Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698058574536.pdf (Liberia)
Arion Bank Mortgages Institutional Investor Fund Interim Financial Statements 30 June 2016 ABMIIF Borgatúni 19 105 Reykjavík Kt.
570106-9610 Contents Endorsement and Signatures of the Board of Directors and the Managing Director ............................................ Review Report on Interim Financial Statements ................................................................................................... Interim Statement of Income ................................................................................................................................. Interim Statement of Changes in Net Assets ........................................................................................................ Interim Statement of Financial Positions ...............................................................................................................
Statement of Assets .............................................................................................................................................. Interim Statement of Assets .................................................................................................................................
Statement of Main Assets ..................................................................................................................................... Net assets, exchange rate and return of the fund ................................................................................................. Loan from Financial Institutions ............................................................................................................................ Notes .....................................................................................................................................................................
Page Interim Financial Statements of ABMIIF 30.06.

2016 2 Endorsement and Signatures of the Board of Directors and the Managing Director The Interim Financial Statements of ABMIIF are included in part B of the Interim Financial Statements of Stefnir hf.

which contains the Interim Financial Statements of UCITS, investment funds and institutional investors' funds under management.
They have been prepared in accordance with law on Financial Statements and rules on the Financial Statements of management companies of UCITS set by the Icelandic Financial Supervisory Authority.

The fund reported profit of ISK 727 millions according to the income statement and the profit is recognized as an increase in units in the fund’s accounts.

The net asset of the fund at the end of the period totalled ISK 23,797 millions according to the balance sheet.

The Board of Directors and CEO of Stefnir hf.


hereby confirm the fund’s Interim Financial Statements for the period 1 January - 30 June 2016 with their signatures.

Reykjavik, 31 August 2016 Board of Directors: CEO: Interim Financial Statements of ABMIIF 30.06.

2016 3 Review Report on Interim Financial Statements To the Board of Directors the unit holder of ABMIIF.
We have reviewed the accompanying interim financial statement of ABMIIF for the period of 1 January to 30 June 2016, which comprise the endorsement and signatures of the board of directors and managing director, income statement, balance sheet, changes in net assets, statement of investment and a summary of significant accounting policies and other explanatory notes.
Management's and the Borad of Directors Responsibility for the Financial Statements Management and the board is responsible for the preparation and fair presentation of this interim financial information in accordance with Icelandic Financial Statements Act, Act on Financial Undertakings and Rules on the Financial Statements of management companies of UCITS.

Auditor's Responsibility Our responsibility is to express an conclusion on this interim financial information based on our review.
interim financial Scope of Review We conducted our review in accordance with International Standards on Review Engagements, ISRE 2410.

A review of information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.

Accordingly, we do not express an audit opinion.
Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information does not give a true and fair view of the financial position of the entity as at 30 June 2016 and of its financial performance and its change in net assets in the period, in accordance with Icelandic Financial Statments Act, Act on Financial Undertakings and Rules on the Financial Statements of management companies of UCITS.

Reykjavik, 31 August 2016 Deloitte ehf.


Páll Grétar Steingrímsson Petur Hansson State Authorized Public Accountant State Authorized Public Accountant Interim Financial Statements of ABMIIF 30.06.

2016 4 Interim Statement of Income 1 January - 30 June 2016 Income: Interests ...........................................................................................................
Indexation ........................................................................................................ Total income Expenses: Administration fee ............................................................................................ 6 Interest expenses and indexation .................................................................... 01.01.

- 30.06 01.01.

- 30.06 2016 2015 Skýr.


2-5 798 2.251 3.049 62 2.308 963 2.622 3.585 74 2.290 Other operating expenses ................................................................................ ( 48) ( 112) Total expenses 2.322 2.252 Net income (expenses) .................................................................................. 727 1.333 Profit transferred to units .............................................................................. 727 1.333 Interim Financial Statements of ABMIIF 30.06.
2016 5 Amounts are in ISK millions Interim Statement of Changes in Net Assets 1 January - 30 June 2016 01.01.

- 30.06 01.01.

