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ARION BANK COMPANY PRESENTATION NOVEMBER 2016 KEY HIGHLIGHTS - PowerPoint PPT Presentation

Oct 21, 2022 •417 likes •1.57k views

ARION BANK COMPANY PRESENTATION NOVEMBER 2016 KEY HIGHLIGHTS ICELAND AT A GLANCE POSITIVE ECONOMIC FUNDAMENTALS Population of ~330,000 Economic recovery since 2010 Unemployment rate significantly GDP per capita among with

  1. FULLY RESTRUCTURED BANK, WITH POTENTIAL FOR FURTHER VALUE CREATION 2010 H1 2016 2013-2014: 2010-2012: 2015+ Loan portfolio composition “Restructuring of the bank and “Streamlining and building of the “Strengthening market leadership its customers” business” and harvesting full value 25 46 % potential” 54 % • • • 75 % Operations consolidated under Launched “lean banking Further strengthening market % Arion Bank initiative ” and implemented leadership and scaling of • changes to core banking presence Individuals Corporates & other Clean and newly valued • operations balance sheet post crisis Harvesting value from Problem loans • • Optimised branch network operational efficiency and Acquired loan portfolios from • scaling of digitalisation the old bank (fair value was a Built Icelandic market 54 1.9% • discount to the face value of leadership in core products Continued investments in IT % • the loans) infrastructure Further improvements in • • Discount of loan portfolios underlying asset qualities Driving commercial excellence Loans in >90 days facility default and other problem loans progressively released in business divisions and • Funding composition actively exploring new business Restructuring and opportunities 8%7% 3% 5%1% systematically driven • improvements in underlying Optimising capital structure 15% 42% asset quality 14% 68% 17% Loans to customers 20% ISKbn Deposits Covered bonds 713 Equity Other liabilities 680 648 636 Other borrowings Subordinated loans 562 567 451 Net fee and commission income 14.5 ISK Bn 13.3 11.2 10.7 10.7 6.9 2010 2011 2012 2013 2014 2015 H1 2016 2010 2011 2012 2013 2014 2015 8 Source: Company information

  2. A LEADING UNIVERSAL RELATIONSHIP BANK IN ICELAND WITH A DIFFERENTIATED AND INNOVATIVE APPROACH Retail Banking Corporate Banking Investment Banking Asset Management  ~ 31% market share 1  Leading lender to large corporates in  A leading capital markets house and M&A  Largest player in the Icelandic market with Iceland advisor ISK 997 Bn of AuM at year end 2015 (incl.  Largest private provider of residential Stefnir)  23% loan market share 3  Full range of investment banking services mortgages in Iceland  Full range of products and services  Wide range of financial services for  Innovative and customised solutions  Managed all IPOs in Iceland during 2015 individuals and SMEs 2  Well-positioned for capital controls easing  International activities in seafood and  75% of all IPOs in Iceland since 2010  Strong focus on digital banking solutions  Focus on institutional investors and HNW related industries  Largest investment bank in Iceland in terms clients with digital distribution for retail  Successful implementation of digital of commission income in corporate finance clients solutions (online client onboarding, Arion and capital markets Bank app) Group operating income per division ISK m ISK m ISK m ISK m 9,481 9,315 36,434 4,882 16,346 7,012 4,144 3,701 15,277 14,565 7,640 4,422 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 Strategic subsidiaries  2 nd largest life insurance company in Iceland  4 th largest universal insurance company in  2 nd largest payment company in Iceland  Largest fund management company in (1) based on operating revenues 6 Iceland based on AuM 5 based on insurance premiums 5 Iceland based on insurance premiums 4,5 All subsidiaries are independent entities regulated by the FME. Arion Bank exercises ownership through strategy and board memberships. The subsidiaries have their own independent risk management functions and report directly to the FME 1. Capacent. Based on monthly customer survey (individuals) H1 2016. Q: What is your main retail bank? 2. SMEs are defined as corporates in Retail Bank with loans up to ISK 2 Bn 9 3. Management belief based on interim financial statement and company information. SMEs are covered by Retail Bank but included in the Corporate Banking market share 4. Vörður acquisition received approval from the Icelandic Competition Authority in the end of September 2016 5. FME 6. Based on 2015 annual accounts (Valitor, Borgun and Kortaþjónustustan)

  3. STRATEGIC AND INNOVATIVE APPROACH – PROVEN TRACK RECORD Driving Efficiency First Mover in the Industry Diversified Portfolio of Businesses and Digitalisation  Pioneer on the Icelandic capital markets,  Strengthened customer focus and  Long-standing leadership in asset leading 7 out of 12 IPOs from 2011 decentralised credit decisions management  Early adopter of next generation  Innovator for personal online and  Four key subsidiaries complementing personal banking mobile banking business divisions  Leader in mortgage product innovation  Extensive CRM system use by staff  Operating independently with their supported by selective portfolio products also partly distributed by other  Lean banking programme (A plus) acquisitions banks  First Icelandic bank to issue a  Arion Bank offers now a comprehensive benchmark euro bond since 2008 financial products and services portfolio to both individuals and corporations  Leader in project financing (silicon plants, tourism)  Enabler of growth Payments Life insurance – Founder of business accelerator initiative - Startup Reykjavik – Host of fintech hackathon – Fund management Universal insurance innovate financial solutions company Source: Company information 10

  4. FINANCIAL OVERVIEW GOOD PROFITABILITY UNDERPINNED BY STRONG FUNDAMENTALS Universal relationship bank business model Diversified and growing revenues Return on equity % Adjusted net fee and commission income Total operating income (adjusted) 1 H1 2016 ISK Bn NII Cards 28.1% NCI 50.8 12% 2% 46.4 Asset management Other 41.6 8.0 18.6% 5.8 3.0 8% 14.5 Collection and 40% 13.7 11.6 ISK 22.4 payment services 9.2% 9.5% 8.7% 7.9% 6.7 Bn 10% 6.2% 0.7 Investment banking 6.8 27.0 28.3 2.6% 26.9 14.9 Lending and 28% guarantees 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 Other  Reported  Adjusted 1 Cost-to-income ratio Continuously improving credit quality Strong capital and liquidity position % Problem loans H1 2016 % Loans in >90 days facility default Other problem loans 27.8% 66% 25.5% 6.3% 58% 57% 56% 54% 54% 50% 180% 1.8% 4.4% 33% 0.8% 2.5% 1.9% 0.4% 4.5% 3.6% 0.5% 2.1% 1.4% 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 CET 1 ratio Capital adequacy Liquidity coverage ratio  Reported  Adjusted 1 11 Source: Company information 1. For further detail see appendix in Finance section

  5. ARION BANK STRATEGIC PATH Excess capital Capital controls easing Valitor Vörður Digitalisation Growth Efficiency %  Further grow  Implement  Continued  Realisation of  Additional  Capture  Return excess loan portfolio on further implementation synergies from growth opportunities capital to the back of the efficiency of digitalisation integration of opportunities from easing of shareholders underlying measures across both Vörður through Valitor’s capital controls and pay ongoing market growth through lean client facing international and benefit from dividends fuelled by the management, offerings and expansion and rating upgrades Icelandic operational automation to increased economy improvements further increase income and outsourcing efficiency diversification in Corporate Banking 12

  6. RETAIL BANK

  7. RETAIL BANK OVERVIEW A LEADING AND INNOVATIVE RETAIL BANK IN ICELAND Description Strong market share in the retail business 31% 3  Retail Bank provides comprehensive financial services to individuals (individuals) and small- and medium-sized companies (SMEs) 1  Offering includes mortgage loans, savings and checking accounts, vehicle and equipment financing, payment cards, pension services, Large number of customers (individuals & 121,304 4 insurance and funds SMEs)  Market leader in digital solutions − internet banking is a key channel  Successful implementation of Arion Bank app Branches to cover key economic regions and  381 FTEs 2 across 24 locations around the country 24 client needs Key Strengths  Strong market position with particular strength in the important ISK 456 Bn Total lending volume to retail clients H1 2016 mortgage loans segment  Stable market  Strong focus on digital solutions for customers  Integrated banking and insurance business ISK 271 Bn Deposits from retail clients H1 2016  Decentralised decision making close to the customer 1930 2003 2008-2016 Arion Bank‘s heritage 1800‘s Source: Company information Numerous savings funds The Agricultural 14 1. SMEs are defined as corporates in Retail Bank with loans up to ISK 2 Bn 3 savings funds 2. Excluding summer FTEs H1 2016 founded merge and Bank and Kaupþing 3. Capacent. Based on monthly customer survey (individuals) H1 2016 merge (later Agricultural Bank is 4. Finalta, Mckinsey and company definition of active customers. Arion Bank H1 2016 Kaupthing Bank) founded

  8. KEY FINANCIALS 1 GROWING PORTFOLIO AND IMPROVING BOTTOM LINE Balance sheet Operating income ISK Bn ISK M Growth in loans partly due to acquisitions of AFL, Drómi and loan transfers from Corporate Bank 16,346 15,277 14,565 332 2,656 456 413 443 2,333 2,507 382 9,372 8,379 79 271 264 269 1,562 257 162 1,385 13,877 12,612 12,058 7,731 6,832 (187) 2013 2014 2015 H1 2015 H1 2016 2013 2014 2015 H1 2016 Loans Deposits Net interest income Net fee and commission income Other operating income Improved operating efficiency Earnings before tax ISK M / % ISK M Acquisition of AFL influenced cost side in 2015 8,193 8,077 39.6% 36.8% 37.9% 34.9% 32.5% 6,047 6,011 5,518 4,471 3,353 3,115 3,043 2,922 381 367 355 343 329 2013 2014 2015 H1 2015 H1 2016 2013 2014 2015 H1 2015 H1 2016 Operating expenses FTEs Cost-to-income ratio Source: Company information 15 1. Including ABMIIF (Arion Bank Mortgages Institutional Investor Fund)

  9. RETAIL BANK IN GROUP CONTEXT LARGEST GROUP CONTRIBUTOR AND WELL DIVERSIFIED LOAN BOOK Loan book split Deposits split Arion Bank Arion Bank Retail Bank ISK Bn Retail Bank 456 H1 2016 H1 2016 25% 6% 17% Real estate 25% 43% Wholesale and retail trades 36% 21% 323 Households Seafood 57% 76% Services 17% Industry, energy and manufacturing 10% Financial sector 64% 8% Retail Bank Other CPI linked ISK FX SMEs 6% 133 14% Retail Bank Operating income contribution Retail Bank % of the Group Product split Net interest split H1 2016 % H1 2016 % H1 2016 1% 3% 67% 82% 34% 17% 30% Net interest income (credit risk) Retail Bank ISK CPI linked FX Net fee and commission income (services) Other income Arion Bank: ISK 27,423 M Retail Bank: ISK 9,372 M 16

  10. FLEXIBLE AND OPTIMISED BRANCH NETWORK STRATEGIC POSITIONING IN KEY TOURISM AREAS Tourism hot spots in Iceland 1 Arion Bank branches around Iceland  Arion Bank branch locations have an agricultural heritage background  Arion Bank is the only bank in the area in 11 out of 15 locations - 8 in the greater Reykjavík Area - 16 in rural areas  Since 2008, 6 branches have been closed in the capital area and 2 large branches opened  9 branches located in major tourist towns or by the main road around Iceland. Key tourism area Recently launched the only branch at Keflavik airport  Emphasis on decentralisation to bring Branch customer satisfaction 2 Reduction in branch size decision power closer to the customer  Focus on customer relationships – 4% 2% addressing different areas with different m 2 reduction % 8% needs 1,786  Self-service implementation through ATMs, Arion Bank app and online banking have 1,063 been successful  Since 2013, total branch sq. meters have been reduced by 2,771 48 - 1,063 sqm. in H1 2016 86%  Further opportunities in optimising current (126) branch network through 2013 2014 2015 H1 2016 Very Positive Positive Negative Very Negative - Strategic location choices, square meter reduction, leasing and property sales - Vörður and OKKAR insurance networks Source: Company information 17 1. Icelandic Tourist Board, report 2016 2. Customer satisfaction in Arion Bank branches H1 2016. Customer ranks service before leaving the branch

