FULLTEXT DEL 2 AV 3

Årsredovisning 2025

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Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
42
44. Credit risk - overview
a. Definition
b. Management
c. Credit approval process
d. Collateral
e. Credit rating
f. Loan portfolio management
g. Impairment
h. Derivatives
i. Securities used for hedging
The Group offers derivative contracts in the form of swap contracts on highly liquid securities or currencies. On the day when the contract is
entered into, the Group purchases the underlying asset and hedges its exposure to price changes. Collateral is primarily in the form of cash or
listed, highly liquid securities. The risk management unit and ALCO set rules about the level of collateralisation and the risk management unit
monitors the compliance to these rules. Contracts are closed if required levels of collateralisation are not met.
The Group hedges itself for market risk of derivative contracts by purchasing the underlying securities at the commencement of the contract.
Since the contracts require delivery of the underlying securities to the customer on the settlement day, the credit risk towards the issuer is
immaterial.
To ensure effective diversification of the loan portfolio, the board has established a limit framework defining maximum exposure as a proportion
of the Group’s capital or the total size of the loan portfolio. These framework includes limits on exposures to connected clients, industries,
regions and countries etc. Risk management is responsible for monitoring compliance with these limits and reporting any breaches to the credit
committee.
One of the Group's primary sources of risk is credit risk. Credit risk is the risk of financial loss arising from a customer’s failure to meet its
contractual obligations. Credit risk primarily relates to default risk but also includes other risk components where applicable. Credit risk
comprises, among other things, default risk, which is the risk that a borrower fails to meet its loan obligations and is mitigated through collateral
where available; concentration risk, arising from insufficient diversification of the loan portfolio across borrowers, industries, or geographi cal
areas; settlement risk, which may arise in transactions involving securities, foreign exchange, or derivatives if a counterparty fails to fulfil it s
obligations on the settlement date; counterparty risk related to deriva tives, resulting from a counterparty’s failure to meet its contractual
obligations; and equity risk in the investment portfolio, which reflects the risk of a decline in the value of unlisted equity investments.
The risk management unit monitors credit risk and is responsible for developing methodologies to systematically identify, assess, monitor, and
manage it. The Group uses a variety of tools and processes to manage credit risk, including collaterals, hedges and loan portfo lio management.
A substantial proportion of the Group's loan portfolio consists of senior loans, most of which are secured with collateral. The Group monitors the
value of collateral by listed securities on a real time basis and takes prompt action when necessary.
Securing loans with collateral is a traditional and effective method of mitigating credit risk. The Group employs various risk-mitigation techniqu es,
including obtaining collateral from customers where appropriate. Such collateral grants the Group the right to enforce against the collateralised
assets for both current and future obligations of the customer.
The Group applies appropriate haircuts to all collateral to ensure that the mitigating effect is prudent and robust. For collateral consisting of
listed securities, the Group retains the right to liquidate the assets if their market value falls below a predefined threshold .
Risk management ensures that loans have a credit rating and is responsible for reviewing the loan portfolio.
The originating department prepares a proposal for each larger loan or credit line which is presented to the credit committee for approval. The
proposal consists of a basic description of the client, the purpose of the loan, a simple credit assessment and arguments for or against granting
the loan. The committee decides whether there is need for further cred it assessment and on what terms the loan may be granted. For smaller
loans the originating department obtains a general credit approval from the credit committee with respect to the process, terms, credit limits and
total amount of the specific lending type.
A more thorough credit assessment may be conducted if considered appropriate and can include an assessment of a borrower's fundamental
credit strength as well as the value of any collateral. To assess the borrower's ability to meet its obligations, the committee may request stress
testing of the borrower's cash flows or obtain assessments from third parties.
Provisioning for loan impairments is estimated based on expected credit loss models assessing the portfolio as well as individual lending. Risk
management suggests a level of provisioning for the portfolio, based on the expected credit loss assessment. Provisions require approval from
the credit committee. Refer to note 82 in the Consolidated Financial Statements for more information on the Group's impairment policy.
Consolidated Financial Statements 31 December 2025 37

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Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44
45. Maximum exposure to credit risk
Public Financial Corporate
On-balance sheet exposure entities institutions customers Individuals 31.12.2025
20,145 - - - 20,145
- 8,154 - - 8,154
6 2 143,462 64,090 207,560
41,326 3,008 188 - 44,522
- 2,493 650 107 3,250
1 1,417 5,944 1,151 8,513
61,477 15,074 150,244 65,348 292,143
Off-balance sheet exposure
10 6 8,647 1,050 9,713
- - 1,097 - 1,097
Maximum exposure to credit risk 61,487 15,080 159,988 66,398 302,953
Public Financial Corporate
On-balance sheet exposure entities institutions customers Individuals 31.12.2024
18,593 - - - 18,593
- 11,530 - - 11,530
7 2 110,458 39,736 150,203
62,660 1,889 245 - 64,795
- 1,001 144 52 1,197
1 1,115 5,423 142 6,680
81,261 15,536 116,270 39,930 252,997
Off-balance sheet exposure
7 2 5,038 1,013 6,060
- - 801 - 801
Maximum exposure to credit risk 81,268 15,538 122,109 40,943 259,858
46. Credit quality of financial assets
Model parameters for
Icelandic portfolio
Scenarios Base case Upside Downside Base case Upside Downside
Unemployment rate 5.0% 4.0% 6.4% 4.2% 3.7% 4.9%
Inflation CPI index 3.4% 3.0% 5.8% 3.7% 3.4% 5.5%
Assigned weight 55.0% 10.0% 35.0% 50.0% 15.0% 35.0%
Model parameters for UK
portfolio
Scenarios Base case Upside Downside Severe Base case Upside Downside Severe
Unemployment rate 4.9% 2.3% 3.6% 5.9% 4.1% 3.9% 5.8% 7.5%
Inflation CPI index 2.5% 4.4% 5.9% 7.5% 5.0% 4.7% 8.3% 16.4%
Assigned weight 50.0% 15.0% 25.0% 10.0% 50.0% 20.0% 25.0% 5.0%
The Group utilises an economic forecast which is aligned with requirements for the calculation of expected credit loss. The Group owns loan
portfolios in two geographical segments, i.e. Iceland and the United Kingdom ("UK"). In general, the Group utilises the same ECL methodology for
the portfolios in both segments, although in the UK it is to a larger extent based on an individual assessment by credit specialists and a separate
macroeconomic forecast is used to reflect the UK economy. The following tables shows the first 12 month macro economic values for the
variables used in the expected credit loss model. Reference is made to note 82 in the Consolidated Financial Statements for further information
about the Group‘s impairment methodology.
Loans to customers ........................................................................................
Derivatives .....................................................................................................
Other assets ...................................................................................................
Cash and balances with Central Bank ...........................................................
The maximum exposure to credit risk for on-balance sheet and off-balance sheet items, before taking into account any collateral held or other
credit enhancements, is specified as follows:
Cash and balances with Central Bank ...........................................................
Loans to credit institutions ............................................................................
Fixed income securities .................................................................................
Loans to credit institutions ............................................................................
Fixed income securities .................................................................................
Loans to customers ........................................................................................
Derivatives .....................................................................................................
Other assets ...................................................................................................
Loan commitments ........................................................................................
Financial guarantee contracts .......................................................................
31.12.2024
Loan commitments ........................................................................................
Financial guarantee contracts .......................................................................
The book value of financial assets which fall under the impairment requirements of IFRS 9 are presented as net of expected credit losses ("ECL") in
the statement of financial position. The ECL are recalculated for each asset on at least a quarterly basis. The assessment of ECL is based on
calculations from PD, LGD and EAD models. Furthermore, the assessment is based upon management's assumptions regarding the development
of macroeconomic factors over the coming twelve months. The assumption s for macroeconomic development are decided for three scenarios: a
base case, an upside scenario, a downside scenario and for the UK portfolio there is a fourth scenario, severe downturn. Each scenario includes a
probability weight, and the ECL is derived as a weighted average. The amount of ECL to be recognized is dependent on the Group's definition of
significant increase in credit risk, which controls the impairment stage each asset is allocated to. The factors that are used to measure significant
increase in credit risk include comparison of changes in credit rating, lifetime PD values, days past due and registration on Creditinfo’s
delinquency register.
31.12.2025
31.12.2025 31.12.2024
Consolidated Financial Statements 31 December 2025 38

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Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46
46. Credit quality of financial assets (cont. )
a.
Impairment Listed Unlisted
Claim due to expected Carrying Total securities and securities and Residential Commercial Industrial Unsecured
31.12.2025 value credit loss amount % collateral Deposits liquid funds other funds real estate real estate Automobiles equipment Guarante es Other claim value
6 (0) 6 0.0% 9 - - - - - 9 - - - 1
2 (0) 2 0.0% - - - - - - - - - - 2
Corporate
Real estate activities .................................. 51,219 (308) 50,911 24.5% 89,260 63 400 2,983 36,289 47,916 956 322 100 231 1,249
Construction .............................................. 22,161 (104) 22,057 10.6% 42,192 9 - - 21,576 7,534 6,344 5,140 - 1,58 9 411
Activities of Holding Companies ................. 16,541 (48) 16,493 7.9% 60,434 4 40 10,588 10,152 17,785 1,513 147 706 19,500 1, 322
Service Activities ........................................ 15,859 (527) 15,333 7.4% 29,280 38 67 711 1,596 6,655 16,724 3,004 0 4 85 522
Accommodat. and Food Service Activit. ..... 11,299 (75) 11,224 5.4% 22,120 144 - - 3,905 17,419 542 60 0 50 271
Act. of Hold. Comp. - Securities Financing .. 7,698 (282) 7,417 3.6% 14,583 364 13,891 276 52 - - - 0 - 664
Other ......................................................... 20,122 (94) 20,028 9.6% 40,580 378 4,968 3,645 3,674 10,998 7,795 4,887 115 4,120 2,029
64,981 (891) 64,090 30.9% 121,954 35 446 665 73,022 2,314 42,932 1,178 0 1,362 8,982
Total 209,889 (2,329) 207,560 100.0% 420,411 1,034 19,812 18,868 150,266 110,621 76,814 14,737 921 27,338 15,452
Impairment Listed Unlisted
Claim due to expected Carrying Total securities and securities and Residential Commercial Industrial Unsecured
31.12.2024 value credit loss amount % collateral Deposits liquid fund s other funds real estate real estate Automobile s equipment Guarantees Other claim value
7 (0) 7 0.0% 10 - - - - - 10 - - 0 0
2 (0) 2 0.0% - - - - - - - - - - 2
Corporate
Real estate activities .................................. 45,564 (339) 45,225 30.1% 84,189 31 50 31 41,523 41,134 974 240 0 206 49 1
Construction .............................................. 16,412 (92) 16,320 10.9% 32,487 0 0 - 12,426 9,668 5,260 4,426 0 707 2 56
Service Activities ........................................ 16,068 (162) 15,906 10.6% 29,302 26 122 577 1,020 2,523 19,253 3,815 0 1,966 317
Accommodat. and Food Service Activit. ..... 11,492 (86) 11,406 7.6% 22,151 105 - - 1,367 20,069 528 47 - 36 8
Activities of Holding Companies ................. 7,143 (654) 6,489 4.3% 20,066 13 201 9,762 4,864 3,344 217 183 1,468 15 1,434
Wholesale and Retail Trade ....................... 4,930 (56) 4,875 3.2% 7,474 24 - - 247 913 3,601 1,952 100 636 384
Other ......................................................... 10,303 (66) 10,237 6.8% 29,559 342 7,208 163 3,390 11,277 2,176 2, 190 22 2,791 415
40,609 (872) 39,736 26.5% 57,599 33 793 655 11,886 1,815 40,060 1,032 - 1,325 8,312
Total 152,530 (2,327) 150,203 100.0% 282,838 575 8,374 11,187 76,723 90,743 72,080 13,884 1,589 7,683 11,619
Public entities .................................................
Financial institutions .......................................
Individuals .......................................................
Collateral value is shown as the market- or accounting value of collateral allocated to exposures. Other collateral includes financial claims, inventories and receivables.
Allocated collateral
Breakdown of loans to customers by industry and information on collateral and other credit enhancements
The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. For other types of assets the Group uses third party valuation where possible.
Public entities .................................................
Individuals .......................................................
Financial institutions .......................................
Allocated collateral
Consolidated Financial Statements 31 December 2025 39

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Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46
46. Credit quality of financial assets (cont.)
b.
31.12.2025
Loans to customers: Stage 1 Stage 2 Stage 3 FVTPL Total
139,620 5,455 - 3,658 148,733
33,264 2,123 - 94 35,480
11,787 4,113 - - 15,901
374 518 - - 892
4 1 7,706 - 7,710
730 318 - 125 1,173
Gross carrying amount 185,778 12,527 7,706 3,877 209,889
(379) (203) (1,747) - (2,329)
Book value 185,400 12,324 5,959 3,877 207,560
Loan commitments, guarantees and unused credit facilities: Stage 1 Stage 2 Stage 3 FVTPL Total
6,722 0 - 61 6,783
2,945 0 - - 2,945
236 14 - - 249
2 77 - - 80
- - 12 - 12
741 - - - 741
Total off-balance sheet amount 10,646 91 12 61 10,810
(13) (0) (3) - (16)
Net off-balance sheet amount 10,633 91 9 61 10,794
31.12.2024
Loans to customers: Stage 1 Stage 2 Stage 3 FVTPL Total
89,427 1,266 - 17 90,710
40,153 3,159 - - 43,313
6,609 2,004 - - 8,613
227 381 - - 608
1 - 7,940 114 8,055
287 203 - 743 1,232
Gross carrying amount 136,704 7,012 7,940 874 152,530
(367) (189) (1,771) - (2,327)
Book value 136,337 6,823 6,169 874 150,203
Loan commitments, guarantees and unused credit facilities: Stage 1 Stage 2 Stage 3 FVTPL Total
4,675 3 - - 4,678
1,568 0 - - 1,568
563 6 - - 569
2 1 - - 2
- - 34 10 44
- 0 - - 0
Total off-balance sheet amount 6,808 10 34 10 6,861
(11) (0) (7) - (18)
Net off-balance sheet amount 6,797 9 27 10 6,843
Non-rated .............................................................................................
Expected credit loss .............................................................................
Expected credit loss .............................................................................
Credit quality band I .............................................................................
Credit quality band II ............................................................................
Credit quality band III ...........................................................................
Credit quality band IV ..........................................................................
In default ..............................................................................................
Credit quality band II ............................................................................
Credit quality band III ...........................................................................
Credit quality band IV ..........................................................................
In default ..............................................................................................
Non-rated .............................................................................................
The following tables show financial assets subject to the impairment requirements of IFRS 9 broken down by credit quality bands where band i
denotes the lowest credit risk and band iv the highest credit risk. Assets measured at fair value through profit or loss are not subject to the stage
classification requirements of IFRS 9 but are nevertheless included in the tables in order to give a more complete picture of the credit quality of
loans to customers and reconcile the tables to the carrying amount on the balance sheet. The Bank has primarily used calibrated external credit
ratings to assess the default probability of its customers. Some of the larger borrowers are furthermore individually assessed by credit specialist s.
The Bank has implemented internal credit rating models for part of the loan portfolio and intends to continue this development.
Credit quality band I .............................................................................
Credit quality band II ............................................................................
Credit quality band III ...........................................................................
Credit quality band IV ..........................................................................
Credit quality of financial assets by credit quality band
Credit quality band III ...........................................................................
Credit quality band IV ..........................................................................
In default ..............................................................................................

