Interim report
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Íslandsbanki Condensed Consolidated Interim Financial Statements First half 2026 Íslandsbanki hf. • Hagasmári 3 • 201 Kópavogur • Iceland • Reg.no. 491008-0160
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Contents 3 4 - 6 7 8 9 10 11 - 12 13 - 14 15 - 48 Notes to the Condensed Consolidated Interim Financial Statements ........................................................ Factsheet .................................................................................................................................................... Directors' Report ......................................................................................................................................... Consolidated Interim Income Statement .................................................................................................... Consolidated Interim Statement of Comprehensive Income ...................................................................... Consolidated Interim Statement of Cash Flows ......................................................................................... Consolidated Interim Statement of Changes in Equity ............................................................................... Consolidated Interim Statement of Financial Position ................................................................................ Independent Auditor's Review Report ........................................................................................................
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Profit after tax (ISKm) Loans to customers (Sector split as of 30.6.26) Cost-to-in come ratio 1 Loans to customers (ISKbn) Factsheet Total assets (ISKbn) Liquidity coverage ratio Leverageratio2 Total capital ratio2 The information above has not been reviewed or audited by the Group's auditor. 1. C/I ratio for 4Q25 excludes salary expenses of ISK 804m due to early retirement of employees and an income of ISK 237m within net interest income (ISK 550m reversed from charge in 3Q25 due to provision for legal proceedings and a charge of ISK 313m due to correction from previous years). C/I ratio for 3Q25 excludes a charge of ISK 550m within net interest income due to a provision for legal proceedings. 2. Including 1Q26 profit for 31.3.26 and 3Q25 profit for 30.9.25. Key figures first half 2026 Return on equity Net profit ISK 14.5bn ROE 13.4% Cost-to-income ratio 40.7% NIM 3.7% Ratings and certifications A3 Stable outlook ISK 1,416bn A3Exceptional ESG risk rating 13.0% 12.2% 10.5% 13.6% 13.3% 2Q25 3Q25 4Q25 1Q26 2Q26 7,192 6,901 5,947 7,456 7,069 2Q25 3Q25 4Q25 1Q26 2Q26 41.0% 38.2% 43.5% 38.5% 43.1% 2Q25 3Q25 4Q25 1Q26 2Q26 1,696 1,734 1,728 1,787 1,788 63.9% 62.5% 59.8% 58.7% 58.4% 30.6.25 30.9.25 31.12.25 31.3.26 30.6.26 REA / total assets 1,331 1,333 1,367 1,401 1,416 138% 132% 141% 138% 136% 30.6.25 30.9.25 31.12.25 31.3.26 30.6.26 Customer loans / customer deposits ratio Mortgages to individuals 44% Other loans to individuals 5% Seafood 7% Commerce and services 17% Real estate 9% Industrial and transportation 6% Construction 7% Other 5% 185% 207% 203% 177% 188% 125% 129% 127% 123% 126% 30.6.25 30.9.25 31.12.25 31.3.26 30.6.26 Net stable funding ratio (NSFR) 12.0% 11.9% 12.5% 11.5% 11.7% 30.6.25 30.9.25 31.12.25 31.3.26 30.6.26 21.5% 21.9% 24.0% 22.5% 23.0% 18.5% 18.9% 20.1% 18.6% 19.1% 30.6.25 30.9.25 31.12.25 31.3.26 30.6.26 CET1 ratio BBB+/A-2 Positive outlook Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 3
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Directors' Report T he Board of Directors and the CEO of Íslandsbanki hf. ("the Bank" or "Íslandsbanki") present this report together with the Condensed Consolidated Interim Financial Statements of Íslandsbanki hf. and its subsidiaries (together referred to as "the Group") for the period 1 January to 30 June 2026. Íslandsbanki is a customer-centric universal bank offering comprehensive financial services to individuals, corporations, and institutional investors in Iceland through various channels, including 12 branches . The Group seeks to move Iceland forward by empowering its customers to succeed and prioritising sustainability as an integral driver of its strategy and value creation. The Group is a force for good, with its corporate vision to create value for the future through excellent service, ultimately enhancing the financial health of its customers. Key operating highlights for the first half of 2026 During the first half of the year, the Bank remained focused on executing its strategy. A new loyalty service was introduced, designed to differentiate between customers based on the number of products held and the scope of their relationship with the Bank. In addition, the Bank launched various new digital solutions, including a new online banking platform providing additional services to SME and corporate clients. Further, the Bank introduced a new product offering in the acquiring space in cooperation with Nets (part of Nexi Group), a leading European payment solutions company. At the beginning of the year, the Group introduced a new variable compensation scheme, applicable to all employees as permitted under Icelandic law, which is contingent on the Group' s return on equity. Under the plan, most employees can receive up to 10% of annual salaries as variable compensation. Furthermore, a limited number of employees who have the most influence on the Bank's performance and strategic execution are eligible for higher variable compensation of up to 25% of annual salaries, which is also contingent upon the achievement of various predefined financial and non- financial performance metrics. For these employees, variable compensation is payable in a combination of cash and shares in the Bank, subject to a predetermined vesting period, to further align the long-term interests of the Bank, its shareholders, and its employees. In April, the Bank announced organisational changes, with the objective to simplify the governance structure and shorten communication channels, thereby enhancing the Bank's service to its customers and reinforcing continued growth and development. As part of these organisational changes, the number of senior managers will be reduced by 15% in 2026, and the number of executive directors b y 20%. In total, the number of FTEs will decrease by 50 over the course of the year, including reductions related to the dismantling of the early retirement scheme in the fourth quarter of 2025, representing a 7% reduction in FTEs from year -end 2025. The Bank estimates that the changes will positively impact salaries and related expenses by around ISK 1 billion annually, which will be fully realised in 2027. Operating income improving compared to the previous year The Group's profit for the reporting period amounted to ISK 14,525 million, compared to ISK 12,401 million in the previous year. This corresponds to a return on equity of 13.4% and 11.1%, respectively. Profit for the second quarter amounted to ISK 7,069 million, compared with ISK 7,192 million in the same period of the previous year. Core income, defined as net interest income and net fee and commission income, grew by 16.1% in the first half of the year. Net interest income amounted to ISK 32,381 million, compared to ISK 26,820 million in the previous year, where the net interest margin was 3.7% and 3.2% respectively. This was mainly due to higher inflation in the first half of 2026 compared to the previous year. Net fee and commission income was ISK 6,526 million in the first half of the year, comparable to the previous year. As in previous periods, lower turnover in capital markets had an adverse impact on the Group's net fee and commission income. Salaries amounted to ISK 9,708 million and grew by ISK 807 million over the first half of the year. In the first half of 2026, a total of around ISK 370 million w as expensed related to redundancies. In addition, ISK 671 million was expensed related to the variable employee remuneration scheme, which was introduced at the beginning of 2026. At the end of the reporting period the Group employed 728 full-time equivalents, 691 within the Bank, and 37 in subsidiaries, excluding subsidiaries which are held for sale. The cost-to-income ratio decreased to 40.7% in the first half of 2026 compared to 44.1% in the previous year. Healthy balance sheet growth while asset quality remains high Over the first half of the year, the Group' s loan portfolio gr ew by 3.6% to ISK 1,416 billion, or by over 7% on an annual basis. The composition of the loan book is broadly comparable to previous years. Overall credit quality remains high as in historical periods, as 94% of the loan book is covered by collateral and LTVs remain low . NPLs grew from 1.5% at the beginning of the year to 2.6% at the end of the first half. As a result, impairment charges for the first six months grew to ISK 1,673 million compared to impairment reversals of ISK 399 million in the previous year, mainly due to borrower -specific circumstances. Over the first half of the year deposits from customers grew by 7.2%, from ISK 969 billion at year-end 2025 to ISK 1,038 billion at the end of June 2026. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 4
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Directors' Report Strong capital position – excess capital amounts to ISK 23.1 billion The Group's capital position remains strong. As a result of the SREP process, the Group received an updated capital requirement towards the end of the first half of 2026. Following that, the Group is required to maintain a minimum CET1 position of 15.2%, bringing the Group's target CET1 level to 17.2%, including the midpoint of the management buffer. At the end of the reporting period, the CET1 position was 19.1%, 185 basis points in excess of the target. In addition, the Group had a total of ISK 3.9 billion in approved and uncompleted buybacks at the end of the period. Overall, the excess capital available for distributions and/or growth amounted to ISK 23.1 billion at the end of the reporting period. During the first half of the year, the Group distributed a total of ISK 27.8 billion through ordinary dividend and buybacks. Operating results ahead of guidance Target for the medium term 2Q26 result 1H26 result Updated guidance for year-end 2026 Return on equity >13% 13.3% 13.4% >12.5% Cost-to-income <43% 43.1% 40.7% 41-43% CET1 excess 100-300 bps 385 bps 385 bps 200 bps Dividend payout ratio 50% 50% 50% 50% Outlook for the Group The macroeconomic outlook deteriorated during the first half of the year. Inflation is expected to remain high throughout the year, and the Central Bank is expected to raise policy rates in August, followed by broadly unchanged policy rates in the coming months. Rate cuts are assumed to materialise during 2027. Due to this, domestic loan growth is assumed to remain subdued. However, international growth in the loan book will provide additional growth opportunities. Overall, the Group expects loan growth to be around mid-single digits in 2026 as a whole. High inflation is also expected to result in higher net interest margins compared to the previous year. In addition, fluctuations in the income statement are expected, in line with the seasonality of inflationary ticks which tend to be higher in the first half of the year compared to the second half. The Bank further notes that, although high inflation may support higher net interest income in the short term, asset quality may deteriorate over the long term as a result. Uncertainty remains regarding capital market volumes and overall activity in investment banking services. The Bank 's market share and market position remain good, and the Bank is well positioned to reap the benefits of increased activity as it picks up. The Bank's equity and liquidity positions remain strong and well in excess of both regulatory and internal requirements. Capital optimisation is expected to continue throughout the year, subject to market conditions and regulatory approvals. As before, the Bank may allocate capital towards growth and/or distributions through dividends or share buybacks. Ownership The shares of Íslandsbanki are listed on the Nasdaq Iceland stock exchange. The Bank has one of the largest shareholder bases of listed companies in Iceland. At the end of the reporting period, the Bank had 23,666 shareholders (year-end 2025: 25,302), with 91.4% of the Bank's shares owned by domestic parties, and 8. 6% by international investors. Pension funds are the largest investor group, holding 44.2% of outstanding shares, followed by retail investors with 25.5% of outstanding shares, both figures taking into consideration treasury shares. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 5
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Directors' Report Statement by the Board of Directors and the CEO The Condensed Consolidated Interim Financial Statements for the period 1 January to 30 June 2026 have been prepared on a going concern basis in accordance with the International Accounting Standard (IAS) 34 as adopted by the European Union and additional requirements in the Act on Annual Accounts, no. 3/2006; the Act on Financial Undertakings, no. 161/2002; and rules on accounting for credit institutions, where applicable. To the best of our knowledge, these Condensed Consolidated Interim Financial Statements provide a true and fair view of the Group's operating profits and cash flows in the reporting period and its financial position as of 30 June 2026. The Board of Directors and the CEO have today discussed and approved the Condensed Consolidated Interim Financial Statements for the period 1 January to 30 June 2026. Kópavogur, 29 July 2026 Board of Directors: Heiðar Guðjónsson, Chairman Stefán Pétursson, Vice-Chairman Haukur Örn Birgisson Helga Hlín Hákonardóttir Margrét Pétursdóttir Stefán Sigurðsson Valgerður Hrund Skúladóttir Chief Executive Officer: Jón Guðni Ómarsson Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 6
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Independent Auditor's Review Report T o the Board of Directors and Shareholders of Íslandsbanki hf. Introduction We have reviewed the accompanying Consolidated Interim S tatement of Financial P osition of Íslandsbanki hf. as of 30 June 2026, the Consolidated Interim Income Statement and the Consolidated Interim Statement of Comprehensive Income, the Consolidated Interim Statement of Changes in Equity and the Consolidated Interim Statement of Cash Flows for the six month period then ended, and Notes to the Condensed Consolidated Interim Financial Statements ("the Condensed Consolidated Interim Financial Statements"). Management is responsible for the preparation and presentation of these Condensed Consolidated Interim Financial Statements in accordance with IAS 34 Interim Financial Reporting and additional requirements in the Act on Annual Accounts, no. 3/2006; the Act on Financial Undertakings, no. 161/2002; and rules on accounting for credit institutions, where applicable. Our responsibility is to express a conclusion on these Condensed Consolidated Interim Financial Statements based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying Condensed Consolidated Interim Financial Statements are not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting and additional requirements in the Act on Annual Accounts, no. 3/2006; the Act on Financial Undertakings, no. 161/2002; and rules on accounting for credit institutions, where applicable. Rey kjavík, 29 July 2026 KPMG ehf. Hr afnhildur Helgadóttir Sigurjón Örn Arnarson Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 7
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Notes 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 77,850 67,478 37,005 34,609 1,501 2,129 666 1,048 ( 46,970) ( 42,787) ( 22,390) ( 21,776) 5 32,381 26,820 15,281 13,881 9,515 9,606 4,826 4,979 ( 2,989) ( 2,919) ( 1,568) ( 1,359) 6 6,526 6,687 3,258 3,620 7 ( 307) ( 973) ( 94) 13 8 424 118 267 71 9 15 594 1 131 132 ( 261) 174 215 39,039 33,246 18,713 17,716 10 ( 9,708) ( 8,901) ( 5,096) ( 4,412) 11 ( 6,182) ( 5,756) ( 2,964) ( 2,849) ( 1,094) ( 1,013) ( 548) ( 513) ( 16,984) ( 15,670) ( 8,608) ( 7,774) 22,055 17,576 10,105 9,942 12 ( 1,673) 399 ( 454) 402 20,382 17,975 9,651 10,344 13 ( 5,857) ( 5,574) ( 2,582) ( 3,152) 14,525 12,401 7,069 7,192 Earnings per share 14 8.41 6.60 4.15 3.84 8.41 6.60 4.15 3.84 The notes on pages 15 to 48 are an integral part of these Condensed Consolidated Interim Financial Statements. Basic EPS attributable to shareholders of Íslandsbanki hf. (ISK) .................... Diluted EPS attributable to shareholders of Íslandsbanki hf. (ISK) ................. Income tax expense ....................................................................................... Profit for the period Profit before net impairment on financial assets Net financial income (expense) ...................................................................... Net foreign exchange gain .............................................................................. Other operating income .................................................................................. Salaries and related expenses ....................................................................... Other operating expenses .............................................................................. Total operating income Profit before tax Net impairment on financial assets ................................................................. Other interest income ..................................................................................... Fee and commission expense ........................................................................ Net fee and commission income Bank tax ......................................................................................................... Interest expense ............................................................................................. Net interest income Total operating expenses Consolidated Interim Income Statement Other net operating income Fee and commission income .......................................................................... Interest income calculated using the effective interest rate method ................ Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 8 Amounts are in ISK million
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2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 14,525 12,401 7,069 7,192 ( 435) ( 488) ( 613) ( 480) 87 106 123 97 ( 348) ( 382) ( 490) ( 383) ( 3) - - ( 1) ( 1,151) 97 ( 93) 30 18 ( 3) 13 ( 1) 4 ( 2) 1 2 294 ( 24) 21 ( 8) ( 838) 68 ( 58) 22 ( 1,186) ( 314) ( 548) ( 361) 13,339 12,087 6,521 6,831 The notes on pages 15 to 48 are an integral part of these Condensed Consolidated Interim Financial Statements. Profit for the period ......................................................................................... Items that will not be reclassified to the income statement Consolidated Interim Statement of Comprehensive Income Items that may subsequently be reclassified to the income statement Tax related to net changes in FV of fin. liab. attrib. to changes in credit risk ... Net changes in FV of fin. liab. attributable to changes in credit risk ................ Other comprehensive expense for the period, net of tax Total comprehensive income for the period Foreign currency translation ........................................................................... Reclassification to the income statement of debt instruments at FVOCI ........ Changes in allowance for ECL of debt instruments at FVOCI ......................... Net changes in fair value of debt instruments at FVOCI ................................. Tax related to debt instruments at FVOCI ...................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 9 Amounts are in ISK million