  11. CHANNEL DIVERSIFICATION DIGITALISATION DRIVING EFFICIENCY Active Arion Bank app users 1 Opening account – digital sales Active online bank users 1  Major changes in customer behaviour 4% 6% 5% 20% 73,769 77,178 27% in recent years 29% 69,299 34,232 66,788  Full upside potential to be unlocked 64% 18% 28,519 2,111 through changing customer mindset 22,099 transitioning away from branches as 1,656 1,404 1,375 the preferred channel 13,467  The plan is to produce a steady decline in low value transactions handled in the branches 2013 2014 2015 2016 2013 2014 2015 2016  Focus on using channels to further 2013 2014 2015 H1 2016 increase efficiency Number of interactions Number of calls  The new generation of ATMs is through ATMs to the call centre Number of visits to branches enabling customers to save time by 000s 000s 000s depositing and withdrawing cash as well as paying bills themselves (3%) 5% (11)%  Greater emphasis on customer (8)% 1,506 1,523 1,457 (14)% experience through Arion Bank app 427 (21)% 804 381 742  By focusing on digitalising processes, 328 611 Arion Bank has reduced internal lead 812 time in customer onboarding by 88% 158 285  New digital initiatives launched in Q4 2016, i.e., mortgage process 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 18 Source: Company information 1. 90 day active customers, counted on June 30 th each year. Definition by Finalta

  12. STRATEGIC INITIATIVES TRACK RECORD AND SUCCESSFUL IMPLEMENTATION  Focus on good customer service with less cost and adjusting to rapid changes in customer needs  Recent actions to reduce opening hours and the total size of branches by either moving to smaller branches, Retail branch renting out part of the excess space, closing or merging certain branches optimisation  Implementation of multipurpose ATMs in branches and staff to direct customers to either branch staff or ATM depending on intended transaction  New branch opened at the Keflavik airport − the only bank branch at the airport New branches in  Flagship branch opened in Borgartún financial area by merging two branches strategic locations  Developed a new digital branch concept for Kringlan mall branch  Digitalising processes, such as customer onboarding and mortgage loans  European Investment Fund cooperation in SME lending at lower rates Initiatives  Market leader for new developments in mortgage loans  Acquisition of Vörður, a universal insurance company in Iceland Further expansion of  Enlargement of vehicle and equipment financing and leasing unit wide product offerings 19

  13. STRATEGY AND FOCUS AREAS OPPORTUNITIES FOR GROWTH AND FURTHER EFFICIENCY Objectives  Retain leading position among the three largest banks and pension funds by market Mortgages share SME  Continue growth in market share Decreasing cost  Better service at lower costs  Reduce low value transactions in branches and in call centre and encourage Digitalisation customers to use self-service channels (save time and money)  Diversified offerings from Arion Bank  Give customers tailored choices Product offerings  Revamp existing loyalty programs 20 Source: Company information

  14. KEY TAKE-AWAYS  Strong and stable market position with particular strength in the mortgage loans segment  Full market coverage with good opportunities ahead, i.e., insurance products  Solid income base – new income opportunities through Keflavik airport branch (tourism)  Investing in advanced digital solutions for clients – omni-channel, service and cost goals  Efficiency through lean banking (A plus)  Strong growth in SME lending – opportunities ahead in vehicle and equipment financing  Experienced management team with success in executing challenging projects 21

  15. VALITOR

  16. VALITOR SNAPSHOT Overview  Established in 1983, Valitor is the 2nd largest payment company in 150 m 1 Iceland, providing both card acquiring and issuing services  Transactions processed in 2015  Expanded internationally since 2003 as one of the first companies to  Transactions run-rate receive European cross-border licence in card payments 290 m 1 - Acquiring: Offer e-commerce and card present merchant payment solutions through direct channel and partner channel  Of acquiring transactions processed in 2015 ISK 650 Bn 1 - Issuing: Offer issuing and payment processing solutions to domestic and international partners  Of acquiring transactions processed in the last ISK 1,000 Bn 1  Developed proprietary payment software solutions from an early 12 months stage enabling differentiation strategy in acquiring and issuing  Valitor has delivered double digit growth annually by following a  Merchants and corporate customers in acquiring 12,000 clear strategy implemented in 2012  Group member of Visa EU since 1983 and principal member of MasterCard since 2009  Payment facilitators sub-merchants 260,000  PCI-DSS level 1 security certification since 2011  Over 250 committed, service-oriented and experienced employees  Issuing partners 10  Acquiring partners 15 Source: Company information 1. Based on operating income from 2015 annual accounts (Valitor, Borgun and Kortaþjónustustan) 23 2. Numbers are derived from Valitor’s three core systems (VAS, VIS, Sölvi) and reports from payment facilitators

  17. SUCCESSFUL INTERNATIONAL STRATEGY DRIVING GROWTH Significant, but selective European penetration Partner channel Direct channel Iceland Total Coverage  Principal partner to fintech  End-to-end e-commerce and card Dir. Par. Direct channel Partner channel Description leaders and renowned payment present solutions  Iss.  Issuing companies  Full-service one-stop payment    Acq. Acquiring  Valitor typically supplies back-end solutions processing both in acquiring and Nordics issuing Dir. Par. UK & Ireland  Dir. Par. Iss.  Enables fast growth in processing  AltaPay: e-commerce payment    Acq. Iss. volume and revenue platform in the Nordics   Acq. Other markets  Scale benefits enhances position  Markadis: direct channel in the UK Dir. Par. in competitive market and Ireland Iss. Characteristics  Focus on innovative partners,  Leverage end-to-end value chain  Acq. offer complex and flexible to maximise margin and customer solutions and nurture long-term retention relationships  Develop and offer differentiating Partner channel Direct channel  Recognised brand in the European solutions to merchants International Acquiring Turnover Altapay volume payments industry  Supported by acquisition strategy ISK Bn EUR M 69.3 606 154% 517 341 Partners Valitor Brands Partners 256 152% 162 222% 2.3 Feb Sep H1 H2 H1 H2 H1 2013 2016 2014 2014 2015 2015 2016 24

  18. CORPORATE BANKING

  19. CORPORATE BANKING OVERVIEW A WELL-POSITIONED ICELANDIC CORPORATE BANK Description Strong market share in corporate lending incl. SME 23% (H12016) (1)  Full service corporate bank, targeted at larger corporates across all sectors through dedicated sector teams  Relationship based model benefiting from and providing synergies across 143 (2) Large customers serviced from the branch in HQs Arion Bank’s divisions (e.g., investment banking and private banking)  Well-diversified lending portfolio across all main Icelandic industries with emphasis on top 100 companies in the local economy Size of the team (FTEs) working out of HQs 27  Long-standing relationships with leading corporate clients enable a strong competitive position  Team of experienced banking professionals working out of HQ (27 FTEs) Number of branches with a dedicated corporate service 13 organised by product and industry coverage to ensure strong expertise presence (out of 24 branches in total) Key Strengths  Intimate, long-standing relationships and exposure to growing sectors, Total lending to corporate banking clients ISK 255 Bn (3) (H12016) such as energy, real estate and trade and services  Proven ability to handle large and complex deals (clubs / syndicates) bringing the whole bank to the table Deposits from corporate banking clients across all divisions ISK 19 Bn of Arion Bank (H12016)  Established positioning in the seafood industry 1. Source: Interim financial statements and company information on total domestic corporate lending in Iceland. SMEs are covered by Retail Bank but included in Corporate Bank market share 2. Number of customers counted by customer IDs (vs . groups) 26 3. Including bond instruments

  20. ARION BANK’S CORPORATE BANK IS TRUSTED BY MARKET LEADERS CREDENTIALS IN MAJOR SECTORS AND ACROSS CLIENTS 1 Retail and Services Clients Food retailer Telecom operator Largest private IT company #1 #1 #1 #2 media company (Largest out of 2 majors) (Largest out of 3 majors) (Second largest out of 2 majors) Airline and travel Largest online gaming company Shipping company Automotive distributors #2 #3 #1 #1 2 companies (Largest out of 2 majors) (2 out of 5 majors) (Out of 5 majors) Seafood Clients Largest seafood quota Largest seafood trading / Major vessel newbuilds 7 #1 3 holders and vessel owners (2) export company (Lead on 3 out of 5 projects) (7 largest out of top 10) Real Estate, Energy and Project Finance Real estate Silicone smelter projects Largest hotel deal #1 #2 #3 2 #1 companies (Out of 3 majors) (House bank to 2 out of 3 majors) (In the past 4 years) Major biotech Energy power company #1 #1 facility (Sole facility in Iceland) (Largest lender 3 ) 1. Company information (Corporate Bank) 27 2. Source: Directorate of Fisheries 3. Without state recourse

  21. KEY FINANCIALS 1 STEADY INCREASE OF LOAN VOLUME, PLATFORM STABILISED IN 2015 AND READY FOR FUTURE GROWTH Balance sheet 2 Operating income ISK Bn ISK M Driven by valuation change 271 255 on investment properties 240 239 Margin and prepayment fees closely 9,481 9,315 managed. Operating 685 7,012 Results and 2,480 income is actions mainly 989 reflected in driven by 3,553 3,604 8,630 a gradual net interest 7,001 453 562 6,023 30 turnover of income 21 19 2,991 17 3,151 the loan book 2013 2014 2015 H1 2015 H1 2016 2013 2014 2015 H1 2016 Net interest income Other operating income Loans Deposits Operating expenses Earnings before tax ISK M ISK M 14,446 658 570 12,303 547 Stable Low EBT in operation 2015 due to where salaries 330 write-down 262 account for 4,679 4,534 of oil and over 70% of 3,391 gas operating 29 27 exposure 26 23 23 expenses 2013 2014 2015 H1 2015 H1 2016 2013 2014 2015 H1 2015 H1 2016 Operating expenses FTEs Source: Company information 28 1. Arion Bank on a standalone basis, including loans to subsidiaries 2. Including lending to independent subsidiaries and bond instrumental to Landsvirkjun

  22. CORPORATE BANKING IN GROUP CONTEXT WELL DIVERSIFIED CORPORATE LOAN BOOK Loan book split Deposits split Arion Bank, H1 2016 Corporate Banking Arion Bank, H1 2016 Corporate Banking 5% 10% 16% 31% 23% 12% 3% 4% 64% 36% 96% 16% 10% 23% 9% 9% 11% 24% Real estate Real estate Financial services Corporate Banking Seafood Financial services Corporate Banking Industry, energy and manufacturing Seafood Wholesale and retail trades Industry, energy and manufacturing Technology Wholesale and retail Other Technology Operating income contribution Other Corporate Banking % of the Group Product split Net interest split H1 2016 % % 21% 13% 14% 86% 15% 64% Corporate Banking Net interest income (credit risk) ISK CPI linked FX Net fee and commission income (services) Total: ISK 27,423 M Total: ISK 3,604 M Total: ISK 3,151 M 29 Source: Company Information

  23. CASE STUDIES − SMELTER, HB GRANDI AND HARPA LEADERSHIP IN COMPLEX TRANSACTIONS AND SUCCESSFUL CROSS-SELING Enterprise Successful Description Cross-selling approach Key achievement Value cross-selling  $78 m  Silicon smelter and silicon metal  Successful win of equity raise and  CB and IB  Deliver the whole bank and deploy plant identified hedging needs entire product suite  Over the course of the arrangement process demand for FX services and further financing was identified   The largest fishing and fish  The syndicate offered significant  CB and IB  Leverage strong relationship to € 77 m processing company in Iceland reduction in interest cost to the react to market developments  Listed on Nasdaq Iceland  Maintain our position in the local client while maintaining  Financing new-build of two multi- acceptable margins for Arion market purpose vessels and partly  Cross-selling of FX products refinancing existing debts  $110 m  Project finance of a 5 star  IB executed equity raise  CB, IB and  Ability to handle large volume boutique hotel by Marriott next to Stefnir transactions with complicated  Stefnir formed an investment Harpa, the concert hall and financing structures conference centre in Reykjavík consortium and FX trades in addition to hedging instruments were required  € 170 m  In 2013, Scandinavian banks  Arion, alongside DNB, started  Syndicate  The syndicates offered significant began targeting Icelandic seafood offering club/syndicated facilities reduction in interest cost to the  As a result 3 deals were closed corporations client while maintaining  Foreign banks with competitive  Incl. 1 new major seafood client acceptable margins for Arion  Arion turned a real competitive advantage in form of significantly and 2 refinancings for existing lower funding cost clients threat into an opportunity,  3 transactions with the total resulting in win-win situation for amount of € 170 m parties involved  Inc. 3 new build of vessels 30