Non-rated .............................................................................................
Expected credit loss .............................................................................
Credit quality band I .............................................................................
In default ..............................................................................................
Non-rated .............................................................................................
Expected credit loss .............................................................................
Credit quality band I .............................................................................
Credit quality band II ............................................................................
Consolidated Financial Statements 31 December 2025 40

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Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46
46. Credit quality of financial assets (cont.)
c. Breakdown of loans to customers into not past due and past due
Claim Expected Carrying
31.12.2025 value credit loss amount
193,748 (620) 193,129
5,802 (510) 5,292
2,633 (62) 2,572
3,145 (10) 3,135
1,963 (144) 1,819
1,049 (192) 857
1,549 (792) 757
Total 209,889 (2,329) 207,560
Claim Expected Carrying
31.12.2024 value credit loss amount
137,349 (625) 136,724
7,724 (104) 7,619
2,321 (73) 2,249
698 (16) 682
2,180 (820) 1,359
809 (248) 561
1,448 (441) 1,008
Total 152,530 (2,327) 150,203
d. Allowance for expected credit loss on loans to customers and loan commitments, guarantees and unused credit facilities
31.12.2025
Expected credit loss allowance total
Sta
ge 1 Sta ge 2 Sta ge 3 Total
Transfers of financial assets:
Balance as at 1 January 2025 377 189 1,778 2,345
80 (33) (47) -
(18) 42 (24) -
(17) (28) 45 -
(139) 5 99 (35)
303 107 633 1,043
(194) (79) (405) (679)
(0) (0) (329) (330)
Balance as at 31 December 2025 392 204 1,749 2,345
Expected credit loss allowance for loans to customers
S t a g e 1S t a g e 2S t a g e 3 T o t a l
Transfers of financial assets:
Balance as at 1 January 2025 367 189 1,771 2,327
74 (33) (41) -
(18) 42 (24) -
(17) (28) 45 -
(134) 5 98 (31)
297 107 633 1,038
(191) (79) (405) (675)
(0) (0) (329) (330)
Balance as at 31 December 2025 379 203 1,747 2,329
New financial assets, originated or purchased ..............................................................
Derecognitions and maturities ......................................................................................
Write-offs .......................................................................................................................
Derecognitions and maturities ......................................................................................
Write-offs .......................................................................................................................
Transfer to Stage 1 - (Initial recognition) ..................................................................
Transfer to Stage 2 - (significantly increased credit risk) .........................................
Transfer to Stage 3 - (credit impaired) .....................................................................
Net remeasurement of loss allowance ..........................................................................
The following tables show changes in the expected credit loss allowance of loans to customers and for loan commitments, guarantees and unused
credit facilities during the year.
Transfer to Stage 1 - (Initial recognition) ..................................................................
Transfer to Stage 2 - (significantly increased credit risk) .........................................
Transfer to Stage 3 - (credit impaired) .....................................................................
Net remeasurement of loss allowance ..........................................................................
New financial assets, originated or purchased ..............................................................
Past due 61-90 days ..................................................................................................................................
Past due 91-180 days ................................................................................................................................
Past due 181-360 days ..............................................................................................................................
Past due more than 360 days ...................................................................................................................
Past due 91-180 days ................................................................................................................................
Past due 181-360 days ..............................................................................................................................

Past due more than 360 days ...................................................................................................................
Not past due .............................................................................................................................................
Past due 1-30 days ....................................................................................................................................
Past due 31-60 days ..................................................................................................................................
Not past due .............................................................................................................................................
Past due 1-30 days ....................................................................................................................................
Past due 31-60 days ..................................................................................................................................
Past due 61-90 days ..................................................................................................................................
Consolidated Financial Statements 31 December 2025 41

===== SIDA 45 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46
46. Credit quality of financial assets (cont.)
Expected credit loss allowance for loan commitments, guarantees and unused credit facilities
S t a g e 1S t a g e 2S t a g e 3 T o t a l
Transfers of financial assets:
Balance as at 1 January 2025 11 0 7 18
6 (0) (6) -
(0) 0 (0) -
(0) (0) 0 -
(5) 0 2 (4)
5 - - 5
(3) (0) (0) (4)
Balance as at 31 December 2025 13 0 3 16
31.12.2024
Expected credit loss allowance total
S t a g e 1S t a g e 2S t a g e 3 T o t a l
Transfers of financial assets:
Balance as at 1 January 2024 382 128 1,724 2,234
104 (22) (82) -
(17) 30 (13) -
(32) (35) 68 -
(175) 16 845 686
271 120 224 615
(155) (47) (581) (783)
(0) (1) (406) (407)
Balance as at 31 December 2024 377 189 1,778 2,345
Expected credit loss allowance for loans to customers
S t a g e 1S t a g e 2S t a g e 3 T o t a l
Transfers of financial assets:
Balance as at 1 January 2024 368 128 1,723 2,219
103 (21) (82) -
(17) 30 (13) -
(32) (35) 68 -
(174) 16 843 685
268 120 219 608
(149) (47) (581) (778)
(0) (1) (406) (407)
Balance as at 31 December 2024 367 189 1,771 2,327
Expected credit loss allowance for loan commitments, guarantees and unused credit facilities
S t a g e 1S t a g e 2S t a g e 3 T o t a l
Transfers of financial assets:
Balance as at 1 January 2024 14 1 1 16
1 (0) (0) -
(0) 0 (0) -
(0) (0) 0 -
(1) (0) 1 0
3 0 4 7
(6) (0) (0) (6)
Balance as at 31 December 2024 11 0 7 18
Transfer to Stage 2 - (significantly increased credit risk) .........................................
Transfer to Stage 3 - (credit impaired) .....................................................................
Net remeasurement of loss allowance ..........................................................................
New financial assets, originated or purchased ..............................................................
Derecognitions and maturities ......................................................................................
Write-offs .......................................................................................................................
Transfer to Stage 1 - (Initial recognition) ..................................................................
Transfer to Stage 2 - (significantly increased credit risk) .........................................
Transfer to Stage 3 - (credit impaired) .....................................................................
Net remeasurement of loss allowance ..........................................................................
New financial assets, originated or purchased ..............................................................
Derecognitions and maturities ......................................................................................
Transfer to Stage 3 - (credit impaired) .....................................................................
Net remeasurement of loss allowance ..........................................................................
New financial assets, originated or purchased ..............................................................

Derecognitions and maturities ......................................................................................
Write-offs .......................................................................................................................
Transfer to Stage 1 - (Initial recognition) ..................................................................
Net remeasurement of loss allowance ..........................................................................
New financial assets, originated or purchased ..............................................................
Derecognitions and maturities ......................................................................................
Transfer to Stage 1 - (Initial recognition) ..................................................................
Transfer to Stage 2 - (significantly increased credit risk) .........................................
Transfer to Stage 1 - (Initial recognition) ..................................................................
Transfer to Stage 2 - (significantly increased credit risk) .........................................
Transfer to Stage 3 - (credit impaired) .....................................................................
Consolidated Financial Statements 31 December 2025 42

===== SIDA 46 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46
47. Loan-to-value
a. General
b. Breakdown
31.12.2025 % 31.12.2024 %
66,278 31.9% 41,225 27.4%
70,430 33.9% 57,209 38.1%
44,615 21.5% 33,497 22.3%
6,707 3.2% 2,958 2.0%
3,814 1.8% 3,461 2.3%
2,371 1.1% 1,505 1.0%
2,231 1.1% 1,378 0.9%
No or negligible collateral:
11,112 5.4% 8,968 6.0%
Total 207,560 100.0% 150,203 100.0%
48. Collateral against exposures to derivatives
Fixed Variable Other
income income Real fixed
Deposits securities securities estate assets Other 31.12.2025
1,533 86 298 - - - 1,916
618 13 1,151 - - - 1,783
44 9 104 - - - 156
Total 2,195 107 1,553 - - - 3,855
Fixed Variable Other
income income Real fixed
Deposits securities securities estate assets Other 31.12.2024
548 114 161 - - - 824
709 28 1,401 - - - 2,138
62 16 80 - - - 158
Total 1,319 158 1,643 - - - 3,120
49. Large exposures
31.12.2025 31.12.2024
Large exposures before risk adjusted mitigation Number Amount Number Amount
2 9,610 2 11,133
0 - 0 -
0 - 0 -
Total 2 9,610 2 11,133
0 - 1 6,522
1 4,662 1 6,702
10-20% of capital base ...................................................................................................
20-25% of capital base ...................................................................................................
Exceeding 25% of capital base .......................................................................................
Thereof loans to credit institutions which are part of
Large exposures net of risk adjusted mitigation ............................................................
Kvika's liquidity management .....................................................................................
Financial institutions ..............................
Corporate customers ..............................
Financial institutions ..............................
Corporate customers ..............................
Individuals ..............................................
Greater than 200% .........................................................................................................
In accordance with regulation no. 575/2013 of the European Union on prudential requirements for credit institutions, which was incorporated
into Icelandic law with Act No. 38/2022, total exposure towards a customer is classified as a large exposure if it exceeds 10% of the financial
institution's Tier 1 capital (see note 39).
According to the regulation a single exposure, net of risk adjusted mitigation, cannot exceed 25% of the eligible Tier 1 capital. Based on Icelandic
rules no. 789/2022 on the Application of Optional Provisions and Authorisations Pursuant to the Act on Financial Undertakings, the value of
exposures towards financial institutions shall not exceed 25% of the eligible Tier 1 capital or 15 bn. ISK, whichever is higher. Single large exposure s
net of risk adjusted mitigation take into account the effects of collateral and other credit enhancements held by the financial institution, and
other credit enhancements, in accordance with regulation no. 575/2013.
The loan-to-value ratio (LTV) is the ratio of the gross amount of the loan to the value of the collateral, if any. The general creditworthiness of a
customer is viewed as the most reliable indicator of credit quality of a loan. Besides collateral included in the LTV ratios the Group uses other risk
mitigation measures, such as guarantees, negative pledge, cross-collateral and collateralization of non-quantifiable assets.
The breakdown of loans to customers by LTV is specified as follows:
Less than 50% .................................................................................................................
50-70% ............................................................................................................................
70-90% ............................................................................................................................
90-100% ..........................................................................................................................
Individuals ..............................................
Amounts have been adjusted to exclude collateral posted in excess of the contractual collateral limit (overcollateralisation).
100-125% ........................................................................................................................
125-200% ........................................................................................................................
Other loans with no collateral ..................................................................................
The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. Haircuts are applied to account
for liquidity and other factors which may affect the collateral value of the asset.
Consolidated Financial Statements 31 December 2025 43

===== SIDA 47 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
49
50. Liquidity risk
a. Definition
b. Management
31.12.2025 Unweighted Weighted Unweighted Weighted Unweighted Weighted
53,860 53,860 957 909 55,809 55,712
2,559 2,175 758 606 4,970 4,104
- - 3,442 1,549 6,109 2,749
- - - (1,549) - -
Total high quality liquid assets (HQLA) 56,419 56,035 5,157 1,516 66,888 62,565
129,272 24,320 3,703 1,647 136,160 27,418
131 131 - - 292 292
8,515 4,238 1,651 222 15,898 4,887
Total outflows (0-30 days) 137,918 28,688 5,354 1,869 152,350 32,597
284 284 2,870 2,870 8,075 8,075
7,335 5,778 490 489 11,194 9,030
- - - (1,957) - -
Total inflows (0-30 days) 7,620 6,062 3,359 1,402 19,268 17,104
248% 324% 404%
31.12.2024 Unweighted Weighted Unweighted Weighted Unweighted Weighted
68,950 68,950 - - 72,409 72,409
823 700 - - 823 700
- - - - - -
- - - - - -
Total high quality liquid assets (HQLA) 69,773 69,650 - - 73,232 73,109
122,660 23,181 - - 131,228 27,435
17 17 - - 17 17
13,201 8,730 - - 15,672 9,141
Total outflows (0-30 days) 135,878 31,928 - - 146,918 36,594
692 692 - - 10,559 10,559
16,441 4,838 - - 17,763 5,718
- - - - - -
Total inflows (0-30 days) 17,133 5,530 - - 28,321 16,276
264% 0% 360%
31.12.2025 31.12.2024
137% 144%
*Requirement first applies from June 2025
Liquidity risk is the risk that the Group will encounter difficulty in meeting contractual payment obligations associated with its financial liabil ities
that are settled by delivering cash or another financial asset. This risk mainly arises from mismatches in the timing of cash flows. The Group has
internal rules that require certain matching of the maturities of assets and liabilities. Furthermore, to ensure the ability to meet liquidity needs ,t h e
Group maintains a stock of highly liquid unencumbered assets, e.g. cash, treasury bills and treasury bonds.
Liquidity is managed by treasury and monitored by risk management. Liquidity position is reported to the ALCO committee. The Central Bank of
Iceland sets minimum requirements for the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The minimum 30 day LCR
regulatory requirement is 100% for LCR total, 50% minimum requirement for LCR in ISK and 80% minimum requirement for LCR in EUR. The
minimum requirement for LCR EUR only applies when the Group‘s commitments in EUR represent 10% or more of the Group´s total commitments.
The minimum regulatory requirement for NSFR total is 100%.
NSFR total ...........................................................................................................................................................................
Other inflows ..........................................................................
Restrictions on inflows ...........................................................
Liquidity coverage ratio ..........................................................
Deposits ..................................................................................
Other borrowings ...................................................................
Other outflows .......................................................................
Restrictions on inflows ...........................................................
Liquidity coverage ratio ..........................................................
Deposits ..................................................................................
Other borrowings ...................................................................
Other outflows .......................................................................
Excess liquid asset amount ....................................................
Excess liquid asset amount ....................................................
Liquid assets level 2B ..............................................................
Liquid assets level 2B ..............................................................
Short-term deposits with other banks ...................................
Other inflows ..........................................................................
ISK EUR* Total all currencies
Liquid assets level 1 ................................................................
Liquid assets level 2A .............................................................
ISK EUR* Total all currencies
Liquid assets level 1 ................................................................
Liquid assets level 2A .............................................................

