Good morning, everyone, and welcome to this presentation for the fourth quarter and full-year results of 2025 for the Arion Group. My name is Benedikt Gíslason, and I'm the CEO of Arion.

Today's agenda is as follows: I'll start by walking you through the key highlights. Then our Chief Economist, Erna Björg Sverrisdóttir, will provide an update on the Icelandic economy.

After that, our Deputy CFO, Eggert Teitsson, will dive deeper into numbers and share our outlook going forward. Before I start the presentation, I would like to remind our participants online that you can submit questions throughout the presentation through the message board located below the video feed.

We will, of course, provide answers to your questions in the Q&A session at the end of the webcast. Now to the results.

It was a strong year 2025 for the Arion Group, demonstrating the strength and resilience in our core operations. We delivered a return on equity of 14.9%, comfortably above our medium-term financial target of 13% and reflecting broad-based earnings momentum across the group.

A key highlight this year is the growth in core income, which increased 12.3% year-on-year and was driven by higher net interest income, resilient fee income, and insurance service results, and again demonstrating the importance of diversification and quality of our revenue base. Our cost-to-core income ratio improved to 42.3%, showing continued cost discipline even as activity level remained high.

Vörður delivered a combined ratio below 90% for the second consecutive year, reflecting sound underwriting and disciplined risk management. Our capital position continues to be a key strength, and we are currently at 308 basis points above the regulatory requirements, ensuring strong resilience and ample strategic flexibility.

This capital ratio takes into account the proposed 50% dividend payout, which is in line with our guidance, or 11.5 krónas per share, and the 5 billion buyback program that was initiated in January. Now to the key milestones of the year.

As I said, a strong operating delivery 2025, commercial momentum, and strategic progress across the entire group. These milestones demonstrate the breadth of our services and strength of our group heading into 2026.

Our markets division delivered one of the best performances to date with 22% year-on-year increase in assets under management and supervision. Total assets under management and supervision at Markets and Stefna moved closer to the 2,000 billion mark, reflecting both positive market conditions and increased customer participation.

Stefna funds also had a standout year. Stefna continued to build momentum supported by customer-friendly fee reductions, improved digital accessibility, and removal of minimum investment amounts.

As a result, the number of clients grew mostly, subscriptions increased sharply, and today around 89% of all fund transactions are fully automated. At the same time, Corporate & Investment Banking delivered a great performance, generating a record 6.8 billion in fees driven by high demand for advisory services and continued strength in corporate lending, which grew by close to 17% during the year.

Customer engagement in Retail Banking reached new highs. The Arion Rewards program continued to exceed expectation with more than half of our active retail customers joining in a period under 10 months.

This directly supported close to 15% growth in household deposits, and the launch of our Rewards savings account with weekly paid competitive interest saw strong early adoption and contributed meaningfully to the deposit growth that I mentioned. Insurance sales through the Rewards program also increased significantly, further strengthening cross-sell opportunities across the group.

Our insurance subsidiary, Vörður, also delivered a strong contribution. Despite a challenging environment for investment income, Vörður produced a net earnings of around 2 billion and delivered a combined ratio below 90%, as I mentioned, for the second consecutive year.

Bancassurance penetration increased across both individuals and corporates, supporting deeper customer relationships and higher product engagement. We also made progress on several strategic initiatives, and on the portfolio side, we completed the sale of the Árnaland development asset, marking another positive step in simplifying and optimizing our development asset footprint.

I'll touch on the remaining development project later on. Finally, to the merger discussions with Kvika, where we in recent years have highlighted the importance of structural reforms in the Icelandic financial market, strengthening the system and making it more efficient for the benefit of shareholders and customers.

With that in mind, we sought to enter merger negotiations with Kvika, which is the country's fourth-largest bank. We continue to make steady progress in the proposed merger with Kvika during the year.

The pre-notification discussions continued to advance with Icelandic Competition Authority, which remains on track, and are expected to conclude those discussions in the first or early second quarter of this year. If these steps progress positively, the next phase includes signing the merger agreement, notifying regulators, and seeking approvals from shareholders.