  24. STRATEGY AND FOCUS AREAS Objectives  Be the logical first call when it comes to large transactions due to integrated, tailored Lead in large transactions services offering Further diversify loan  Keep client retention rates high (currently over 80% 1 ) and be selective when sourcing portfolio deals and managing loan book growth Optimise margins and  Target profitable growth and increase commission income increase commission income  Seize key business opportunities in new/ growing sectors (energy and industry and Bring customer service to the highest level food production)  Understand current client needs to grow beyond Iceland Provide services outside local market cautiously  Build key international relationships 31 1. Company information. Retention rate defined as current customer share of loan book

  25. KEY TAKE-AWAYS  Proven ability to deliver large and complex deals  Loyal customer base  Strategy for profitable growth  Successful cross-selling  Dedicated and experienced team  Leadership positioning across sectors 32

  26. INVESTMENT BANKING

  27. LEADING FULL SERVICE INVESTMENT BANKING FRANCHISE SERVICE LARGE CORPORATES, INSTITUTIONS AND INDIVIDUALS Description  Offers full spectrum of investment banking services and Equity brokerage (trading volumes) (1) # 1 is a leading Icelandic broker, IPO and M&A advisor and bond as well as equity trading house  Managed all IPOs listed on Nasdaq Iceland stock exchange in 2015 3/3 Managed all Icelandic IPOs in 2015 Key Highlights and Strengths  Solid track record and reputation  Strong balance sheet to engage in transactions and support Managed on majority of Icelandic IPOs since clients 7/12 2011 - Forward contracts in capital markets  Significant cross-divisional cooperation allowing to leverage customer relationships across the Bank  Capable staff with low turnover ISK 2.2 Bn Fee and commissions income generated in 2015  Good and trusted relations with the Icelandic investors - Key ingredient for the Bank’s placement power along with dealflow Best investment bank in Iceland 2016 #1 according to Euromoney Source: Company information, Nasdaq Iceland, www.nasdaqomxnordic.com, Euromoney 34 1. H1 2016

  28. INVESTMENT BANKING BUSINESS SUBDIVISIONS FULL SERVICE OFFERING WITH STRONG TEAM OF BANKING PROFESSIONALS Capital markets Corporate finance Research  Securities brokerage: equity, fixed income, swaps and  M&A advisory: acquisitions, takeovers, divestitures,  Macro and equity research forwards as well as related derivatives mergers, corporate restructurings, spin-offs and LBOs,  Publish forecasts and updates regularly on key advisory in relation to CBI FX auctions  Foreign exchange: spot, forwards, money market, economic issues as well as covering companies listed on  Capital markets advisory: IPOs and listing, follow on options, swaps the Nasdaq Iceland stock exchange offerings, private placements, block trades, share buy  Icebreaker in meetings for other divisions backs, delistings, bond issues  Supports the fee generating units Banking professionals 32 Average relevant experience 13 years Average number of projects in corporate finance per year 2013-2015 12 Of IB employees have completed post graduate studies 65% 35 Source: Company information

  29. KEY FINANCIALS 1 BALANCED INCOME STREAM WITH CONSISTENT GROWTH Operating income Net fee and commission income 2 IPOs in H1 2015 ISK M ISK M compared to High return none in H1 from sale of 2016, back- 2,160 2,050 27,180 loaded budget associated 1,698 for 2016 companies 1,043 928 1,293 791 11,167 836 524 6,397 1,121 1,117 544 4,326 907 2,012 768 292 2013 2014 2015 H1 2015 H1 2016 2013 2014 2015 H1 2015 H1 2016 Corporate finance Capital markets Operating expenses Earnings before tax ISK M ISK M 31,023 809 722 596 423 372 9,948 7,241 5,468 33 32 32 32 31 2,605 2013 2014 2015 H1 2015 H1 2016 2013 2014 2015 H1 2015 H1 2016 Operating expenses FTEs Source: Company information 36 1. Arion Bank on a standalone basis

  30. LEVERAGING UNIVERSAL RELATIONSHIP BANKING SERVICES ARION BANK’S INVESTMENT BANKING LEVERAGES BANK INFRASTRUCTURE, SERVICE OFFERINGS AND BALANCE SHEET TO ENABLE PROJECTS Company Products sold Plot purchase Equity Securing credit FX advisory Bond issue financing raising facilities and trading and sale United Silicon Refinancing and Rights issue Bond issue and IPO and M&A Bond program restructuring advisory listing listing advisory issue and listing Reitir: Iceland’s largest real -estate company Securing Funding of Securing lead Securing Securing Marriott for Hotel equity Residential initial plot developer of hotel credit residential hotel raising equity raising purchase hotel facility credit facility operations Project Plaza/Project East: luxury hotel & high-end apartments adjacent to Harpa Conference Center 37 Source: Company information

  31. CAPTURE MARKET OPPORTUNITIES BASED ON LEADING FRANCHISE STRONG CUSTOMER FOCUS AND DIVERSE PRODUCT OFFERINGS Objectives  Utilise entire Arion Bank’s customer network to market Arion Bank’s product offerings Leverage the universal unavailable to smaller boutiques relationship banking model  Offer unique product offerings by leveraging Arion Bank’s balance sheet  Maintain leading status of independent research team that plays a vital role in the Leading research with strong reputation generation of business ideas Continuous strong volume  Maintain leading position in equity brokerage  Strengthen Arion Bank’s position in secondary bond market growth  Maintain a strong position in FX brokerage and bond issuances in key capital markets M&A activity foreseen to  Focus on large fee paying clients and products increase with lower interest  Consistent increase in M&A market share with +30% as a target rates and debt levels Diverse and increased capital  Maintain Arion Bank’s leading position in IPOs and listing activities markets advisory based on  Be first choice for secondary market offerings economic growth and investment needs  Increase foreign ownership of listed equities  Capture opportunities arising from easing of capital controls in M&A and capital Attract foreign investors markets activities 38 Source: Company information

  32. KEY TAKE-AWAYS  Experienced employees with a good track record  Increased opportunities in M&A and capital markets are expected from easing of the capital controls  Leading player in IPOs and equity brokerage with a strong position in FX brokerage and fixed income  Diverse product range and able to utilise Arion Bank’s financial strength and infrastructure  Well-known and respected research unit that supports the investment banking business  Large and reliable customer base with strong relationships 39 Source: Company information

  33. ASSET MANAGEMENT & STEFNIR

  34. INTRODUCTION 2 PILLAR ASSET MANAGEMENT  Established in 1985 with ISK 993 billion in AuM at H12016 Combined Group  Composed of 2 distinct legal entities, Arion Bank Asset Management Division and Stefnir Fund Management Company  Leading asset management franchise in Iceland 1  Core focus on pension funds, institutional investors and High Net Worth Individuals / Investors (“HNWI”)  Strong team, good reputation and strong track record make Arion Bank well-positioned to take part in the local dealflow  Operational strength to meet increasing risk management, transparency and regulatory requirements  Well-positioned for easing of the capital controls with strong expertise and product range in global funds 100% Independent Subsidiary Stefnir Asset Management Division  ISK 388 billion in AuM at H12016  ISK 605 billion in AuM at H12016 Asset class (AuM)  Sourced from Arion Bank AM as well as from Product offering (AuM)  71% growth in AuM from 2011 to H12016  Asset management for institutional external investors YE 2015 YE 2015  Emphasis on independence and corporate investors ABMIIF 8% 9% Cash 10%  Full services for pension funds from 1994 governance Fixed income 12% 31% ISK bn 30% Fixed income  More than 40 funds (roots from Frjalsi Pension Fund’s ISK bn 597 Equity 400  High penetration covering 5 out of 5 major foundation in 1978) 53% 23% Equity Private equity 24%  Private Banking for HNWI, family offices domestic, universal insurance companies and Alternative Balanced funds 20 out of 20 largest domestic pension funds and legal entities investments  Provides fund management services to Arion  Strong relationships with other divisions Client split (AuM) Client split (AuM)  Main distributor of Stefnir funds Bank AM as well as external parties YE 2015 YE 2015  Wide range of products offered: fixed income,  Partnership with three major global asset 28% 18% Institutional equities, private equity, balanced funds, and fund managers ISK bn Institutional ISK bn 400 ABMIIF 2  More than 100,000 customers 3 Others 597 72% Others  Approximately 11,500 owners in mutual funds  33 employees 82%  22 employees  2015 ROE of 51.2% 1. Viðskiptablaðið, September 8, 2016 (24-25) 41 2. Arion Bank Mortgages Institutional Investor Fund 3. Pension fund members, mutual fund members, institutional investors, private banking customers etc.

  35. KEY FINANCIALS (INCL. STEFNIR) INCREASING ASSETS UNDER MANAGEMENT AND PROFITABILITY Assets under Management Operating income ISK Bn ISK M 4,882 997 993 949 924 4,144 895 3,701 400 388 390 404 414 2,269 2,167 605 597 559 520 482 2013 2014 2015 H12015 H12016 2013 2014 2015 H12015 H12016 Asset Management Stefnir (1) Stefnir 1 Operating expenses Earnings before tax ISK M ISK M 79 66 70 1,451 1,409 3,431 1,274 2,924 2,735 500 752 732 1,534 1,415 57 56 58 55 53 774 2013 2014 2015 H12015 H12016 2013 2014 2015 H12015 H12016 Operating expenses Legal provisions FTEs PBT Margin (%) 3 Source: Company information 1. Outflow from Arion Bank Mortgages Institutional Investors Fund (ABMIIF): ISK 20 Bn in 2014 and ISK 25 Bn in 2015 2. Computed with legal provisions taken into account, see note 36 in Arion Bank 2013 annual report 42 3. PBT Margin computed as PBT over Operating Income

  36. ICELANDIC ASSET MANAGEMENT MARKET PENSION FUNDS DRIVEN SAVINGS MARKET Market characteristics Competitive landscape  Stefnir is the largest fund management company in Iceland 2 with ISK 400  Savings in Iceland dominated and driven by pension funds  Expected continued inflow into pension schemes billion in AuM at year end 2015  Main trends and key drivers:  Arion Bank‘s Asset Management division is the leader in the market - Continued growth since financial crisis - Well-positioned to benefit from changes in regulations and capital - Broadening of product offering control easing to maintain leading position in the pension market - International investing  Pension funds assets now thirty times larger than financial assets managed  Significant number of competitors with pressure on fees by insurance companies - Increasing cost pressure and regulations on funds have driven  Capital controls easing expected to shift focus to more international consolidations in the pension market – expected to continue in the investing future  Total AuM in the domestic market estimated to be approx. ISK 2,400 billion 1 at year end 2015 (including fund management companies) Institutional investors – investable assets as % of GDP Fund management companies by AuM at H1 2016 180% ISK Bn Stefnir (Arion Bank) 264 124 Landsbréf (Landsb.) 135% 152 Íslandssjódir (Íslandsb.) 97 Gamma 65 90% ÍV sjódur (Ísl.verdbréf) 50 Júpiter rekstrarfélag (Kvika) 33 45% Alda sjódir 26 Rekstrarfélag Virdingar 26 0% Summa 24 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Straumur sjódir (Kvika) 2 Pension funds Insurance companies Funds Arion Bank Mortgages Institutional Investor Fund (ABMIIF) Source: Central Bank of Iceland. 1. The estimation is based on Arion Bank´s assumptions on fund management companies and asset management services from annual reports, news, etc. 43 2. FME