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Notes 30.6.2026 31.12.2025 19 91,559 80,394 20 65,288 80,009 15 166,740 151,959 21 4,047 5,304 22 1,416,048 1,367,106 15 12,770 20,517 24 31,933 22,858 1,788,385 1,728,147 25 17,664 13,250 26 1,038,206 968,695 21 2,691 6,183 28 440,206 444,593 29 40,874 40,315 13,440 12,757 30 24,209 16,995 1,577,290 1,502,788 8,371 8,900 26,380 42,472 5,774 7,201 170,570 166,786 211,095 225,359 1,788,385 1,728,147 The notes on pages 15 to 48 are an integral part of these Condensed Consolidated Interim Financial Statements. *Comparative figures have been changed. In the context of materiality, the Group has determined that the line items "Investments in associates", "Investment property", "Property and equipment", and "Intangible assets" do not warrant separate presentation as line items in the Consolidated Interim Statement of Financial Position. Accordingly, these items have been reclassified and are now included within "Other assets". Other liabilities ................................................................................................ Debt issued and other borrowed funds ............................................................ Total Liabilities Liabilities Shares and equity instruments ........................................................................ Equity Tax liabilities ................................................................................................... Subordinated loans ......................................................................................... Other assets* .................................................................................................. Derivative instruments and short positions ...................................................... Deposits from customers ................................................................................ Total Assets Deposits from Central Bank and credit institutions .......................................... Total Liabilities and Equity Total Equity Share capital ................................................................................................... Share premium ............................................................................................... Reserves ......................................................................................................... Retained earnings ........................................................................................... Consolidated Interim Statement of Financial Position Cash and balances with Central Bank ............................................................. Assets Bonds and debt instruments ........................................................................... Loans to customers ......................................................................................... Derivatives ...................................................................................................... Loans to credit institutions ............................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 10 Amounts are in ISK million
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Unrealised FV changes Reserve for Liability Foreign of financial Capitalised Unrealised debt credit currency Share Share Statutory assets in the development gains in instruments risk translation Retained Total capital premium reserve banking book cost associates at FVOCI reserve reserve earnings equity Equity as at 1 January 2025 9,473 55,000 2,500 2,829 1,067 648 192 ( 135) 1 155,780 227,355 Profit for the period ............................................................................. 12,401 12,401 Net changes in FV of fin. liab. due to changes in credit risk ................ ( 355) ( 133) ( 488) Tax on net changes in FV of fin. liab. due to changes in credit risk ..... 71 35 106 Foreign currency translation ............................................................... - Net changes in fair value of debt instruments at FVOCI ..................... 97 97 Reclassification to the income statement of debt inst. at FVOCI ........ ( 3) ( 3) Changes in allowance for ECL of debt instruments at FVOCI ............. ( 2) ( 2) Tax related to debt instruments at FVOCI ........................................... ( 24) ( 24) Total comprehensive income for the period - - - - - - 68 ( 284) - 12,303 12,087 Dividends ............................................................................................ ( 12,103) ( 12,103) Purchase of treasury shares ............................................................... ( 105) ( 2,509) ( 2,614) Reduction in share capital .................................................................. ( 12,528) ( 149) 12,677 - Other changes to restricted reserves .................................................. (140) (147) 683 (396) - Equity as at 30 June 2025 9,368 42,472 2,351 2,689 920 1,331 260 ( 419) 1 165,752 224,725 The notes on pages 15 to 48 are an integral part of these Condensed Consolidated Interim Financial Statements. Consolidated Interim Statement of Changes in Equity Reserves Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 11 Amounts are in ISK million
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Consolidated Interim Statement of Changes in Equity Unrealised FV changes Reserve for Liability Foreign of financial Capitalised Unrealised debt credit currency Share Share Statutory assets in the development gains in instruments risk translation Retained Total capital premium reserve banking book cost associates at FVOCI reserve reserve earnings equity Equity as at 1 January 2026 8,900 42,472 2,351 2,707 776 1,866 411 ( 913) 3 166,786 225,359 Profit for the period ............................................................................. 14,525 14,525 Net changes in FV of fin. liab. due to changes in credit risk ................ ( 435) ( 435) Tax on net changes in FV of fin. liab. due to changes in credit risk ..... 87 87 Foreign currency translation ............................................................... ( 3) ( 3) Net changes in fair value of debt instruments at FVOCI ..................... (1,151) ( 1,151) Reclassification to the income statement of debt inst. at FVOCI ........ 18 18 Changes in allowance for ECL of debt instruments at FVOCI ............. 4 4 Tax related to debt instruments at FVOCI ........................................... 294 294 Total comprehensive income (expense) for the period - - - - - - ( 835) ( 348) ( 3) 14,525 13,339 Dividends ............................................................................................ ( 12,604) ( 12,604) Purchase of treasury shares ............................................................... ( 529) ( 14,630) ( 15,159) Reduction in share capital .................................................................. ( 16,092) ( 159) 16,251 - Equity-settled incentive scheme charge .............................................. 35 35 Share option charge ........................................................................... 125 125 Other changes to restricted reserves .................................................. ( 48) ( 145) 111 82 - Equity as at 30 June 2026 8,371 26,380 2,192 2,659 631 1,977 ( 424) ( 1,261) - 170,570 211,095 The notes on pages 15 to 48 are an integral part of these Condensed Consolidated Interim Financial Statements. The Bank's authorised and issued share capital on 30 June 2026 consisted of 1,753,175,393 ordinary shares (year-end 2025: 1,880,470,770) with a par value of ISK 5 each. The Annual General Meeting (AGM) for the 2025 operating year took place on 19 March 2026 where shareholders approved the Board's proposal to reduce the Bank's share capital by cancelling the Bank's own shares by ISK 636,476,885 nominal value, equivalent to 127,295,377 shares, from ISK 9,402,353,850 to ISK 8,765,876,965 nominal value. Reserves Upon derecognition (mainly repurchases) of financial liabilities designated at FVTPL, the amount accumulated in the liability credit risk reserve is transferred to retained earnings. In the first half of 2026, ISK 0 million (first half 2025: negative ISK 98 million) was transferred to retained earnings upon the derecognition of financial liabilities designated at FVTPL. At the AGM, shareholders approved the Board's proposal to distribute dividends of ISK 12,600 million, equivalent to ISK 7.28 per share (2025: ISK 6.46 per share). The dividends were paid on 8 April 2026. Íslandsbanki bought back 105.8 million own shares for ISK 15,159 million during the first half of 2026 (first half 2025: 21.1 million own shares for ISK 2,614 million). As of 30 June 2026 the Bank owned 79.1 million own shares (year-end 2025: 100.5 million). Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 12 Amounts are in ISK million
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2026 2025 1.1-30.6 1.1-30.6 14,525 12,401 ( 22,930) ( 19,895) 8,434 9,370 66,974 63,992 ( 41,719) ( 29,057) 368 850 ( 949) ( 1,002) ( 4,877) ( 5,126) Net cash provided by operating activities 19,826 31,533 ( 4) ( 16) 12 192 ( 189) ( 252) ( 536) ( 304) Net cash used in investing activities ( 717) ( 380) 51,349 72,344 ( 46,772) ( 30,924) ( 302) ( 290) ( 12,604) ( 12,103) ( 15,159) ( 2,614) Net cash provided by (used in) financing activities ( 23,488) 26,413 ( 4,379) 57,566 ( 444) ( 5,232) 125,897 83,548 Cash and cash equivalents at the end of the period 121,074 135,882 Reconciliation of cash and cash equivalents Notes 19 3,605 3,537 19 53,079 52,435 20 58,803 70,575 18, 20 5,587 9,335 Cash and cash equivalents at the end of the period 121,074 135,882 The notes on pages 15 to 48 are an integral part of these Condensed Consolidated Interim Financial Statements. *For further breakdown see the following page. **Interest is defined as having been paid when it has been deposited into the customer's account. The Group has prepared its Consolidated Interim Statement of Cash Flows using the indirect method. The statement is based on the net profit after tax for the period and shows the cash flows from operating, investing and financing activities and the increase or decrease in cash and cash equivalents during the period. Money market loans and other loans to credit institutions .................................................... Dividends paid ........................................................................................................................................ Net increase (decrease) in cash and cash equivalents ........................................................................... Effects of foreign exchange rate changes ............................................................................................... Purchase of treasury shares ................................................................................................................... Cash and cash equivalents at the beginning of the year ......................................................................... Cash on hand ...................................................................................................................... Unrestricted balances with Central Bank ............................................................................. Interest paid** ......................................................................................................................................... Bank accounts not pledged as collateral against derivative instruments .............................. Purchase of investment property ............................................................................................................ Repayment of lease liabilities ................................................................................................................. Proceeds from sales of property and equipment ..................................................................................... Purchase of property and equipment ...................................................................................................... Additions of intangible assets ................................................................................................................. Proceeds from borrowings ...................................................................................................................... Repayment and repurchases of borrowings ............................................................................................ Consolidated Interim Statement of Cash Flows Dividends received ................................................................................................................................. Bank tax paid .......................................................................................................................................... Income tax and special financial activities tax paid ................................................................................. Profit for the period ................................................................................................................................. Non-cash items included in profit for the period* ..................................................................................... Changes in operating assets and liabilities* ............................................................................................ Interest received ..................................................................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 13 Amounts are in ISK million
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Consolidated Interim Statement of Cash Flows Non-cash items included in profit for the period 2026 2025 1.1-30.6 1.1-30.6 ( 32,381) ( 26,820) ( 164) 618 ( 424) ( 118) 1,039 838 1,094 1,013 1,770 ( 368) 5,857 5,574 279 ( 632) Total ( 22,930) ( 19,895) Changes in operating assets and liabilities 2026 2025 1.1-30.6 1.1-30.6 ( 1,165) ( 337) ( 217) 1,191 ( 16,450) 5,413 ( 45,333) ( 36,389) 7,661 5,581 ( 3,802) ( 8,292) 4,308 2,261 62,115 37,872 ( 3,519) ( 1,267) 4,836 3,337 Total 8,434 9,370 The notes on pages 15 to 48 are an integral part of these Condensed Consolidated Interim Financial Statements. Derivative instruments and short positions ............................................................................................. Bonds and debt instruments ................................................................................................................... Loans to customers ................................................................................................................................ Shares and equity instruments ............................................................................................................... Other assets ........................................................................................................................................... Deposits from Central Bank and credit institutions ................................................................................. Deposits from customers ........................................................................................................................ Other liabilities ........................................................................................................................................ Loans to credit institutions pledged as collateral against derivative instruments ..................................... Mandatory reserve and pledged balances with Central Bank .................................................................. Net impairment on financial assets ......................................................................................................... Bank tax ................................................................................................................................................. Income tax expense ............................................................................................................................... Other changes ........................................................................................................................................ Net interest income ................................................................................................................................ Depreciation, amortisation, and write-offs ............................................................................................... Unrealised fair value (gain) loss recognised in the income statement ..................................................... Foreign exchange gain ........................................................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 14 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements Notes Page Notes Page General information 1 Corporate information ................................................. 16 21 Derivative instruments and short positions .................. 30 2 Basis of preparation .................................................... 16 22 Loans to customers .................................................... 31 3 Significant accounting estimates and judgements ....... 17 23 Expected credit losses ................................................ 31 4 Operating segments .................................................... 18 24 Other assets ............................................................... 33 25 Deposits from Central Bank and credit institutions ...... 33 Notes to the Consolidated Income Statement 26 Deposits from customers ............................................ 33 5 Net interest income ..................................................... 21 27 Pledged assets ........................................................... 34 6 Net fee and commission income ................................. 21 28 Debt issued and other borrowed funds ........................ 35 7 Net financial income (expense) ................................... 22 29 Subordinated loans ..................................................... 36 8 Net foreign exchange gain .......................................... 22 30 Other liabilities ............................................................ 36 9 Other operating income ............................................... 23 10 Salaries and related expenses .................................... 23 Other Notes 11 Other operating expenses ........................................... 24 31 Custody assets ........................................................... 36 12 Net impairment on financial assets ............................. 24 32 Related party .............................................................. 37 13 Income tax expense .................................................... 24 33 Legal proceedings ....................................................... 38 14 Earnings per share ...................................................... 25 34 Events after the reporting period ................................. 38 Notes to the Consolidated Statement of Financial Position Risk Management 15 Classification of financial assets and 35 Risk management ....................................................... 38 financial liabilities ........................................................ 26 36-39 Credit risk ................................................................... 39 16-17 Fair value information for financial instruments ........... 27 40 Liquidity risk ................................................................ 44 18 Offsetting financial assets and financial liabilities ........ 29 41-43 Market risk .................................................................. 45 19 Cash and balances with Central Bank ......................... 29 44-45 Capital management ................................................... 47 20 Loans to credit institutions .......................................... 29 Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 15
