balance sheet increased by 7.3% from year-end 2024
• Dividend payment and share buybacks of ISK 19.1bn in total in 9M 2025
• The Bank’s capital ratio was 21.9%, and the CET1 ratio was 18.0% at the end of September. The ratios are determined on the basis of the unaudited net earnings in the quarter and take into account the deduction of 50% of net earnings as foreseeable divided in line with the Bank’s dividend policy. The Group's capital ratio, as calculated under the Financial Undertakings Act No. 161/2002, was 21.5% and the CET1 ratio was 17.6%. These ratios comfortably exceed the requirements made by the FSA and Icelandic law.

Benedikt Gíslason, CEO of Arion Bank
“The Bank has performed well in the third quarter, and we have achieved all our key financial targets. Despite high interest rates the economy has been ticking along nicely, and our operations clearly reflect this. We reported strong loan growth in the corporate sector although there are signs that things are starting to slow down. As before, there is great strength in the diversity of the services we offer, and all of Arion Group’s business units are delivering solid results. Our capital and liquidity positions remain very strong.

Preliminary discussions between Arion Bank, Kvika Bank and the Icelandic Competition Authority on the proposed merger between the companies have begun. We expect these discussions to take some time, but they will provide us with the opportunity to discuss various issues with representatives of the ICA and exchange information before the merger is formally announced to the ICA. We firmly believe that Kvika and Arion will combine to create a robust financial institution where the strengths of each entity will be harnessed for the benefit of both customers and shareholders alike.

The recent Supreme Court judgment in a case brought against Íslandsbanki has naturally had an impact on the residential mortgage market. The judgment concerned non-indexed mortgages with variable interest and gives a fairly clear guideline on how lenders may change the interest rates on such loans if the terms are found to be partly unlawful. In general, it can be said that the interest rate adjustment terms for Arion loans differ from those terms to which the Supreme Court judgment applied. The Arion Bank loan terms contain both an exhaustive list of factors to be considered when changing interest rates, unlike the Íslandsbanki terms, and each factor is further defined with a concise description. A case against Arion Bank concerning the Bank’s interest rate adjustment terms for indexed mortgages will be heard by the Supreme Court on 17 November, and both the District Court and the Court of Appeal have ruled that the terms are lawful. 

The Supreme Court’s judgment in the case against Íslandsbanki has added to the uncertainty over the consequences should the interest rate adjustment terms for indexed loans be deemed partly or entirely unlawful, particularly since interest rates on indexed loans generally do not follow Central Bank policy rates.

We are now seeking ways to offer indexed mortgages because the uncertainty is unfortunate for many of our customers. Providing people with mortgages is integral to our core business and we hope that in the coming weeks we will be able to give more details on the loans which then should be available at least until the Supreme Court has given its verdict on the legality of the interest rate adjustment terms of indexed loans.”

Investor meeting / webcast in English on 30 October at 9:30 CET (8:30 GMT)
Arion Bank will be hosting a meeting at the Bank’s headquarters in Borgartún 19, Reykjavík, on Thursday 30 October at 9:30 CET (8:30 GMT) where CEO Benedikt Gíslason will present the results and Chief Economist Erna Björg Sverrisdóttir will give an update on the economic environment. The meeting will take place in English and will also be streamed live. 

The webcast will be accessible live on Lumiconnect and a link is also available on the Bank’s website under Investor Relations.

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

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