  37. A UNIQUE SERVICE OFFERED TO PENSION FUNDS LONG TRACK RECORD OF MANAGING FUNDS Comparison of Frjalsi 1 pension fund with peers Geometric average returns 2 (annualised) as of YE 2015  Extensive services in branches and service centres Services  Own website  Marketing and sales 9.3% 9.0%  Team-based approach 8.5% 8.4% 8.4% 8.3%  Supporting board of directors in setting IPS Investing  Extensive processes and access to dealflow 7.3% 7.0% 6.2%  Effective operational team Administration and  Experienced back office risk management  Risk management reports  Extensive resources to meet regulatory requirements 3Y 5Y 10Y Regulatory  Strong compliance and legal advisory teams Peer 1 Peer 2 Frjalsi Pension Fund Source: Peers’ and Frjalsi Pension Fund annual reports Awards won by Frjalsi 1 pension fund Arion Bank institutional AM compared to the Icelandic pension system Net assets. Index, 31/12/2009 = 100 Investment & Pensions Europe (IPE) Awards for Pension Funds 250  2014 – 2015 – Best Small Pension Fund in Europe 200  2013 – 2014 – Best Pension Fund in Small Countries  2014 – Best Institutional Real Estate Investor 150  2009 – 2010 – 2011 – Best Pension Fund in Iceland 3  2005 – Best European Pension Fund in the category DB/DC Strategy 100 50 2009 2010 2011 2012 2013 2014 2015 The Icelandic Pension System Arion Bank Institutional AM Source: Central Bank of Iceland, Arion Bank Asset Management 1. The sixth largest pension fund in Iceland (source: FME) with assets of ISK 174 Bn at year end 2015. In full operations at Arion Bank 2. Composite returns computed by asset-weighting individual sub-funds/portfolios 44 3. No specific award category for Iceland from 2012 and onwards

  38. INTERNATIONAL COOPERATION CAPITAL CONTROLS EASING CREATES NEW OPPORTUNITIES AuM allocated to international investments Asset management and Stefnir are well-positioned to capture As of 31/12/2015 opportunities resulting from the easing of capital controls 17% Institutional investors and retail clients alike will likely increase their exposure to foreign assets. Currently, pension funds have Domestic only 22% of their assets outside Iceland. 1 Arion Bank Asset International Management and Stefnir expect this ratio to gradually increase to around 40% over the next 15-20 years 83% Stefnir has a long history of managing international equity funds, both funds of funds and actively managed stock picking Source: Company information. funds. Most of the funds are domiciled in Luxembourg Icelandic pension funds – share of foreign assets Stefnir has the largest team of investment professionals dedicated to international markets 36% Through its 3rd party fund business, Arion Bank has a reselling 27% agreement with three of the top 10 largest asset management companies in the world 2 18% 9% 0% '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: Central Bank of Iceland. 1. Central Bank of Iceland 45 2. IP&E Reference Hub: Total Global AuM Table 2016

  39. ICELANDIC PENSION SYSTEM ROBUST GROWTH EXPECTED TO CONTINUE Development of the pension system’s size 1 % of GDP  Strong organic growth in pension funds due to favourable demographics 500%  New legislation could further increase inflow and postpone outflow 375%  Second largest pension funds system in the world in relative GDP terms 250% (149% of GDP) 125%  Number of pension funds in Iceland has decreased in recent years due to consolidations 0% 2015 2025 2035 2045 2055 2065  Consolidation likely to continue due to regulatory changes 2 Assuming increases in contributions (SALEK agreement) 2 Assuming no increases in contributions (no SALEK agreement) Pension fund consolidation in Iceland Net inflow to the pension system 1 EUR M 65 544 528 515 57 474 149% 439 425 411 411 405 46 375 348 39 318 31 115% 115% 80% 62% 2015 2016E 2017E 2018E 2019E 2020E 1996 2000 2005 2010 2015 2 Assuming increases in contributions (SALEK agreement) # Pension funds Pension funds assets as a % of GDP 2 Assuming no increases in contributions (no SALEK agreement) Source: Icelandic FSA, Statistics Iceland, Central Bank of Iceland 1. Based on Arion Bank AM in-house study 46 2. The cooperation agreement between the employers’ and employees’ associations relating to the salary information and economic forecasts for wage increases

  40. CLEAR STRATEGY AND FOCUS AREAS MAIN DRIVERS OF FUTURE RESULTS Objectives Retain close  Maintain market position and prudent growth in AuM client relationship  Highly skilled people in each position continuously motivated Maintain employee motivation Capture investments  Prudent investment results according to risk levels opportunities Strong focus on digitalisation  Improved efficiency and increased sales opportunities Strong capabilities to benefit  Seize opportunities through changes in regulations from increasing regulatory complexities 47

  41. KEY TAKE-AWAYS  Experienced employees with team approach to investment decisions  Long-term relationship with our clients  Long-term track record in return and services  Largest player in the Icelandic asset management industry  Increased inflow from existing clients, particularly from pension funds  Well-positioned in local dealflow  Well-positioned to benefit from easing of the capital controls 48

  42. FINANCIAL PERFORMANCE

  43. P&L COMPOSITION AND DRIVERS 50

  44. SUMMARY OF FINANCIAL PERFORMANCE GOOD PROFITABILITY UNDERPINNED BY STRONG FUNDAMENTALS  Diversified business model Net interest margin 1 Total operating income (adjusted) across a wide spectrum of Total operating income (adjusted) comprehensive financial ISK Bn product and services offering NCI  NII Stable and diversified income 50.8 2.9% 2.9% 2.9% 2.9% 2.8% 2.7% 46.4 2.6% 2.6% streams, comprising high and Other 41.5 8.0 5.8 growing portion of fee and 3.0 commission income 22.4 28.3 26.9 26.9 0.7  Competitive cost-to-income 14.9 ratio temporarily increased by 14.5 13.7 11.6 6.8 mainly lower other revenues, 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 wage agreements and growth  Reported  Adjusted initiatives at Valitor and at the Cost-to-income ratio Return on equity Keflavik international airport  Cost efficiency measures driving improvements in the cost-to- 66% 28.1% income ratio going forward 58% 57% 56% 54% 54% 50%  Consistent growth in net 18.6% earnings; however, return on 33% equity relatively stable since 9.5% 9.2% 8.7% 7.9% 6.2% 2013 due to higher CET1 2.6%  Adjustments relate to one-off items, primarily impacts from 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 non-core assets and legacy  Reported  Adjusted  Reported  Adjusted equity holdings Source: Company information 1. Net interest margin calculated on average total assets 51

  45. SUMMARY OF FINANCIAL PERFORMANCE GOOD PROFITABILITY UNDERPINNED BY STRONG FUNDAMENTALS  Total operating income growth driven Income statement (adjusted) 1 by strong growth in fee and ISK Bn commission income coupled with 2013 2014 2015 H1 2016 stability in net interest income Net interest income 27.0 26.9 28.3 14.9  Volatility in financial income relating to Net fee and commission income 11.6 13.7 14.5 6.8 MTM of listed equity holdings acquired as legacy loans and some FX volatility Financial income 0.5 1.7 5.3 (1.3) at subsidiary level Other operating income 2.4 4.1 2.7 2.0  Unusually high bank levy affects pre- Total operating income 41.5 46.4 50.8 22.4 provision profit levels Staff expenses (13.4) (13.9) (14.9) (8.4)  Loan loss impairments relatively stable, Operating expenses but offer possibilities for improvement (10.6) (10.9) (12.6) (6.4) Bank levy  (2.9) (2.6) (2.8) (1.5) Consistent growth in net earnings; however, return on equity relatively Pre-provision profits 14.5 18.9 20.5 6.1 stable since 2013 due to higher CET1 Net impairment (3.5) (3.7) (3.9) (2.0) Earnings before taxes 11.0 15.2 16.7 4.1 Income tax (3.1) (4.1) (2.9) (1.8) Net gain from disc. op. 0.4 0.5 0.4 0.4 Net earnings 8.3 11.6 14.1 2.7 Source: Company information 1. Adjustments relate to one-off items, primarily impacts from non-core assets, operating expenses and legacy equity holdings 52

  46. P&L DETAILS: NET INTEREST INCOME STABLE MARGINS DRIVEN BY DISCIPLINED LENDING AS WELL AS FUNDING AND LIQUIDITY MANAGEMENT -  Emphasis on margins rather Interest income Interest expense than volumes in lending ISK Bn ISK Bn activities 56.9 54.5 50.9  Increased focus on funding and 8.0 5.1 5.1 liquidity management has 33.1 31.4 27.6 26.7 1.4 supported the development of 0.8 16.8 4.6 12.6 1.4 49.4 48.9 the net interest margin 11.3 45.8 9.3 0.2 7.8 26.8 19.1  16.0 15.5 New funding during H1 2016 8.7 mostly issued covered and 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 = senior bonds while deposits Lending Other Deposits Borrowings Other funding remain stable  Inflation, which has been low in Iceland since 2013, generally 28.3 has a positive effect on 27.0 26.9 27.0 24.2 23.8 margins – More CPI linked assets Net interest income (adjusted) 1 14.9 14.6 than liabilities Net interest income Net interest margin 2 2.9% 2.7% 2.6% 2.6% 2013 2014 2015 H1 2016 Source: Company information 1. Adjustments to net interest income includes interest on non-core assets earned in Treasury 53 2. Net interest margin calculated on average total assets

  47. P&L DETAILS: NET COMMISSION INCOME EMPHASIS ON COMMISSION INCOME GROWTH IN ALL LINES OF BUSINESS  High growth in net commission Net commission income breakdown Net commission income income from cards since 2013 H1 2016 ISK Bn relating to expansion of Valitor in the Nordics and the UK 14.5  Strong performance in asset 13.3 2% management, partially linked 12% 3.0 to market performance 11.2 2.7  Good progress in investment 1.7 8% 2.6 banking for the past few years 1.8 40% ISK which has led the re- 1.1 6.7 Bn establishment of the Icelandic 4.2 10% 6.7 3.7 equity capital markets 1.6 3.3 – Investment Banking did 0.5 two IPOs in H1 2015; no 1.9 IPOs in Iceland in H1 2016 5.6 28% 5.1 – 4.2 Good progress in capital 2.7 markets in equities, bonds and FX trading Cards Asset management 2013 2014 2015 H1 2016  No adjustments are impacting Collection & payment services Investment banking Cards Asset management net commission income Lending & guarantees Other Investment banking Other Source: Company information 54

  48. P&L DETAILS: VALITOR FINANCIALS OFFERING DIVERSIFICATION AND INTERNATIONAL GROWTH OPPORTUNITIES  30 years of payments tech Acquiring volume Operating profit (EBITDA + net interest) competence in a highly ISK Bn ISK Bn competitive market  Tech platform strength  International operations 390.0 focusing on e-commerce and 0.8 0.6 online payment solutions 142.8 0.3 47.5  Substantial recent growth in Denmark and the UK 2013 2014 2015 2013 2014 2015  Star customers include Stripe Revenues Valitor group profit before tax and Klarna  Substantial pipeline of growth ISK Bn ISK Bn initiatives Iceland International  11.0 Recent infrastructure and 8.2 scalability investments with 6.8 5.9 significant outlook for revenue 2.3 1.3 0.4 growth and increased 0.1 5.8 5.5 5.0 profitability (0.2) 2013 2014 2015 2013 2014 2015 Source: Valitor information 55