Short-term deposits with other banks ...................................
Consolidated Financial Statements 31 December 2025 44

===== SIDA 48 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
49
50. Liquidity risk (cont.)
c. LCR deposit categories
31.12.2025 Run off date 0-30 days Over 30 days Total
5%-100% 106,607 16,120 122,727
5%-100% 8,905 118 9,023
20%-40% 9,005 6 9,011
40% 98 1 98
100% 11,545 18,130 29,676
2,247 5 2,252
Total 138,407 34,380 172,787
31.12.2024 Run off date 0-30 days Over 30 days Total
5%-100% 103,372 15,899 119,271
5%-100% 5,807 200 6,007
20%-40% 11,124 48 11,172
40% 81 83 164
100% 10,843 12,439 23,282
3,440 41 3,481
Total 134,668 28,710 163,378
Financial entities .................................................................................................................
Other * .................................................................................................................................
Individuals ...........................................................................................................................
Small and medium sized corporates ...................................................................................
Large corporates .................................................................................................................
Public entities ......................................................................................................................
Public entities ......................................................................................................................
The Group's deposit base is divided into different categories depending on customer type according to the LCR methodology. Different run off
rates are applied on each category representing their level of stickiness, which measures the stability of the deposit. Deposits with maturity over 30
days are defined as term deposits within the LCR calculations, other as demand deposits. Run off rates are applied on each category of demand
deposits and the expected cash outflow over the next 30 days under stressed conditions calculated. The higher the run off rate, the more high
quality liquid assets the Group must hold to ensure it can meet its obligations and maintain stability during a crisis.
The table below shows the Group's deposit base divided into different categories depending on customer type and run off rates according to the
LCR methodology.
Individuals ...........................................................................................................................
Small and medium sized corporates ...................................................................................
*Pledged deposits do not have any run off rate according to liquidity rules.
Financial entities .................................................................................................................
Other * .................................................................................................................................
Large corporates .................................................................................................................
Consolidated Financial Statements 31 December 2025 45

===== SIDA 49 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
49
50. Liquidity risk (cont.)
d. Maturity analysis of financial assets and financial liabilities
31.12.2025 Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying
Financial assets by type month months months years years (outflow) amount
Non-derivative assets
20,146 - - - - 20,146 20,145
8,149 - 5 0 - 8,154 8,154
21,090 15,270 71,415 112,754 63,673 284,203 207,560
10,847 985 18,015 12,450 2,224 44,522 44,522
16,966 - 3,697 - - 20,663 20,663
6,695 - - - - 6,695 6,695
5,321 2,103 856 232 - 8,513 8,513
89,214 18,358 93,989 125,437 65,898 392,895 316,251
Derivative assets
Inflow ....................................................... 5,634 569 17,818 28,615 - 52,636
Outflow .................................................... (4, 599) (550) (16,866) (27,004) - (49,019)
1,035 18 952 1,611 - 3,617 3,250
Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying
Financial liabilities by type month months months years years (outflow) amount
Non-derivative liabilities
(138,421) (18,034) (15,538) (1,386) (685) (174,063) 172,787
- (87) (528) (6,989) - (7,604) 6,806
(292) (238) (16,687) (61,576) (2,616) (81,409) 73,249
- - (362) (1,452) (9,285) (11,099) 5,841
(433) - - - - (433) 433
(432) - - - - (432) 432
(3,003) (7,188) (1,286) (2,156) - (13,633) 13,599
(142,580) (25,547) (34,401) (73,558) (12,585) (288,672) 273,147
Derivative liabilities
Inflow ....................................................... 12,126 - 10,687 3,149 - 25,963
Outflow .................................................... (12,653) - (10,926) (3,523) - (27,103)
(527) - (239) (374) - (1,140) 773
Unrecognised financial items
Inflow ....................................................... 489 673 3,371 6,302 94 10,930
Outflow .................................................... (9,713) - - - - (9,713)
Inflow ....................................................... - 1 298 792 7 1,097
Outflow .................................................... (1,097) - - - - (1,097)
(10,321) 674 3,669 7,094 101 1,217
Summary
89,214 18,358 93,989 125,437 65,898 392,895
1,035 18 952 1,611 - 3,617
(142,580) (25,547) (34,401) (73,558) (12,585) (288,672)
(527) - (239) (374) - (1,140)
unrecognised items (52,858) (7,171) 60,301 53,115 53,312 106,700
(10,321) 674 3,669 7,094 101 1,217
Net assets (liabilities) (63,179) (6,497) 63,970 60,209 53,414 107,917
Derivative assets ............................................
Derivative liabilities .......................................
Non-derivative assets ....................................
Non-derivative liabilities ...............................
Other liabilities ..............................................
Loan commitments
Financial guarantee contracts
Net unrecognised items ................................
Net assets (liabilities) excluding
Issued bonds ..................................................
Subordinated liabilities ..................................
Short positions used for hedging ..................
Short positions held for trading ....................
Cash and balances with Central Bank ...........
Shares and other variable income securities
Fixed income securities .................................
Securities used for hedging ...........................
Loans to customers ........................................
Other assets ...................................................
Loans to credit institutions ............................
Deposits ........................................................
Borrowings .....................................................
Consolidated Financial Statements 31 December 2025 46

===== SIDA 50 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
49
50. Liquidity risk (cont.)
31.12.2024 Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying
Financial assets by type month months months years years (outflow) amount
Non-derivative assets
18,595 - - - - 18,595 18,593
9,726 - - 1,804 - 11,530 11,530
10,753 13,421 52,863 98,218 4,718 179,974 150,203
17,597 10,341 7,442 25,482 3,932 64,795 64,795
1,681 - 3,751 - - 5,432 5,432
12,601 - - - - 12,601 12,601
2,736 2,397 1,543 3 - 6,680 7,704
73,689 26,160 65,600 125,507 8,650 299,606 270,857
Derivative assets
Inflow ....................................................... 13,279 143 2,346 920 1,036 17,724
Outflow .................................................... (12,289) (98) (2,329) (796) (940) (16,453)
989 45 17 124 95 1,271 1,197
Up to 1 1-3 3-12 1-5 Over 5 Gross inflow/ Carrying
Financial liabilities by type month months months years years (outflow) amount
Non-derivative liabilities
(134,688) (15,130) (10,447) (3,739) (547) (164,551) 163,378
(1) (301) (1,132) (17,271) - (18,705) 14,390
(17) (535) (3,319) (34,010) (2,557) (40,439) 37,123
- - (336) (1,399) (9,304) (11,039) 5,629
(153) - - - - (153) 153
(42) - - - - (42) 42
(1,418) (9,219) (1,122) (1,927) - (13,686) 13,635
(136,320) (25,185) (16,355) (58,347) (12,407) (248,615) 234,350
Derivative liabilities
Inflow ....................................................... 12,104 142 6,321 24,413 - 42,981
Outflow .................................................... (12,968) (145) (6,240) (26,506) - (45,858)
(864) (2) 81 (2,092) - (2,877) 2,932
Unrecognised financial items by type
Loan commitments
Inflow ....................................................... 147 49 2,796 3,722 - 6,714
Outflow .................................................... (6,060) - - - - (6,060)
Inflow ....................................................... - 1 756 37 7 801
Outflow .................................................... (801) - - - - (801)
(6,714) 50 3,552 3,759 7 654
Summary
73,689 26,160 65,600 125,507 8,650 299,606
989 45 17 124 95 1,271
(136,320) (25,185) (16,355) (58,347) (12,407) (248,615)
(864) (2) 81 (2,092) - (2,877)
unrecognised items (62,506) 1,018 49,343 65,191 (3,662) 49,385
(6,714) 50 3,552 3,759 7 654
Net assets (liabilities) (69,220) 1,068 52,896 68,950 (3,655) 50,039
Non-derivative liabilities ...............................
Deposits ........................................................
Borrowings .....................................................
Subordinated liabilities ..................................
Short positions held for trading ....................
Short positions used for hedging ..................
Other liabilities ..............................................
Derivative assets ............................................
Issued bonds ..................................................
Financial guarantee contracts
Non-derivative assets ....................................
Other assets ...................................................
Cash and balances with Central Bank ...........
Shares and other variable income securities
Securities used for hedging ...........................
It should be noted that the Group's expected cash flows sometimes vary considerably from the contractual cash flows, most significantly in that
demand deposits from customers are expected to remain stable or increase in the long term. In this case the presentation used reflects the worst
case scenario from the Group's perspective. Furthermore, the analysis does not consider any measures that could be taken to convert long-term
assets to cash through sale.
Cash flows relating to unrecognised balance sheet items (unused loan commitments and financial guarantee contracts) are presented separately
from financial assets and financial liabilities. Both contractual outflows and inflows are shown, to fully reflect the nature o f these items.
Derivative liabilities .......................................
Net unrecognised items ................................
Net assets (liabilities) excluding
Maturity analysis of financial assets and financial liabilities is based on contractual cash flows or, in the case of held for trading securities, exp ected
cash flows. If an amount receivable or payable is not fixed, e.g. for inflation indexed assets and liabilities, the maturity analysis uses estimates
based on current conditions.
Loans to customers ........................................
Fixed income securities .................................
Loans to credit institutions ............................
Consolidated Financial Statements 31 December 2025 47

===== SIDA 51 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
50
51. Market risk
a. Definition
b. Management
52. Interest rate risk
a. Definition
b. Management
53. Interest rate risk associated with trading portfolios
a. Breakdown
Up to 1 1-3 3-12 1-5 Over 5
month months months years years 31.12.2025
33 58 364 2,438 1,320 4,213
(1) (8) (7) (135) (210) (361)
Net imbalance 32 50 357 2,303 1,110 3,853
Up to 1 1-3 3-12 1-5 Over 5
month months months years years 31.12.2024
22 54 548 3,181 1,538 5,343
(1) (7) (1) (29) (116) (153)
Net imbalance 21 48 547 3,152 1,422 5,190
b. Sensitivity analysis
Shift in 31.12.2025 31.12.2024
basis points Downward Upward Downward Upward
50 43 (40) 53 (51)
100 59 (58) 67 (64)
Total 102 (97) 120 (115)
The Group performs monthly sensitivity analysis on financial assets and liabilities in trading portfolios that are subject to interest rate risk. Th e
sensitivity analysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the
Group's pre-tax profit and equity, assuming all other risk factors remain constant:
Indexed .....................................................................................................
Non-indexed .............................................................................................
Market risk constitutes risk due to changes in the market prices of financial instruments and comprises interest rate risk, currency risk and other
price risk. Notes 52-57 relate to market risk exposure.
The Group has a strict policy on controlling market risk and to keep the exposure within set limits. The risk management unit monitors market risk
limits on a daily basis and reports regularly to the ALCO committee and to the CEO.
The Group's exposure to interest rate risk is twofold. On the one hand, the Group has a proprietary portfolio of bonds, where market rates affect
prices and any fluctuations are recognised in the income statement. On the other hand, the Group has mismatch in assets and liabilities with
fixed interest terms. These include loans and swap contracts for securities on the asset side and borrowings and deposits on the liability side. This
mismatch does not create an immediate effect on the income statement but nevertheless affects the Group's economic value.
The Group takes measures to minimise interest rate risk by matching the interest rate profile and duration of assets with the Group's liabilities as
well as using derivative and non-derivative financial instruments to manage effectively the risk of an adverse impact on the Gr oup's earnings.
Proprietary positions which are subject to interest rate risk fall under the scope of the Group's market risk management.
Fixed income securities ....................................................
Short positions - fixed income securities .........................
Fixed income securities ....................................................
Short positions - fixed income securities .........................
The breakdown of financial assets and liabilities in trading portfolios by the earlier of interest repricing time or maturity i s specified as follows:
Consolidated Financial Statements 31 December 2025 48

===== SIDA 52 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
50
54. Interest rate risk associated with non-trading portfolios
a. Breakdown
31.12.2025
Financial assets Up to 1 1-3 3-12 1-5 Over 5
month months months years years Total
20,145 - - - - 20,145
8,154 - - - - 8,154
192,654 3,693 5,590 5,353 270 207,560
3,984 1,049 18,974 12,893 3,408 40,309
15,013 15,013
Financial assets excluding derivatives 239,950 4,741 24,565 18,247 3,677 291,180
22,616 48,125 6,256 30,818 - 107,815
Total 262,566 52,867 30,820 49,065 3,677 398,995
Financial liabilities Up to 1 1-3 3-12 1-5 Over 5
month months months years years Total
144,844 13,644 14,259 40 0 172,787
6,806 - - - - 6,806
18,358 14,035 1,389 37,061 2,406 73,249
- - 3,272 2,570 - 5,841
- - 84 166 - 250
Financial liabilities excluding derivatives 170,008 27,679 19,004 39,836 2,406 258,933
22,744 69,396 6,674 - - 98,814
Total 192,752 97,075 25,678 39,836 2,406 357,746
Total interest repricing gap 69,814 (44,208) 5,142 9,229 1,272 41,248
31.12.2024
Financial assets Up to 1 1-3 3-12 1-5 Over 5
month months months years years Total
18,593 - - - - 18,593
11,530 - - - - 11,530
136,380 3,761 3,955 5,748 358 150,203
11,158 10,434 9,184 25,308 3,368 59,451
Financial assets excluding derivatives 177,661 14,195 13,138 31,056 3,726 239,777
23,021 23,306 8,408 928 890 56,553
Total 200,682 37,501 21,546 31,984 4,616 296,330
Financial liabilities Up to 1 1-3 3-12 1-5 Over 5
month months months years years Total
135,370 14,930 9,594 3,259 225 163,378
14,390 - - - - 14,390
17 28,435 84 6,501 2,085 37,123
- - 2,963 2,666 - 5,629
Financial liabilities excluding derivatives 149,777 43,366 12,642 12,425 2,310 220,520
20,828 17,231 10,151 - - 48,210
Total 170,605 60,597 22,793 12,425 2,310 268,730
Total interest repricing gap 30,077 (23,096) (1,246) 19,558 2,306 27,600
b. Sensitivity analysis
Shift in 31.12.2025 31.12.2024
Currency basis points Downward Upward Downward Upward
50 53 (49) (25) 26
100 201 (197) 450 (439)
20 (6) 6 (4) 4
Total 248 (240) 422 (410)
Issued bonds .....................................................................
Other liabilities .................................................................
Subordinated liabilities ....................................................
Loans to customers ..........................................................
Fixed income securities ....................................................
Issued bonds .....................................................................
Effect of derivatives ..........................................................
Borrowings .......................................................................
Loans to credit institutions ...............................................
Cash and balances with Central Bank ..............................
Fixed income securities ....................................................
Loans to customers ..........................................................
Loans to credit institutions ...............................................
ISK, non-indexed ......................................................................................
Other currencies .......................................................................................
The Group performs monthly sensitivity analysis on financial assets and liabilities in non-trading portfolios subject to interest rate risk. The
sensitivity analysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the
Group's pre-tax profit and equity, assuming all other risk factors remain constant:
ISK, indexed ..............................................................................................
The breakdown of financial assets and liabilities in non-trading portfolios by the earlier of interest repricing time or maturity is specified as
follows:
Cash and balances with Central Bank ..............................
Deposits ...........................................................................
Effect of derivatives ..........................................................