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Notes to the Condensed Consolidated Interim Financial Statements 1. Corporate information Íslandsbanki hf., the parent company, was incorporated on 8 October 2008 and is a limited liability company domiciled in Icel and. The r egistered office is at Hagasmári 3, 201 Kópavogur, Iceland. The Condensed Consolidated Interim Financial Statements for the period 1 January to 30 June 2026 comprise the financial statements of Íslandsbanki hf. ("the Bank" or "Íslandsbanki") and its subsidiaries, together referred to as "the Group". The Bank's main subsidiaries are Íslandssjóðir hf. (Iceland Funds) and Allianz Ísland hf. Additionally, Íslandsbanki has control over 12 other non-significant subsidiaries. All of the Bank's subsidiaries are wholly owned. The Condensed Consolidated Interim Financial Statements were approved and authorised for issue by the Board of Directors and the CEO of Íslandsbanki hf. on 29 July 2026. 2. Basis of preparation The Condensed Consolidated Interim Financial Statements have been prepared in accordance with the International Accounting Standard (IAS) 34 Interim Financial Reporting, as adopted by the European Union and additional requirements in the Act on Annual Accounts no. 3/2006, the Act on Financial Undertakings no. 161/2002 and rules on accounting for credit institutions, where applicable. The Condensed Consolidated Interim Financial Statements do not include all the information required for annual financial stat ements and should be read in conjunction with the audited Consolidated Financial Statements for the year 2025, as well as the unaudited Pillar 3 Report for the year 2025. Both are available on the Bank's website: www.islandsbanki.is. The Condensed Consolidated Interim Financial Statements are presented in Icelandic króna (ISK), which is the functional currency of Íslandsbanki hf. All amounts presented in ISK have been rounded to the nearest million, except where otherwise indicated. At 30 June 2026, the exchange rate of the ISK against the USD was 126.38 and for the EUR 144.00 (year-end 2025: USD 125.20 and EUR 147.20). The Group's management has made an assessment of the Group's ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Therefore, the Condensed Consolidated Interim Financial Statements have been prepared on a going concern basis. Changes to accounting policies The accounting policies are unchanged from those set out in Notes 3 and 62 in the Consolidated Financial Statements for the year 2025 except for the changes to accounting policies outlined below. The purpose of the following changes to accounting policies is to ensure a fairer presentation of the Condensed Consolidated Interim Financial Statements. In the context of materiality, the Group has determined that the line items "Investments in associates", "Investment property", "Property and equipment", and "Intangible assets" do not warrant separate presentation as line item s in the Consolidated Interim Statement of Financial Position. Accordingly, these items have been reclassified and are now included within "Other assets". The Consolidated Financial Statements for the year 2025 do not include a separate accounting policy for disposal groups held for sale, as the Group did not hold any disposal groups classified as held for sale during the year. Assets of disposal groups classified as groups held for sale are presented in the line item "Other assets" as "Repossessed collateral", and the related liabilities are presented in the line item "Other liabilities" as "Liabilities of disposal groups classified as repossessed collateral". Income and expenses arising from disposal groups held for sale are presented under "Other operating income" as "Net expense from repossessed collateral". Basis of measurement The Condensed Consolidated Interim Financial Statements are prepared on a historical cost basis with the following exemptions: • Assets and liabilities measured at fair value: bonds and debt instruments, shares and equity instruments, investment property, short positions in listed bonds, derivative financial instruments, and certain debt issued by the Group. • Recognised financial liabilities designated as hedged items in qualifying fair value hedge relationships are measured at amortised cost adjusted for changes in fair value attributable to the risk being hedged. • Investments in associates are accounted for using the equity method. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 16
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Notes to the Condensed Consolidated Interim Financial Statements 3. Significant accounting estimates and judgements In preparing these Condensed Consolidated Interim Financial Statements management has made judgements, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Management bases its judgements on previous experience and other factors that are considered reasonable under the circumstances, but actual results may differ from those estimates. Management continuously evaluates these judgements, estimates, and assumptions. Changes in accounting estimates are recognised when they occur. Key source of estimation uncertainty is the allowance for credit losses. Impairment of financial assets Note 62.3 in the Consolidated Financial Statements for the year 2025 contains a description of the Group's accounting policies for the impairment of financial assets. At the end of the first half of 2026, the following changes have been made. The Group's Chief Economist provided a new macroeconomic forecast and an updated inflation forecast in June 2026. The table below shows macroeconomic indicators from the new forecast that are used in the base case scenario. Change in economic indicators % 2025 Forecast 2026 Forecast 2027 Forecast 2028 Forecast 2029 Economic growth (YoY real GDP change) 1.3 1.3 2.1 2.5 2.5 Housing prices in Iceland (average YoY change) 5.3 3.0 4.1 6.5 4.0 Purchasing power (average YoY change) 3.7 1.0 1.3 1.0 1.5 ISK exchange rate index (average YoY change) (4.3) (0.2) 2.9 2.1 1.0 Policy rate, Central Bank of Iceland (average per year) 7.7 7.7 7.1 6.1 5.8 Inflation (average per year) 4.1 5.1 4.4 3.8 3.5 Capital formation (YoY real change) 4.0 (3.9) 0.4 2.9 2.2 - t hereof capital formation in industry 7.5 (5.6) (0.8) 2.4 1.5 The All Risk Committee determined it appropriate to keep the weights of forward- looking scenarios unchanged from year-end 2025 at 20%-50%-30% (optimistic, base, pessimistic) at the end of the first half. Management reviews the sensitivity analysis on the impact of shifting weights between scenarios when determining the appropriate weights for the three scenarios. According to the analysis, a shift of 5% weight from the baseline to the pessimistic scenario would increase the impairment allowance by ISK 270 million, while a 5% shift from the baseline to the optimistic scenario would decrease the allowance by ISK 110 million. Scenario weights can be scaled linearly, allowing a broader scope of analysis on the impairment allowance. The impairment process is designed to be systematic so that it can be consistently applied. For the largest part of the loan portfolio, the Group employs an automatic process to assign facilities to stages and to estimate the ECL. For large or complex credit cases where the automatic process is not appropriate, alternative ECL calculations (referred to as "manual impairment") are proposed by experts. Each manual impairment is subsequently reviewed and approved or rejected by the Impairment Council. As of 30 June 2026, exposure to a few counterparties amounting to ISK 22.8 billion was subject to manual impairment, with the associated ECL totalling ISK 2.7 billion (year-end 2025: ISK 9.3 billion and ISK 2.7 billion, respectively). The allowance for credit losses is further discussed in Notes 22-23 and in Notes 36-39 on risk management. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 17
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Notes to the Condensed Consolidated Interim Financial Statements 4. Corporate & Treasury & Subsidiaries, 1 January to 30 June 2026 Personal Business Investment Proprietary Cost The Bank eliminations & The Group Banking Banking Banking Trading centres total adjustments total Net interest income (expense) ...................................................................... 10,493 10,341 7,707 4,095 ( 175) 32,461 ( 80) 32,381 N et fee and commission income (expense) .................................................. 1,837 1,052 2,311 55 ( 6) 5,249 1, 277 6,526 O ther net operating income ........................................................................... 52 ( 22) 620 367 163 1, 180 ( 1,048) 132 12,382 11,371 10,638 4,517 ( 18) 38,890 149 39, 039 Salaries and related expenses ...................................................................... ( 1,529) ( 1,392) ( 1,333) ( 149) ( 4,607) ( 9,010) ( 698) ( 9,708) Other operating expenses ............................................................................. ( 1,328) ( 641) ( 635) ( 212) ( 3,132) ( 5,948) ( 234) ( 6,182) Bank tax ........................................................................................................ ( 485) ( 261) ( 290) ( 51) ( 7) ( 1,094) - ( 1,094) Net impairment on financial assets ............................................................... ( 277) ( 834) ( 714) ( 30) - ( 1,855) 182 ( 1,673) Cost allocation .............................................................................................. ( 3,141) ( 2,639) ( 2,221) 245 7, 756 - - - Profit (loss) before tax ................................................................................... 5,622 5,604 5,445 4,320 ( 8) 20,983 ( 601) 20,382 In come tax expense ...................................................................................... ( 1,587) ( 1,525) ( 1,495) ( 1,145) ( 1) ( 5,753) ( 104) ( 5,857) Profit (loss) for the period 4,035 4,079 3,950 3,175 ( 9) 15,230 ( 705) 14,525 N et segment revenue from external customers ............................................. 18,974 14,089 16,569 ( 10,873) 131 38,890 149 39,039 Net segment revenue from other segments .................................................. ( 6,592) ( 2,718) ( 5,931) 15,390 ( 149) - - - F ee and commission income ........................................................................ 4,166 1,192 2,499 192 - 8,049 1, 466 9,515 Depreciation, amortisation, and write-offs ..................................................... ( 108) ( 24) ( 4) - ( 780) ( 916) ( 123) ( 1,039) At 30 June 2026 Loans to customers ...................................................................................... 665,330 358,890 395,271 - - 1,419,491 ( 3,443) 1,416,048 Other assets ................................................................................................. 3,577 1,714 4,339 345,393 9,959 364,982 7,355 372,337 Total segment assets 668,907 360,604 399,610 345,393 9,959 1,784,473 3,912 1,788,385 Deposits from customers .............................................................................. 550,448 290,008 180,332 20,297 - 1, 041,085 ( 2,879) 1,038,206 Other liabilities .............................................................................................. 2,840 1,379 13,025 510,869 6,886 534,999 4, 085 539,084 Total segment liabilities 553,288 291,387 193,357 531,166 6,886 1,576,084 1,206 1,577,290 Allocated equity ............................................................................................ 38,772 53,715 70,899 43,569 1,434 208,389 2,706 211,095 Risk exposure amount .................................................................................. 237,169 311,920 421,363 59,453 8,686 1,038,591 5,122 1,043,713 The individual segment balance sheet positions are with external customers and exclude internal transactions, thus explaining the differences in total assets, and total liabilities and equity. Operating segments Total operating income Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 18 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 4. Operating segments (continued) Corporate & Treasury & Subsidiaries, 1 January to 30 June 2025 Personal Business Investment Proprietary Cost The Bank eliminations & The Group Banking Banking Banking Trading centres total adjustments total Net interest income (expense) ...................................................................... 9,064 9,700 6,886 1,296 ( 210) 26,736 84 26,820 Net fee and commission income (expense) .................................................. 1,915 992 2,451 ( 123) ( 7) 5,228 1,459 6,687 Other net operating income ........................................................................... 67 ( 30) 1,114 ( 838) 219 532 ( 793) ( 261) 11,046 10,662 10,451 335 2 32,496 750 33,246 Salaries and related expenses ...................................................................... ( 1,429) ( 1,216) ( 1,162) ( 145) ( 4,381) ( 8,333) ( 568) ( 8,901) Other operating expenses ............................................................................. ( 1,344) ( 612) ( 603) ( 266) ( 2,841) ( 5,666) ( 90) ( 5,756) Bank tax ........................................................................................................ ( 456) ( 253) ( 267) ( 30) ( 7) ( 1,013) - ( 1,013) Net impairment on financial assets ............................................................... ( 107) 720 ( 150) ( 64) - 399 - 399 Cost allocation .............................................................................................. ( 2,929) ( 2,482) ( 2,128) 322 7,217 - - - Profit (loss) before tax ................................................................................... 4,781 6,819 6,141 152 ( 10) 17,883 92 17,975 Income tax expense ...................................................................................... ( 1,362) ( 1,837) ( 1,666) ( 420) - ( 5,285) ( 289) ( 5,574) Profit (loss) for the period 3,419 4,982 4,475 ( 268) ( 10) 12,598 ( 197) 12,401 Net segment revenue from external customers ............................................. 12,794 12,700 16,259 ( 9,441) 184 32,496 750 33,246 Net segment revenue from other segments .................................................. ( 1,748) ( 2,038) ( 5,808) 9,776 ( 182) - - - Fee and commission income ........................................................................ 3,978 1,119 2,658 118 ( 4) 7,869 1,737 9,606 Depreciation, amortisation, and write-offs ..................................................... ( 98) ( 28) ( 5) - ( 699) ( 830) ( 8) ( 838) At 31 December 2025 Loans to customers ...................................................................................... 630,788 346,943 387,476 1,899 - 1,367,106 - 1,367,106 Other assets ................................................................................................. 3,978 1,703 1,268 342,241 9,773 358,963 2,078 361,041 Total segment assets 634,766 348,646 388,744 344,140 9,773 1,726,069 2,078 1,728,147 Deposits from customers .............................................................................. 524,781 288,142 148,732 10,160 - 971,815 ( 3,120) 968,695 Other liabilities .............................................................................................. 3,033 2,870 3,778 516,573 6,049 532,303 1,790 534,093 Total segment liabilities 527,814 291,012 152,510 526,733 6,049 1,504,118 ( 1,330) 1,502,788 Allocated equity ............................................................................................ 46,965 55,352 70,303 48,023 1,308 221,951 3,408 225,359 Risk exposure amount .................................................................................. 221,633 306,872 430,188 60,696 8,542 1,027,931 5,857 1,033,788 Total operating income Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 19 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 4. Subsidiaries, eliminations & adjustments 1 January to 30 June 2026 Íslands- Allianz Other Eliminations sjóðir hf. Ísland hf. subsidiaries & adjustments Total Net interest income (expense) ................................................... 5 76 - ( 161) ( 80) Net fee and commission income (expense) ............................... 673 606 - ( 2) 1,277 Other net operating income ....................................................... ( 20) 5 322 ( 1,355) ( 1,048) Total operating income 658 687 322 ( 1,518) 149 Salaries and related expenses ................................................... ( 514) ( 134) ( 50) - ( 698) Other operating expenses .......................................................... ( 132) ( 115) ( 259) 272 ( 234) Net impairment on financial assets ............................................ - - - 182 182 Profit (loss) before tax ................................................................ 12 438 13 ( 1,064) ( 601) Income tax ................................................................................. ( 2) ( 99) ( 3) - ( 104) Profit (loss) for the period 10 339 10 ( 1,064) ( 705) Net segment revenue from external customers .......................... 844 608 ( 338) ( 965) 149 Net segment revenue from other segments ............................... ( 186) 79 660 ( 553) - Fee and commission income ..................................................... 972 793 - ( 299) 1,466 Depreciation, amortisation, and write-offs .................................. - - ( 2) ( 121) ( 123) At 30 June 2026 Total assets ............................................................................... 1,897 3,249 8,152 ( 9,386) 3,912 Total liabilities ............................................................................ 402 1,264 5,722 ( 6,182) 1,206 Total equity ................................................................................ 1,495 1,985 2,430 ( 3,204) 2,706 1 January to 30 June 2025 Íslands- Allianz Other Eliminations sjóðir hf. Ísland hf. subsidiaries & adjustments Total Net interest income .................................................................... 5 78 - 1 84 Net fee and commission income (expense) ............................... 729 747 - ( 17) 1,459 Other net operating income ....................................................... ( 118) ( 21) 260 ( 914) ( 793) Total operating income 616 804 260 ( 930) 750 Salaries and related expenses ................................................... ( 400) ( 135) ( 33) - ( 568) Other operating expenses .......................................................... ( 129) ( 94) ( 215) 348 ( 90) Profit (loss) before tax ................................................................ 87 575 12 ( 582) 92 Income tax ................................................................................. ( 18) ( 140) ( 4) ( 127) ( 289) Profit (loss) for the period 69 435 8 ( 709) ( 197) Net segment revenue from external customers .......................... 783 723 5 ( 761) 750 Net segment revenue from other segments ............................... ( 167) 81 255 ( 169) - Fee and commission income ..................................................... 1,015 1,023 - ( 301) 1,737 Depreciation, amortisation, and write-offs .................................. - ( 2) ( 1) ( 5) ( 8) At 31 December 2025 Total assets ............................................................................... 2,060 3,534 2,482 ( 5,998) 2,078 Total liabilities ............................................................................ 316 1,288 65 ( 2,999) ( 1,330) Total equity ................................................................................ 