  49. P&L DETAILS: NET FINANCIAL INCOME NET FINANCIAL INCOME LARGELY RELATES TO DIVESTITURES OF HOLDINGS  Strong investment return on Net financial income Bond holdings equity positions following ISK Bn ISK Bn listing of several companies 80.3  78.1 In H1 2016, Valitor sold its 12.8 69.6 shareholding in Visa Europe 62.7 21.1 22.6 10.9 Ltd. to Visa Inc. at substantial 7.7 profit 58.7 59.2 55.5 55.0  The Bank holds decreased equity positions in Reitir, Síminn and HB Grandi 7.3 2013 2014 2015 H1 2016 following the listings of those Government Other companies. Those positions will continue to be gradually 5.3 Equity holdings reduced ISK Bn 3.5  Bond holdings, which are 50.5 mainly used in connection with 39.7 1.7 1.7 liquidity management, offer 15.0 31.1 stable returns 11.6 0.5 22.8 5.9 19.5 5.4 15.6 16.6 13.2 16.0 12.5 8.6 4.3 -1.3 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 Listed Unlisted Used for hedging Net financial income Adjusted Source: Company information 56

  50. P&L DETAILS: TOTAL OPERATING EXPENSES INCREASE IN EXPENSES RELATING TO INCREASED SALARIES AND ACTIVITIES  Increase in total salaries and Total operating expense Cost-to-income ratio other operating expenses ISK Bn mainly related to increased activities in foreign operations 28.2 66% of Valitor 27.0 25.4 58% 57% 56% 54% 54%  Slight increase in a number of 50% 13.3 13.0 employees at Arion Bank due to 11.9 15.4 33% merger with AFL savings bank in 7.0 2015 14.9 14.0 13.5  Increase in FTEs in H1 due to 8.4 Valitor expansion and new 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 branch at Keflavik international  Reported  Adjusted Staff costs Other airport  New wage round in H1 had a Number of employees Operating expenses breakdown substantial effect on salaries  An increase in other operating # H1 2016 1,216 1,145 1,147 expenses, marketing expenses 1,120 and mainly IT expenditures, 10% 303 234 271 255 including digitalization, with the Salaries objective to decrease expenses Administrative 55% going forward 35% 911 913 865 876 Other  Layoffs of around 6% of Arion Bank’s staff in Q3 2016 as a countermeasure to increasing 2013 2014 2015 H1 2016 labour costs Parent company Subsidiaries Source: Company information 57

  51. TAX EXPENSE FINANCIAL INSTITUTIONS IN ICELAND FACE A STRINGENT TAX BURDEN  Icelandic corporate income tax Taxes Effective income tax rate rate is 20% ISK Bn 7.8  In addition, financial institutions pay additional taxes: 0.5 – 6% additional income tax on 6.6 6.6 taxable income above ISK 1 Bn – Bank levy of 0.376% on total 0.6 0.7 2.6 debt above ISK 50 Bn – 5.5% tax on employee salaries (6.75% in 2013)  The bank levy was introduced in 2.9 2.8 2010 at 0.041% and subsequently 4.0 0.9 increased in 2013. It was 20.0% 0.4 expected the bank levy would be lowered in 2017 but the long- 18.2% 17.7% 17.2% term budget of the Icelandic 0.6 1.5 0.9 Ministry of Finance indicates it is not the case 3.8 0.5  The historically lower effective 2.5 2.3 income tax rate primarily driven 1.6 by tax exempt income relating to 6.0% equity positions 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 Income tax Additional 6% Tax Effective income tax rate Corporate income tax rate Bank levy Tax on salaries Source: Company information 58

  52. BALANCE SHEET 59

  53. BALANCE SHEET DEVELOPMENT STRONG, SIMPLE AND HIGH QUALITY BALANCE SHEET ISK Bn  Good liquidity position 30.06.2016 2015 2014 2013 2012 Assets  Positive increase in loans to Cash & balances with CB 77 48 21 38 30 customers Loans to credit institutions 86 87 109 102 101  Loans to customers 713 680 648 636 567 Investments in associates decreased due to sale of Financial assets 121 133 102 87 138 Bakkavor Group Ltd. Investment property 6 8 7 29 29  Decrease in deposits due to Investments in associates 1 27 22 18 7 funding agreement with Other assets 31 27 26 30 30 Kaupthing Total Assets 1,035 1,011 934 939 901  Continued increase in borrowings to fund loan Liabilities and Equity growth Due to credit institutions & CB 8 11 23 28 33  Strong equity position Deposits from customers 423 469 455 472 449 Other liabilities 56 62 61 58 59 Borrowings 330 256 201 205 195 Subordinated loans 10 10 32 32 34 Shareholders Equity 199 193 161 140 127 Non-controlling interest 10 9 2 5 4 Total Liabilities and Equity 1,035 1,011 934 939 901 Source: Company information 60

  54. STRONG BALANCE SHEET STRONG, SIMPLE AND HIGH QUALITY BALANCE SHEET ISK Bn, H1 2016 Total assets: ISK 1,035 Bn Total liabilities & equity Other 1 29 Other and intangibles: 4% Intangibles 9 Cash & cash 77 209 equivalents Equity ISK 284 Bn, of which 121 Financial assets ISK 208 Bn liquidity reserve (49% of customer deposits) 73 Other 2 86 Loans to credit institutions 38% Borrowings 330 8% Loans to customers 713 69% of total assets 54% Deposits from 423 customers Individual, mortgages Individual, other Corporate and other Source: Company information 1. Other assets include ISK 6.5 Bn investment property, ISK 0.9 Bn investment in associates, ISK 0.2 Bn tax assets and ISK 21.1 Bn other 61 2. Other liabilities include ISK 8.0 Bn due to credit institutions and Central Bank, ISK 4.7 Bn financial liabilities at fair value, ISK 3.8 Bn tax liabilities, ISK 9.6 Bn subordinated liabilities and ISK 47.1 Bn other

  55. LOAN PORTFOLIO OVERVIEW WELL BALANCED BETWEEN LOANS TO INDIVIDUALS AND CORPORATES  Loans to individuals represent Continued growth in customer loans Domestically focused loan book 46% of total customer loans ISK Bn Customer loans by geography  Small international corporate 2015 713 portfolio in the seafood sector 680 648 636 6%  86% of total loans and 91% of 386 54% 356 326 loans to individuals are 325 Domestic collateralised (year end 2015) International  Loan demand favourable, 321 325 327 310 46% especially corporates and 94% mortgages, although some 2013 2014 2015 H1 2016 competition from pension funds Individuals Corporate  Leading mortgage market Mortgage loans by region Mortgage loan to value innovator: first to introduce e.g. 2015 Reducing average LTV fixed rate non-CPI linked % Total mortgages 2014 2015 2% 35% 7%  Successful acquisitions of 30% Reykjavik area 9% 25% mortgage portfolios 2011 and South 20% 9% 2013 North 15% West 10%  The quality of the mortgage East 5% 74% portfolio is good and continues 0% 0% - 20% 20% - 40% 40% - 60% 60% - 80% 80% - 100% > 100% Not classified to improve Source: Company information 62

  56. OVERVIEW OF THE CORPORATE & SME BOOK GOOD DIVERSIFICATION IN THE CORPORATE & SME LOAN BOOK  Good pipeline for corporate Strong growth in corporate lending Loans to corporate by sector loans ISK Bn H1 2016  Strong demand from export Real Estate & Construction  SME 386 industries that generally favour 5%5%  Corporate Fishing loans in FX 8% 29% 356 Wholesale & Retail 8%  New lending for the first six 325 326 Finance & Insurance 9% months in 2016 amounted to 133 Industry, Energy & Manufacturing 21% ISK 96 Bn according to 15% 121 Information & Communication 67 definition from the Central 85 Services Bank and repayment of total Other ISK 47 Bn Loan commitments – ISK 62 Bn H1 2016 Real Estate & Construction 258 253 Fishing 241 9% 5% 235 12% 2% Wholesale & retail 10% Finance & insurance Industry, Energy & Manufacturing 32% 25% Information & Communication 6% Services 2013 2014 2015 H1 2016 Transportation Source: Company information 63

  57. ASSET QUALITY IMPROVEMENTS HIGH QUALITY CREDIT PROFILE AND PROBLEM LOAN RATIOS NOW NARROWING IN ON THE NORDIC BANKS  Much effort has been made Continuously improving credit quality… …and strong coverage since 2010 to improve asset Problem loans Coverage ratio quality resulting in continued % (%) improvements in problem Loans in >90 days facility default loans Other problem loans  Ongoing improvements and work proactively to further 6.3% 75.8% enhance the credit quality 74.4% 62.9% 4.4% 58.3% 1.8% profile 2.5% 0.8% 1.9% 4.5% 0.4%  3.6% Strong coverage ratio 0.5% 2.1% 1.4%  2013 2014 2015 H1 2016 Cost of risk is high compared 2013 2014 2015 H1 2016 with Nordic banks. The Cost of risk objective is to further narrow in on the Nordic banks Bps, H1 2016 annualised Breakdown of problem loans by status acknowledging that special Icelandic issues, such as loan indexation, will probably result 58.0 58.0 58.0 58.0 2.1% 0.4% 46.5 in higher default ratios in Individuals Corporates 11.3 15% 21% Iceland than in the Nordics 32% 22% -27.1 -33.3 84% 2.5% 16% 2013 2014 2015 H1 2016 57% 53%  Reported  Adjusted Source: Company information 64

  58. BALANCE SHEET FUNDING 65

  59. SIMPLE AND SOLID BALANCE SHEET DIVERSIFIED FUNDING PLATFORM WITH HIGH DEGREE OF EQUITY ISK Bn, H1 2016 Total assets Total liabilities & equity: ISK 1,035 Bn Other 1 29 Intangibles 9 Cash & cash 77 Large equity base 209 equivalents Equity 20% of the total balance sheet 121 Financial assets 73 Other: 7% Other 2 86 Loans to credit institutions 3% Borrowings Covered bonds 46% 32% of the total 330 Bonds issued 51% balance sheet Other 713 Loans to customers Deposits from 34% 43% customers 423 41% of the total 23% Retail balance sheet Pension funds & domestic financial institutions Corporates & other Source: Company information 1. Other assets include ISK 6.5 Bn investment property, ISK 0.9 Bn investment in associates, ISK 0.2 Bn tax assets and ISK 21.1 Bn other 66 2. Other liabilities include ISK 8.0 Bn due to credit institutions and Central Bank, ISK 4.7 Bn financial liabilities at fair value, ISK 3.8 Bn tax liabilities, ISK 9.6 Bn subordinated liabilities and ISK 47.1 Bn other

  60. FUNDING PLAN 2016 FOCUS ON INTRODUCING ARION BANK TO NEW INVESTORS  Target for a total funding of International funding Limited near-term re-financing needs ISK 115 Bn in 2016  A new Euro benchmark (EUR 300-500 M) ISK Bn, H1 2016  Covered bonds, other borrowings and subordinated loans Arion Bank concluded a EUR scheduled in March-June 300 M EMTN benchmark in  EMTN private placements (EUR 5-25 M 101.0 offered to EMTN dealers) ISK FX April 2016 – Diversification of funding – competitive  EMTN private placements in funding spreads 64.0 US Dollars and Romanian – Increased awareness of Arion Bank as 52.9 Leu in 1H 2016 issuer 44.5  Increased emphasis on debt investor relations 18.1 16.6 18.7 11.4 8.8 – Investor base concentrated in the Nordics 2.9 and UK – 5-6 non deal roadshows in 2016 2016 2017 2018 2019 2020 2021 2022 2023 2024 >2024 (Germany, Italy, Benelux, France and Asia) Domestic funding Net stable funding ratio H1 2016  Monthly issuance of covered bonds – target NSFR (FX): 171% of ISK 33 Bn – Two new inflation linked benchmarks in H2 2016 NSFR (Total): 118%  Inaugural senior unsecured ISK issuance – Capitalise on demand for covered bonds Finalised/on track Source: Company information 67 In progress