Subordinated liabilities ....................................................
Effect of derivatives ..........................................................
Unit shares in cash equivalent liquidity funds .................
Effect of derivatives ..........................................................
Deposits ...........................................................................
Borrowings .......................................................................
Consolidated Financial Statements 31 December 2025 49

===== SIDA 53 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
50
55. Exposure towards changes in the CPI
a. Definition
b. Management
c. Balance of CPI linked assets and liabilities
31.12.2025 31.12.2024
31,407 38,426
(24,971) (23,653)
Total 6,436 14,773
d. Sensitivity to changes in CPI
31.12.2025 31.12.2024
-1% 1% -1% 1%
(25) 25 (55) 55
(35) 35 (31) 31
(233) 233 (278) 278
(20) 20 (21) 21
91 (91) 86 (86)
98 (98) 94 (94)
58 (58) 56 (56)
(64) 64 (148) 148
The effect on equity would be the same.
56. Currency risk
a. Definition
b. Management
c. Hedge accounting
d. Exchange rates
The following exchange rates have been used by the Group in the preparation of these financial statements:
Closing Average Closing Average
31.12.2025 2025 31.12.2024 2024
147.2 144.7 143.9 149.3
125.2 128.4 138.2 138.0
169.0 169.0 173.3 176.4
Issued bonds ..................................................................................................................
Liabilities .......................................................................................................................................................................
Assets ............................................................................................................................................................................
Currency risk arises when financial instruments are not denominated in the functional currency of the respective Group entity and can affect both
the Group's income statement and statement of financial position. A part of the Group's assets and liabilities is denominated in foreign
currencies.
Currency positions are monitored by risk management and reported to the ALCO committee. Any mismatch between assets and liabilities in each
currency is monitored closely and managed within limits.
The Group is subject to limits set by the Central Bank of Iceland regarding the maximum open currency position. At 31 December 2025 and 31
December 2024 the Group's position in foreign currencies was within those limits.
EUR/ISK ...........................................................................................................................
USD/ISK ..........................................................................................................................
GBP/ISK ...........................................................................................................................
The Group applies hedge accounting according to IAS 39 against translation of foreign operations. Currency swap agreements are used as a hedge
instrument against translation difference arising from foreign operations.
Deposits ..........................................................................................................................
Subordinated liabilities ..................................................................................................
Given the net balance of CPI linked assets and liabilities, a 1% change in the CPI would, with other things constant, result in the following changes
to the Group's pre-tax profit.
Government bonds ........................................................................................................
Other fixed income securities ........................................................................................
Loans to customers ........................................................................................................
Derivatives ......................................................................................................................
Exposure towards changes in CPI is the risk that fluctuations in the Icelandic Consumer Price Index (CPI) will affect the balance and cash flow of
indexed financial instruments.
The Group is exposed to inflation indexation of assets and liabilities den ominated in ISK. All indexed assets and liabilities are valued according to
the CPI measure at any given time and changes in CPI are recognised in the income statement.
The Group controls its indexation risk through derivatives contracts and sales and purchases of indexed bonds, mostly government bonds, and
thus keeps its exposure to the CPI within the limits set by the ALCO committee.
Consolidated Financial Statements 31 December 2025 50

===== SIDA 54 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
56
56. Currency risk (cont.)
e. Breakdown of assets and liabilities denominated in foreign currencies
31.12.2025
Assets Other
EUR USD GBP SEK currencies Total
1 1 2 - - 4
2,872 813 3,657 143 307 7,793
3,121 578 41,146 251 - 45,096
- 81 - - - 81
5,727 390 11,629 0 16 17,762
59 705 10 626 116 1,517
- - 2,293 - - 2,293
777 16 804 16 13 1,626
Assets excluding derivatives 12,558 2,585 59,540 1,037 452 76,171
62,372 1,679 - 17,261 14,434 95,746
Total 74,930 4,264 59,540 18,297 14,886 171,917
Liabilities Other
EUR USD GBP SEK currencies Total
4,104 2,918 666 51 182 7,920
- - 5,228 - - 5,228
30,209 - - 18,188 9,232 57,629
2,225 146 1,661 19 - 4,051
Liabilities excluding derivatives 36, 538 3,064 7,554 18,257 9,415 74,828
38,448 1,124 51,389 19 5,226 96,207
Total 74,987 4,188 58,944 18,276 14,641 171,035
Other
Net currency position EUR USD GBP SEK currencies Total
74,930 4,264 59,540 18,297 14,886 171,917
(74,987) (4,188) (58,944) (18,276) (14,641) (171,035)
862 - - - - 862
Total 805 76 596 21 245 1,744
31.12.2024
Assets Other
EUR USD GBP NOK currencies Total
2 1 2 - - 6
6,669 1,380 1,216 110 340 9,715
4,058 - 37,222 - 20 41,300
- 3,593 - - - 3,593
113 936 2,753 14 2 3,817
36 2,187 2 3 79 2,306
- - 2,451 - - 2,451
713 1,602 589 - - 2,903
Assets excluding derivatives 11,590 9,699 44,233 127 441 66,091
4,967 908 1,636 9,959 16,156 33,626
Total 16,558 10,607 45,869 10,086 16,597 99,717
Liabilities Other
EUR USD GBP NOK currencies Total
5,162 3,581 599 65 200 9,607
- - 13,700 - - 13,700
- - - 9,891 16,157 26,048
201 634 467 5 110 1,417
Liabilities excluding derivatives 5, 363 4,215 14,766 9,960 16,467 50,772
10,333 6,485 30,322 58 17 47,215
Total 15,696 10,700 45,088 10,019 16,485 97,987
Other
Net currency position EUR USD GBP NOK currencies Total
16,558 10,607 45,869 10,086 16,597 99,717
(15,696) (10,700) (45,088) (10,019) (16,485) (97,987)
704 - - - - 704
Total 1,565 (92) 781 67 112 2,434
Total assets ............................................................................
Financial guarantee contracts ...............................................
Fixed income securities .........................................................
Shares and other variable income securities ........................
Loans to customers ................................................................
Total liabilities ........................................................................
Financial guarantee contracts ...............................................
Total assets ............................................................................
Derivatives .............................................................................
Other liabilities .......................................................................
Securities used for hedging ...................................................
Borrowings .............................................................................

Issued bonds ..........................................................................
Cash and balances with Central Bank ....................................
Shares and other variable income securities ........................
Securities used for hedging ...................................................
Loans to customers ................................................................
Cash and balances with Central Bank ....................................
Other assets ...........................................................................
Derivatives .............................................................................
Deposits ................................................................................
Deposits ................................................................................
Fixed income securities .........................................................
Other assets ...........................................................................
Derivatives .............................................................................
Intangible assets ....................................................................
Intangible assets ....................................................................
Borrowings .............................................................................
Loans to credit institutions ....................................................
Loans to credit institutions ....................................................
Issued bonds ..........................................................................
Total liabilities ........................................................................
Other liabilities .......................................................................
Derivatives .............................................................................
Consolidated Financial Statements 31 December 2025 51

===== SIDA 55 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
56
56. Currency risk (cont.)
f. Sensitivity to currency risk
31.12.2025 31.12.2024
Assets and liabilities denominated in foreign currencies -10% +10% -10% +10%
81 (81) 156 (156)
8 (8) (9) 9
60 (60) 78 (78)
2 (2) 4 (4)
5 (5) 7 (7)
19 (19) 8 (8)
Total 174 (174) 243 (243)
57. Equity risk
a. Definition
b. Sensitivity analysis of equity risk
31.12.2024
-10% +10% -10% +10%
(100) 100 (110) 110
(310) 310 (307) 307
(156) 156 (126) 126
Total (565) 565 (543) 543
58. Operational risk
a. Definition
b. Management
Given the net currency position, a 10% change in the value of the ISK would, with other things constant, result in the following changes to the
Group's Consolidated Income Statement or equity.
GBP ......................................................................................................................................
The analysis below calculates the effect of possible movements in equity prices that affect the Consolidated Financial Statements. A negative
amount in the table reflects a potential net reduction in the Consolidated Income Statement or equity, while a positive amount reflects a
potential net increase. Investments in unit shares in cash equivalent liquidity funds are excluded.
31.12.2025
Listed shares ........................................................................................................................
Unlisted shares ....................................................................................................................
Unlisted unit shares in funds ...............................................................................................
SEK .......................................................................................................................................
NOK ......................................................................................................................................
The individual business units within the Group are primarily responsible for managing their respective operational risk. The risk management unit
is furthermore responsible for identifying, monitoring and reporting the Group's operational risk. Operational risk can be reduced through staff
training, process re-design and enhancement of the control environment. The risk management unit monitors operational risk by tracking loss
events, quality deficiencies, potential risk indicators and other early-warning signals. The unit takes an active role in internal control and qual ity
management.
Operational risk is the risk of direct or indirect loss from inadequate or failed internal processes or systems, from human error or external events
that affect the Group's reputation and operational earnings.
EUR ......................................................................................................................................
USD ......................................................................................................................................
Other currencies ..................................................................................................................
Equity risk is the risk that the fair value of equites decreases as the result of changes in the value of shares and other variable income securities in
the Group’s portfolio.
Consolidated Financial Statements 31 December 2025 52

===== SIDA 56 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
58
Financial assets and financial liabilities
59. Accounting classification of financial assets and financial liabilities
Manda-
31.12.2025 Fair value torily at Total
Financial assets Amortised through fair value carrying
cost OCI through P/L amount
20,145 - - 20,145
8,154 - - 8,154
203,683 - 3,877 207,560
- 38,867 5,655 44,522
- - 20,663 20,663
- - 6,695 6,695
- - 3,094 3,094
- 156 - 156
8,513 - - 8,513
Total 240,494 39,023 39,984 319,501
Manda-
Fair value torily at Total
Financial liabilities Amortised through fair value carrying
cost OCI through P/L amount
172,787 - - 172,787
6,806 - - 6,806
73,249 - - 73,249
5,841 - - 5,841
- - 433 433
- - 432 432
- - 773 773
12,958 - 641 13,599
Total 271,642 - 2,278 273,920
Manda-
31.12.2024 Fair value torily at Total
Financial assets Amortised through fair value carrying
cost OCI through P/L amount
18,593 - - 18,593
11,530 - - 11,530
149,329 - 874 150,203
- 59,169 5,625 64,795
- - 5,432 5,432
- - 12,601 12,601
- - 1,197 1,197
7,704 - - 7,704
Total 187,156 59,169 25,729 272,054
Manda-
Fair value torily at Total
Financial liabilities Amortised through fair value carrying
cost OCI through P/L amount
163,378 - - 163,378
14,390 - - 14,390
37,123 - - 37,123
5,629 - - 5,629
- - 153 153
- - 42 42
- - 2,649 2,649
- 283 - 283
13,315 - 320 13,635
Total 233,835 283 3,164 237,282
Derivatives ..................................................................................................................
Other liabilities ............................................................................................................
Derivatives used for hedge accounting ......................................................................
The accounting classification of financial assets and financial liabilities is specified as follows:
Fixed income securities ...............................................................................................
Shares and other variable income securities ..............................................................
Securities used for hedging .........................................................................................
Loans to customers .....................................................................................................
Derivatives ..................................................................................................................
Other assets ................................................................................................................
Loans to credit institutions .........................................................................................
Cash and balances with Central Bank .........................................................................
Fixed income securities ...............................................................................................
Shares and other variable income securities ..............................................................
Securities used for hedging .........................................................................................
Loans to customers .....................................................................................................
Derivatives ..................................................................................................................
Other assets ................................................................................................................
Deposits ......................................................................................................................
Borrowings ..................................................................................................................
Derivatives used for hedge accounting ......................................................................
Issued bonds ...............................................................................................................
Subordinated liabilities ...............................................................................................
Short positions used for hedging ................................................................................
Short positions used for hedging ................................................................................
Short positions held for trading ..................................................................................
Loans to credit institutions .........................................................................................
Derivatives ..................................................................................................................
Other liabilities ............................................................................................................
Cash and balances with Central Bank .........................................................................
Deposits ......................................................................................................................
Borrowings ..................................................................................................................
Issued bonds ...............................................................................................................
Subordinated liabilities ...............................................................................................
Short positions held for trading ..................................................................................
Consolidated Financial Statements 31 December 2025 53