Only after those steps would new Arion shares be issued to Kvika shareholders. Although this process is advancing constructively, the final decision will depend on regulatory outcomes.

Now to our Arctic strategy. The Arctic region continues to present strong strategic potential for the bank and the group as a whole.

Our presence is expanding through corporate finance advisory and syndicated lending, enabling us to support clients operating in the region of growing economic and geopolitical importance. The Arctic loan book outside Iceland has grown around 24% annually since 2020, making it the largest part of our foreign credit exposure.

Our largest exposure today is in the Faroe Islands, where development remains positive. The pipeline is also robust with new opportunities emerging in Greenland and continued growth expected in key industries such as fisheries, transport, tourism, and services.

Specifically on the blue economy, a new €100 million blue economy credit facility that we signed this week with European Investment Bank enables us to continue to promote sustainable fisheries, land-based aquaculture, and other marine industries in the Arctic region. Agreement marks European Investment Bank's first financing of its kind in this region and the first blue-economy-only facility for them as well.

Now to our development assets, where we have a remaining considerably large development asset, Blikastaðir. In recent years, we've been working on this development as we have with Árnaland, which we finalized the sale of last year.

This is done in close collaboration with the local authorities. The goal has been to create attractive neighborhoods that strengthen the surrounding community with strong connections to the nearby natural areas.

One of these projects, the Árnaland project, was completed during the year, as I mentioned, and the detailed land use plan for the first phase of Blikastaðir or Blikastaðaland is now in the consultation process with the local municipality. We late last year, or early this year actually, signed a new development agreement with Mosfellsbær, the local municipality, that will strengthen the financial foundation of the project and accelerate delivery of key infrastructure such as schools and preschools.

The first phase comprising of 1,250 homes, new homes, has been submitted to the planning committee and is under open consultation. We're hoping to get the necessary approvals later this year.

Our long-term strategic initiative, Women Invest, has yielded great results in the first two years of its sort of program. Since launch, more than 8,000 women have participated in 95 seminars, giving them practical tools and confidence to make informed financial decisions.

The impact, as you see from this slide, has been significant. Women's fund subscriptions increased by 67% in the two-year period, fund transactions rose by over 45%, and assets on brokerage accounts increased by 27%.

We held a investment competition, which drew strong interest, the highest number recorded, and this program remains a cornerstone of our effort to promote financial inclusion and empower new investors. Finally, before I hand over to my colleagues, on the ESG side, sustainability remains a central focus of our strategy, as before.

By year-end, the bank had more than 170 billion in committed sustainable finance across categories such as green buildings, affordable housing, and clean transportation. These areas continue to grow as more clients transition towards sustainable operations, and we also continued reducing our own environmental footprint.

This is all recognized externally through ESG ratings as seen in this slide. Now, I would like to welcome our Chief Economist, Erna Björg Sverrisdóttir, which will give an update on the economic environment.

Thank you, Benedikt. Good morning, all.

It's good to be here today. We Icelanders have a saying that we learned from a very young age: Þetta reddast, or everything will work out.

This spirit was certainly visible in the fourth quarter when all of our largest export sectors face significant challenges. Yet, at the same time, Icelanders have never spent so much money before, with payment card turnover up by 6.9% between years.

Furthermore, if you think that Icelanders let a reduction in flight capacity to the country hold them back, think again. This was the busiest December for travel since measurements began.

We don't yet have the national accounts figures for the fourth quarter, but it's safe to say that the pattern will mirror Q3, when private consumption drove economic growth, increasing by 4.2% between years, exceeding expectations by a mile. Investment growth slowed significantly, but business investment remained resilient, rising 11.3% in the third quarter.

Despite strong domestic demand, GDP only increased by 1.2% between years, largely due to a negative contribution from foreign trade. While imports grew by 8.6%, largely driven by imports related to data centers and Icelanders' travels abroad, exports of goods declined.

Service exports, on the other hand, rose by 3.9%, supported by an exceptionally strong high season for tourism with more people visiting than ever before, longer stays, higher spending, and strong hotel occupancy rates. In the past months, tourist arrivals have declined, which was expected regardless of Play's bankruptcy.