  61. OVERVIEW OF DEPOSITS  Stable deposit base as Arion Deposits development Average deposit yields Bank continues to diversify its ISK Bn Deposit interest expense % avg. deposits funding base  Reduced concentration of 472 469 455 demand deposits 423 3.8% 3.8%  Kaupthing moved ISK 41 Bn 3.2% 3.3% equivalent of FX deposits into long-term EMTNs in January 2016 explaining the reduction year-on-year 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 – As per agreement between Kaupthing and the Icelandic government Concentration of demand deposits – Affected the average Demand deposits within 30 days deposit yields in H1 2016 Retail  An element of pension fund 50% related deposits flowing into 8% SME 61% 62% money market funds 24% 42% Corporates Financial entities being 32% 23% 23% 4% wound up Pension funds & domestic 19% 17% 16% 11% 11% financial entities Other 2013 2014 2015  Largest depositors (1-10)  Largest depositors (11-100)  Remaining Source: Company information 68

  62. SUCCESSFUL DEBUT IN THE EUROBOND MARKET TWO SUCCESSFUL EUR BENCHMARK TRANSACTIONS Senior unsecured bonds Distribution by geography  On 3 March 2015, Arion Bank Spread (bps) over Mid-Swaps 2016 launched its inaugural euro 300 100% Arion 3.125% 2018 senior unsecured benchmark 14% 14% transaction, the first from an Landsbanki 3% 2018 250 7% 7% 80% Icelandic bank since 2008 Islandsb. 2.875% 2018 Other 200 31% Arion 2.50% 2019 35% 60%  Order book in excess of EUR DE & AUS 675 million which enabled the 150 40% Nordics Bank to price at MS+310 or 15bp lower than initial UK 100 48% 44% 20% guidance 50  0% In April 2016, Arion Bank 2015 2016* issued a second EUR 300 M 0 transaction. Compared to the 30-Apr 31-May 30-Jun 31-Jul 31-Aug 30-Sep 31-Oct Distribution by investor type inaugural bond offering, Arion Issue Details 2015 2016 Bank managed to diversify its 100% 1% 4% 6% Issue rating (S&P): BB+ (positive) BBB- (Positive) investor base, adding new 11% Other Format: Senior Unsecured Senior Unsecured 80% investors while also keeping a 27% 14% Pricing date: 12 March 2015 26 April 2016 Banks core tranche of second time 15% 60% Settlement date: 12 March 2015 26 April 2016 investors Hedge funds Maturity date: 12 March 2018 26 April 2019 40% Size: EUR 300 M EUR 300 M 66% Insurance / 56% Coupon: 3.125% 2.500% 20% pension funds Issue price: 99.673 99.783 AM Initial spread guidance: MS + 325 bps area MS + 275 bps area 0% Launch spread MS + 310 bps MS + 270 bps 2015 2016* Lead managers: DB, Citi, Nomura Barclays, JPM, Nomura Source: Barclays & Deutsche Bank *January – April 2016 69

  63. STRONG LIQUIDITY POSITION ARION BANK OPERATES WITH A STRONG LIQUIDITY POSITION AND LIMITED NEAR-TERM REFINANCING NEEDS  Arion Banks liquidity position is Liquidity coverage ratio Sticky deposit base robust as evidenced by a solid LCR outflow from deposit categories Liquidity reserve (ISK Bn) liquidity coverage ratio of H1 2016 100% 180% 5% n.a. 180 192 208 Financial entities being wound up 3% 10% Foreign parties  Loan-to-deposit ratio excluding 80% 180% 174% 14% Domestic financial entities covered bonds of 132% (169% 5% 134% 123% including covered bonds) 60% Pension funds 11% 11% Sovereigns, central banks and public sector  Total liquidity reserve of ISK 40% entities Corporations 208 Bn, or 49% of customer SME deposits 42% 20% 2013 2014 2015 H1 2016 Retail  High degree of stickiness in the 0% deposit base Loan-to-deposit ratio Liquidity reserve ISK Bn, H1 2016 Excluding covered bonds Covered bonds 4% Cash and balances with Central 169% 14% Bank 145% 142% Short term deposits in other banks 135% 37% 37% 29% 28% ISK Domestic bonds at Central Bank 10% 29% 208 Bn Foreign government bonds 132% 12% 114% 116% 106% Government liquidity facility 23% Covered bonds > AA- 2013 2014 2015 H1 2016 Liquidity reserve % customer deposits: 49% 70 Source: Company information

  64. RATINGS: POSITIVE OUTLOOK SIGNIFICANT IMPROVEMENT IN ASSET QUALITY AND POSITIVE OUTLOOK Arion Bank Rating Fundamentals Ratings (S&P)  Strong capital position Senior unsecured BBB BBB+  Strong liquidity position Short term debt A-2 A-2  Largely restructured loan book Outlook Positive Stable  Strong earnings  The operating environment for banks in Iceland is improving, with falling private-sector leverage and improved access to foreign debt capital markets  In addition, S&P says Arion Bank's continued reduction in legacy equity positions is promoting further improvement in its capital  As a result, S&P raises its long- and short-term ratings on Arion Bank to 'BBB/A-2' from 'BBB-/A-3'  The positive outlook reflects the potential for further capital improvements once the uncertainty of the ongoing sales process recedes 71 Source: Standard & Poor’s (S&P ), Company information

  65. BALANCE SHEET CAPITAL 72

  66. STRONG CAPITAL BASE WELL ABOVE REGULATORY REQUIREMENTS ARION BANK OPERATES WITH A STRONG CAPITAL ADEQUACY  Majority owner did not have Strong capital adequacy Leverage ratio an economic benefit from a Capital adequacy ratio dividend payment in 2016 %, ISK Bn resulting in further CET 1 Tier 1 Tier 2 RWAs strengthening of capital base  Strong leverage ratio 721 808 743 696  Current legislation allows for 18.1% 27.8% further capital optimisation 16.7% 26.3% over time 1.0% 15.4% 24.2% 1.3%  23.6% 14.5% CRD IV has been implemented 4.5% 0.8% in Iceland 1.1% 0.2% 4.4%  CRD capital buffers are being 0.2% implemented in stages, reaching a combined buffer requirement of 8.4% in November 2017 for Arion Bank 25.5% 22.3% 21.6% 19.0% 2013 2014 2015 H1 2016 2013 2014 2015 H1 2016 Source: Company information 73

  67. CAPITAL STRUCTURE AND REQUIREMENTS Capital structure and capital need Status of ICAAP / SREP   The Bank’s total capital ratio was 27.8% at H1 2016. Final CRD IV FME has delivered its final SREP report. FME’s Pillar 2A add - adoption in the fall of 2016 will have limited effects on is 4.3% of RWA compared to the Bank’s internal assessment of 1.7% as per the ICAAP  At Q4 of 2017, the combined capital buffer requirement will reach 8.4%, with a recent add-on from the Financial Stability Board to the  The main differences between FME’s and the Bank’s countercyclical buffer, which increases from 1.0% to 1.25% assessment of capital under Pillar 2 are the following:  With FME’s SREP result, the regulatory capital requirement is 20.7% , – Use of diversification effects and offsetting within including fully-implemented buffers intra-risk categories. There is lack of precedents and  Assuming a management buffer of 1.5%, the Bank had a surplus capital guidelines from the FME on the matter of ISK 42 billion at H1 2016 – Different interpretation of the segmentation of Pillar 2 risk items into 2A and 2B buckets. The Bank wants to avoid double counting – FME has introduced a capital add-on to achieve equal 27.8% 1.0% conservatism of the standardised approach in Iceland 1.3% 22.2% 22.2% Management buffer as in G20 countries to which the approach is 1.5% 3.1% CRD IV buffers calibrated. The Bank has rejected this back-door 2.3% Pillar 2 (draft result) introduction of a capital buffer as part of Pillar 2 8.4% Pillar 1 – The Bank uses unrealised gains to offset interest rate 25.5% 4.3% risk in the mortgage loans portfolio purchased from 16.8% Tier 2 Kaupthing. The Bank uses the loans’ effective interest AT1 8.0% rates which are considerably higher than the market CET1 rates and/or contractual rates for discounted loans Arion H1 2016 Composition under Capital CRD IV requirement Source: Company information 74

  68. CAPITAL MANAGEMENT STRATEGY AND DIVIDEND POLICY ARION BANK‘S DIVIDEND POLICY  Based on the Arion Bank‘s expected financial performance over the medium term, Arion Bank aims to pay an annual dividend before special distributions, in line with a payout ratio around 50% of net income attributable to shareholders ARION BANK‘S CAPITAL MANAGEMENT  Arion Bank‘s objective is to maintain a capital adequacy ratio that is 1.5% above total FME requirements, including Pillar 1, 2 and combined capital buffers  Irrespective of the objective, the capital adequacy ratio should not be lower than 20%  Current capital adequacy ratios are in excess of the targets, and Arion Bank aims to distribute surplus capital to shareholders  However, the speed and quantum would depend on a number of factors, including (but not exclusively) FX imbalances management, capital optimisation strategy and regulatory consent, and is likely to take place over a number of years Source: Company information 75

  69. APPENDIX 76

  70. RETAIL BANKING 77

  71. INTRODUCTION TO ICELANDIC RETAIL BANKING MARKET CHARACTERISTICS OF THE MORTGAGE LOANS MARKET Description Mortgage loans portfolio ISK Bn The Icelandic mortgage loans market  Iceland is and is expected to remain a homeowner ´ s market. Rent prices have been 637 599 on the rise, pushing more people into buying, thus increasing investment demand in 518 479 the market  Housing prices are going up (expected until 2018). Real estate index currently above 272 267 268 258 228 the CPI 213 202 197 199 187 176 176 173 165 171 123  Historically, CPI linked mortgage loans have been the most popular and keep growing in popularity in 2016  Government supported initiatives in recent years 2013 2014 2015 H1 2016 Arion Bank Landsbankinn Íslandsbanki Housing Financing Fund Pension funds ₋ Tax benefits to home buyers on allocation of private saving ₋ First time home purchases after the financial crisis Competition Icelandic market  Historically, large government participation through the Housing Financing Fund, however limited activity today Index=100, 2000  Main competition comes from Landsbankinn and Islandsbanki 500  In 2016, pension funds have been aggressive in lending rates and gained market share 333 Quality portfolios  Salary and interest caps introduced as a regulated way to ensure health of the housing 167 sector 0  Strict government rules in credit rating and payment plans for mortgage loans 2000 2002 2004 2006 2008 2010 2012 2014 2016  Maximum loan-to-value up to 80% (up to 85% for first-time home buyers) Consumer price index Salaries index Real estate index  Low default rates in mortgage loans 78 Source: Statistics Iceland, Central Bank of Iceland

  72. MORTGAGE LOANS TO INDIVIDUALS Split of new mortgage loans in MAINTAINING MARKET SHARE IN AN INCREASINGLY COMPETITIVE MARKET H1 2016 ~67% CPI linked vs. ~33% non- CPI linked Arion Bank initiatives Arion Bank mortgage loans volume – individuals  Arion Bank has a full range of mortgage products and strong position in the ISK Bn 272 268 267 258 market  Arion Bank was the first to offer ISK – CPI linked mortgage loans at competitive rates in 2004. Gained large market share with that offer 202 198 205 204  Since 2011, further strengthened first mover advantage by offering mixed CPI linked /non-CPI linked mortgage loans  Arion Bank was the first to introduce fixed 5 year interest rates on non-CPI 70 70 61 54 linked mortgage loans in 2011 2013 2014 2015 H1 2016  Digitalisation in mortgage loan process underway ISK ISK - CPI linked  Further opportunities with acquisition of Vörður, insurance company Development of key ratios in Arion Bank mortgage loans portfolio 1 % Healthy portfolio 77 78 74 71  Weighted average LTV for the retail mortgage portfolio of 65% as of H1 68 65 61 64 2016  Low default rate as Arion Bank is conservative regarding LTV  ISK – CPI linked loans have an early prepayment fee attached to them (0-2%) 6.7 5.9 3.5 2.2  Circa 90% of properties owner occupied 2 2013 2014 2015 H1 2016  Strong positioning in the mortgage loans market leading to high cross-selling WALTV LTV<80% >90d defaults [%] potential (for example, deposit products) Source: Company information 79 1. Arion Bank Pillar 3 risk disclosures 2. Company information