===== SIDA 57 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
58
60. Financial assets and financial liabilities measured at fair value
a.
-
-
-
b.
c.
d.
31.12.2025
Financial assets Carrying
Level 1 Level 2 Level 3 amount
Mandatorily measured at fair value through profit and loss
4,781 107 767 5,655
17,068 2 3,594 20,663
6,695 - - 6,695
- - 3,877 3,877
- 3,094 - 3,094
Measured at fair value through other comprehensive income
38,867 - - 38,867
- 156 - 156
Total 67,411 3,358 8,237 79,007
Inputs are quoted market prices (unadjusted) in active markets for identical instruments.
Level 1
Level 2
Fixed income securities ............................................................................................
Inputs are not observable or unobservable inputs have a significant effect on the valuation. This category includes instruments that are
valued based on quoted prices for similar instruments for which significant unobservable adjustments are required to reflect th e differences
between the instruments.
Inputs are not quoted market prices but are observable either directly, i.e. as prices, or indirectly, i.e. derived from prices. This category
includes financial instruments valued using quoted prices in active markets for similar instruments, quoted prices for similar or identical
instruments in markets that are considered less than active and other instruments which are valued using techniques which rely primarily
on inputs that are directly or indirectly observable from market data.
Level 3
The fair value of financial assets and liabilities that are traded in active markets are based on quoted market prices. For other financial
instruments the Group determines fair value using various valuation techniques. IFRS 13 specifies a fair value hierarchy based on whether the
inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources
whereas unobservable inputs reflect the Group's market assumptions. These two types of inputs result in the following fair valu e hierarchy:
The Group uses widely recognised valuation techniques, including net present value and discounted cash flow models, comparison with similar
instruments for which market observable prices exist, Black-Scholes and other valuation models.
Fixed income securities ............................................................................................
Shares and other variable income securities ...........................................................
Fair value hierarchy
Fair value hierarchy classification
The fair value of financial assets and financial liabilities measured at fair value in the statement of financial position is classified into the fair
value hierarchy as follows:
Valuation process
The Bank's Credit committee is responsible for fair value measurements of financial assets and financial liabilities classified as level 2 or level 3
instruments. The valuation is carried out by personnel from respective departments under supervision from Risk. The valuations are revised at
least quarterly, or when there are indications of significant changes in the underlying inputs.
Valuation techniques
For more complex instruments, the Group uses proprietary models, whic h usually are developed from recogn ised valuation models. Some or all
of the inputs into these models may not be market observable and are derived from market prices or rates or are estimated based on
assumptions. When entering into a transaction, the financial instrument is recognised initially at the transaction price, which is the best
indicator of fair value, although the value obtained from the valuation model may differ from the transaction price. This initial difference,
usually an increase in fair value, indicated by valuation techniques is recognised in income depending upon the individual facts and
circumstances of each transaction and no later than when the market data becomes observable.
The value produced by a model or other valuation technique is adjusted to allow for a number of factors as appropriate, because valuation
techniques cannot appropriately reflect all factors market participants take into account when entering into a transaction. Valuation
adjustments are recorded to allow for model risks, bid-ask spreads, liquidity risks, as well as other factors. Management believes that these
valuation adjustments are necessary and appropriate to fairly state financial instruments carried at fair value in the statement of financial
position.
Valuation techniques include recent arm's length transactions between knowledgeable, willing parties, if available, reference to the current fai r
value of other instruments that are substantially the same, the discounted cash flow analysis and option pricing models. Valuation techniques
incorporate all factors that market participants would consider in setting a price and are consistent with accepted methodologies for pricing
financial instruments. Periodically, the Group calibrates the valuation technique and tests it for validity using prices from any observable curre nt
market transactions in the same instrument, without modification or repackaging, or based on any available observable market da ta.
Derivatives ................................................................................................................
Loans to customers ..................................................................................................
Securities used for hedging ......................................................................................
Derivatives used for hedge accounting ....................................................................
Consolidated Financial Statements 31 December 2025 54

===== SIDA 58 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
58
60. Financial assets and financial liabilities measured at fair value (cont.)
31.12.2025
Financial liabilities Carrying
Level 1 Level 2 Level 3 amount
Mandatorily measured at fair value through profit and loss
433 - - 433
432 - - 432
- 773 - 773
- - 641 641
Measured at fair value through other comprehensive income
- - - -
Total 865 773 641 2,278
31.12.2024
Financial assets Carrying
Level 1 Level 2 Level 3 amount
Mandatorily measured at fair value through profit and loss
4,908 106 611 5,625
1,922 55 3,456 5,432
12,601 - - 12,601
- - 874 874
- 1,197 - 1,197
Measured at fair value through other comprehensive income
59,169 - - 59,169
Total 78,600 1,358 4,940 84,898

Financial liabilities Carrying
Level 1 Level 2 Level 3 amount
Mandatorily measured at fair value through profit and loss
153 - - 153
42 - - 42
- 1,710 939 2,649
- - 320 320
Measured at fair value through other comprehensive income
- 283 - 283
Total 195 1,993 1,259 3,447
e.
Shares and
Fixed other var.
income income Loans to Other
31.12.2025 securities securities customers Derivatives liab ilities Total
Balance as at 1 January 2025 611 3,456 874 (939) (320) 3,682
(69) 589 224 17 (18) 742
778 1,937 1,325 (580) (6) 3,454
- - (922) 990 216 283
- (2,388) - - - (2,388)
(553) - 2,376 513 (513) 1,823
Balance as at 31 December 2025 767 3,594 3,877 - (641) 7,596
Shares and
Fixed other var.
income income Loans to Other
31.12.2024 securities securities customers Derivatives liab ilities Total
Balance as at 1 January 2024 114 2,517 682 (860) (405) 2,049
7 362 69 (168) (5) 265
604 612 - - - 1,217
- - (621) 89 90 (442)
- (36) - - - (36)
(114) - 743 - - 629
Balance as at 31 December 2024 611 3,456 874 (939) (320) 3,682
Fixed income securities ............................................................................................
Derivatives used for hedge accounting ....................................................................
Additions ..........................................................................
Repayments ......................................................................
Disposals ...........................................................................
Derivatives ................................................................................................................
Derivatives ................................................................................................................
Other liabilities .........................................................................................................
Other liabilities .........................................................................................................
Short positions held for trading ...............................................................................
Reconciliation of changes in Level 3 fair value measurements
Short positions used for hedging .............................................................................
Derivatives ................................................................................................................
Short positions held for trading ...............................................................................
Short positions used for hedging .............................................................................
Fixed income securities ............................................................................................

Shares and other variable income securities ...........................................................
Loans to customers ..................................................................................................
Securities used for hedging ......................................................................................
Derivatives used for hedge accounting ....................................................................
Reclassification .................................................................
Total gains and losses in profit or loss .............................
Additions ..........................................................................
Repayments ......................................................................
Disposals ...........................................................................
Reclassification .................................................................
Total gains and losses in profit or loss .............................
Consolidated Financial Statements 31 December 2025 55

===== SIDA 59 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
58
60. Financial assets and financial liabilities measured at fair value (cont.)
f.
Book value
Range 31.12.2025
0-95% 767
- 3,594
- 3,877
Total 8,237
Book value
Range 31.12.2024
0-95% 611
- 3,456
- 874
Total 4,940
g.
+10% -10%
77 (77)
359 (359)
388 (388)
Total 824 (824)
61. Financial assets and financial liabilities not measured at fair value
Value of assets
Significant unobservable input
Unlisted bonds
Fair value measurements for Level 3 financial assets
Level 3 assets consist primarily of unlisted bonds, shares and share certificates and loans measured at fair value. Each asset is evaluated
separately but assets within an asset group share a valuation method. The following valuation methods are in use:
Expert modelLoans to customers
Deposits and other borrowings are typically either short-term or have variable interest rates. Other liabilities consist primarily of accounts
payables, unsettled transactions, withholding taxes and other short-term payables. The carrying amount of these liabilities is therefore
considered a reasonable approximation of their fair value.
The Group holds financial instruments which are not measured at fair value. Except for loans to customers, the Group believes that the best
estimate of the fair value of these financial instruments is equal to the carrying amount at the reporting date and does therefore not report a
fair value for these financial instruments. Loans to customers measured at amortised cost are classified as level 3, in the fair value hierarchy, and
have a book value of ISK 203,683 m illion at end of December 2025 (31.12.2024: ISK 149,329 m illion). The estimated fair value of loans to
customers measured at amortised cost at end of December 2025 is ISK 203,606 million (31.12.2024: ISK 149,121 million).
Cash and balances with Central Bank includes several components as detailed in note 19. These assets are either balances available on-demand
or on very short notice, or other assets easily converted to cash. Other financial assets consist primarily of short-term receivables. The carrying
amount of these assets is therefore a reasonable approximation of their fair value.
Asset class Method Significant unobservable input
Unlisted bonds Expected recovery Value of assets
Unlisted variable income securities Market price Recent trades
The Group believes its estimates represent appropriate approximations of fair value and that the use of different valuation methodologies and
reasonable changes in assumptions or unobservable inputs would not significantly change the estimates.
A 10% change in the estimates would have the following effect on profit before taxes:
Shares and other variable income securities ................................................................................................................
Loans to customers ........................................................................................................................................................
Given the methods used, the possible range of the significant unobservable inputs is wide. When determining the values used the Group
considers the financial strength of the entity in question, recent trades if any and multipliers for comparable instruments.
The effect of unobservable inputs in Level 3 fair value measurements
Loan to customers Expert model Value of assets and collateral
Fixed income securities .................................................................................................................................................
Market price Recent trades
Value of assets and collateral
Asset class Method
Expected recovery
Unlisted variable income securities
Consolidated Financial Statements 31 December 2025 56

===== SIDA 60 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
61
Other information
62. Pledged assets
Settlement and Securities
31.12.2025 committed facilities borrowing Total
- 0 0
9,045 - 9,045
13,659 324 13,984
- 47 47
Total 22,704 372 23,076
Settlement and Securities
31.12.2024 committed facilities borrowing Total
- 1,774 1,774
21,053 - 21,053
10,263 94 10,357
- 30 30
Total 31,316 1,897 33,214
63. Related parties
a. Definition of related parties
b. Arm's length
c. Balances with related parties
31.12.2025 Assets Liabilities
130 243
- 39
Total 130 283
31.12.2024 Assets Liabilities
2 124
- 41
Total 2 165
d. Transactions with related parties
Interest Interest Other Other
2025 income expense income expense
6 13 1 2
- - - 322
Total 6 13 1 323
Interest Interest Other Other
2024 income expense income expense
- 6 1 1
- - - 341
Total - 6 1 342
Associates ..........................................................................................................................................................................
Associates .........................................................................................................................
Management ......................................................................................................................................................................
Management ....................................................................................................................
Associates .........................................................................................................................
The Group has a related party relationship with the board members of the Bank, the CEO of the Bank and key employees (together referred to as
management), associates as disclosed in note 27, shareholders with significant influence over the Bank, close family members of individuals
identified as related parties and entities under the control or joint control of related parties.
Management ......................................................................................................................................................................
Associates ..........................................................................................................................................................................
Loans to credit institutions ........................................................................................................................
Loans to customers ...................................................................................................................................
Fixed income securities .............................................................................................................................
Loans to credit institutions ........................................................................................................................
Loans to customers ...................................................................................................................................
Fixed income securities .............................................................................................................................
Other assets ...............................................................................................................................................
Transactions with related parties are carried out at arm's length and subject to an annual review by the Bank's internal auditor.
Other assets ......................................................................................................................
The Group has pledged assets, in the ordinary course of banking business, to the Central Bank of Iceland to secure general settlement in the
Icelandic clearing system. Cash pledged to secure the borrowing of securities from other counterparties than the Central Bank of Iceland is
classified as loans to credit institutions.
Further information about salaries and benefits paid to the Board of Directors, the CEO and Managing Directors is provided in n ote 11.
Management ....................................................................................................................
Consolidated Financial Statements 31 December 2025 57

===== SIDA 61 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
61
64. Remuneration policy
65. Incentive scheme
a. Description
b. Performance based payments through profit and loss 2025 2024
Cash Cash
428 399
199 79
143 69
(1) -
Total 770 547
c. On-balance sheet deferred performance based payments
31.12.2025 31.12.2024
362 130
Total 362 130
Salary related expenses .....................................................................................................................................................
Cancelled deferred performance based payments ...........................................................................................................
The remuneration policy conforms to Articles 57 a and 57 b of Act No. 161/2002 on Financial Undertakings, Act No. 2/1995 on Public Limited
Companies and other applicable rules and guidelines, as well as Act No. 25/2023 on Sustainable Finance Disclosure. A more detailed description
of the policy can be found on the Bank's website, www.kvika.is.
Non-deferred .....................................................................................................................................................................
The Board of Directors has adopted a remuneration policy at the proposal of the Remuneration Committee. The Bank's Annual General Meeting
approved the Bank's current remuneration policy in March 2025. The Board of Directors will submit an updated remuneration policy for approval
at the Bank's Annual General Meeting in 2026. The remuneration policy applies on a consolidated basis. However, it does not apply to the Bank's
subsidiaries that, based on the activities carried out by the subsidiaries, are subject to independent legal requirements regarding remuneration
policies and/or the granting of bonuses, except to the extent required by law. Kvika shall strive to ensure that the remuneration policies of
subsidiaries take into account the Bank's remuneration policy as possible. The Bank's subsidiaries subject to independent legal requirements
have, thus, each implemented own remuneration policies.
The Board of Directors has approved a performance based incentive scheme at the proposal of the Remuneration Committee. The scheme forms
a part of the remuneration policy adopted by the Bank. As described above it does not apply to the Bank's subsidiaries that are subject to
independent legal requirements regarding remuneration policies and/ or granting of bonuses. The Bank's subsidiaries subject to independent
legal requirements have, thus, each implemented own incentive schemes.
Deferred cash payments ....................................................................................................................................................
The Bank's incentive scheme is set forth in accordance with Article 57 b of Act No. 161/2002 on Financial Undertakings. Performance based
payments may consist, in part or in full, of shares or share-linked instruments, such as warrants or stock options for shares in the Bank. Payments
according to the scheme are based on key performance indicators (KPIs) that reflect the goals of the Bank, the division and the employee. The
basis for performance based pay reflects sound risk management and does not induce excessive risk taking. Performance based pay to individual
employees shall not exceed 25% of their annual salary and at least 40% of the performance based pay shall be deferred for three years.
Performance based pay that does not exceed 10% of annual salary is not subject to deferral. A more detailed description of the scheme can be
found in the Bank's remuneration policy on it's website, www.kvika.is. Incentive schemes of the Icelandic subsidiaries are similar to the Bank's
due to specific Icelandic legal requirements that are similar for the operations of the Bank and these subsidiaries. UK law has not implemented
similar restrictions for incentive schemes and, therefore, the incentive schemes of the UK subsidiaries differ from the Bank and the Icelandic
subsidiaries.
Deferred .............................................................................................................................................................................
Consolidated Financial Statements 31 December 2025 58

===== SIDA 62 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
61
66. Share-based payments
a. Description
-
-
-
-
-
-
-
b. The following share options are in existence at year end
Number of Exercise Exercise
Share options shares year price
2,441 2026 20.17
2,441
c. Movements in the number of share options outstanding and their related weighted average exercise prices
22.24 69,478
15.27 (1,730)
23.93 (25,397)
21.51 42,350
21.59 (39,909)
20.17 2,441
0
Forfeited in 2025 ................................................................................................................................................................
At 31 December 2025
The Bank has issued share options in accordance with authorisations of its annual general meeting, the Group's remuneration policy and
incentive scheme. The share options were granted in September of 2023, based on an authorisation by the A nnual General Meeting of Kvika
banki hf. in 2022, and were assigned as a deferred part of recruitment bonuses of certain employees. The stock options were granted in order to
align the long-term interests of the company and said employees. The cost of these share option agreements was calculated ISK 14.7 million
based on the Black-Scholes calculation model.
Exercised in 2024 ...............................................................................................................................................................
In certain instances, the Group is entitled to revoke the share options in part or in whole in line with applicable rules.
The options do not provide for cash settlement.
Executive managers within the Group commit to retain, until the end of their employment, shares which market value correspond to profit
after taxes of utilised share options until the value of the shares owned by those individuals is equivalent to six months’ salary.
The value of the share options was determined by an independent specialist and the value is in line with the laws and rules applicable to
bonus payments of financial undertakings.
Issued in 2023 - Other share options, cf. the Bank´s incentive scheme ..................................................
Average
exercise price
per share
Share
options
(thousands)
At 1 January 2024 ...............................................................................................................................................................
At 31 December 2024
The main terms of the share options are as follows:
The exercise price of the share options is ISK 20.107 per share, which is equivalent to the weighted average price in transactions with shares
of the company on Nasdaq OMX Iceland for ten business days prior to the contract date, with 7.5% annual interest over the period, and the
exercise price shall be adjusted for dividends that may be decided during the vesting period.
Exercisable share options at 31 December 2025 ...............................................................................................................
The vesting period of the share options is 36 months from grant date of the share options. Following that the share options may be exercised
for a period of three months where in that period the strike continues to accrue with 7.5% annual interest until the option is exercised.
However, in the event of a merger involving a dissolution of the company or if there is a change in the company's control, the share options
will become fully vested.
In general, share options shall lapse if the share option holder's employment relationship with the company is terminated before the end of
the vesting period.
Forfeited in 2024 ................................................................................................................................................................
Consolidated Financial Statements 31 December 2025 59

