Financial results for third quarter 2025

Íslandsbanki reported a net profit of ISK 6.9 billion in the third quarter of 2025, generating an annualised return on equity (ROE) of 12.2%

3Q25 RESULTS HIGHLIGHTS

Third quarter 2025 (3Q25) financial highlights

  • Net profit amounted to ISK 6.9 billion in the third quarter of 2025 (3Q24: ISK 7.3 billion), generating an annualised return on equity (ROE) of 12.2% (3Q24: 13.2%). Adjusted for the effect of a provision for legal proceedings, return on equity was 12.9%.
  • Net interest income (NII) amounted to ISK 13.3 billion and increased by ISK 1,483 million in 3Q25 compared to 3Q24.
  • The net interest margin (NIM) was 3.1% in 3Q25 compared to 2.9% in 3Q24. Adjusted for the effect of provision for legal proceedings, the net interest margin was 3.2% in the quarter.
  • Net fee and commission income (NFCI) was broadly comparable to 3Q24 and amounted to ISK 3.2 billion in 3Q25.
  • Net financial expense was ISK 353 million in 3Q25, compared to an income of ISK 228 million in 3Q24.
  • Other operating income was ISK 115 million in 3Q25, compared to ISK 357 million in 3Q24.
  • Administrative expenses in 3Q25 amounted to ISK 6.5 billion, having been ISK 6.4 billion in 3Q24.
  • The cost-to-income ratio was 38.2% in 3Q25 and excludes a charge of ISK 550 million within net interest income due to a provision for legal proceedings. The cost-to-income ratio for 3Q24 was 40.4%.
  • The net impairment on financial assets was a reversal of ISK 7 million in 3Q25, compared to a reversal of ISK 860 million in 3Q24. The net impairment charge as a share of loans to customers, the annualised cost of risk, was 0bps in 3Q25, compared to -27bps in 3Q24.
  • Loans to customers grew by ISK 2 billion during the third quarter of 2025, reaching a total of ISK 1,333 billion at the end of 3Q25.
  • Deposits from customers grew by 4.4% in the quarter and amounted to ISK 1,009 billion at the end of 3Q25.
  • Total equity at the end of 3Q25 amounted to ISK 227.0 billion compared to ISK 227.4 billion at year-end 2024.
  • The total capital ratio was 21.9% at the end of 3Q25 including 3Q25 profit, compared to 23.2% at year-end 2024. The corresponding CET1 ratio was 18.9% at the end of 3Q25 including the 3Q25 profit, compared to 20.1% at year-end 2024. The CET1 ratio at the end of 3Q25 was 370bps above regulatory requirements, and above the Bank's financial target of having a 100-300 bps capital buffer on top of CET1 regulatory requirements.
  • The minimum requirement for own funds and eligible liabilities (MREL) for the Bank is 19.6% of the total risk exposure amount, in addition to the combined buffer requirement. At the end of third quarter 2025, the Bank's MREL ratio was 36.8%, 740 bps on top of requirements. A new resolution plan was approved for the Bank on 17 October 2025, establishing an updated MREL for the Bank at 18.8% of the total risk exposure amount, in addition to the combined buffer requirement. Following that approval the MREL ratio for the Bank is 37.1% (including the 3Q25 profit), 850 bps on top of requirements.

First nine months of 2025 (9M25) financial highlights

  • Íslandsbanki's net profit for the first nine months of 2025 was ISK 19.3 billion (9M24: ISK 18.0 billion), with an annualised return on equity for 9M25 of 11.5%, compared to 10.9% in 9M24. The Bank is guiding towards a ROE around 11% for the year as a whole, assuming more normal level of impairments.
  • Net interest income totalled ISK 40.1 billion in 9M25, an increase of 10.1% YoY.
  • Net fee and commission income (NFCI) amounted to ISK 9.9 billion in 9M25 which is an increase of 4.2% from 9M24, when it amounted to ISK 9.5 billion.
  • Net financial expense was ISK 1,326 million in 9M25 compared to an expense of ISK 507 million in 9M24.
  • Administrative expenses were ISK 21.1 billion in 9M25, having been ISK 20.5 billion in 9M24, when a charge for an administrative fine in the amount of ISK 470 million in 2Q24 is excluded.
  • Cost-to-income ratio fell YoY from 43.3% in 9M24 to 42.1% in 9M25. Cost-to-income ratio for 9M24 excluded an administrative fine of ISK 470 million charged in 2Q24 and the ratio for 9M25 excludes a charge of ISK 550m within net interest income due to a provision for legal proceedings.
  • Net impairment on financial assets was a reversal of ISK 406 million in 9M25, as compared to a reversal of ISK 293 million in 9M24.