The winter will likely remain challenging with a continued decline in tourist arrivals, but the outlook for the second half has improved with broadly positive booking indicators, both for flights and for accommodation, especially in connection with the solar eclipse in August. These are not the only positive developments we have seen in recent weeks, as improved prospects for capelin fisheries are expected to offset the contraction in mackerel and blue whiting catches.

Exports are therefore projected to increase by 0.2% according to the Central Bank's latest economic forecast, despite significantly reduced aluminum production owing to an electrical equipment failure at the Norðurál smelter. Thus, the economic outlook, it has slightly improved.

The Central Bank now anticipates a 2% GDP growth this year, largely driven by private consumption and a positive contribution of foreign trade. This is kind of interesting because private consumption is expected to be the main driver of economic growth at the same time as unemployment is rising.

On one hand, it reflects households' resilience and strong financial position, as purchasing power has continued to increase, debt levels are moderate, and debt servicing burdens remain manageable, as evidenced by low default rates. On the other hand, it indicates a structural shift taking place in the economy.

Although it's too soon to draw firm conclusions, we are seeing signs of shifts in how the economy adjusts, with a greater share of adjustment now occurring through the labor market rather than through a weaker currency, higher inflation, and reduced purchasing power. However, such a shift implies higher level of unemployment than otherwise.

The labor market is already showing signs of moderation. Job growth has been weak in the past year, total hours worked and job vacancies have dropped in numbers, and the latest Gallup sentiment survey indicates that employment outlook has continued to deteriorate with hiring plans dropping sharply, especially among export-oriented firms.

Unemployment is projected to continue rising. It currently stands at 4.9%, up from 4.2% a year ago, and is expected to go over 5% in the first quarter.

Even though the labor market has softened, wages have risen significantly, boosting purchasing power and supporting private consumption. Although the increase in purchasing power has strengthened household resilience, the steep wage rises have had a clear impact on the domestic portion of inflation, while a relatively strong króna has suppressed imported inflation.

Therefore, headline inflation has remained persistent. It jumped to 5.2% in January, and although the increase was largely due to hikes in public levies, it was a bad print overall, with underlying inflation increased as well to 4.5%, its highest since December '24.

Headline inflation is expected to remain around 5% in the first quarter before gradually easing, but the inflation target is not in sight and inflation expectations are still way too high. Therefore, it is unlikely that the MPC will lower rates in the near term, although it is not entirely ruled out, because despite rising inflation, the MPC's forward guidance has remained the same.

That is, further decisions to lower interest rates will depend on clear evidence that inflation is falling back to the bank's 2.5% inflation target. We haven't got an answer from the committee on when the evidence will outweigh headline inflation, but in this context, the committee is focused on the labor market and the housing market, which has fueled inflation in recent years.

That appears to be changing. House price inflation has subsided markedly since July '24, as the supply of new housing continues to accumulate and the average time to sale for a newly built home has grown significantly longer.

Still, we are not seeing any signs of distress sales, and nominal prices have continued to increase, and market activity has partly normalized following the Supreme Court ruling in October. In the ruling's wake, the Financial Stability Committee decided to ease its borrower-based measures and the MPC decided to cut rates by 25 basis points.

Even so, the loan supply is more limited than before and interest rates on new indexed mortgages are generally higher than they were before the ruling. This could keep the housing market down, hopefully feeding through to lower domestic inflation.

We have a challenging task ahead of us, but we are no strangers to high inflation or high interest rate. More importantly, households and firms remain in a strong financial position supported by solid economic fundamentals and generally healthy balance sheets.

That being said, I would like to welcome Eggert Teitsson, our Deputy CFO, to the stage to go over the financials. Thank you.

Thank you, Erna. Good morning, everybody.

Bear me that I will report repeat a lot of numbers that Benedikt went through at the beginning as we are so proud of our results for the year. We will start with take we will start with some of the key highlights for the fourth quarter and for 2025.

It was a solid quarter of with an RoE of 11.6% and RoE for the year of 14.9%. Q4, as now is as now as in prior years, affected by a provision for the incentive scheme compared to prior quarters in 2025.