===== SIDA 63 =====

Kvika banki hf. Amounts are in ISK millions
Notes to the Consolidated Financial Statements
61
67. Shareholders of the Bank
31.12.2025 31.12.2024
Shareholder Country % %
Iceland 9.14% 9.17%
Iceland 8.04% 7.93%
Iceland 7.86% 5.64%
Iceland 7.24% 5.58%
Iceland 5.07% 7.09%
Iceland 2.96% 2.55%
Iceland 2.76% 2.59%
Iceland 2.37% 2.33%
Iceland 2.66% 2.32%
Iceland 1.49% 1.71%
Iceland 1.37% 2.39%
USA 1.39% 1.36%
USA 1.23% 1.30%
Iceland 1.21% 0.70%
Iceland 1.17% 1.96%
39.42% 44.06% 2025: 2761, 2024: 2726
95.37% 98.69%
4.63% 1.31%
Total 100% 100%
68. Other matters
Sale of TM finalised
Tax treatment of warrants sold by the Bank
69. Events after the reporting date
There are no material events after the reporting date.
Beneficial owners are defined as owners holding a share of 10% or greater, directly or indirectly. The information presented is, among other
things, based on publicly available information.
Others, each less than 1% ..............................
Treasury shares ..............................................
Investment fund managed by The Vanguard Group, Inc.
Landsbankinn hf. ............................................
Investment fund managed by Landsbréf hf.
Investment fund managed by The Vanguard Group, Inc.
Almenni lífeyrissjóðurinn ...............................
Arion banki hf. ................................................
Landsbréf - Úrvalsbréf hs. ..............................
Vanguard Emerging Markets Stock ................
Stapi lífeyrissjóður ..........................................
Vanguard Total International S ......................
Frjálsi lífeyrissjóðurinn ...................................
Lífsverk lífeyrissjóður ......................................
Lífeyrissjóður starfsmanna ríkisins B-deild ....
Lífeyrissjóður verzlunarmanna .......................
Birta lífeyrissjóður ..........................................
Gildi - lífeyrissjóður ........................................
Beneficial owners
As the Iceland revenue and customs has not yet concluded its review, the Bank has not charged any amount to its income statement nor made
any changes to the tax returns for the respective years.
The Bank is aware of that the Iceland revenue and customs ("Skatturinn") is currently reviewing the tax treatment of warrants that the Bank sold
during the years 2017 to 2019. The Iceland revenue and customs is looking into whether the warrants should be taxed as perquisites instead of as
a financial instruments. Should that be the case, then the Bank would be required to pay the respective social security tax and tax on financial
activity. The Bank would however be able to deduct the amount of salary related expenses, as well as the amount of the perquisites, from its tax
base for the respective years in question, and thereby increase its deferred tax losses.
On 28 February 2025 Kvika and Landsbankinn hf. ("Landsbankinn") finalised the sale of 100% of TM tryggingar hf. ("TM") share capital to
Landsbankinn. The handover of the insurance company took place simultaneously, with Landsbankinn paying Kvika the agreed purchase price
upon completion. As previously communicated by Kvika on 30 May 2024, the final purchase price has been adjusted based on changes in TM’s
tangible equity from the beginning of 2024 until the closing date, 28 February 2025. The initially agreed purchase price was ISK 28.6 b illion, but
the final purchase price amounted to ISK 32.3 billion, reflecting the purchase price adjustment for 2024 and for the period 1 January to 28
February 2025.
Lífeyrissjóður starfsmanna ríkisins A-deild ....
Stoðir hf. .........................................................
Consolidated Financial Statements 31 December 2025 60

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Kvika banki hf.
Notes to the Consolidated Financial Statements
0
Significant accounting policies Page
70 Basis of consolidation ............................................................................ 62
71 Foreign currency .................................................................................... 63
72 Interest income and expense ................................................................. 63
73 Fee and commission income and expense ............................................ 63
74 Net financial income .............................................................................. 64
75 Dividend income .................................................................................... 64
76 Administrative expenses ........................................................................ 64
77 Employee benefits ................................................................................. 64
78 Income tax .............................................................................................. 64
79 Financial assets and financial liabilities ................................................. 65
80 Offsetting ............................................................................................... 66
81 Determination of fair value .................................................................... 66
82 Impairment ............................................................................................ 67
83 Cash and balances with Central Bank .................................................... 69
84 Fixed income securities .......................................................................... 69
85 Shares and other variable income securities ......................................... 69
86 Securities used for hedging .................................................................... 69
87 Loans to customers ................................................................................ 70
88 Derivatives .............................................................................................. 70
89 Investments in associates ...................................................................... 70
90 Investment properties ........................................................................... 70
91 Intangible assets .................................................................................... 71
92 Operating lease assets ........................................................................... 71
93 Property and equipment ........................................................................ 72
94 Other assets ........................................................................................... 72
95 Deposits ................................................................................................. 72
96 Borrowings ............................................................................................. 72
97 Issued bonds .......................................................................................... 72
98 Subordinated liabilities .......................................................................... 72
99 Short positions held for trading ............................................................. 72
100 Short positions used for hedging ........................................................... 73
101 Other liabilities ....................................................................................... 73
102 Assets and disposal groups held for sale ............................................... 73
103 Right of use asset and lease liability ...................................................... 73
104 Financial guarantees .............................................................................. 73
105 Share capital ........................................................................................... 73
106 Nature and purpose of equity reserves ................................................. 73
107 Earnings per share .................................................................................. 74
108 New standards and interpretations ....................................................... 74
109 Use of estimates and judgements ......................................................... 74
Consolidated Financial Statements 31 December 2025 61

===== SIDA 65 =====

Kvika banki hf.
Notes to the Consolidated Financial Statements
69
Significant accounting policies
70. Basis of consolidation
a. Subsidiaries
b. Business combinations
c. Non-controlling interest
d. Fiduciary services
e. Transactions eliminated on consolidation
f. Structured entities
The accounting policies set out below have been applied consistently to all periods presented in these Consolidated Financial Statements, and
have been applied consistently by Group entities.
The Group provides custody services, fund management and discretionary and advisory investment management services which require the
Group to make decisions on the handling, acquisition or disposal of financial instruments on behalf of its clients.
The financial statements of managed funds and investment portfolios managed by the Group on behalf of customers are not included in the
financial statements, as they do not constitute assets or liabilities of the Group.
Intra-group balances, income and expenses, and unrealised gains and losses arising from intra-group transactions, are eliminated in preparing
the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the
extent of the Group's interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that
there is no evidence of impairment. This also applies to subsidiaries classified as disposal groups held for sale.
The Group acts as investment manager or investment advisor, for example, to a number of investment funds operated by the fund management
company Kvika eignastýring hf. The purpose of such a fund management company is to generate fees from managing assets on behalf of
third-party investors by providing investment strategies. These investment funds are financed through the issue of units to investors. The Group
has no contractual obligation to provide financial support to these structured entities.
From time to time, the Group makes seed capital investments in certain fund products in order to establish track records for new products, to
test new investment strategies or to launch new products at a viable minimum size.
The Group has set up a formal procedure to assess whether or not to consolidate investment funds managed and administered by the Group on
behalf of its customers and other investors in the consolidated financial statements. As part of this assessment, the Group reviews all facts and
circumstances including the purpose and design of the investment fund, to determine whether the Group, as fund manager, is acting as agent or
principal. The Group is deemed to be a principal when the Group acts as fund manager and cannot be removed without cause, has variable
returns through significant holdings and is able to influence the returns of the funds by exercising its power.
Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual
arrangements.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the
definition of a financial instrument is classified as equity, then it is not remeasured and settlement is account for within equity. Otherwise, other
contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent
consideration are recognised in profit and loss.
Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses its relationship
with an entity when there is a change in one or more of the elements of control.
The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value, at
the date of exchange, of the assets given, liabilities incurred or assumed and equity instruments issued. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest.
The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recognised as goodwill. If
the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised immediately in the
income statement.
Non-controlling interest represent the portion of profit or loss and equity not owned, directly or indirectly, by the Bank. Non-controlling interes t
is presented separately in the income statement and is included in equity in the statement of financial position, separately from equity
attributable to owners of the Bank.
The Group chooses on an acquisition-by-acquisition basis whether to measure non-controlling interest in an acquiree at fair value or according
to the proportion of non-controlling interests in the acquiree's net assets. Changes in the Bank's ownership interest in a subsidiary that do not
result in a loss of control are accounted for as equity transactions. In such circumstances the carrying amounts of the controlling and non-
controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which
the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to
the owners of the Bank.
Consolidated Financial Statements 31 December 2025 62

===== SIDA 66 =====

Kvika banki hf.
Notes to the Consolidated Financial Statements
69
71. Foreign currency
a. Foreign currency transactions
b. Foreign operations
72. Interest income and expense
Effective interest rate
Amortised cost and gross carrying amount
Presentation
-
-
-
-
73. Fee and commission income and expense
-
-
-
-
-
-
- Fees attributable to a specific service or action are recognised as income when the service has been performed. Examples of such fees are
brokerage and payment commissions
financial assets at fair value through profit and loss
Translation differences on foreign operations are presented as a separate category in the statement of changes in equity.
Interest income and expense are recognised in the income statement usi ng the effective interest method. The effective interest rate is the rate
that exactly discounts estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the
financial asset or the amortised cost of the financial liability. When calculating the effective interest rate for financial instruments other than
purchased or originated credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial
instrument but not ECL. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated usi ng
estimated future cash flows including ECL.
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial
recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference
between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance. The gross
carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any expected credit loss a llowance.
Transactions in foreign currencies are translated into the functional currency of the respective Group's entity using the exchange rate at the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the
exchange rate at the reporting date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are
stated at fair value are translated using the exchange rate at the date the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the
functional currency at spot exchange rate current at the reporting date. The income and expenses of foreign operations are translated into the
functional currency at the spot exchange rates at the dates of the transactions.
Fee and commission income and expense are recognised in the inco me statement when an agreement with a customer meets all of the
following criteria:
Fees that are earned gradually as the services are performed, such as management fees in asset management, are recognised as income at
the rate these services are delivered. In practice, these are on a straight line basis
financial assets at fair value through other comprehensive income (FVOCI)
Interest income and expense presented in the income statement includes interest on:
Foreign currency differences are posted as a separate line item under net financial income as disclosed in notes 7 and 74.
the transaction price can be allocated to each individual service in the agreement
it is probable that a consideration will be collected in exchange for the services that will be transferred to the customer
The following applies to recognition of income for various types of fees and charges:
derivatives
The Group earns income from providing various services to its customers. This includes fees for managing assets on behalf of customers,
commissions received for equity and bond transactions and fees and c ommissions for various other fina ncial services. Fee and commission
income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the
effective interest rate.
financial assets and liabilities measured at amortised cost
the parties to the contract have approved the contract and are committed to perform their respective obligations
performance obligations have been established for services to be transferred
the payment terms have been established for the services to be transferred
Consolidated Financial Statements 31 December 2025 63

===== SIDA 67 =====

Kvika banki hf.
Notes to the Consolidated Financial Statements
69
74. Net financial income
-
-
-
-
-
-
-
75. Dividend income
76. Administrative expenses
77. Employee benefits
a. Short-term employee benefits
b. Defined contribution plans
c. Share-based payments
78. Income tax
Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability
is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or
constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estim ated reliably.
Fair value changes of loans to customers held at fair value
Net financial income comprises the following:
Realised and unrealised gains or losses from price changes of fixed income securities measured at fair value
Current tax liabilities include the estimated tax payable next year on current year's profit according to the tax rates prevailing at reporting date,
in addition to corrections on tax from previous years.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax
benefit will be realised.
The deferred income tax asset and/or liability has been calculated and recognised in the statement of financial position. The calculation is based
on the difference between assets and liabilities as presented in the tax return on the one hand, and in the consolidated financial statements on
the other, taking into consideration tax losses carried forward. This difference is due to the fact that the tax assessment is based on premises
that differ from those governing the financial statements, mostly due to temporary differences arising from the recognition of revenue and
expense in the tax returns and in the financial statements.
Deferred tax assets and tax liabilities are offset in the statement of financial position when there is a legal right to settle on a net basis and they
are levied by the same taxing authority on the same entity or on different entities subject to joint taxation.
Administrative expenses comprise expenses other than interest exp enses, fee and commission expenses an d expenses related to fair value
changes. A breakdown of administrative expenses is provided in note 9.
Obligations for contributions to defined contribution plans are expensed in profit or loss as the related service is provided. The Group has no
further obligations once those contributions have been paid.
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at grant date. The grant date fair
value of equity-settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is
adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such
that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market
performance conditions at the vesting date.
Income tax comprises current and deferred tax. Income tax is recognised in the income statement, except to the extent that it relates to items
recognised directly in other comprehensive income or equity, in which case it is recognised there.
Realised and unrealised gains or losses from price changes of variable income securities
Interest income from fixed income securities carried at fair value through profit or loss
Dividends
Fair value changes in derivatives
Foreign exchange difference
Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities.
Dividends are presented as a component of net financial income.
Consolidated Financial Statements 31 December 2025 64