  73. FOCUS ON SME S SIGNIFICANT GROWTH PROFILE DRIVING PORTFOLIO DIVERSIFICATION SME loans by geographic area and industry sector 1 Key highlights H1 2016  Significant rise in SME loan volumes from ISK 67 Bn in 2013 to ISK 133 Bn in 32,676 H1 2016 28,357  SME loan book in Arion Bank traditionally relatively small in comparison with competitors 22,374 18,540  Appetite to grow in the SME space for further diversification and deliver growth in the loan book 12,902 10,858  Three sectors drive growth in the SME loan market 7,563 ₋ The real estate and construction sector ₋ The wholesale and retail trades industry Real estate Wholesale Seafood Services Industry, Financial and Other and and retail energy and ins. services ₋ The seafood construction trades manuf. Capital area North South West Other Arion Bank initiatives Loan volume development 2  Decentralisation strategy creating SME units in branches has driven growth ISK Bn in SME loans by moving credit authority closer to customer 133 121  Initiatives in new products in the last 5 years 85 67 ₋ Factoring ₋ Vehicle and equipment financing ₋ Cooperation with the European Investment Fund in SME lending at lower rates with focus on start-ups and development projects 2013 2014 2015 H1 2016 80 Source: Company information 1. SME loan book 2. Loan volume development. In 2014 / 2015 SME loans were moved from Corporate Bank to Retail Bank ~22 Bn

  74. DEPOSITS FROM CUSTOMERS OPPORTUNITY TO GROW THROUGH LEVERAGING STRONG MORTGAGE LOANS CUSTOMER BASE Key highlights Total deposits volume in Retail Bank ISK Bn 271 269 264  Bank customers in Iceland are accustomed to keeping deposits with 257 249 18 20 20 22 their main bank 26 ₋ Opportunity to attract deposits from customers who have their 198 207 193 186 mortgage loans with Arion Bank but deposits with another bank 173  The new online onboarding platform is a key catalyst for attracting new customers, along with the comprehensive digital offering 50 50 51 51 46  Relatively stable market for individual deposits. SMEs’ deposits are 2012 2013 2014 2015 H1 2016 CPI linked ISK FX more price sensitive  Government recently cancelled the state guarantee on deposits. No Arion Bank’s share of the total deposits market – individuals effect expected %  Good cooperation with Asset Management division of Arion Bank enables many opportunities ₋ Retail offering combined with insurance and pension products 77.9% 79.8% 79.2% 78.4% ₋ The growing SME activity also provides cross-selling opportunities ₋ Increase the retail deposits market share 22.1% 20.2% 20.8% 21.6%  Smaller market share in deposits, as compared to the other large 2013 2014 2015 H1 2016 Arion Bank Total deposits banks  CPI linked deposits sticky due to regulations 81 Source: Company information

  75. CORPORATE BANKING 82

  76. CORPORATE BANKING MARKET AND COMPETITION PROACTIVE AND SUCCESSFUL APPROACH TO MARKET DEVELOPMENTS Key highlights Credit risk analysis Weighted net interest rate Corporate Banking Post crisis material margin pressure in high quality credits unfolded due to increased 4.00% Stabilised period 4.50% Adjustment period competition from pension funds as yields on government bonds decreased and credit quality of companies improved 4.00% 3.50% – Deleveraging and steep repayment profiles imposed by banks post 3.50% 3.00% financial crisis 3.00% 2.50% – Shortening maturity profiles across the corporate banking industry were a 2.50% 2.00% response to increased competition as long-term financing of the banks was 2.00% still expensive 1.50% 1.50% 1.00%  Corporate banking has managed to stabilise its margins and to extend maturity 1.00% profiles in 2015 and 2016 after realigning operations in 2013 and returning to a 0.50% 0.50% proactive approach in 2014: 0.00% 0.00% – Corporate Banking balanced decreasing margins with large, less price 2013 2014 2015 1H 2016 sensitive infrastructure and energy projects as well as international seafood NIM CB credit (L.sc.) Probaility of Default (Internal) (R.sc) – Teamed up with foreign players in syndicated deals where Arion Bank took Increasing weighted loan book maturity the second lien due to better market knowledge, thereby maintaining margins (while foreign players took lower yielding first lien) Years – Customer base defence through focus on longer dated credits and by 3.3 3.2 employing full product range (thereby cross – selling) which kept revenues up – Increased focus on customer retention and relationship development by 1.7 organising and increasing focus on the relationship management role in 1.3 Corporate Banking  Successful increase in average loan book maturity, thereby materially reducing prepayment risk and risk of client losses on small price differentials benefitting from better access to long-term funding (especially FX) 2013 2014 2015 H1 2016 83 Source: Company Information

  77. PRODUCT OFFERING OVERVIEW DIVERSIFIED BOOK Key highlights – term loans Term loans outstanding Outstanding in ISK Bn 2  Term loans are the highest volume product in all client sectors and drives both income and NIM 238.1 203.3 202.0  Competitive and price sensitive market 38.9%  New investment in the economy expected to drive current demand in 39.1% 36.6% general, as do expected consolidation trends in commercial real estate, 24.8% tourism and seafood 18.5% 28.7%  Increasing dealflow in large scale project finance deals (energy intensive, 36.2% 42.4% 34.7% real estate, etc.) as economy recovers  Customer segment redefinition in 2014 (handover to retail bank in 2014 2013 2014 2015 and 2015 1 ) and NIM preservation ISK CPI linked FX  New large scale project finance deals sourced in 2015, expected to be realised in 2017-2020 Key highlights – revolving credit facilities Revolving credit facilities Outstanding in ISK Bn 2  A lower volume core product business 45.8 53.0 56.6  Characterised by seasonality and high price sensitivity 35.5  Seafood is key industry for RCF demand 32.6 31.1  Current accounts, overdrafts and trade finance activity covered 61.1% 62.0% 56.0%  Lower margin business 38.9% 44.0% 38.0% 2013 2014 2015 ISK FX Committed amounts Source: Company information 1. Corporate Bank redefined its customer segment from Iceland 300 largest to Iceland 100 largest companies resulting in a successful SME customer handover to the Retail Bank 84 2. Including lending to Arion Bank ´ s independent subsidiaries

  78. PRODUCT OFFERING OVERVIEW SERVICES GROWING AND COMPLEMENTING CREDIT RISK Commissions income breakdown Key highlights %, M 38.9  Focus on commission income has resulted in a clear positive trend of 32.5 increasing commission income per FTE as well as its relative contribution 22.7 11.7% 16.3% 22.9%  Clear responsibilities with relationship managers spending their whole 71.6% time serving clients better with a profound understanding of client needs 75.6% 62.7% and requirements 16.7% 14.4% 8.1% 2013 2014 2015  Better digital solutions are expected to increase customer stickiness Guarantees Transaction / arrangement services 1 Electronic services Commission per FTE (ISK m)  Digital services are scalable and allow for income growth per FTE Guarantees outstanding  Corporate Banking has the ability to capitalise on strong large corporate ISK Bn 14.3 relations to bid for digital services in conjunction with regular lending activity 5.6 5.2  Guarantee business as a growing product, both in terms of volume and income contribution 2013 2014 2015 − Traditionally confined to import/export and trade finance Product income split − Growing imports support demand as well as large project finance % deals where Arion Banks is lead and “house bank” 7% 16% 15%  Further investments in a corporate digital platform on the horizon to 93% 84% 85% improve service and gain increased share in digital services 2013 2014 2015 Credit risk Service Source: Company information 85 1. Transaction / arrangement services include prepayment fess which were a substantial part of fee and commission income in 2014, amounting to 44.1% of total fee and commission income. Prepayment fees are not a sustainable income source and are mainly relevant during time of rapid prepayments and short loan book

  79. INVESTMENT BANKING 86

  80. INTRODUCTION TO ICELANDIC INVESTMENT BANKING MARKET RECENT STRONG IPO MARKET DRIVING TRADING VOLUME Highlights Total trading volume in bonds and number of bond offerings ISK Bn, %  Small and geographically isolated with few local competitors 35 60 43 32  Iceland’s investment banking market is comprised of the three 187 150 largest banks in Iceland (Arion Bank, Islandsbanki and 108 91 Landsbankinn) with a few smaller boutiques  Arion Bank has managed 7 of the last 12 IPOs since 2011 with the intention to facilitate further trading volumes in the 2013 2014 2015 H1 2016 Icelandic stock market whereby the investor base is a Arion Bank’s market share (%) combination of institutional investors, such as pension funds, Total trading volume in equities and number of IPOs on and HNWI Nasdaq Iceland stock exchange  Activity in new bond issues has increased in recent years ISK Bn, # whereby the real estate companies along with the Bank’s 3 3 2 0 covered bond issues have been the key drivers with institutional investors driving the demand 385 346 276 251  Traditional companies have relied to a greater extent on credit facilities from banks, but developments in corporate bond market are expected to fuel growth 2013 2014 2015 H1 2016 Number of IPOs 87 Source: Company information

  81. CORPORATE FINANCE LEADING ADVISORY TRACK RECORD Highlights Involved in 7 out of 12 IPOs in recent years Description 2011 2013 2014 2015  Focus on large fee paying clients  Leading player in building up the equity market  Strategic initiatives in terms of focus on product and sector mix in accordance with regular analysis of micro- and macroeconomic trends Key Strengths  Being a part of universal relationship bank ensures: - Dealflow M&A Track Record - Distribution capabilities  Highly capable and experienced staff  Strong balance sheet - Underwriting capabilities Buy-side Advisory Buy-side Advisory Buy-side Advisory Sales Advisory 2016 2015 2015 2014  Strong infrastructure and lean management help focus on customer relations, pipeline and dealflow Magn P/F Equity Raising Sales Advisory Buy-side Advisory Buy-side Advisory 2014 2013 2013 2013 88 Source: Company information

  82. CAPITAL MARKETS LEADING MARKET POSITION IN EQUITY AND STRONG MARKET POSITION IN FX AND BONDS Nasdaq Iceland: Equities Jan – Jun 2016 Description  Leading in equity brokerage and strong position in FX brokerage and % of market turnover bond issuances market 24.7  Equity and bond desks servicing pension funds, AM companies and 23.5 18.1 professional investors 16.6  FX desk providing services to corporates in spot, forward, swap and 7.7 7.0 option products. Only Icelandic bank that provides oil hedging products 1.5 1.0 Key Strengths  Leading in equity brokerage in Iceland  Leading player in restoring the equity market in Iceland  Strong position in FX brokerage and bond issuances  Strong relationship with all major investors in capital markets Market share in brokerage on Nasdaq Iceland Nasdaq Iceland: Fixed income Jan – Jun 2016 % % of market turnover 26.8 30 21.8 24.7 20.6 23.0 18.0 17.5 25 10.1 16.7 20 15.0 6.3 19.7 2.2 15 1.7 1.4 0.5 17.5 16.2 16.1 10 13.6 5 0 2012 2013 2014 2015 H1 2016 Equities Fixed income 89 Source: Nasdaq Iceland, www.nasdaqomxnordic.com

  83. RESEARCH TEAM LEADING RESEARCH CAPABILITIES Team Publications # of publications Independent research team of six strong analysts covering 6 the Icelandic economy and securities markets 217 207 2 Meetings per week with clients 130 118 111 64 89 87 47 7 Industries covered 2014 2015 H1 2016 Market briefings Equity reports Products & services External publications Conferences & presentations Internal support  Morning Briefings  Open Conferences at Arion Bank HQ  Arion Bank´s divisions increasingly seek short reports, Daily notes covering the most prominent news and research issues Regular presentation sessions & conferences on key economic presentations, opinions, memos or data analysis regarding  Market Briefings topics such as housing market, tourism industry and equity specific economic issues or client pitches Brief reports highlighting current domestic economic issues. markets. Annual conferences when leading research reports Over 2,000 subscribers. MBs are followed by Icelandic media are published and are regularly cited in media articles  Private Meetings  Equity Reports Tailored for specific clients of Asset Management, Retail Regular reporting on 11 listed companies in Iceland Banking, Investment Banking or Corporate Banking  Special Market Reports  Internal Morning Briefings Tailored for key clients of Arion Bank’s Investment Banking Morning briefings held for internal staff to brief on current  Economic Outlook market issues Monthly publications on Iceland’s economic issues and outlook 90 Source: Company information