1,744 2,246 2,417 ( 2,999) 3,408 Operating segments (continued) Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 20 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 5. Net interest income 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 1,616 1,297 839 802 879 1,395 385 643 71,253 61,497 33,659 31,662 4,102 3,289 2,122 1,502 Interest income calculated using the effective interest rate method 77,850 67,478 37,005 34,609 1,497 2,126 664 1,047 4 3 2 1 Other interest income 1,501 2,129 666 1,048 ( 126) ( 162) ( 63) ( 93) ( 28,190) ( 27,138) ( 13,909) ( 13,356) ( 1,460) ( 1,530) ( 751) ( 679) ( 1,633) ( 507) ( 820) ( 419) ( 13,478) ( 11,867) ( 5,881) ( 6,374) ( 2,045) ( 1,526) ( 946) ( 820) ( 35) ( 36) ( 18) ( 18) ( 3) ( 21) ( 2) ( 17) Interest expense ( 46,970) ( 42,787) ( 22,390) ( 21,776) Net interest income 32,381 26,820 15,281 13,881 6. Net fee and commission income 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 1,473 1,464 714 711 1,670 1,873 841 1,091 4,150 4,008 2,190 2,112 1,280 1,031 633 534 942 1,230 448 531 Fee and commission income 9,515 9,606 4,826 4,979 ( 286) ( 305) ( 141) ( 177) ( 2,468) ( 2,190) ( 1,292) ( 1,063) ( 235) ( 424) ( 135) ( 119) Fee and commission expense ( 2,989) ( 2,919) ( 1,568) ( 1,359) Net fee and commission income 6,526 6,687 3,258 3,620 Fee and commission income by segment is disclosed in Note 4. Deposits from customers .................................................................................................... Debt issued and other borrowed funds designated as at fair value through profit or loss .... Loans to credit institutions .................................................................................................. Loans to customers ............................................................................................................ Financial assets mandatorily at fair value through profit or loss .......................................... Payment processing ........................................................................................................... Brokerage ........................................................................................................................... Loans and guarantees ........................................................................................................ Other fee and commission income ..................................................................................... Financial liabilities mandatorily at fair value through profit or loss ....................................... Financial assets mandatorily at fair value through other comprehensive income ................ Other fee and commission expense ................................................................................... Subordinated loans ............................................................................................................. Other liabilities .................................................................................................................... Lease liabilities ................................................................................................................... Other assets ....................................................................................................................... Investment banking and brokerage ..................................................................................... Cash and balances with Central Bank ................................................................................ Debt issued and other borrowed funds at amortised cost ................................................... Payment processing expenses ........................................................................................... Deposits from Central Bank and credit institutions .............................................................. Asset management ............................................................................................................ Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 21 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 7. Net financial income (expense) 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 ( 356) ( 217) 673 277 261 ( 749) ( 576) ( 293) ( 63) 10 ( 51) 49 ( 133) ( 18) ( 126) ( 21) ( 16) 1 ( 14) 1 Net financial income (expense) ( 307) ( 973) ( 94) 13 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 689 ( 213) ( 118) ( 357) ( 752) 223 67 406 Net gain (loss) on fair value hedges ( 63) 10 ( 51) 49 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 ( 26) ( 98) 13 ( 105) ( 532) ( 1,539) ( 240) ( 442) 368 850 231 555 ( 80) 120 ( 16) 87 ( 21) ( 307) ( 68) ( 84) ( 16) 1 ( 14) 2 Net financial income (expense) ( 307) ( 973) ( 94) 13 8. Net foreign exchange gain 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 ( 41) ( 83) ( 8) ( 66) ( 3,835) ( 9,793) 1,115 ( 5,361) ( 981) ( 86) ( 49) ( 2,698) ( 1,365) ( 888) ( 116) ( 706) ( 6) ( 16) - 2 Net foreign exchange gain (loss) for assets ( 6,228) ( 10,866) 942 ( 8,829) 902 7,794 ( 714) 5,023 1,960 757 ( 248) 159 3,169 2,571 118 3,421 621 ( 138) 169 297 Net foreign exchange gain (loss) for liabilities 6,652 10,984 ( 675) 8,900 Net foreign exchange gain 424 118 267 71 The following table shows the categorisation of the net financial income (expense) by type. Net loss on derecognition of financial liabilities measured at amortised cost ...................... Dividend income ................................................................................................................. Cash and balances with Central Bank ................................................................................ Debt issued and other borrowed funds at amortised cost ................................................... Fair value changes of the hedged items attributable to the hedged risk .............................. Deposits ............................................................................................................................. Debt issued and other borrowed funds designated as at fair value through profit or loss .... Net gain (loss) on sale of debt instruments measured at FVOCI ........................................ Net loss on economic hedging and other derivatives .......................................................... Net loss on shares and related derivatives ......................................................................... Net gain (loss) on debt issued and related derivatives ........................................................ Net gain (loss) on financial assets and financial liabilities mandatorily at FVTPL ................ Net gain (loss) on fair value hedges .................................................................................... Fair value changes of the hedging derivatives .................................................................... The following table shows the categorisation of the net gain (loss) on fair value hedges. Net gain (loss) on bonds and related derivatives ................................................................ Loans at amortised cost ..................................................................................................... Net gain (loss) on financial liabilities designated as at FVTPL ............................................ Financial assets mandatorily at fair value through profit or loss .......................................... Net gain (loss) on sale of debt instruments measured at FVOCI ........................................ Subordinated loans ............................................................................................................. Financial assets mandatorily at fair value through other comprehensive income ................ Other assets ....................................................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 22 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 9. Other operating income 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 ( 4) 284 ( 2) ( 6) 112 148 68 ( 8) ( 150) ( 16) ( 82) ( 12) 4 133 - 133 31 34 16 18 12 11 ( 4) 6 10 - 5 - Other operating income 15 594 1 131 10. Salaries and related expenses 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 7,004 6,877 3,627 3,421 523 - 332 - 121 - 63 - 1,150 1,060 599 529 984 920 509 464 128 104 73 47 ( 202) ( 60) ( 107) ( 49) Salaries and related expenses 9,708 8,901 5,096 4,412 Incentive scheme expenses ............................................................................................... Contributions to pension funds ........................................................................................... Fair value changes on investment property ........................................................................ An annual incentive scheme was implemented in early February 2026 for employees of the Group in accordance with Icelandic law and the Bank's remuneration policy. Employees working in Risk Management, Group Internal Audit, and Compliance are excluded from participating, as required by law. The purpose of the scheme is to promote alignment between the interests of shareholders, employees, customers, and other stakeholders, support sustainable long-term performance, and reinforce a performance-oriented culture. The financing of the scheme is contingent on the Group's return on equity. For 2026, the accrual range is a return on equity of 11.0-12.5%. Eligible employees may receive variable compensation of up to 10% of their fixed annual salary, settled in cash. For certain employees, including the Executive Committee and other key employees, variable compensation may amount to a maximum of 25% of annual base salary. For these employees, payments under the incentive scheme are contingent upon the achievement of various predefined financial and non-financial performance metrics. Variable compensation of up to 10% of annual base salary is settled in cash, variable compensation between 10% and 20% is settled equally in cash and shares, while variable compensation exceeding 20% (up to a maximum of 25%) is settled with 10% in cash and the remainder in shares. Variable compensation awarded and settled in shares is deferred for a minimum period of four years (five years for the CEO and direct reports). Deferred variable compensation remains subject to malus and clawback provisions throughout the deferral period, in accordance with the Bank's remuneration policy and applicable regulations. Following the end of the performance period, the Board of Directors assesses performance outcomes and determines final award levels. The Board is authorised to reduce or cancel variable remuneration, in whole or in part, in the event of unsatisfactory performance, breaches of internal rules or regulations, or a material deterioration in the financial position of the Group. Paid awards may be reclaimed for up to seven years in defined circumstances. Capitalisation of salaries and related expenses in software development ........................... Other net operating income ................................................................................................ Share-option programme expenses .................................................................................... Salaries .............................................................................................................................. Legal fees ........................................................................................................................... Social security charges and financial activities tax .............................................................. Rental income .................................................................................................................... Gain from sales of property and equipment ........................................................................ Net expense from repossessed collateral ........................................................................... Other salary-related expenses ............................................................................................ Expenses associated with the incentive scheme, including contributions to pension funds, social security charges and financial activities tax, and other salary-related expenses, are recognised within the respective expense categories. Share-option programme expenses represent the total expense recognised in relation to the Group's share-option programme. Share of profit (loss) of associates, net of tax ..................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 23 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 11. Other operating expenses 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 933 974 447 498 2,704 2,442 1,341 1,197 370 356 192 177 1,039 838 467 422 1,136 1,146 517 555 Other operating expenses 6,182 5,756 2,964 2,849 12. Net impairment on financial assets 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 ( 1,706) 413 ( 409) 397 33 ( 14) ( 45) 5 Net impairment on financial assets ( 1,673) 399 ( 454) 402 13. Income tax expense 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 4,424 4,672 1,721 2,919 1,272 1,326 495 844 31 85 ( 2) 63 130 ( 509) 368 ( 674) 5,857 5,574 2,582 3,152 ( 381) ( 82) ( 144) ( 89) 2026 2025 1.1-30.6 1.1-30.6 20,382 17,975 4,077 20.0% 3,594 20.0% 1,272 6.2% 1,326 7.4% 31 0.2% 85 0.5% ( 110) ( 0.5%) ( 227) ( 1.3%) 568 2.8% 792 4.4% 19 0.1% 4 0.0% Effective income tax expense 5,857 28.7% 5,574 31.0% Other differences ................................................................................................................ Profit before tax .................................................................................................................. Income tax calculated on the profit for the period ............................................................... Special financial activities tax ............................................................................................. Adjustments in prior year's calculated income tax ............................................................... Current tax expense ........................................................................................................... Special financial activities tax ............................................................................................. Recognised income tax is based on applicable tax laws. The income tax rate for legal entities in 2026 is 20% (2025: 20%). Special financial activities tax is calculated as 6% of the Bank's taxable profit exceeding ISK 1 billion in accordance with the Act on Financial Activities Tax no. 165/2011. The effective income tax rate in the Group's income statement for the first half 2026 is 28.7% (first half 2025: 31.0%). Net change in expected credit losses, on-balance sheet items ........................................... The Bank is taxed jointly with its subsidiary Íslandssjóðir hf. (Iceland Funds). Income not subject to tax .................................................................................................... Non-deductible expenses ................................................................................................... Software and IT expenses .................................................................................................. Real estate and office equipment ....................................................................................... Net change in expected credit losses, off-balance sheet items ........................................... Professional services .......................................................................................................... Depreciation, amortisation, and write-offs ........................................................................... Adjustments in prior year's calculated income tax ............................................................... Changes in deferred tax assets and deferred tax liabilities ................................................. Income tax recognised in the income statement Income tax recognised in other comprehensive income Other administrative expenses ........................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 24 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 14. Earnings per share 2026 2025 2026 2025 1.1-30.6 1.1-30.6 1.4-30.6 1.4-30.6 14,525 12,401 7,069 7,192 1,727 1,878 1,702 1,874 Basic earnings per share (ISK) 8.41 6.60 4.15 3.84 14,525 12,401 7,069 7,192 1,728 1,878 1,703 1,874 Diluted earnings per share (ISK) 8.41 6.60 4.15 3.84 In August 2025, the Group entered into equity-settled share option agreements. Under the plan, each option holder is entitled to purchase Íslandsbanki shares with a value of up to ISK 1.5 million once annually for five years, following the publication of the Bank's half-year results for the years 2026 to 2030. The equity-settled share option agreements had a negligible dilutive effect on earnings per share in the first half and second quarter of 2026. Profit attributable to shareholders of the Bank .................................................................... Weighted average number of outstanding shares ............................................................... Weighted average number of outstanding shares ............................................................... Profit attributable to shareholders of the Bank .................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 25 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 15. Classification of financial assets and financial liabilities At 30 June 2026 Mandatorily Hedge Mandatorily Amortised Carrying at FVTPL accounting* at FVOCI cost amount - - - 91,559 91,559 - - - 65,288 65,288 6,583 - 146,048 - 152,631 12,019 - - - 12,019 2,090 - - - 2,090 3,173 874 - - 4,047 - - - 1,416,048 1,416,048 3,063 - - - 3,063 6,629 - - - 6,629 3,078 - - - 3,078 - - - 6,366 6,366 Total financial assets 36,635 874 146,048 1,579,261 1,762,818 Mandatorily Hedge Designated Amortised Carrying at FVTPL accounting* as at FVTPL cost amount - - - 17,664 17,664 - - - 1,038,206 1,038,206 2,691 - - - 2,691 - 80,888 89,264 270,054 440,206 - - - 40,874 40,874 - - - 17,394 17,394 Total financial liabilities 2,691 80,888 89,264 1,384,192 1,557,035 At 31 December 2025 Mandatorily Hedge Mandatorily Amortised Carrying at FVTPL accounting* at FVOCI cost amount - - - 80,394 80,394 - - - 80,009 80,009 11,149 - 132,559 - 143,708 6,123 - - - 6,123 2,128 - - - 2,128 3,533 1,771 - - 5,304 - - - 1,367,106 1,367,106 3,200 - - - 3,200 14,518 - - - 14,518 2,799 - - - 2,799 - - - 3,452 3,452 Total financial assets 43,450 1,771 132,559 1,530,961 1,708,741 Mandatorily Hedge Designated Amortised Carrying at FVTPL accounting* as at FVTPL cost amount - - - 13,250 13,250 - - - 968,695 968,695 6,183 - - - 6,183 - 90,607 89,416 264,570 444,593 - - - 40,315 40,315 - - - 10,309 10,309 Total financial liabilities 6,183 90,607 89,416 1,297,139 1,483,345 Unlisted shares and equity instruments ....................................................... Other financial assets ................................................................................. Deposits from customers ............................................................................ Derivative instruments and short positions .................................................. Debt issued and other borrowed funds ........................................................ Cash and balances with Central Bank ......................................................... Loans to credit institutions ........................................................................... Listed bonds and debt instruments ............................................................. Listed shares and equity instruments .......................................................... *For further information on hedge accounting see Notes 21 and 28. Deposits from Central Bank and credit institutions ...................................... Other financial assets ................................................................................. Other financial liabilities .............................................................................. Unlisted bonds and debt instruments .......................................................... Subordinated loans ..................................................................................... Other financial liabilities .............................................................................. Deposits from Central Bank and credit institutions ...................................... Deposits from customers ............................................................................ Derivative instruments and short positions .................................................. Cash and balances with Central Bank ......................................................... Loans to credit institutions ........................................................................... Listed bonds and debt instruments ............................................................. Listed bonds and debt instruments used for economic hedging .................. Unlisted bonds and debt instruments .......................................................... Derivatives .................................................................................................. Loans to customers ..................................................................................... Listed shares and equity instruments .......................................................... Listed shares and equity instruments used for economic hedging ............... Listed bonds and debt instruments used for economic hedging .................. Listed shares and equity instruments used for economic hedging ............... Unlisted shares and equity instruments ....................................................... Derivatives .................................................................................................. Loans to customers ..................................................................................... Debt issued and other borrowed funds ........................................................ Subordinated loans ..................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 26 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 16. Fair value information for financial instruments At 30 June 2026 Level 1 Level 2 Level 3 Total 164,650 - 2,090 166,740 - 4,047 - 4,047 9,692 - 3,078 12,770 174,342 4,047 5,168 183,557 23 - - 23 - 2,668 - 2,668 89,264 - - 89,264 89,287 2,668 - 91,955 At 31 December 2025 Level 1 Level 2 Level 3 Total 149,831 - 2,128 151,959 - 5,304 - 5,304 17,718 - 2,799 20,517 167,549 5,304 4,927 177,780 1,908 - - 1,908 - 4,275 - 4,275 89,416 - - 89,416 91,324 4,275 - 95,599 Bonds and debt instruments Shares and equity instruments Total 2,128 2,799 4,927 ( 38) - ( 38) - 358 358 - ( 79) ( 79) Fair value at 30 June 2026 2,090 3,078 5,168 Bonds and debt instruments Shares and equity instruments Total 2,020 2,417 4,437 42 209 251 66 173 239 2,128 2,799 4,927 Settlements ........................................................................................................................................ Fair value at 1 January 2025 .............................................................................................................. Purchases and share capital increase ................................................................................................ Net gain on financial instruments recognised in the income statement ............................................... Derivative instruments .................................................................................................... Shares and equity instruments ....................................................................................... Total financial assets Total financial assets Total financial liabilities Derivative instruments .................................................................................................... Fair value at 1 January 2026 .............................................................................................................. Purchases and share capital increase ................................................................................................ Net loss on financial instruments recognised in the income statement ............................................... Total financial liabilities Debt issued and other borrowed funds designated as at FVTPL .................................... Fair value at 31 December 2025 Management has assessed that reasonably possible changes in the assumptions used in the valuation of Level 3 financial instruments would not have a significant impact on their fair value. Accordingly, no sensitivity analysis of Level 3 financial instruments is presented. Changes in Level 3 financial instruments measured at fair value The following tables show financial instruments carried at fair value at 30 June 2026, categorised into three levels of the fair value hierarchy that reflect the type of inputs used in making the fair value measurements. At the end of each reporting period, the Group determines whether transfers have occurred between levels in the hierarchy, by reassessing categorisation based on the lowest-level input that is significant to the fair value measurement as a whole. No transfers between levels took place during the period. Short positions ............................................................................................................... Bonds and debt instruments ........................................................................................... Derivatives ..................................................................................................................... Bonds and debt instruments ........................................................................................... Short positions ............................................................................................................... Shares and equity instruments ....................................................................................... Financial instruments carried at fair value Debt issued and other borrowed funds designated as at FVTPL .................................... Derivatives ..................................................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 27 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 17. Total fair Carrying At 30 June 2026 Level 1 Level 2 Level 3 value amount Difference - 91,559 - 91,559 91,559 - - 65,288 - 65,288 65,288 - - - 1,412,418 1,412,418 1,416,048 ( 3,630) - 6,366 - 6,366 6,366 - Total financial assets - 163,213 1,412,418 1,575,631 1,579,261 ( 3,630) - 17,664 - 17,664 17,664 - - 1,038,181 - 1,038,181 1,038,206 ( 25) 253,469 10,855 - 264,324 270,054 ( 5,730) 41,257 - - 41,257 40,874 383 - 17,394 - 17,394 17,394 - Total financial liabilities 294,726 1,084,094 - 1,378,820 1,384,192 ( 5,372) Total fair Carrying At 31 December 2025 Level 1 Level 2 Level 3 value amount Difference - 80,394 - 80,394 80,394 - - 80,009 - 80,009 80,009 - - - 1,364,031 1,364,031 1,367,106 ( 3,075) - 3,452 - 3,452 3,452 - Total financial assets - 163,855 1,364,031 1,527,886 1,530,961 ( 3,075) - 13,250 - 13,250 13,250 - - 968,708 - 968,708 968,695 13 249,144 10,691 - 259,835 264,570 ( 4,735) 40,278 - - 40,278 40,315 ( 37) - 10,309 - 10,309 10,309 - Total financial liabilities 289,422 1,002,958 - 1,292,380 1,297,139 ( 4,759) Financial instruments not carried at fair value Other financial assets ............................................................. Debt issued and other borrowed funds .................................... Subordinated loans ................................................................. Other financial liabilities .......................................................... Debt issued and other borrowed funds .................................... Other financial liabilities .......................................................... Cash and balances with Central Bank .................................... Loans to credit institutions ...................................................... Loans to customers ................................................................ Other financial assets ............................................................. Deposits from Central Bank and credit institutions .................. Deposits from customers ........................................................ The following tables show the fair value measurement and classification of the Group's assets and liabilities not carried at fair value. Cash and balances with Central Bank .................................... Loans to credit institutions ...................................................... Loans to customers ................................................................ Subordinated loans ................................................................. Deposits from Central Bank and credit institutions .................. Deposits from customers ........................................................ Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 28 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 18. Offsetting financial assets and financial liabilities Derivatives 30.6.2026 31.12.2025 4,047 5,304 ( 3,946) ( 5,003) ( 579) ( 1,553) ( 2,802) ( 3,216) ( 565) ( 234) Net amount after consideration of potential effect of netting arrangements 101 301 Derivative instruments and short positions 30.6.2026 31.12.2025 2,691 6,183 ( 1,477) ( 2,349) ( 579) ( 1,553) ( 898) ( 796) Net amount after consideration of potential effect of netting arrangements 1,214 3,834 19. Cash and balances with Central Bank 30.6.2026 31.12.2025 3,605 3,270 53,079 43,414 Cash and unrestricted balances with Central Bank 56,684 46,684 111 712 34,764 32,998 Cash and balances with Central Bank 91,559 80,394 20. Loans to credit institutions 30.6.2026 31.12.2025 54,608 69,660 6,485 7,247 4,195 3,102 Loans to credit institutions 65,288 80,009 Cash on hand .......................................................................................................................................................... Unrestricted balances with Central Bank .................................................................................................................. Mandatory reserve deposits with Central Bank ........................................................................................................ Money market loans ................................................................................................................................................ Balances pledged as collateral to Central Bank ....................................................................................................... Bank accounts ......................................................................................................................................................... Other loans .............................................................................................................................................................. At 30 June 2026 and year-end 2025, no netting occurred between financial assets and liabilities subject to enforceable master netting agreements and comparable arrangements, resulting in no offsetting. Financial assets ....................................................................................................................................................... Amounts not set off but subject to master netting arrangements and similar agreements ........................................ - Financial liabilities ................................................................................................................................................. - Cash collateral received ....................................................................................................................................... - Financial instruments collateral received .............................................................................................................. Financial liabilities .................................................................................................................................................... Amounts not set off but subject to master netting arrangements and similar agreements ........................................ - Cash collateral pledged ........................................................................................................................................ The following tables show the reconciliation of financial assets and financial liabilities subject to offsetting, enforceable master netting agreements and similar agreements. - Financial assets .................................................................................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 29 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 21. Derivative instruments and short positions At 30 June 2026 Assets Liabilities 1,602 148,961 378 50,680 244 8,336 527 15,089 1,574 5,189 216 3,489 108 11,100 314 14,712 255 18,121 1,206 56,915 - - - 16 264 6,487 27 7,309 Derivatives 4,047 198,194 2,668 148,210 - - 23 20 Total 4,047 198,194 2,691 148,230 At 31 December 2025 Assets Liabilities 3,198 194,846 1,820 100,269 117 12,705 25 2,500 1,239 6,522 1,231 8,223 65 9,488 446 22,398 490 44,409 712 30,602 195 3,537 41 5,821 Derivatives 5,304 271,507 4,275 169,813 - - 1,908 1,891 Total 5,304 271,507 6,183 171,704 Foreign exchange options .............................................................................................. Foreign exchange swaps ................................................................................................ Bond forwards ................................................................................................................ Cross-currency interest rate swaps ................................................................................ Equity forwards .............................................................................................................. Short positions in listed bonds ........................................................................................ Foreign exchange swaps ................................................................................................ Notional values related to liabilities Notional values related to assets Interest rate swaps ......................................................................................................... Notional values related to liabilities The Group applies hedge accounting only with respect to certain EUR-denominated interest rate swaps, whereby the Group pays floating rate interest and receives fixed rate interest. The interest rate swaps are hedging the exposure of changes in the fair value of certain fixed- rate EUR-denominated bonds (see Note 28) arising from changes in EURIBOR interest rates. The Group applies fair value hedge accounting to the hedging relationships. At 30 June 2026 the total fair value of the interest rate swaps in the hedging relationship was positive and amounted to ISK 874 million (year-end 2025: ISK 1,771 million) and their total notional amount was ISK 79,814 million (year-end 2025: ISK 88,320 million). The Group uses derivatives to hedge currency exposure, interest rate risk in the banking book, and inflation risk. The Group carries relatively low indirect exposure due to margin trading with clients and the Group holds collaterals for possible losses. Other derivatives in the Group held for trading or for other purposes are insignificant. Short positions are in bonds issued by the Government of Iceland and bonds issued by municipalities, banks, and public companies. As a primary dealer the Group has access to securities lending facilities provided by the Central Bank and other issuers. The majority of the securities lending facilities have a maturity of less than a year. Short positions in listed bonds ........................................................................................ Cross-currency interest rate swaps ................................................................................ Foreign exchange forwards ............................................................................................ Interest rate swaps ......................................................................................................... Bond forwards ................................................................................................................ Notional values related to assets Equity forwards .............................................................................................................. Foreign exchange forwards ............................................................................................ Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 30 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 22. Loans to customers Net At 30 June 2026 carrying Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 amount 671,923 10,449 8,701 ( 824) ( 182) ( 556) 689,511 214,877 12,281 9,154 ( 802) ( 184) ( 914) 234,412 90,185 3,832 12,475 ( 663) ( 61) ( 1,337) 104,431 18,555 545 - ( 37) ( 1) - 19,062 294 - - - - - 294 76,837 3,473 921 ( 217) ( 58) ( 105) 80,851 43,383 3,633 377 ( 172) ( 89) ( 120) 47,012 14,014 2 18 ( 23) - ( 4) 14,007 127,015 3,314 4,844 ( 210) ( 65) ( 916) 133,982 92,494 109 20 ( 128) ( 2) ( 7) 92,486 Loans to customers 1,349,577 37,638 36,510 ( 3,076) ( 642) ( 3,959) 1,416,048 Net At 31 December 2025 carrying Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 amount 638,416 8,986 7,277 ( 739) ( 158) ( 491) 653,291 188,115 21,531 1,972 ( 729) ( 263) ( 385) 210,241 81,441 18,875 942 ( 522) ( 447) ( 299) 99,990 16,366 666 - ( 27) ( 4) - 17,001 119 - - - - - 119 84,294 3,927 5,879 ( 201) ( 81) ( 1,800) 92,018 42,866 3,669 383 ( 147) ( 114) ( 60) 46,597 16,683 1 18 ( 25) - ( 4) 16,673 133,465 4,903 3,935 ( 248) ( 134) ( 654) 141,267 89,519 485 19 ( 105) ( 3) ( 6) 89,909 Loans to customers 1,291,284 63,043 20,425 ( 2,743) ( 1,204) ( 3,699) 1,367,106 23. Expected credit losses Total allowances for expected credit losses Stage 1 Stage 2 Stage 3 Total 17 - - 17 82 - - 82 3,076 642 3,959 7,677 7 3 - 10 642 76 215 933 At 30 June 2026 3,824 721 4,174 8,719 17 - - 17 57 - - 57 2,743 1,204 3,699 7,646 13 3 - 16 682 164 121 967 At 31 December 2025 3,512 1,371 3,820 8,703 Industrial and transportation ............................... Public sector and non-profit organisations .......... Energy ................................................................ Financial services ............................................... Investment companies ....................................... Energy ................................................................ Financial services ............................................... Industrial and transportation ............................... Investment companies ....................................... Public sector and non-profit organisations .......... Cash and balances with Central Bank ............................................................................ Other financial assets ..................................................................................................... Seafood .............................................................. Individuals .......................................................... Commerce and services ..................................... Gross carrying amount Expected credit losses Expected credit losses Individuals .......................................................... Seafood .............................................................. Loans to customers ........................................................................................................ Loans to credit institutions .............................................................................................. Commerce and services ..................................... Construction ....................................................... Construction ....................................................... Real estate ......................................................... Gross carrying amount Off-balance sheet loan commitments and financial guarantees ...................................... Off-balance sheet loan commitments and financial guarantees ...................................... Real estate ......................................................... Loans to customers ........................................................................................................ Other financial assets ..................................................................................................... Cash and balances with Central Bank ............................................................................ Loans to credit institutions .............................................................................................. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 31 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 23. Expected credit losses (continued) Loans to customers Stage 1 Stage 2 Stage 3 Total 2,743 1,204 3,699 7,646 467 ( 373) ( 94) - ( 212) 231 ( 19) - ( 38) ( 842) 880 - ( 524) 432 889 797 1,095 117 625 1,837 ( 455) ( 127) ( 1,931) ( 2,513) - - ( 393) ( 393) - - 96 96 - - ( 15) ( 15) - - 222 222 At 30 June 2026 3,076 642 3,959 7,677 3,496 975 3,349 7,820 820 ( 663) ( 157) - ( 720) 866 ( 146) - ( 80) ( 360) 440 - ( 2,421) 378 888 ( 1,155) 2,854 200 518 3,572 ( 1,206) ( 192) ( 633) ( 2,031) - - ( 1,008) ( 1,008) - - 139 139 - - 4 4 - - 305 305 At 31 December 2025 2,743 1,204 3,699 7,646 Off-balance sheet loan commitments and financial guarantees Stage 1 Stage 2 Stage 3 Total 682 164 121 967 50 ( 18) ( 32) - ( 16) 21 ( 5) - ( 3) ( 15) 18 - ( 237) ( 76) 55 ( 258) 213 7 87 307 ( 47) ( 7) ( 29) ( 83) At 30 June 2026 642 76 215 933 565 32 314 911 63 ( 35) ( 28) - ( 30) 51 ( 21) - ( 4) ( 4) 8 - ( 462) 122 ( 90) ( 430) 935 34 90 1,059 ( 385) ( 36) ( 152) ( 573) At 31 December 2025 682 164 121 967 Transfer to Stage 2 ........................................................................................................ Write-offs* ...................................................................................................................... New loan commitments and financial guarantees .......................................................... Transfer to Stage 3 ........................................................................................................ Transfer to Stage 3 ........................................................................................................ Net remeasurement of loss allowance ............................................................................ Transfer to Stage 1 ........................................................................................................ Derecognitions and maturities ........................................................................................ New financial assets originated or purchased ................................................................ Transfer to Stage 2 ........................................................................................................ Transfer to Stage 1 ........................................................................................................ Transfer to Stage 3 ........................................................................................................ Net remeasurement of loss allowance ............................................................................ The following tables reconcile the opening and closing balances of accumulated expected credit losses for loans to customers, and off- balance sheet loan commitments and financial guarantees. Foreign exchange ........................................................................................................... Transfer to Stage 2 ........................................................................................................ Recoveries of amounts previously written off ................................................................. *During the year financial assets amounting to ISK 1,116 million were written off but are still subject to enforcement activity. Derecognitions and maturities ........................................................................................ At 1 January 2026 .......................................................................................................... New loan commitments and financial guarantees .......................................................... Unwinding of interest ...................................................................................................... Transfer to Stage 3 ........................................................................................................ Net remeasurement of loss allowance ............................................................................ Transfer to Stage 1 ........................................................................................................ Transfer to Stage 2 ........................................................................................................ At 1 January 2026 .......................................................................................................... Write-offs* ...................................................................................................................... Recoveries of amounts previously written off ................................................................. *During the period financial assets amounting to ISK 408 million were written off but are still subject to enforcement activity. Unwinding of interest ...................................................................................................... At 1 January 2025 .......................................................................................................... At 1 January 2025 .......................................................................................................... Transfer to Stage 1 ........................................................................................................ Derecognitions and maturities ........................................................................................ Foreign exchange ........................................................................................................... Net remeasurement of loss allowance ............................................................................ Derecognitions and maturities ........................................................................................ New financial assets originated or purchased ................................................................ Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 32 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 24. Other assets 7,176 1,749 5,496 5,384 2,900 2,900 4,833 4,702 2,813 2,682 1,276 2,363 5,174 1,151 1,984 1,655 162 151 119 121 Other assets 31,933 22,858 25. Deposits from Central Bank and credit institutions 30.6.2026 31.12.2025 17,453 13,041 211 209 Deposits from Central Bank and credit institutions 17,664 13,250 26. Deposits from customers 30.6.2026 31.12.2025 919,951 854,319 118,255 114,376 Deposits from customers 1,038,206 968,695 Deposits from customers specified by owners Amount % of total Amount % of total 12,158 1% 10,556 1% 8,506 1% 7,611 1% 454,482 44% 416,957 43% 563,060 54% 533,571 55% Deposits from customers 1,038,206 100% 968,695 100% Repurchase agreements with Central Bank ............................................................................................................. Municipalities ................................................................................................................. Companies ..................................................................................................................... Individuals ...................................................................................................................... 31.12.2025 Demand deposits and deposits with maturity up to 3 months ................................................................................... Term deposits with maturity of more than 3 months ................................................................................................. 30.6.2026 30.6.2026 Receivables ............................................................................................................................................................. Unsettled securities transactions ............................................................................................................................. Prepaid expenses .................................................................................................................................................... Other assets ............................................................................................................................................................ Deferred tax assets .................................................................................................................................................. Deposits from credit institutions ............................................................................................................................... Central government and state-owned enterprises .......................................................... *Comparative figures have been changed. In the context of materiality, the Group has determined that the line items "Investments in associates", "Investment property", "Property and equipment", and "Intangible assets" do not warrant separate presentation as line items in the Consolidated Interim Statement of Financial Position. Accordingly, these items have been reclassified and are now included within "Other assets". 31.12.2025 Investment property* ................................................................................................................................................ Property and equipment* ......................................................................................................................................... Intangible assets* .................................................................................................................................................... Repossessed collateral ............................................................................................................................................ Investments in associates* ...................................................................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 33 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 27. Pledged assets 30.6.2026 31.12.2025 402,485 420,760 18,144 18,364 1,478 1,483 5,545 7,229 Pledged assets against liabilities 427,652 447,836 ( 180,976) ( 160,225) Pledged assets against liabilities on balance 246,676 287,611 Other financial assets pledged as collateral are pledged with the Central Bank to ensure the clearing of the Icelandic payment system as well as collateral against contracts with the Government Debt Management. Pledged assets against Covered Bonds held by the Bank ....................................................................................... The Group has pledged assets against the issuance of Covered Bonds under Icelandic law, which are pledged on a pool of consumer mortgage loans. The Group owns Covered Bonds for its own use which accounts for a portion of the pledged assets. The carrying amount of these bonds at 30 June 2026 was ISK 164,307 million (year-end 2025: ISK 131,212 million). Loans to customers pledged as collateral against Covered Bonds .......................................................................... Other financial assets pledged as collateral ............................................................................................................. Cash and balances pledged as collateral against Covered Bonds ........................................................................... Loans to credit institutions and balances with Central Bank pledged as collateral against derivative instruments .... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 34 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 28. Debt issued and other borrowed funds First Maturity Currency and outstanding nominal issued Maturity type 30.6.2026 31.12.2025 2015 07.05.2026 Bullet Fixed CPI, 3.37% - 27,337 2022 10.05.2027 Bullet REIBOR 1M + 0.40% 8,976 8,974 2020 16.09.2027 Amortising Fixed, 2.50% 9,237 12,270 2022 20.09.2027 Bullet Fixed, 3.00% 37,213 44,531 2026 11.03.2028 Bullet REIBOR 1M + 0.15% 6,222 - 2019 11.08.2028 Amortising Fixed CPI, 2.20% 16,830 19,465 2023 10.05.2029 Bullet Fixed CPI, 2.72% 40,593 39,441 2017 31.05.2030 Bullet Fixed CPI, 3.00% 36,030 34,708 2025 03.06.2031 Bullet Fixed, 7.39% 20,080 13,094 2024 03.12.2032 Bullet Fixed CPI, 3.44% 25,864 13,482 Covered bonds 201,045 213,302 2023 13.04.2026 Bullet STIBOR 3M + 3.65% - 5,975 2023 08.11.2026 Bullet STIBOR 3M + 2.70% 4,300 6,846 2024 25.01.2027 Bullet NIBOR 3M + 2.35% 4,224 6,265 2024 25.01.2027 Bullet STIBOR 3M + 2.35% 1,028 6,823 2024 02.07.2027 Bullet NIBOR 3M + 1.20% 2,579 2,521 2024 02.07.2027 Bullet STIBOR 3M + 1.20% 3,926 4,111 2025 16.07.2027 Bullet NIBOR 3M + 0.98% 2,574 2,515 2025 16.07.2027 Bullet STIBOR 3M + 1.00% 2,612 2,737 2022 22.11.2027 Amortising REIBOR 1M + 1.25% 2,275 3,080 2022 22.11.2027 Bullet Fixed, 7.70% 7,236 6,964 2024 27.03.2028 Bullet Fixed, 4.625% 43,675 46,077 2025 17.07.2028 Bullet NIBOR 3M + 1.19% 1,287 1,258 2025 17.07.2028 Bullet STIBOR 3M + 1.20% 6,531 6,843 2023 21.12.2028 Bullet Fixed CPI, 4.48% 22,551 21,232 2026 11.06.2029 Bullet NIBOR 3M + 0.78% 7,646 - 2026 11.06.2029 Bullet STIBOR 3M + 0.80% 18,165 - 2025 20.09.2030 Bullet Fixed, 3.875% 45,201 45,377 2025 11.11.2032 Bullet Fixed, 3.75% 44,063 44,039 2024 14.11.2036 Bullet Fixed CPI, 3.5% 8,210 7,746 Unsecured bonds 228,083 220,409 39 - 11,039 10,882 Other borrowed funds 11,078 10,882 Debt issued and other borrowed funds 440,206 444,593 *The Group applies hedge accounting to these bond issuances and uses certain EUR-denominated interest rate swaps as hedging instruments (see Note 21). The interest rate swaps are hedging the exposure of the Group's changes in the fair value of these fixed-rate EUR-denominated bonds arising from changes in EURIBOR interest rates. The Group applies fair value hedge accounting to the hedging relationships. At 30 June 2026 the total carrying amount of these bond issuances amounted to ISK 80,888 million and included in the amount are fair value changes amounting to ISK 138 million. The Group has issued additional bonds for its own use, e.g. for the purpose of securities lending and repurchase agreements. These bond amounts are not included in the total. ISB CBI 28 - ISK 11,226 million .......................... ISB CBF 27 - ISK 8,940 million .......................... NOK 328 million ................................................. SEK 329 million .................................................. EUR 300 million** ............................................... The Group repurchased own bonds during the period amounting to ISK 18,982 million (first half 2025: 2,326 million). SEK 0 million ...................................................... ISB CB - EUR 254 million* ................................. ISB CB 31 - ISK 19,920 million ........................... Interest ISB CBI 26 - ISK 0 million .................................. SEK 300 million .................................................. NOK 200 million ................................................. EUR 300 million** ............................................... **These bond issuances are classified as being designated at fair value through profit or loss to eliminate accounting mismatch. At 30 June 2026 the total carrying amount of the bonds amounted to ISK 89,264 million and included in the amount are negative fair value changes amounting to ISK 732 million. SEK 80 million .................................................... SEK 1,400 million ............................................... Other unsecured loans ............................................................................................................................................. ISB CBI 30 - ISK 23,040 million .......................... ISK 7,600 million ................................................ Other secured loans ................................................................................................................................................ ISB CBI 32 - ISK 23,460 million .......................... NOK 200 million ................................................. ISB CB 27 - ISK 9,047 million ............................. SEK 200 million .................................................. NOK 100 million ................................................. SEK 500 million .................................................. ISK 19,460 million .............................................. NOK 600 million ................................................. ISB CBI 29 - ISK 34,780 million .......................... ISB CBF 28 - ISK 6,220 million .......................... ISK 6,940 million ................................................ EUR 300 million* ................................................ ISK 2,266 million ................................................ Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 35 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 29. Subordinated loans First First Currency and outstanding nominal issued Maturity Callable 30.6.2026 31.12.2025 2022 17.04.2033 17.04.2028 1,526 1,526 2022 17.04.2033 17.04.2028 11,223 10,797 2023 12.09.2034 12.09.2029 11,521 10,776 Tier 2 subordinated loans 24,270 23,099 2021 Perpetual 28.09.2026 5,026 5,262 2025 Perpetual 25.11.2030 9,039 9,472 2025 Perpetual 25.11.2030 2,539 2,482 Additional Tier 1 subordinated loans 16,604 17,216 Subordinated loans 40,874 40,315 30. Other liabilities 30.6.2026 31.12.2025 2,178 - 4,945 3,655 3,204 3,036 933 966 2,556 5,064 6,635 1,623 3,758 2,651 Other liabilities 24,209 16,995 31. Custody assets 30.6.2026 31.12.2025 4,187,989 3,802,565 NIBOR 3M + 3.58%NOK 200 million ................................................. Fixed CPI, 5.80% Unsettled securities transactions ............................................................................................................................. Withholding tax ........................................................................................................................................................ Accruals ................................................................................................................................................................... Expected credit losses for off-balance sheet loan commitments and financial guarantees ....................................... Custody assets - not managed by the Group ........................................................................................................... Lease liabilities ........................................................................................................................................................ STIBOR 3M + 4.75% Interest Sundry liabilities ....................................................................................................................................................... Liabilities of disposal groups classified as repossessed collateral ............................................................................ Fixed, 8.62% SEK 700 million .................................................. STIBOR 3M + 3.50% SEK 388 million .................................................. Fixed CPI, 4.86% ISK 9,600 million ................................................ ISK 9,020 million ................................................ ISK 1,500 million ................................................ Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 36 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 32. Related party Guarantees Right-of-use Loans to Net & loan com- At 30 June 2026 asset customers Liabilities balance mitments - 1,080 785 295 95 2,362 2,937 2,810 2,489 157 Balances with related parties 2,362 4,017 3,595 2,784 252 Interest Interest Other Other 1 January to 30 June 2026 income expense income expense 75 25 1 10 166 8 2 1,026 Transactions with related parties 241 33 3 1,036 Guarantees Right-of-use Loans to Net & loan com- At 31 December 2025 asset customers Liabilities balance mitments - 992 570 422 70 2,476 3,459 2,783 3,152 155 Balances with related parties 2,476 4,451 3,353 3,574 225 Interest Interest Other Other 1 January to 30 June 2025 income expense income expense 42 19 1 23 239 10 1 996 Transactions with related parties 281 29 2 1,019 Board of Directors, key management personnel and other related parties .. Associated companies ................................................................................ Associated companies ................................................................................................... Board of Directors, key management personnel and other related parties .. Board of Directors, key management personnel and other related parties ..................... Board of Directors, key management personnel and other related parties ..................... The following tables show the Group's balances and transactions with related parties. The boards of directors, key management personnel, their close family members, and any legal entities controlled by these individuals of each of the Bank, and the Bank's subsidiaries, are defined as related parties. Transactions with related parties were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third party counterparties. Associated companies ................................................................................ Associated companies ................................................................................................... At 30 June 2026 a total of ISK 2 million (year-end 2025: ISK 1 million) was recognised as Stage 1 expected credit losses on balances with related parties. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 37 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 33. Legal proceedings 34. Events after the reporting period 35. Risk management Risk governance The Bank and its subsidiaries are parties to legal proceedings and regulatory matters that arise in the ordinary course of business. At 30 June 2026, the Group had two contingent liabilities relating to 105 Miðborg slhf. – ÍAV hf. and EC Clear ehf. No provisions have been recognised in respect of these matters. The Group is exposed to various risk factors, and managing these risks is an integral part of its operations. More information about the Group's risk management and risk assessment processes is available in the unaudited Pillar 3 2025 Report, which is available on the Bank's website: www.islandsbanki.is. No events have arisen after the reporting period that require amendments or additional disclosures in the Condensed Consolidated Interim Financial Statements for the first half of 2026. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 38 Amounts are in ISK million