===== SIDA 68 =====

Kvika banki hf.
Notes to the Consolidated Financial Statements
69
79. Financial assets and financial liabilities
a. Recognition
b. Classification
Financial assets
Financial assets at amortised cost
Financial assets at fair value through other comprehensive income (FVOCI)
Financial assets at fair value through profit or loss (FVTPL)
Business model assessment
-
-
-
-
-
A financial asset is measured at amortised cost if the contractual terms of the financial asset give rise to cash flows that are solely payment of
principal and interest and the asset is held within a business model whose objective is to collect contractual cash flows, i.e. Held to collect. After
initial measurement, financial assets in this category are carried at amortised cost using the effective interest rate method. Amortisation is
included in interest income in the Consolidated Income Statement. The majority of the Group's loans to customers are carried at amortised cost
using the effective interest rate method. Interest on loans to customers is recognised as interest income.
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the
way the business is managed and information is provided to management. The information considered includes:
the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's
strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial
assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;
how the performance of the portfolio is evaluated and reported to the Group's management;
Impairment on financial assets measured at amortised cost is calculated using the expected credit loss approach. Loans and debt securities
measured at amortised cost are presented net of allowance for credit losses in the Consolidated Statement of Financial Position.
Financial assets at fair value through profit or loss are measured in the Consolidated Statement of Financial Position at fair value. Loans to
customers which are measured at fair value through profit or loss are assets whose cash flows do not represent payments that are solely
payments of principal and interest but are non-trading assets. Interest on loans to customers measured at fair value through profit or loss is
recognised as interest income. Changes in fair value, as well as any gains or losses realised on disposal, are recognised in the line item Net
financial income (expense) in the Consolidated Income Statement.
how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the
contractual cash flows collected; and
the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity.
However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated
objective for managing the financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at fair value
through profit or loss because they are neither held to collect contractua l cash flows nor held to both collect contractual cash flows and to sell
financial assets.
Financial assets classified at fair value through profit or loss are all other financial assets which are not classified at amortised cost or at fair va lue
through other comprehensive income. This includes financial assets classified mandatorily at fair value through profit or loss and financial asset s
which are irrevocably designated by the Group at initial recognition as at fair value through profit or loss that would otherwise meet the
requirements to be measured at amortised cost or at fair value through other comprehensive income. The Group may designate financial assets
as at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would other wise arise.
Fixed income securities may be classified as financial instruments measured at fair value through other comprehensive income ("FVOCI") when
they meet the classification criteria. Interest income is calculated using the effective interest rate. Interest income and foreign exchange gains or
losses are recognised in the Consolidated Statem ent of Comprehensive Income. F ixed income securities classified as FVOCI are subject to
impairment measurement using the expected credit loss approach. Fair value measurements are recognised in Other Comprehensive Income
while on derecognition, cumulative gains (losses) recognised in Other Comprehensive Income are reclassified to the Consolidated Statement of
Income.
the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are
managed;
The Group's financial assets are classified into one of three measurement categories, i.e. i) at amortised cost, ii) at fair value through other
comprehensive income or iii) at fair value through profit or loss. The measurement basis of individual financial assets is determined based on an
assessment of the cash flow characteristics of the assets and the business models under which they are managed.
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are
originated. All other financial assets and liabilities are initially recognised on the trade date, which is the date when the Group becomes a party
to the contractual provisions of the instrument.
Consolidated Financial Statements 31 December 2025 65

===== SIDA 69 =====

Kvika banki hf.
Notes to the Consolidated Financial Statements
69
79. Financial assets and financial liabilities (cont.)
Cash flow characteristics assessment
Reclassifications
Financial liabilities
Derecognition
Financial assets
Financial liabilities
80. Offsetting
81. Determination of fair value
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the
consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair
value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses
only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the
fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis ov er
the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs
and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take
into account in pricing a transaction. For further information on valuation techniques, refer to notes 60 - 61.
Income and expenses are presented on a net basis for gains and losses arising from a group of similar transactions, such as in the Group's trading
activity, or other circumstances permitted by International Financial Reporting Standards.
A financial asset is derecognised when the contractual rights to the cash flows from the asset expire, or when the Group enters into a
transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred
financial assets that is created or retained by the Group is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or
substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not
derecognised. Examples of such transactions are securities lending and sale and repurchase agreements.
Financial liabilities are derecognised when the obligation of the Group is discharged, cancelled or expires.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair
value of a liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price
in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency
and volume to provide pricing information on an ongoing basis.
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability
simultaneously.
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model and if
the change is significant to the Group's operations.
The Group's financial liabilities are classified into one of two measurement categories, i.e. at amortised cost or at fair value through profit or
loss. Financial liabilities held for trading are measured at fair value through profit or loss, all other financial liabilities are measured at amort ised
cost. Financial liabilities measured at amortised cost are initially recognised at fair value, which is typically equal to cost, i.e. cash advanced l ess
any transaction costs. They are subsequently measured at amortised cost using the effective interest method. Accrued interest, in the case of
interest bearing liabilities is included in the carrying amount. Interest expense is recognised in net interest income.
Where the contractual terms introduce exposure to other risk or variability of cash flows that are inconsistent with a basic lending arrangement,
the related financial asset is classified and measured at fair value through profit or loss.
Financial assets held within the business models Held to collect and Held to collect and sell are assessed to evaluate if their contractual cash
flows are comprised of solely payments of principal and interest (SPPI). SPPI payments are those which are consistent with a basic lending
arrangement. Principal is the fair value of the financial asset at initial recognition and may change over the life of the instruments, e.g. due to
repayments. Interest relates to basic lending returns, including compensation for the time value of money and credit risk associated with the
principal amount outstanding and for other basic lending risks (expected losses, liquidity risks and administrative costs), as well as a profit
margin.
Consolidated Financial Statements 31 December 2025 66

===== SIDA 70 =====

Kvika banki hf.
Notes to the Consolidated Financial Statements
69
82. Impairment
Expected Credit Loss
-
-
-
-
-
-
1.
2.
3.
Lifetime expected credit losses
Lifetime expected credit losses are the expected shortfalls in contractual cash flows, taking into account the potential for default at any point
during the life of the financial instrument.
Expected credit losses
12 month expected credit losses
Stage 2 covers financial assets that have deteriorated significantly in credit quality since initial recognition (unless the low credit risk
simplification has been applied and is relevant) but that do not have objective evidence of a credit loss event.
Stage 1 covers financial assets that have not deteriorated significantly in credit quality since initial recognition or (where the optional low credit
risk simplification is applied) have low credit risk.
The Group measures the ECL at least on each balance sheet date according to a three-stage expected credit loss impairment model.
The general approach
12-month expected credit losses are a portion of the lifetime expected credit losses. They are calculated by multiplying the probability of a
default occurring on the instrument in the next 12 months by the total (lifetime) expected credit losses that would result from that default. They
are not the expected cash shortfalls over the next 12 months. They are also not the credit losses on financial instruments that are forecast to
actually default in the next 12 months.
Expected credit losses are defined as the difference between all the contractual cash flows that are due to an entity and the cash flows that it
actually expects to receive (‘cash shortfalls’). This difference is discounted at the original effective interest rate (or credit-adjusted effect ive
interest rate for purchased or originated credit-impaired financial assets).
contract assets;
loan commitments issued; and
financial guarantee contracts issued.
For trade receivables and contract assets without a significant financing component a simplified (lifetime expected loss) approach can be
applied.
For assets that are credit-impaired at purchase or origination lifetime expected loss approach shall be applied.
For other assets/exposures a general (or three-stage) approach shall be applied.
The Group estimates an ECL for each of these types of assets or exposures. However, IFRS 9 specifies three different approaches depending on
the type of asset or exposure:
debt instruments measured at fair value through other comprehensive income;
finance lease receivables measured at amortised cost;
The Group recognises loss allowances for ECL on the following financial instruments that are not measured at FVTPL:
debt instruments measured at amortised cost;
Stage 3 covers financial assets that have objective evidence of a credit loss event at the reporting date.
12-month expected credit losses are recognised in stage 1, while lifetime expected credit losses are recognised in stages 2 and 3. IFRS 9 draws a
distinction between financial instruments that have not deteriorated significantly in credit quality since initial recognition and those that hav e.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the
financial instrument.
An asset moves from 12-month expected credit losses to lifetime expected credit losses when there has been a significant deterioration in credit
quality since initial recognition. Hence the ‘boundary’ between 12-month and lifetime losses is based on the change in credit risk not the
absolute level of risk at the reporting date.
There is also an important operational simplification that permits companies to stay in ‘12-month expected credit losses’ if the absolute level of
credit risk is ‘low’. This applies even if the level of credit risk has increased significantly.
There is also a third stage. This applies to assets for which there is objective evidence of impairment. In Stage 3 the credit loss allowance is still
based on lifetime expected losses but the calculation of interest income is different.
In the periods subsequent to initial recognition, interest is calculated based on the amortised cost net of the loss provision, whereas the
calculation is based on the gross carrying value in Stages 1 and 2.
Finally, it is possible for an instrument for which lifetime expected credit losses have been recognised to revert to 12-month expected credit
losses should the credit risk of the instrument subsequently improve so that the requirement for recognising lifetime expected credit losses is no
longer met.
Consolidated Financial Statements 31 December 2025 67

===== SIDA 71 =====

Kvika banki hf.
Notes to the Consolidated Financial Statements
69
82. Impairment (cont.)
-
-
-
-
-
1.
2.
Origination grade
1
2
3
4
5
6
7
8
9
6
6
6
6
Migration of corporations by one or two risk grades in the PD model is considered to be a significant increase in risk and therefore warrant a
transfer to stage 2, depending on the origination grade. However, the Group considers risk grade 5 and lower for corporations to be low risk and
therefore excludes any movement between categories that does not result in a rating above that level. If the borrower is in Creditinfo's default
registry then he moves to stage 3 if he is more than 30 days delinquent but stage 2 otherwise. The rating scale for individuals is A1–A3, B1–B3,
C1–C3, D1–D3 and E1–E3. A loan is considered a SICR if the rating has deteriorated by at least two risk grades from origination and is B3 or worse
at the reporting date.
Risk Management is responsible for managing the credit risk of the Group which includes a qualitative SICR assessment. Risk Management
reviews at least quarterly all significant exposures on a loan by loan basis, such as the largest borrowers in each loan portfolio and the largest
borrowers in default.
i. Based on the Bank’s assessment, the obligor’s payment capacity has improved materially such that full repayment of the exposure is now
The Group utilises an economic forecast and the current 12 month PD for the purpose of estimating lifetime PD for loans in stage 2. The 12
month PD is adjusted with a survival rate for each year until maturity with the following formula: PD
t =P D12 *S Rt where PD12 is the 12 month PD
from the credit rating model and SR t is the survival rate at time t, which is calculated recursively as SR t =S Rt-1 *( 1 - P Dt). The Group monitors the
appropriateness of the assumption as a part of it’s yearly validation and monitoring process. The PD assessment for portfolios in the UK is
primarily individually assessment done by credit specialists based on payment history and general creditworthiness where performing
customers are ranked in three different risk classes.
When considering whether a significant increase in credit risk (SICR) has occurred the Group considers both quantitative and qualitative factors.
In general the Group will rely on a quantitative analysis based on the PD model but will additionally consider qualitative factors based on the
information available to the Group.
Definition of default
Probability of default and credit risk rating
The Group considers a financial asset to be in default if one of the following applies:
ii. The obligor is less than 90 days past due on all exposures that have been classified as being in default.
An exposure shall cease to be considered in default when all of the following conditions are met.
the borrower is considered to be unlikely to pay as determined by the B ank's Risk Management department. Events that are likely to lead to
default as determined by the Risk Management department include the following:
- i. An increased impairment of the exposure, for example as a result of a deterioration in the obligor’s creditworthiness or credit rating
- ii. The Bank has approved a loan restructuring that is likely to result in an impairment or write-off of the exposure.
- iii. The Bank has initiated bankruptcy proceedings against the obligor.
- iv. The obligor has initiated bankruptcy proceedings that affect or delay the repayment of the exposure to the Bank.
- v. The obligor is more than 30 days past due on one or more of its material credit obligations and is on Creditinfo’s default registry.
the borrower is more than 90 days past due of one of his exposures with the Bank;
Quantitative SICR assessment
Grading migrations – SICR has occurred if the current grade has increased compared to the origination grade. For the domestic portfolio,
more or equal to the following thresholds are considered to be significant increase in credit risk:
Significant increase in credit risk
The Group has defined the following criteria’s for SICR:
Over 30 days past due of any of the client's exposures or client is in Creditinfo's default registry
7
8
iii. None of the conditions which resulted in the obligor being classified as in default as referred to in 2.2 have been present for a period of 3
months, or 12 months if the borrower has received a forbearance measure.
The Group utilises internal and external Probability of Default models (PD models). Internal models are developed using internal default data
along with demographic and other explanatory variables. External models are developed by Creditinfo, an Icelandic credit bureau, for the
domestic corporate and invidiual portfolios. The Creditinfo PD models are calibrated to the default rate of the underlying portfolios. The PD
models calculate a 12 month PD and a lifetime PD is calculated for stage 2 loans. All PD models use an economic regression model which uses
forecasted macro variables to adjust the PD values for economic scenarios.
Threshold grade
Qualitative SICR assessment
9
9
10
Consolidated Financial Statements 31 December 2025 68

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Kvika banki hf.
Notes to the Consolidated Financial Statements
69
82. Impairment (cont.)
Forward looking probability weighted scenarios
83. Cash and balances with Central Bank
84. Fixed income securities
85. Shares and other variable income securities
86. Securities used for hedging
The Group considers the lifetime of each exposure to be the contractual maturity of each loan. The Group considers this to be the case as any
lending subsequent to that period would be based on an independent le nding decision at that time based on the prevailing market terms. The
Group only considers contractual cash flows when estimating exposure at default. The average lifetime of the Group's exposures is relatively
short and it does therefore not consider the likelihood of prepayment when concluding on the lifetime of the assets.
Exposure at default
Expected credit loss measurement
The Group considers the off-balance portion of exposure at default to be 50% (credit conversion factor) of any facilities not drawn upon that are
considered committed. Such facilities include overdrafts, credit cards and guarantees. The credit conversion factor is subject to expert review on
a case by case basis. The Bank does not consider credit line facilities to be committed facilities as disbursements are subject to predetermined
conditions and constitute a separate credit review. These predetermined conditions will in most cases lead directly to an increase in posted
collateral and disbursements therefore stay within acceptable collateral coverage.
Committed facilities
Exposure at Default (EAD). This is an estimate of the exposure at a future date, taking into account expected changes in the exposure after the
reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities.
Shares and other variable income securities consist of equity investments and unit shares in mutual funds. Shares and other variable income
securities are initially measured at fair value and subsequently accounted for depending on their classification as discussed i n note 79.
Securities used for hedging consist of non-derivative financial assets that are used to hedge the Group's exposure arising from derivative
contracts with customers. Securities used for hedging are measured at fair value as discussed in note 79.
Cash and balances with Central Bank are carried at amortised cost in the statement of financial position.
Cash and balances with Central Bank include notes and coins on hand, balances held with the Central Bank and other financial institutions, and
highly liquid financial assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of
changes in their fair value, and are used by the Group in the management of its short-term commitments.
Discount rate. This is used to discount an expected loss to present value at the reporting date using the effective interest rate (EIR) at initial
recognition.
The Group's management has identified and probability weighted three domestic macro-economic scenarios and four scenarios for its UK loan
portfolios for the purpose of estimating the development of PD valu es in the calculation of expected credit losses. The forecasts of
macro-economic variables and the associated scenario weights are based on management judgement and are applied to those loan portfolios
that are affected by these variables. The Group incorporates the following forward-looking macro- economic variables into its probability
weighted expected credit loss calculations: (i) unemployment rate and (ii) inflation rate.
Loss Given Default (LGD). This is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due
and those that the lender would expect to receive, including from any collateral. It is expressed as a percentage of EAD and derived from value
of underlying collaterals.
Lifetime definition
IFRS 9 requires the Group to determine an expected credit loss (ECL) amount on a probability-weighted basis as the difference between the cash
flows that are due to the Group in accordance with the contractual terms of a financial instrument and the cash flows that the Group expects to
receive. The Group has implemented an ECL model which is consistent with regulatory and best practices. The model is based on four
components.
Probability of Default (PD) . This is an estimate of the likelihood of default over a given time horizon. The Bank has primarily used calibrated
external credit ratings to assess the default probability of its customers. Some of the larger borrowers are furthermore individually assessed by
credit specialists. The Bank has implemented internal credit rating models for part of the loan portfolio and intends to continue this
development.
Fixed income securities are initially measured at fair value and subsequently accounted for depending on their classification as discussed in note
79.
Consolidated Financial Statements 31 December 2025 69