  84. ASSET MANAGEMENT AND STEFNIR 91

  85. A COMPREHENSIVE PRODUCT AND SERVICES OFFERING  Full range of investment products and services for clients with varying investment objectives  Core focus on pension funds, institutional investors and HNW clients  Largest number of investment professionals in Iceland 1  Dedication to long-term client relationships Other Institutional Investors Full Service Pension Funds Alternative Investments Portfolio Management Institutional Investors Own Pension Funds 3rd Party Funds Retail Investors Fixed Income Balanced Advisory Equity Institutional Investors Private Banking Investment Services Stefnir Fund Management Company Full Service Asset Management House 92 1. Company information. Asset management

  86. STEFNIR FUND OVERVIEW AND PERFORMANCE UCITS, non-UCITS and instit. investor funds (AuM ISK 346 Bn) 1 Private equity and real estate funds (AuM ISK 41 Bn) 1  Fund size at inception (ISK Bn): 3.4  Funds: 7  IRR/MoM: 16.2%, 1.35X  AuM (ISK Bn): 71  Investments: 4 – fully invested  Wide fund range Fixed income SIA I (PE)  Exits: 3 (2 IPOs and one trade sale)  Oldest incorporated UCITS fund in Iceland (inception in 1986)  Co- investments: 2, adding ISK 6.8 Bn in AuM  Fund size at inception (ISK Bn): 7.5  Funds: 2 domestic; 4 intl.; 3 intl. domiciled in Lux.  IRR/MoM: 16.5%, 1.26X  AuM (ISK Bn): 84  Investments: 4 – 92% invested Equities SIA II (PE)  Domestic and international equities  Exits: 3 (2 IPOs and one trade sale)  Consistent growth in AuM since 2008  Co- investments: 3, adding ISK 15.8 Bn in AuM  Funds: 6  Fund size at inception (ISK Bn): 12.8 / raised spring  AuM (ISK Bn): 39 2016  Oldest incorporated non-UCITS fund in Iceland Balanced funds SIA III (PE)  Largest PE fund raised in Iceland by any investment (inception in 1996), highly distributed retail and PB manager ownership  SRE I at inception (ISK Bn): 1.6 / IRR 11.5% (real) for unleveraged deal  Funds: 8 Institutional  SREI II at inception (ISK Bn): 4.9 / 90% invested, IRR SRE I and SRE II  AuM (ISK Bn): 152 (ABMIIF; 124 ISK Bn) investor funds/ 34.7% (real), 2.0X (real estate)  Market leading product development other  All investments, except one, sold in autumn 2016 to a listed REIT Source: Company information 93 1. H1 2016

  87. STEFNIR STRATEGIC GROWTH AND CUSTOMER SATISFACTION  Stefnir has achieved financial and market share growth through long-term Preferred partner of institutional clients strategic planning by its board of directors implemented since 2009 with 2016 Client Survey Results 1 emphasis on a healthy revenue mix  Product development and AuM diversification have led to new income Would you recommend Stefnir to other institutional investors? sources as well as higher income yielding products 4% Yes 96% Don't want to answer 4% AuM development and split No 0% Don´t know 0% 96% ABMIIF Only 6% of ISK Bn 300 revenues Stefnir offers a comprehensive product range that meets needs of institutional investors 200 4% Highly agree 50% 100 Agree 46% 50% Neutral 4% 0 46% Disagree 0% 2008 2009 2010 2011 2012 2013 2014 2015 Highly disagree 0% Non-ABMIIF ISK Bn 300 How is professional knowledge of Stefnir employees in your opinion? 200 4% Above average 80% 100 Average 16% 16% Don´t know 4% 0 Below average 0% 80% 2008 2009 2010 2011 2012 2013 2014 2015 Don´t want to answer 0% International Equities Icelandic Equities Fixed Income Private Equity Balanced Funds Source: Company information 94 1. 50 institutional investors outside Arion Bank were invited to take part, 52% response ratio

  88. PRIVATE BANKING TAILOR MADE PERSONAL SERVICE TO CLIENTS 2016 client survey results 1  Special focus on Ultra High Net Worth (UHNW) clients in Iceland  Healthy growth in PB AuM All things considered, how satisfied or unsatisfied are you with Arion Bank Private  Tailor made and highly personal service Banking services? 2% 1% Very satisfied 47%  Discretional and non-discretional asset management 11% Rather satisfied 39%  Experienced account managers – average 18 years in the financial market 47% Neutral 11%  Team-based approach to investments and services, working closely with 39% Rather unsatisfied 2% other divisions of the Bank Very unsatisfied 1%  Good access to local dealflow due to the size of Arion Bank’s AM  Specialised balanced portfolios Do you feel the employees of Arion Bank Private Banking give you a personal or impersonal services? 3% Very personal 44% 14% Growth in PB AuM Portfolio 2 development Rather personal 39% 44% Neutral 14% Index, 2012 = 100 Index, 2012 = 100 39% Rather impersonal 3% Very impersonal 0% 160 160 140 How good or bad is the access to your Account Manager? 140 120 120 5% 2% 100 100 Very good 69% 80 80 60 Rather good 24% 24% 60 Neutral 5% 40 40 69% 20 Rather bad 2% 20 0 0 Very bad 0% 2012 2013 2014 2015 2012 2013 2014 2015 Source: Company information 1. 583 of Arion Bank Private Banking clients were invited to take part, 71% response ratio 95 2. YoY change in number of customer accounts in excess of ISK 100 M

  89. FINANCIAL PERFORMANCE 96

  90. OVERVIEW OF COVERED BONDS Arion Bank’s covered bonds programme Covered bonds development ISK Bn  Arion Bank has set up a EUR 1 Bn programme for the issuance of covered bonds  In 2011, Arion Bank was licensed by the Icelandic Financial Supervisory Authority 153 to issue covered bonds 136 133 129 – Icelandic covered bond regulation is very similar to Swedish covered bond regulation  Investors include pension funds, mutual funds and insurance companies Legislative Contractual H1 2016 covered bonds covered bonds 2013 2014 2015 1H 2016 Currency Multi currency Icelandic krona Description Covered bonds issued Covered bonds issued prior Maturity profile of covered bonds according to Icelandic to 2008. legislation Contractual ISK Bn, H1 2016 Rating Not rated Not rated Outstanding ISK 51.0 Bn ISK 101.5 Bn 53.2 44.9 Cover Pool Information 38.3 Asset balance ISK 60.3 Bn ISK 125.5 Bn 16.3 Number of loans 4,940 6,873 Pool LTV 60.5% 62.6% < 5 years 5-10 years 10-20 years > 20 years Over-collateralisation 10.3% 23.6% Source: Company information 97

  91. OVERVIEW OF SENIOR UNSECURED BONDS Senior unsecured bonds development Arion Bank’s senior unsecured bonds H1 2016 ISK Bn 167 Year Maturity Currency Issued Maturity Type Terms of interest Size (ISK Bn) USD 2016 2017 At maturity Floating, 3 month LIBOR +1.93% 3,728 60 EUR 2009 2018 Amortising Floating, EURIBOR +1.00% 950 14 12 ISK 2010 2018 Amortising Floating, REIBOR +1.00% 1,334 2013 2014 2015 H1 2016 EUR 2015 2018 At maturity Fixed, 3.125% (MS + 3.10%) 41,352 Maturity profile of senior unsecured bonds EUR 2016 2019 At maturity Fixed, 2.5% (MS + 2.70%) 41,141 ISK Bn, H1 2016 RON 2016 2019 At maturity Fixed, 3.80% 1,076 SEK 2016 2019 At maturity Floating, 3 month STIBOR +2.65% 4,004 61.6 46.2 43.6 NOK 2015 2020 At maturity Floating, NIBOR +2.95% 11,924 11.9 USD 2016 2023 At maturity Floating, 3 month LIBOR +2.60% 61,641 3.7 Senior unsecured bonds issued 167,150 2016 2017 2018 2019 2020 2021 2022 2023 Source: Company information 98

  92. DETAILS ON P&L ADJUSTMENTS Details on revenue adjustments Adjusted operating expenses and net earnings • • Net interest income: Adjustments mainly refer to calculated net Total operating expenses: Adjustments relate to fines from interest income earned in Treasury, had Arion not held non-core competition authorities, branch restructure, the expense of non-core assets at the time and interest income and expenses at non-core subsidiaries and estimated expense of 30 FTEs during the historical subsidiaries period, which is the management estimate of effort related to one- • off projects Net fee and commission income: Adjustments refer to net fee and • commission income at non-core subsidiaries Net impairments: Adjustments relate to all change on loans over the • historical period. The total changes are removed and 0.58% yearly Financial income: Adjustments mainly relate to value changes / gain estimated impairment is calculated on the total loan book on sale of legacy equity holdings Arion Bank and subsidiaries held • ownership stakes in, following a restructuring of the loan book Income tax: Tax effect of total adjustments assuming a 26% tax rate • • Other operating income: Adjustments relate to value changes / gain Net gain from discontinued operations: Adjustments refer to profit on sale of a number of equity holdings held by Arion Bank and from sale of legacy equity holdings, prior to listing subsidiaries. Furthermore, a significant part of the adjustments to other operating income relates to share of profit or loss of associates 2015 adjusted earnings ISK M 86.6 0.0 1.3 (7.5) 50.8 (29.6) 0.7 20.5 14.1 0.2 0.4 (28.2) (2.8) (3.1) (0.8) (3.1) Reported NII NF&C Financial Other Adjusted Opex Opex Bank Adjusted Net Net Tax Tax Net gain Adjusted revenues adj. adj. income income revenues adj. levy Pre- impairment imp. adj. from disc. net adj. adj. Provision adj. op. earnings Profit Source: Company information Opex 99 Net impairments

  93. DETAILS ON P&L ADJUSTED ( CONT’D ) Adjusted revenues Adjusted operating expenses and net earnings 2013 2014 2015 2016 H1 2013 2014 2015 2016 H1 In ISK million In ISK million Net interest income 23,800 24,220 26,992 14,626 Operating expenses (25,395) (27,042) (28,196) (15,396) Changes 3,157 2,642 1,347 312 Changes 1,322 2,213 698 562 Net interest income adjusted 26,957 26,862 28,339 14,938 Operating expenses adjusted (24,073) (24,829) (27,498) (14,834) Net fee and commission income 11,223 13,309 14,484 6,747 Bank levy (2,872) (2,643) (2,818) (1,485) Changes 337 366 7 64 Changes 0 0 0 0 Net fee and commission income adju 11,560 13,675 14,491 6,811 Bank levy adjusted (2,872) (2,643) (2,818) (1,485) Net financial income 1,675 7,290 12,844 3,495 Net impairment (680) 2,135 (3,087) 945 Changes (1,158) (5,597) (7,513) (4,797) Changes (2,806) (5,853) (764) (2,966) Net financial income adjusted 517 1,693 5,331 (1,302) Net impairment adjusted (3,486) (3,719) (3,851) (2,021) Other income 7,650 9,171 32,235 2,555 Income tax (3,143) (4,679) (3,135) (2,091) Changes (5,217) (5,031) (29,579) (592) Changes 28 566 221 328 Other income adjusted 2,433 4,141 2,656 1,963 Income tax adjusted (3,115) (4,113) (2,914) (1,763) Total operating income 44,348 53,990 86,555 27,423 Net gain from disc. operation 399 6,833 360 363 Changes (2,881) (7,619) (35,738) (5,013) Changes 5 (6,290) 0 0 Total operating income adjusted 41,467 46,371 50,817 22,410 Net gain from disc. op. adjusted 404 543 360 363 Net earnings 12,657 28,594 49,679 9,759 Changes (4,333) (16,984) (35,582) (7,088) Net earnings adjusted 8,324 11,610 14,097 2,671 Source: Company information 100

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