It's fair to say that the diversified operation of the group supports early momentum through the cycle. Secondly, the results in core income are primary primarily reason for strong earnings.

This quarter, it was lower net interest margin with inflation having less impact compared to prior quarters, but solid income from our fee generation and the insurance business helped us with with good numbers. Robust growth in the corporate lending, if you look at the loan book, it was supported by the growth in stable deposits.

Impairments in the quarter were above longer-term guidance, which is primarily due to single-name exposure. Finally, our liquidity, funding, and capital positions remain very remains very strong, with capital positions of CET1 18.4% including dividend proposal of 15.3 and our ongoing buyback program of 5 billion, and the bank is in very strong position for further growth or continuing buybacks.

We have already pre-funded our senior preferred issuance with a maturity in May '26, and growth in stable deposits have also been strong, supporting our very strong liquidity position. On to the income statement for the quarter.

Core income, which includes interest, fees, and insurance business excluding expenses, we were up 7.3% from the same quarter last year, strong development. Net inter- interest income was up by 9.8% between years, where fees were slightly down or 2%.

Insurance services results are stronger than in the same quarter last year, and combined ratio remains strong, or 92.1%. The insurance revenue increased by 7.5%, while expense claims cost increased by 7.3.

Financial income was impacted by a stronger equity markets than in previous quarters and rather strong income from our from the debt instruments. This resulted in 1.3 billion income including the investment portfolio of the insurance business and our market making.

Other operating income amount amounted to 0.8 billion during the quarter as a result of a profit from the sale of 51% holding in the subsidiary Árnaland, which holds the large development plot in Garðabær. Operating expenses increased by 1.8% between years, but at the same time, inflation was just under 4%.

We will go into more details regarding the expenses later. Net impairments in the quarter calculates at 51 basis points of the loan book on annualized basis, whether at year the year calculates at 24 basis points, which is in line with our guidance for the credit loss in 2025.

The main reason for this high impairment in the fourth quarter is a single-name exposure and thus do not does not reflect the quality of the loan book in general. We can expect a slight rise in the expected loss in the near term due to a challenging economic environment, but we remain confident of the overall quality of our loan book.

Effective tax rate was 22.6% in the quarter, mainly due to a favorable equity markets. This gives us a net profit of for the quarter of 6.2 billion compared to 8.3 billion for the fourth quarter last year, with the main difference in net financial income and impairments.

As we now have the full year 2025, take a quick look at at the performance compared to last 2024. It's the these it's marked by strong growth in core income, or 12.3%, stable cost base, and a good income from sale of development plots, which results in a 14.9% RoE compared to 13.2% in '24.

In general, strong comparison, diversified revenue streams, and a solid operation. We will now look at some of the line items and start with net interest income, which of course is the largest one and and probably the most important.

Net interest income in the quarter was 12.4 billion, or up from 11.2 in the fourth quarter last year, but down from 13.8 from last quarter. The net interest margin as a percentage of interest-bearing assets is 2.9% and is in line with our guidance of around 3%.

The key driver changes in NIM from prior quarters in '25 are mainly the the CPI imbalance, which has increased, and the fluctuation in the in the in the NIM and in net interest income is significant. Low inflation in this quarter has considerable effect compared to last quarter and is on the same level as in fourth quarter last year, as stated in the picture at the bottom of the of the slide.

The cost of funding has decreased from the same quarter last year connected to lower central bank central bank rates in Iceland, dropping from 8.25 at the end of '24 to 7.25 in at the end of '25. Additionally, the cost of borrowings has decreased compared to last year, especially in funding in FX.

However, as can be seen on the bridge at the bottom of the slide, the cost of deposits and borrowings increased in Q4 '25, mainly with in the increased deposits and pre-funding of borrowings. Latest measurement in in the in the inflation we we we will we will see higher NIM in Q1 this this year, and the as with with our big CPI imbalance, it the the fluctuation will will be significant going forward.

Main with increased corporate lending, what is worth mentioned, the net interest margin is likely to trend slightly above 3 3% going forward. However, the relative growth of mortgages versus corporate lending, along with CPI developments, will be key drivers in the near near term.