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Kvika banki hf.
Notes to the Consolidated Financial Statements
69
87. Loans to customers
88. Derivatives
-
-
-
89. Investments in associates
90. Investment properties
The contract requires no initial investment or an initial investment that is smaller than would be required for other types of contracts that
would be expected to have a similar response to changes in market factors
An investment property is an asset which is specified for leasing to third parties, for returns or for both purposes. Investment properties are
initially recognised at cost and subsequently measured at fair value. Changes in fair value are recognised as gains or loss in the income
statement.
Settlement takes place at a future date
The Group uses derivatives for trading purposes and to hedge its exposure to market price risk, foreign exchange risk and inflation and interest
risk arising from operating, financing and investing activities.
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant
influence generally exists when the Group holds between 20% and 50% of the voting power, including potential voting rights, if any. Investments
in associates are initially recognised at cost.
If the Group's share of loss exceeds its interest in an associate, the Group's carrying amount is reduced to zero and recognition of further losses
is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
If the associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the
share of losses not recognised.
The Group's share of the total recognised gains and losses of associates is included in the financial statements of the Group on an equity
accounted basis, from the date the significant influence commences until the date it ceases.
Derivative assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position.
Derivatives with positive fair values are classified as financial assets and derivatives with negative fair values as financial liabilities. Reven ue
from derivatives is split into interest income and net income from financial instruments at fair value and presented in the corresponding line
items in the income statement.
Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include loans
provided by the Group to its customers, participation in loans from other lenders and purchased loans that are not quoted in an active market
and which the Group has no intention of selling immediately or in the near future. Finance lease receivables are a part of the line item Loans to
Customers.
Loans are initially recognised at fair value, which is the cash advanced, plus any transaction costs. Subsequently, they are measured at amortised
cost using the effective interest method. Accrued interest is included in the carrying amount of the loans and advances. The carrying amount of
impaired loans is reduced through the use of an allowance account.
When the Group purchases a financial asset and simultaneously enters in to an agreement to resell the asset, or a substantially similar asset, at a
fixed price at a future date ("reverse repo" or "stock borrowing"), the arrangement is accounted for as a loan and the underlying asset is not
recognised in the Group's statement of financial position.
A derivative is a financial instrument or another contract that falls under the scope of IFRS 9 and generally has the following three
characteristics:
Its value changes due to changes in an underlying variable, such as bond price, share price, security or price index (including CPI), foreign
currency exchange rate or interest rate
Consolidated Financial Statements 31 December 2025 70

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Kvika banki hf.
Notes to the Consolidated Financial Statements
69
91. Intangible assets
a.
-
-
-
-
-
b.
c.
d.
7-16 years
4-20 years
3-14 years
92. Operating lease assets
Asset categories
Customer relationships
Development cost that has been capitalised is amortized on the day that the product is launched using the straight line method over their
useful life, but not exceeding 14 years.
Brands
Brands have been acquired as part of recent acquisitions and are capitalised and amortised using the straight line method over their useful
life, but not exceeding 20 years.
Customer relationships have been acquired as part of recent acquisitions and are capitalised and amortised using the straight line method
over their useful life of maximum 16 years.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU,
and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other asse ts, an impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
Goodwill arises in business combinations. It is recognised as of the acquisition date and measured as the aggregate of (a) the fair value of the
consideration transferred, (b) the recognised amount of any non-controlling interest in the acquiree, and (c) the fair value of any previously
held equity interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities
assumed, all measured as at the acquisition date. The consideration transferred includes the fair value of assets transferred, liabilities
incurred and equity interests issued by the Group. In addition, consideration transferred includes the fair value of any contingent
consideration.
Initial recognition
The Group uses the cost model for measurement after recognition and intangible assets are carried at cost less any accumulated amortisation
and any accumulated impairment losses. Intangible assets are reviewed for indications of impairment or changes in estimated future economic
benefits at each reporting date. If such indications exist, then the asset's recoverable amount is estimated. Goodwill is tested annually for
impairment.
Intangible assets are initially recognised at cost.
Subsequent measurement
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is
largely independent of the cash inflows of other assets or cash generating units (CGUs). Goodwill arising from a business combination is
allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
Customer relationships ...............................................................................................................................................................................
Brands .........................................................................................................................................................................................................
Operating lease assets are rental agreements on vehicles and heavy equipments where the bank is the lessor. Operating lease assets are
recognised at cost less depreciation and impairment. Depreciation is calculated and recognised in the income statement on a straight-line basis
based on estimated useful life, taking into account the residual value.
Software comprise acquired software licences and external costs associated with the development of bespoke applications.
Goodwill
Software and other .....................................................................................................................................................................................
Depreciation of property and equipment and amortisation of intangible assets are presented together as a separate line item in administrative
expenses as disclosed in note 9. Further breakdown on depreciation of intangible assets is provided in note 28.
Amortisation
Intangible assets with finite useful life are amortised using the straight-line method over their estimated useful economic life, with the
amortisation recognised in the income statement. The estimated useful life of intangible assets is as follows:
The Group groups intangible assets into four categories:
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the
estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset or CGU.
Software and other
Consolidated Financial Statements 31 December 2025 71

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Kvika banki hf.
Notes to the Consolidated Financial Statements
69
93. Property and equipment
a.
-
-
b.
c.
d.
e.
15-50 years
3-5 years
94. Other assets
95. Deposits
96. Borrowings
97. Issued bonds
98. Subordinated liabilities
99. Short positions held for trading
Short positions are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short positions are
carried at fair value through profit or loss with all fair value changes recognised in the income statement under net financial income.
Subordinated liabilities are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortise d
cost using the effective interest method. Accrued interest is included in their carrying amount.
Asset categories
Deposits consist of time deposits and demand deposits, as well as money market deposits. They are recognised at amortised cost, including
accrued interest.
Issued bonds are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using
the effective interest method. Accrued interest is included in their carrying amount.
Subsequent cost
Borrowings are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using the
effective interest method. Accrued interest is included in their carrying amount.
Other assets are measured at amortised cost.
Initial recognition
Property and equipment is initially recognised at cost, which includes direct expenses related to the purchase.
Where parts of an item of property and equipment have different useful lives, those components are accounted for separately.
Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each component of an item of
property and equipment. The estimated useful lives are as follows:
Real estate ..................................................................................................................................................................................................
Other property and equipment ..................................................................................................................................................................
Subsequent measurement
The Group uses the cost model for the measurement after recognition and property and equipment is carried at cost less any accumulated
depreciation and any accumulated impairment losses. Property and equipment is reviewed for indications of impairment or changes in
estimated future economic benefits at each reporting date. If such indications exist, the assets are analysed to assess whether their carrying
amount is fully recoverable.
Other property and equipment, which includes automobiles for own use, furniture and fixtures, computers and other office equipm ent
The Group groups tangible assets into two categories:
Real estate, which includes office and residential buildings, land and building rights
When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset, or a substantially similar asset, at a
fixed price at a future date ("repo" or "stock lending"), the arrangement is accounted for as a borrowing and the underlying asset continues to
be recognised in the Group’s statement of financial position.
The Group recognises in the carrying amount of an item of property and equipment the cost of replacing part of such an item when that cost is
incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be
measured reliably. The decision whether subsequent costs are added to the acquisition cost of property and equipment is based on whether an
identified component, or part of such component, has been replaced or not, or if the nature of the subsequent cost means a contribution of a
new component. All other costs are expensed in the income statement when incurred.
Depreciation Consolidated Financial Statements 31 December 2025 72

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Kvika banki hf.
Notes to the Consolidated Financial Statements
69
100. Short positions used for hedging
101. Other liab ilities
102. Assets and disposal groups held for sale
103. Right of use asset and lease liab ility
104. Financial guarantees
105. Share capital
a. Treasury shares
b. Share premium
c. Dividends on share capital
106. Nature and purpose of equity reserves
a. Option reserve
b. Deficit reduction reserve
c. Fair value reserve
Short positions used for hedging are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short
positions used for hedging consist of non-derivative financial liabilities that are used to hedge the Group's risk exposure arising from derivative
contracts with customers. Short positions used for hedging are carried at fair value through profit or loss with all fair value changes recognised in
the income statement under net financial income.
The Group classifies an asset or disposal group as held for sale if its carrying amount will be recovered principally through a sale transaction
rather than through continuing use. For this to be the case the asset or disposal group must be available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such asset or disposal group and the sale must be highly probable.
Immediately before classification as held for sale, the measurement of the qualifying assets and all assets and liabilities in a disposal group is
brought up-to-date in accordance with applicable IFRS. Then, on initial classification as held for sale, assets and disposal groups are recognized
at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in the
Income Statement, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement. Revaluation through
the reversal of impairment in subsequent periods is limited so that the carrying amount of the held for sale, assets or disposal groups does not
exceed the carrying amount that would have been determined had no impairment loss been recognized in prior years.
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low value
assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by
using the Group's incremental borrowing rate. The right-of-use assets comprise the initial measurement of the corresponding lease liability.
They are subsequently measured at cost less accumulated depreciation.
The fair value reserve represents fair value changes, net of tax, for assets held at fair value through other comprehensive income. The reserve is
released in correlation with realization of gains or losses of financial assets upon sale or derecognition.
The deficit reduction reserve was created as a part of a share capital reduction approved by the Bank's Annual General Meeting in April 2014.
The reserve has no specified purpose and can only be used with the approval of a shareholders' meeting.
Other liabilities are measured at amortised cost, except for the contingent consideration which is measured at fair value.
Acquired own shares and other equity instruments (treasury shares) are deducted from equity. No gain or loss is recognised in income
statement on the purchase, sale, issue or cancellation of treasury shares. Consideration paid or received is recognised directly in equity.
Incremental transaction costs of treasury share transactions are accounted for as a deduction from equity, net of any related income tax benefit.
Share premium represents excess of payment above nominal value (ISK 1 per share) that shareholders have paid for shares sold by the Group.
Dividends on share capital are deducted from equity in the period in which they are approved by the Group's shareholders meetin gs.
The option reserve represents the cumulative charge to the income statement for options to purchase shares in the Bank granted under the
Bank's Remuneration policy, which is discussed in notes 64-66.
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a
specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantee liabilities are initially recognised at their fair value. The guarantee liability is subsequently measured at the higher of the loss
allowance determined in accordance with IFRS 9 and the amount initially recognised less, when appropriate, the cumulative amount of income
recognised in accordance with the principles of IFRS 15. Liabilities arising from financial guarantees are included with provis ions.
Consolidated Financial Statements 31 December 2025 73

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Kvika banki hf.
Notes to the Consolidated Financial Statements
69
106. Nature and purpose of equity reserves (cont.)
d. Translation reserve
e. Restricted retained earnings
f. Retained earnings - accumulated deficit
107. Earnings per share
108. New standards and interpretations
109. Use of estimates and judgements
a.
b.
c.
d.
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations ,
until the operations are sold, dissolved or abandoned.
Judgement is required to determine the extent to which deferred tax asse ts are recognised in the statement of financial position, based on the
likely timing and level of future taxable profits.
Fair value of financial instruments
The fair value of financial instruments that are not quoted in active markets is determined using valuation techniques which are reviewed
regularly as discussed in note 60.
A number of new standards, amendments to standards and interpretations were not yet effective for the year ended 31 December 2025 and
have not been applied in the preparation of these financial statements. Early adoption of new standards and amendments is not p lanned.
The areas where the use of judgements and estimates has the most significant effect on the amounts recognised in the statement of financial
position or the income statement are disclosed in this note.
Impairment of financial assets
As outlined in note 82, the use of estimates and judgement is an important component of the calculation of impairment losses. The
methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any
differences between loss estimates and actual loss experience. Unfores een events could, however, result in further impairment losses which
would have a material effect on the income statement and statement of financial position.
Deferred tax assets
In the process of applying the Group's accounting policies, management makes use of judgements and estimates which are based on various
assumptions. These judgements and estimates can affect the reported amounts of assets and liabilities, income and expense.
Assumptions and estimates are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances, and are reviewed on an on-going basis. The estimates form the basis for judgements about the carrying
value of assets and liabilities that are not readily available from other sources and actual results may differ. Judgement may also be required in
circumstances not involving estimates, e.g. when determining the substance of a particular transaction, contract or relationshi p.
Impairment of intangible assets
The carrying amount of intangible assets are reviewed annually to determine whether there is indication of impairment as disclosed in note 91.
If any such indication exists the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset
exceeds its recoverable amount.
According to the Financial Statements Act No. 3/2006 the difference between share of profit of subsidiary or associate in excess of dividend
payment or dividend payment pending, shall be transferred to a restricted retained earnings reserve, net of tax, which is not subject to dividend
payments. When shareholding in subsidiary or associate is sold or written off the restricted retained earnings reserve shall be released and the
amount transferred to retained earnings.
Retained earnings (accumulated deficit if negative) consists of undistributed profits and losses accumulated, less transfers to other reserves.
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
that is attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential
ordinary shares, which comprise share options granted to employees and issued warrants.
When development cost is capitalized a corresponding amount is transferred from retained earnings to restricted retained earnings according to
the Financial Statements Act No. 3/2006. The reserve is then transferred back to retained earnings in line with amortization of the asset through
income statement.
Consolidated Financial Statements 31 December 2025 74

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75
Appendix 1:
Statement on the Corporate
Governance of Kvika banki hf. 2025
Unaudited

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