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36. Total credit Total credit Maximum exposure exposure exposure to Residential Commercial Cash & Vehicles & Other covered by not covered by Associated Collateral held against credit exposure credit risk real estate real estate Vessels securities equipment collateral collateral collateral ECL 91,559 - - - - - - - 91,559 17 65,288 - - - - - - - 65,288 82 146,048 - - - - - 32,767 32,767 113,281 - Loans to customers: 1,416,048 721,725 312,713 67,283 42,995 99,661 79,929 1,324,306 91,742 7,677 689,511 621,718 6,474 1 8 22,510 6 650,717 38,794 1,562 617,736 617,015 - - 1 - - 617,016 720 292 234,412 15,728 82,280 761 22,436 59,964 37,522 218,691 15,721 1,900 104,431 53,113 40,698 12 145 5,102 2,800 101,870 2,561 2,061 19,062 3 11,076 - - 116 4,081 15,276 3,786 38 294 - 286 - 1 - - 287 7 - 80,851 1,256 44,355 - 63 11,356 12,520 69,550 11,301 380 47,012 2,925 18,198 - 17,341 199 4,052 42,715 4,297 381 14,007 44 728 - - 34 - 806 13,201 27 133,982 26,644 102,589 - 2,911 207 86 132,437 1,545 1,191 92,486 294 6,029 66,509 90 173 18,862 91,957 529 137 6,366 - - - - - - - 6,366 10 Off-balance sheet items: 237,890 10,436 41,642 5,957 9,235 12 17,344 84,626 153,264 933 22,083 1,836 7,871 50 11 - 2,556 12,324 9,759 196 215,807 8,600 33,771 5,907 9,224 12 14,788 72,302 143,505 737 Total 1,963,199 732,161 354,355 73,240 52,230 99,673 130,040 1,441,699 521,500 8,719 Seafood ................................................................................... Real estate .............................................................................. Notes to the Condensed Consolidated Interim Financial Statements Maximum credit exposure and collateral At 30 June 2026 - Thereof mortgages ............................................................. Commerce and services .......................................................... The following tables show the maximum exposure to credit risk by collateral held against those exposures that are subject to IFRS 9 impairment requirements. Energy ..................................................................................... Construction ............................................................................ Cash and balances with Central Bank ......................................... Loans to credit institutions ........................................................... Bonds and debt instruments ........................................................ Individuals ................................................................................ Other financial assets .................................................................. Financial guarantees ................................................................ Loan commitments .................................................................. Maximum credit exposure for off-balance sheet items reflect the maximum amount, not taking into account the Group's ability to reduce its loan commitments before the current undrawn amount is fully utilised by the customer. Financial services .................................................................... Industrial and transportation ..................................................... Investment companies ............................................................. Public sector and non-profit organisations ............................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 39 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 36. Total credit Total credit Maximum exposure exposure exposure to Residential Commercial Cash & Vehicles & Other covered by not covered by Associated Collateral held against credit exposure credit risk real estate real estate Vessels securities equipment collateral collateral collateral ECL 80,394 - - - - - - - 80,394 17 80,009 - - - - - - - 80,009 57 132,559 - - - - - 34,844 34,844 97,715 - Loans to customers: 1,367,106 698,066 314,558 66,424 43,835 82,152 77,806 1,282,841 84,265 7,646 653,291 588,786 5,586 4 155 19,890 131 614,552 38,739 1,388 584,723 584,165 - - 150 - - 584,315 408 246 210,241 15,741 79,270 824 20,153 50,597 31,001 197,586 12,655 1,377 99,990 53,907 35,571 41 784 3,326 3,817 97,446 2,544 1,268 17,001 3 10,731 - 3,162 137 - 14,033 2,968 31 119 106 - - - - - 106 13 - 92,018 1,139 57,328 - 4,219 7,558 17,965 88,209 3,809 2,082 46,597 2,256 16,565 - 14,362 275 7,014 40,472 6,125 321 16,673 42 801 - - 21 11 875 15,798 29 141,267 35,814 102,693 - 948 214 392 140,061 1,206 1,036 89,909 272 6,013 65,555 52 134 17,475 89,501 408 114 3,452 - - - - - - - 3,452 16 Off-balance sheet items: 239,817 16,321 41,341 8,041 13,865 11 19,170 98,749 141,068 967 22,246 2,303 7,399 5 1,446 - 3,404 14,557 7,689 297 217,571 14,018 33,942 8,036 12,419 11 15,766 84,192 133,379 670 Total 1,903,337 714,387 355,899 74,465 57,700 82,163 131,820 1,416,434 486,903 8,703 At 31 December 2025 Maximum credit exposure for off-balance sheet items reflect the maximum amount, not taking into account the Group's ability to reduce its loan commitments before the current undrawn amount is fully utilised by the customer. Seafood ................................................................................... Other financial assets .................................................................. Financial guarantees ................................................................ Loan commitments .................................................................. Cash and balances with Central Bank ......................................... Real estate .............................................................................. Loans to credit institutions ........................................................... Bonds and debt instruments......................................................... Individuals ................................................................................ - Thereof mortgages ............................................................. Commerce and services .......................................................... Construction ............................................................................ Energy ..................................................................................... Financial services .................................................................... Industrial and transportation ..................................................... Investment companies ............................................................. Public sector and non-profit organisations ............................... Maximum credit exposure and collateral (continued) Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 40 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 37. Credit quality of financial assets At 30 June 2026 Loans to customers: Stage 1 Stage 2 Stage 3 Total 539,277 1,178 - 540,455 621,179 10,508 - 631,687 172,010 17,150 - 189,160 16,636 8,721 - 25,357 - - 36,510 36,510 475 81 - 556 1,349,577 37,638 36,510 1,423,725 ( 3,076) ( 642) ( 3,959) ( 7,677) Net carrying amount 1,346,501 36,996 32,551 1,416,048 Off-balance sheet loan commitments and financial guarantees: Stage 1 Stage 2 Stage 3 Total 115,219 10 - 115,229 75,036 913 - 75,949 42,332 1,427 - 43,759 1,520 179 - 1,699 - - 1,127 1,127 871 189 - 1,060 234,978 2,718 1,127 238,823 ( 642) ( 76) ( 215) ( 933) Total 234,336 2,642 912 237,890 The following tables provide the gross carrying amount of loans and credit risk exposure on loan commitments and financial guarantees. Amounts are broken down by risk class and the method by which their respective credit loss allowances (ECL) are calculated, i.e. Stage 1, 2 and 3. The Group uses internal rating models to assess the default probability of corporate and retail customers. The models assign each customer to one of ten risk classes. One risk class is for customers in default (risk class 10), and nine risk classes are for performing customers (risk classes 1-9). Risk classes are assigned on customer level and not facility level. Risk classes 1-4 represent low risk, risk classes 5-6 moderate risk, risk classes 7-8 increased risk, risk class 9 high risk, and risk class 10 represents customers that are in default. Unrated are customers that are yet to be rated. Risk class 10 ................................................................................................................... Unrated ........................................................................................................................... Expected credit losses .................................................................................................... Unrated ........................................................................................................................... Expected credit losses .................................................................................................... Risk class 1-4 .................................................................................................................. Risk class 5-6 .................................................................................................................. Risk class 7-8 .................................................................................................................. Risk class 9 ..................................................................................................................... Risk class 1-4 .................................................................................................................. Risk class 5-6 .................................................................................................................. Risk class 7-8 .................................................................................................................. Risk class 9 ..................................................................................................................... Risk class 10 ................................................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 41 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 37. Credit quality of financial assets (continued) At 31 December 2025 Loans to customers: Stage 1 Stage 2 Stage 3 Total 533,086 636 - 533,722 576,190 15,204 - 591,394 165,866 38,582 - 204,448 15,726 8,328 - 24,054 - - 20,425 20,425 416 293 - 709 1,291,284 63,043 20,425 1,374,752 ( 2,743) ( 1,204) ( 3,699) ( 7,646) Net carrying amount 1,288,541 61,839 16,726 1,367,106 Off-balance sheet loan commitments and financial guarantees: Stage 1 Stage 2 Stage 3 Total 112,979 14 - 112,993 86,892 1,104 - 87,996 34,834 2,099 - 36,933 1,454 248 - 1,702 - - 698 698 461 1 - 462 236,620 3,466 698 240,784 ( 682) ( 164) ( 121) ( 967) Total 235,938 3,302 577 239,817 Risk class 1-4 .................................................................................................................. Risk class 5-6 .................................................................................................................. Risk class 5-6 .................................................................................................................. Risk class 7-8 .................................................................................................................. Risk class 9 ..................................................................................................................... Risk class 10 ................................................................................................................... Unrated ........................................................................................................................... Expected credit losses .................................................................................................... Risk class 7-8 .................................................................................................................. Risk class 9 ..................................................................................................................... Risk class 10 ................................................................................................................... Unrated ........................................................................................................................... Expected credit losses .................................................................................................... Risk class 1-4 .................................................................................................................. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 42 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 38. At 30 June 2026 Gross Expected Gross Expected Gross Expected Gross Expected carrying credit carrying credit carrying credit carrying credit amount losses amount losses amount losses amount losses 3,512 ( 12) 7,139 ( 45) 2,939 ( 125) 13,590 ( 182) 5,963 ( 39) 6,658 ( 110) 9,549 ( 1,707) 22,170 ( 1,856) Total 9,475 ( 51) 13,797 ( 155) 12,488 ( 1,832) 35,760 ( 2,038) At 31 December 2025 Gross Expected Gross Expected Gross Expected Gross Expected carrying credit carrying credit carrying credit carrying credit amount losses amount losses amount losses amount losses 3,275 ( 9) 5,626 ( 40) 2,290 ( 117) 11,191 ( 166) 1,419 ( 7) 17,544 ( 347) 6,096 ( 1,285) 25,059 ( 1,639) Total 4,694 ( 16) 23,170 ( 387) 8,386 ( 1,402) 36,250 ( 1,805) 39. At 30 June 2026 Groups of connected clients: Before After 93% 9% At 31 December 2025 Groups of connected clients: Before After 78% 8% 11% 11%Group 2 ..................................................................................................................................................................... Group 1 ..................................................................................................................................................................... Group 1 ..................................................................................................................................................................... Large exposures disclosure When the Group's total exposure to a group of connected clients is 10% or higher of the Group's Tier 1 capital it is considered a large exposure. Both on-balance sheet and off-balance sheet items from all types of financial instruments are included in the exposure as defined by EU regulation no. 575/2013 on prudential requirements for financial undertakings (CRR). The Group has internal criteria that define connections between clients. These criteria reflect the Group's interpretation of CRR, where groups of connected clients are defined. The exposure is evaluated both before and after credit risk mitigating effects according to the aforementioned regulation. After mitigating effects, the Group had no large exposures at 30 June 2026 (year-end 2025: one). No large exposure is above the maximum 25% large exposure limit set by the law. The Group's largest exposure before eligible credit risk mitigating effects is the Government of Iceland. Largest part of the exposure is due to the Government of Iceland's bonds in the Group's liquidity portfolio. When restructuring or modification measures are believed to be more appropriate than collection procedures, the Group offers several debt relief measures and restructuring frameworks for customers in financial difficulties. These forbearance measures include temporary payment holidays, extension of loan terms, capitalisation of arrears, and waiving of covenants. The relationship between forbearance and Stages is discussed in Note 62.3 in the Consolidated Financial Statements for the year 2025. The following tables provide a summary of the Group's forborne assets. Companies ................................................. Individuals .................................................. Companies ................................................. Individuals .................................................. Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Forbearance Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 43 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 40. Liquidity coverage and net stable funding ratio Net stable funding ratio 30.6.2026 31.12.2025 126% 127% Liquidity coverage ratio 30.6.2026 31.12.2025 188% 203% 151% 129% 532% 733% ISK EUR USD Other Total 89,687 829 355 431 91,302 88,096 25,922 - 14,650 128,668 39,044 3,721 6 292 43,063 216,827 30,472 361 15,373 263,033 2 39,533 10,914 1,955 52,404 216,829 70,005 11,275 17,328 315,437 ISK EUR USD Other Total 78,036 594 313 480 79,423 71,617 36,612 - 10,606 118,835 37,302 3,916 1 225 41,444 186,955 41,122 314 11,311 239,702 2 42,069 24,969 2,663 69,703 186,957 83,191 25,283 13,974 309,405 Level 1 bonds and debt instruments .............................................................. Level 1 bonds and debt instruments .............................................................. Balance with financial institutions .................................................................. Liquidity reserve At 31 December 2025 Cash and balances with Central Bank ........................................................... Level 2 liquid assets ...................................................................................... High quality liquidity assets Level 2 liquid assets ...................................................................................... High quality liquidity assets Balance with financial institutions .................................................................. Liquidity reserve The following tables show the composition of the Group's liquidity reserve. Level 1 bonds and debt instruments in ISK are eligible as collateral with the Central Bank. At 30 June 2026 Cash and balances with Central Bank ........................................................... According to the rules, the minimum LCR ratio that the Group is required to maintain remains 100% for the total LCR. The requirement for LCR in EUR is 80% and in ISK the requirement is 50%. The Group is required to maintain a 100% minimum NSFR ratio. For all currencies ...................................................................................................................................................... For all currencies ...................................................................................................................................................... ISK ............................................................................................................................................................................ EUR .......................................................................................................................................................................... Key measures for the assessment of liquidity risk are the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The Central Bank of Iceland, which is the main supervisory authority regarding liquidity risk, has incorporated the LCR and the NSFR based on the CRD IV standards into the rules on liquidity ratios and the rules on funding ratios. In addition, the Group complies with the liquidity coverage ratio rules no. 1520/2022. The following tables show the NSFR and the LCR for the Group at 30 June 2026 and 31 December 2025. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 44 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 41. Interest rate risk 119 ( 119) 61 ( 61) 61 ( 61) 60 ( 60) 180 ( 180) 121 ( 121) At 30 June 2026 0-3 3-12 1-2 2-5 5-10 Over 10 months months years years years years Total 24 ( 274) ( 519) ( 2,745) 1,541 386 (1,587) 158 ( 173) ( 142) ( 1,262) ( 177) ( 2) (1,598) 265 ( 38) ( 130) 60 47 - 204 13 - - ( 1) - - 12 165 ( 2) ( 37) ( 103) - - 23 141 - ( 14) ( 30) - - 97 20 - ( 1) ( 95) - - (76) Total 786 ( 487) ( 843) ( 4,176) 1,411 384 ( 2,925) At 31 December 2025 0-3 3-12 1-2 2-5 5-10 Over 10 months months years years years years Total 16 ( 83) ( 724) ( 723) 1,095 378 (41) 139 ( 106) ( 394) ( 530) 463 ( 2) (430) 257 ( 120) 23 ( 125) ( 6) - 29 6 - - ( 1) - - 5 141 - ( 14) ( 150) - - (23) 193 ( 2) ( 20) ( 35) - - 136 2 ( 11) - - - - (9) Total 754 ( 322) ( 1,129) ( 1,564) 1,552 376 ( 333) ISK, indexed .............................................................. Downward shift Upward shift Downward shift Upward shift Currency ISK, indexed .................................................................................................................... ISK, non-indexed ............................................................................................................. Total Interest rate risk in the banking book Effect on profit before tax Interest rate risk is defined as the current or prospective risk to earnings or capital arising from adverse movements in interest rates. Interest rate risk in the trading book Other ......................................................................... Currency ISK, indexed .............................................................. ISK, non-indexed ....................................................... EUR .......................................................................... USD .......................................................................... Interest rate risk in the banking book arises from the Group's core banking activities. The main source of this type of interest rate risk is the risk of loss from fluctuations in future cash flows or fair value of financial instruments as interest rates change over time, reflecting the fact that the Group's assets and liabilities are of different maturities and are priced relative to different interest rates. The following tables show the interest sensitivity of the Group's banking book from a parallel upward 100 basis points change in all yield curves, with all other variables held constant, categorised by the repricing date. The interest rate sensitivity in the banking book is estimated using contractual cash flows except for callable debt issued and applicable non-maturing deposits (NMDs) where behavioural assumptions are applied. Sensitivity analysis for interest rate risk in the banking book ISK, non-indexed ....................................................... EUR .......................................................................... USD .......................................................................... SEK .......................................................................... NOK .......................................................................... Other ......................................................................... SEK .......................................................................... NOK .......................................................................... Currency The following table shows the interest rate sensitivity of the Group's trading book from a parallel 100 basis points change in all yield curves. Sensitivity analysis for trading bonds and debt instruments 30.6.2026 31.12.2025 Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 45 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 42. Currency risk At 30 June 2026 Other Total foreign foreign EUR USD SEK NOK currencies currencies 829 355 38 119 274 1,615 48,057 10,870 68 75 1,810 60,880 29,790 91 10,269 7,419 - 47,569 151,396 25,381 7,729 3,353 15,509 203,368 42 297 929 265 261 1,794 253 572 - 91 - 916 Total assets 230,367 37,566 19,033 11,322 17,854 316,142 637 1,706 5 96 143 2,587 57,100 44,038 775 2,807 9,511 114,231 171,520 11,000 36,579 18,302 - 237,401 - - 14,065 2,539 - 16,604 - 395 70 8 68 541 Total liabilities 229,257 57,139 51,494 23,752 9,722 371,364 Net on-balance sheet position 1,110 ( 19,573) ( 32,461) ( 12,430) 8,132 ( 55,222) Net off-balance sheet position ( 4,360) 20,347 32,034 12,419 ( 7,448) 52,992 Net position ( 3,250) 774 ( 427) ( 11) 684 ( 2,230) At 31 December 2025 Other Total foreign foreign EUR USD SEK NOK currencies currencies 594 313 40 116 323 1,386 46,594 27,557 261 340 2,057 76,809 42,698 331 8,256 7,022 - 58,307 134,067 24,914 4,918 1,893 13,696 179,488 38 1,754 1,094 190 387 3,463 83 114 - - - 197 Total assets 224,074 54,983 14,569 9,561 16,463 319,650 2,121 1,354 6 60 52 3,593 47,569 42,668 1,071 5,120 10,893 107,321 180,530 10,903 33,340 12,545 - 237,318 - - 14,734 2,482 - 17,216 - 51 31 - 315 397 Total liabilities 230,220 54,976 49,182 20,207 11,260 365,845 Net on-balance sheet position ( 6,146) 7 ( 34,613) ( 10,646) 5,203 ( 46,195) Net off-balance sheet position 7,282 ( 1,088) 34,847 10,561 ( 4,831) 46,771 Net position 1,136 ( 1,081) 234 ( 85) 372 576 Loans to credit institutions ........................................................... Cash and balances with Central Bank ......................................... Loans to credit institutions ........................................................... Bonds and debt instruments ........................................................ Loans to customers ..................................................................... Shares and equity instruments .................................................... Other assets ................................................................................ Deposits from credit institutions .................................................. The analysis of the Group's foreign currency exposure presented below is based on the contractual currency of the underlying balance sheet items. Debt issued designated at fair value through profit or loss to eliminate accounting mismatch is presented as nominal amount plus accrued interest, adjusted for accumulated fair value changes attributable to changes in credit risk. Additionally, there are off-balance sheet items that carry currency risk and are included in the total currency imbalance. The off-balance sheet amounts below represent the notional amounts of derivatives and unsettled spot agreements. Bonds and debt instruments ........................................................ Loans to customers ..................................................................... Shares and equity instruments .................................................... Other assets ................................................................................ Deposits from credit institutions .................................................. Deposits from customers ............................................................ Debt issued and other borrowed funds ........................................ Subordinated loans ..................................................................... Other liabilities ............................................................................ Deposits from customers ............................................................ Debt issued and other borrowed funds ........................................ Subordinated loans ..................................................................... Other liabilities ............................................................................ Cash and balances with Central Bank ......................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 46 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 43. Inflation risk 30.6.2026 31.12.2025 2,951 2,277 523,237 507,694 Total CPI-linked assets 526,188 509,971 121,333 120,742 150,078 163,411 22,744 21,573 998 4,493 23 180 Total CPI-linked liabilities 295,176 310,399 CPI imbalance 231,012 199,572 44. Capital management 30.6.2026 31.12.2025 Own funds 8,371 8,900 26,380 42,472 5,774 7,201 170,570 166,786 1,261 913 ( 11,149) ( 16,671) ( 162) ( 151) ( 1,933) ( 1,822) ( 31) ( 52) CET1 capital 199,081 207,576 16,604 17,216 Tier 1 capital 215,685 224,792 24,270 23,099 Total capital base 239,955 247,891 Capital requirement calculations for credit risk, market risk and operational risk are based on the standardised approach, the simplified standardised approach is used for counterparty credit risk, and the reduced basic approach is used for the credit valuation adjustment. According to the latest SREP report from the FSA, the Group shall as of 30 June 2026 maintain an additional capital requirement of 1.8% of the REA. The Group's overall capital requirement, taking into account capital buffers, is 19.5%. The Group's capital target includes a 1-3% management buffer on top of the overall capital requirement. Ordinary share capital ........................................................................................................................................... Share premium ..................................................................................................................................................... Reserves ............................................................................................................................................................... Retained earnings ................................................................................................................................................. The following tables show the capital base, the risk exposure amount (REA), the resulting capital ratios, and the leverage ratio for the Group at 30 June 2026 and 31 December 2025. The Group's regulatory capital requirement is calculated according to EU regulation no. 575/2013 as implemented into Icelandic law through the Act on Financial Undertakings no. 161/2002. CRR 3 was implemented in Iceland in December 2025 and had a significant impact on the Group's risk exposure amount (REA) and capital ratios. In addition, in January 2026, the Central Bank approved the adoption of a loan splitting approach for exposures secured by mortgages, where the underlying collateral consists of income-producing real estate. The implementation of this approach led to a 2% reduction in the Group's REA. Fair value changes due to own credit standing ...................................................................................................... Foreseeable dividend payment and approved buyback* ........................................................................................ Tax assets ............................................................................................................................................................. Intangible assets ................................................................................................................................................... Insufficient coverage for non-performing exposures .............................................................................................. Additional Tier 1 capital ......................................................................................................................................... Tier 2 capital ......................................................................................................................................................... *The Bank's AGM held on 19 March 2026 authorises the Board of Directors to acquire on behalf of the Bank up to 10% of issued share capital of the Bank. Furthermore, the Central Bank has granted the Bank permission to buy back own shares and reduce its share capital. At 30 June 2026, ISK 3.9 billion remained of approved buybacks and is therefore deducted from the CET1 capital. Loans to customers ............................................................................................................................................... Deposits from customers ...................................................................................................................................... Debt issued and other borrowed funds .................................................................................................................. Subordinated loans ............................................................................................................................................... Off-balance sheet exposures ................................................................................................................................. Short positions ...................................................................................................................................................... The minimum leverage ratio for Icelandic financial institutions is 3%. The Group considers inflation risk to be the most significant market risk factor. The Group is exposed to inflation risk since the value of CPI- linked assets exceeds CPI-linked liabilities. The value of these assets and liabilities changes according to changes in the CPI at any given time and all changes in the CPI affect profit and loss. A 1% increase in the index would lead to an ISK 2,310 million increase in profit before tax and a 1% decrease would lead to a corresponding decrease, other risk factors held constant. Bonds and debt instruments .................................................................................................................................. Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 47 Amounts are in ISK million
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Notes to the Condensed Consolidated Interim Financial Statements 44. Capital management (continued) 30.6.2026 31.12.2025 Risk exposure amount 947,909 939,768 5,417 4,093 1,835 1,375 88,552 88,552 Total risk exposure amount (REA) 1,043,713 1,033,788 Capital ratios 19.1% 20.1% 20.7% 21.7% 23.0% 24.0% Leverage ratio Exposure amount 1,776,164 1,718,921 62,644 68,948 8,298 9,852 Total exposure measure (TEM) 1,847,106 1,797,721 215,685 224,792 Leverage ratio 11.7% 12.5% 45. 30.6.2026 31.12.2025 Own funds and eligible liabilities 239,955 247,891 218,272 207,145 Own funds and eligible liabilities 458,227 455,036 Ratios of own funds and eligible liabilities 43.9% 44.0% 24.8% 25.3% On-balance sheet exposures ................................................................................................................................. Off-balance sheet exposures ................................................................................................................................. Derivative exposures ............................................................................................................................................. Tier 1 capital ......................................................................................................................................................... Due to operational risk .......................................................................................................................................... CET1 ratio ............................................................................................................................................................. Tier 1 ratio ............................................................................................................................................................. Total capital ratio ................................................................................................................................................... Minimum requirement for own funds and eligible liabilities (MREL) The Group is required to meet the minimum requirement for own funds and eligible liabilities (MREL) at all times in accordance with Directive 2014/59/EU and Directive (EU) 2019/879 as implemented into Icelandic law by Act No. 70/2020 on the Resolution of Credit Institutions and Investment Firms. The Resolution Authority of the Central Bank of Iceland (the Resolution Authority) is responsible for determining the Group's MREL. In the annual MREL decision from the Resolution Authority, the Group's MREL was set at 18.8% of the risk exposure amount (REA) and 6.0% of the total exposure measure (TEM). The decision further requires that from 4 October 2027 a portion of the Group's MREL must be met with subordinated instruments. The subordination portion of the MREL will be set at 13.5% of REA from 4 October 2027. At 30 June 2026 the Group exceeds the future required subordination portion of the MREL. The MREL is published irrespective of the value of the combined buffer requirement, which must be met in parallel with the MREL as a % of REA. Taking into account the Group's combined buffer requirement as at 30 June 2026, the resulting MREL as a % of REA requirement at 30 June 2026 was 28.5%. Due to credit valuation adjustment ........................................................................................................................ Due to credit risk ................................................................................................................................................... Due to market risk ................................................................................................................................................. Own funds ............................................................................................................................................................. Eligible liabilities .................................................................................................................................................... Own funds and eligible liabilities as a % of REA .................................................................................................... Own funds and eligible liabilities as a % of TEM ................................................................................................... Íslandsbanki hf. Condensed Consolidated Interim Financial Statements first half 2026 48 Amounts are in ISK million
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Íslandsbanki hf. • Hagasmári 3 • 201 Kópavogur • Iceland • Reg.no. 491008-0160