Now looking at our fee and commission income. This was a good quarter in terms of fee generation with total fees above 4 billion, and worth noting that every quarter of the year was above 4 billion, stable income from fee and commissions.

We have stated that in recent quarters, the fee-generating business are performing well. CIB fee generation is volatile between quarters as income from large investment banking projects can affect total numbers significantly.

Demand for new lending was strong in the corporate space during the quarter with the loans of to corporates increasing by 35 billion, or 5.4%. Our management operation continues asset asset management operation continues to grow with stable fee base.

Asset under management increased by 74 billion during the quarter with new funds, strong equity markets, and increased activity. Fee income from retail banking activities have been under pressure due to automation, intense competition, and change in regulation regarding foreign payments, which results in a slight decrease between years.

Now on to on to Vörður, our insurance business. It has continued to develop well in in over the last few years.

There are fluctuation in this operation between quarters between quarters as can be seen in the combined ratio, but in general, the trend has been quite favorable. For the 2025, the total combined ratio was 89.9% and is well well well above the 95% Vörður target.

Net earnings for Vörður were 2 billion in 2025 compared to 3.7 billion in '24, mainly due to lower income from investments. This results in RoE of 13.7% in '25 compared to 30.8 in 2024.

Now into the operating expenses, including those from the insurance business. Total operating expenses in the fourth quarter were 9.9 billion, which is up by 2.5% from the same quarter last year.

The fourth quarter is affected by the accrual related to the incentive scheme, which is estimated to be 1.3 billion. This is lower than last year due to revised approach to deferred payments.

One-off cost is approx 20 250 million in the quarter, primarily due to costs related to merger negotiations with Kvika. Cost base is relatively stable between years despite increasing number of FTEs, which increased by 1.5% from the same time last year, mainly related to IT, internal controls, and growth in subsidiaries.

Now on to our balance sheet, and starting with loans to customers. The loan book grew by 2%, or 27 billion, during the quarter to to 1,329 billion.

The growth is largely related to new lending in the corporate space. We continue to be dynamic in the way we manage loan growth with a view of balancing credit strategy and profitability and in growth opportunities.

Recently, we have been seeing more feasible opportunities on the corporate side, and the turnover in the loan book has also been significant. Due to uncertainty following Supreme Court ruling regarding variable rates on mortgages, the housing loan market has been somewhat subdued.

Although the uncertainty surrounding mortgages has clearly decreased, the supply of loans has changed, but is hoped that a clearer picture will emerge soon. The loan book continues to be very well balanced: 43% mortgages, 5% other loans to individuals, and 52% to corporates.

Closely connected to the loan book, the risk profile. This quarter, we had 1.7 billion com- impairment, and this is mainly due to, as we have stated before, a single-name exposure, not the result of a more challenging economic conditions.

Non-performing loans has increased since year-end 25 22, but has been stable through the last three quarters. The non-performing loan ratio is associated with change in the policy rate, and is and its further development may be in- influenced by speedy monetary easing.

The loss allowance at the end of the year is 12.1 billion, or 95 basis points of the loan book, which is higher than in recent quarters, primarily due to those single-name exposure. On to the deposits, which increased slightly during the quarter to 921 billion.

Normally, deposits decrease in Q4, especially from corporates, due to prepayments of income tax to the state, but the fourth-quarter court in the fourth quarter, there was an increased deposits from English individuals. Our strategy in this area has been to compete, especially in more stable categories of deposits.

We have stated that the bank must be selective regarding paying paying higher interest to selected customers. In that regard, Arion Bank did launch a new savings account for members of the Arion Rewards program to great success, as can be seen on the picture regarding deposit from individuals, which rose by 25 billion during the quarter.

We have stated before that the funding profile remains robust, and the bank maintains a conservative approach regarding the refinancing of market market funding. Payment of senior euro 300 million bond with maturity in May '26 was pre-funded with issue in August '25.