Íslandsbanki's operations during the third quarter of 2025 were solid, represented by strong performance across business segments. The Bank's profit amounted to ISK 6.9 billion, exceeding analysts' consensus for the quarter. The interest margin was 3.1%. Annualised return on equity for the quarter was 12.2%, and cost-to-income ratio was 38.2%.

Recent weeks have been eventful for the Bank. Our announcement of merger discussions between Íslandsbanki and Skagi hf. marks the first step in an exciting journey, aligned with our stated ambitions for external growth. There are significant opportunities in the merger between Íslandsbanki and Skagi, and the synergies are considerable. There are many opportunities for integration within the Icelandic financial system, and the merger is expected to create substantial value for the combined entity, its customers, and other stakeholders. The Bank's partnership with VÍS (a subsidiary of Skagi) has been very successful, with high satisfaction among customers and staff.

In October, the Supreme Court of Iceland issued a ruling in a case concerning variable interest rates on a  non-index linked home mortgage, partially invalidating the Bank's terms on interest changes. Review of the overall impact is currently underway and the Bank will notify customers once the results are clear. While the uncertainty around this issue has been resolved, cases involving other banks and loan types are pending before the Supreme Court. It is important to resolve these cases as early as possible to eliminate uncertainty and clarify future product offerings. The Bank has implemented interim measures to its product offering as of now. In addition, the Government of Iceland has announced that, in cooperation with the Central Bank of Iceland, efforts are underway to begin publishing a reference interest rate as soon as possible. The Bank will monitor these developments closely.

The Bank achieved good results in the third quarter of 2025, both in customer service and in building robust internal infrastructure and developing solutions to support our customers. A new feature in the Íslandsbanki app called "My Family" gives parents a good overview of their children's finances and makes it easier to set up and follow savings goals. Recent updates and enhancements of the app have been well received, and the app's rating has improved as a result. The Bank, along with a few pension funds, finance the construction of the new Ölfusá Bridge, a significant road infrastructure project. The Bank welcomes the opportunity to help address the accumulated infrastructure debt in Iceland and is well positioned to participate in other projects of that nature. Ergo, the Bank's asset financing service, is performing strongly, and a new product that facilitates financing for used cars irrespective of its age has been well received. Íslandsbanki enjoys the highest Net Promoter Score (NPS) among SMEs in Iceland. The Bank places great emphasis on personal relationships with business customers and is proud of the strong results achieved across the country.

The Íslandsbanki Reykjavík Marathon in August continues to be the largest charity event in the country, and this year another record was broken in fundraising, with more than ISK 327 million collected. It is fair to say that this event is the most joyful one of the year in the Bank's activities, as thousands of people come together to support charities and organisations all across the country.

Íslandsbanki is in an enviable position, with a large amount of excess capital. The proposed merger with Skagi is further expected to have a positive impact on this excess. The implementation of the CRR3 directive will also have a positive effect. The Bank intends to use this position to expand in foreign lending abroad. Significant work has gone into analysing opportunities related to foreign lending, and a strategy has been set for market entry, focusing on carefully choosing partners and participating in projects where the Bank has relevant expertise. Share buybacks are also an important part of the capital story, and the Bank has been engaged in buybacks throughout the greater part of 2025.

Looking ahead, we are excited about opportunities to support our customers, whether through participation in important projects, by providing financial education at key life milestones, or with new and improved solutions that allow us to keep providing outstanding service.

 Jón Guðni Ómarsson, CEO of Íslandsbanki

Additional investor material
All investor material will subsequently be available and archived on the Bank's Investor Relations website, where other information on the Bank's financial calendar and silent periods can also be found.

Disclaimer
This press release may contain "forward-looking statements" involving uncertainty and risks that could cause actual results to differ materially from results expressed or implied by the statements. Íslandsbanki hf. undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this press release. It is the investor's responsibility to not place undue reliance on these forward-looking statements which only reflect the date of this press release. Forward-looking statements should not be considered as guarantees or predictions of future events and all forward-looking statements are qualified in their entirety by this cautionary statement.