We had a successful issuance of green bonds in Swedish and Norwegian króna in January, and the focus of funding in '26 will mainly be on refinancing in Q4 euro 500 million covered bond maturity. Arion Bank long-term issuer rating from from Moody's was affirmed at A3, and at A A1 as a covered bond issuer, with stable outlook.

Now looking at at the capital. Our position, as stated before, has continues to very strong, with CET1 of 18.4%, or 388 basis points above regulatory requirements, and still above our 150 to 250 basis point target, including the management buffer.

This is taken into account the proposed dividend and ongoing buyback program, as mentioned earlier. The implementation of CRR3 resulted in a risk exposure amount decreased of amo- of around 20 55 billion, which was partly offset by loan growth in the quarter by 27 billion.

Before we go to the Q&A, I want to again highlight some of the key themes going forward. We expect to see a strong opera- operating performance for this year, with core business providing good earnings, and we are proud of our diver- diversity of our business, which provides support for the overall earnings momentum through the cycle.

We also continue to cautiously anticipate that continuing complicated external operating environment in the near term, both in terms of domestic rate development and in terms of the inter- international political landscape. Finally, as Benedikt mentioned, the proposed merger with Kvika is on track.

This merger is expected to provide many opportunities to further strengthen our operation and service to our clients. Now, we will move into the Q&A.

Theodór Friðbertsson in Investor Relations, will you come to the stage and lead the questions? Thank you.

Good morning, everyone. Last, but certainly not least, the Q&A.

As usual, I think we should start with questions from the online participants. We have a few already.

You can still submit questions. We'll start with questions from Alexander at Akur.

Question number one: You disclosed 250 million merger-related costs in Q4. What was the total merger-related expense for the full year '25, and what is your best estimate for 2026 costs assuming the ICA pre-notification discussions conclude in Q1 or early Q2?

Eggert, do you...

As is stated in the presentation that it's one-off cost was total of 250 million as he mentioned in the question. It's not all related to the merger with Kvika.

Total cost for '25 related to the merger is approximately 200 million. There is some additional one-off cost, other.

Total cost for this merger... Maybe it's not considerable costs in relation to what has already been incurred.

Most of the advisory cost is I would say another 200 million, probably.

You reference a revised approach for the share-based incentive scheme that lowered Q4 expenses by 400 million, but that was offset by headcount and salary increases. Can you explain what specifically changed in the scheme design and how we should think about the incentive line going forward?

Yes, this is related to the deferred part of the incentive scheme, which is approximately 15% to 20% of the total expense each year.

It is a legal requirement.

Legal requirement. It's deferred over 4 to 5 years, and these deferred costs will now be distributed over this period.

We can say it's distributing then 15% to 20% of the total expense over this period, we can say it's not a material amount each year.

Will over time sort of also have the same impact as a full provision.

Given that we have payment every year.

Yeah. Yeah.

Last question from Alexander. Stage 3 provisions on the corporate loan book increased by 1.6 billion during Q4, while net impairment was 1.7 billion for the quarter.

How much of that increase attributable to the single-name exposure you reference, which sector is it in, and is the exposure now considered fully provisioned or should we anticipate further charges?

Majority of the provision comes from this single-name exposure, which is non-construction-related, it's in another industry. Anything else?

No,

no, I think there is no further regarding this exposure. It's fully provisioned for, yeah.

Losses have been crystallized.

That concludes the questions from Akur. Moving on to Sækla, Ragnheiður Sækla.

Have you assessed the potential impact of the revised general guidelines and methodology regarding SREP for financial institutions on the Pillar 2 capital requirements, as presented in circular from the Central Bank of Iceland? Particular attention is drawn to the guidelines concerning the ownership of an insurance company.

These guidelines are still, I think, under consideration. Latest status that we've on this change indicates that this will have minimal impact on capital requirements for our insurance holding, or holding in insurance company.

It's still under review, remains to be seen. Earlier indications were of higher capital requirements, which the decision seems to have changed on that.

Other impact is minimal, as we understand it.

Looks like that concludes the questions from the online participants. Are there any questions from the auditorium?

All clear? All right.

I think that concludes the session of the day. Thank you very much for your participation, and see you in Q1.