- 30.06 2016 2015 Skýr.
Operating activities Profit transferred to units ................................................................................. 727 1.333 Financing activities Units sold ......................................................................................................... Financing activities 0 0 ( 26.000) ( 26.000) Changes in net assets ................................................................................... 727 ( 24.667) Net assets at the beginning of the year ....................................................... 23.070 46.982 Net assets at the end of the period .............................................................. 23.797 22.315 Interim Financial Statements of ABMIIF 30.06.
2016 6 Amounts are in ISK millions Interim Statement of Financial Positions at 30 June 2016 Assets: Transferable securities .................................................................................... Other assets: Cash ................................................................................................................ Other assets .................................................................................................... Total other assets Total assets Skýr.
7 8 9 30.06.2016 31.12.2015 95.705 95.705 28.407 1.412 29.819 102.387 102.387 21.735 281 22.016 Total assets 125.524 124.403 Liabilities Units ................................................................................................................. 23.797 23.070 Loan from financial institutions ........................................................................ 101.716 101.303 Liabilities with the management company ....................................................... Other liabilities ................................................................................................. 11 0 10 20 Total other liabilities 101.727 101.333 Total liabilities 125.524 124.403 Net assets ........................................................................................................ 23.797 23.070 Number of units ............................................................................................... 23.200,070 23.200,070 Exchange rate of units at the end of the period ............................................... 1,03 0,99 Interim Financial Statements of ABMIIF 30.06.
2016 7 Amounts are in ISK millions Statement of Assets 30 June 2016 Book value Book value Issuer 30.6.2016 % 31.12.2015 % Other transferable securities: Mortgages, unindexed ..................................................... 5.401 Mortgages, indexed ......................................................... 90.304 Other transferable securities, total .............................. 95.705 Investments, total .......................................................... 95.705 Cash ................................................................................ 28.407 Other assets .................................................................... 1.412 4 72 76 76 23 1 6.012 96.375 102.387 102.387 21.735 281 5 77 82 82 17 0 Total assets .................................................................... 125.524 100 124.403 100 Individuals Individuals Interim Financial Statements of ABMIIF 30.06.
2016 8 Amounts are in ISK millions Interim Statement of Investments 30 June 2016 Comparision with Investment policy: Mortgages ....................................................... Total investments ............................................ Book value 30.06.2016 95.705 95.705 % 100 100 Book value 31.12.2015 Invetment policy % Minimum Maximum 102.387 102.387 100 100 0 100 Segmentation by countries and currency: Book value 30.06.2016 Book value % 31.12.2015 % Ísland ............................................... ISK 95.705 95.705 100 100 102.387 102.387 100 100 Interim Financial Statements of ABMIIF 30.06.
2016 9 Amounts are in ISK millions Statement of Main Assets Book value 30.06.2016 Book value 31.12.2015 Changes of book value Mortgages, unindexed ...................................................

Mortgages, indexed .......................................................
Mortgages ..................................................................... Other assets .................................................................. 5.401 90.304 95.705 29.819 Total assets ................................................................. 125.524 124.403 6.012 ( 611) 96.375 ( 6.070) 102.387 ( 6.682) 22.016 7.803 1.121 % ( 0,5%) ( 4,8%) ( 5,3%) 6,2% 0,9% Interim Financial Statements of ABMIIF 30.06.
2016 10 Amounts are in ISK millions Net assets, exchange rate and return of the fund Net assets and return of the fund: 30.06.2016 31.12.2015 31.12.2014 31.12.2013 Net assets ......................................................................... Exchange rate ................................................................... 23.797 1,0257 23.070 0,9944 46.982 2,0251 43.450 1,8728 Return of the fund: 01.01.-30.06.
2016 2015 2014 2013 Return of the fund ............................................................. Real return of the fund ...................................................... 3,15% 1,71% ( 50,90%) ( 51,86%) 8,13% 7,02% 5,27% 1,56% Interim Financial Statements of ABMIIF 30.06.

2016 11 Amounts are in ISK millions Loan from Finacial Institutions The fund and Arion Banki hf.

made Subordinated Intercompany Loan Agreements to finance the acquisition of the mortgages.
The loan agreements are calculated taking into account accrued interest and the consumer price index.

Interest on the loan agreements ranges from 3.75% - 4.00% p.a.
Repayments on loan agreements at the end of June 2016 are as follows: Repayments 2016 ............................................................................................................................................. Repayments 2017 ............................................................................................................................................. Repayments 2018 ............................................................................................................................................. Repayments 2019 ............................................................................................................................................. Repayments 2020 ............................................................................................................................................. Book value 1.880 2.132 2.213 2.298 2.385 Repayments later .............................................................................................................................................. 90.807 101.716 Interim Financial Statements of ABMIIF 30.06.
2016 12 Amounts are in ISK millions Notes to the Interim Financial Statements Accounting methods 1.

2.

General information The purpose of the ABMIIF Fund is to invest in residential real estate loans from Arion Bank and it's subsidiaries, in accordance with the terms of the issuance of Covered Bonds.

And to guarantee the payment of all amounts due under any Covered Bonds issued by the Issuer under the Programme, subject to the term of the Covered Bond Guarantee.
Basis of preparation The Interim Financial Statements of Arion Bank Mortgages Institutional Investor Fund have been prepared in accordance with the Financial Statements Act and rules on the Financial Statements of management companies of UCITS set by the Icelandic Financial Supervisory Authority.

They are prepared on the historical cost basis.

The Interim Financial Statements have been prepared in Icelandic krónur (ISK) rounded to the nearest million.

The fund is a part of Stefnir hf.


which is a subsidiary of Arion Bank hf.

The Interim Financial Statements form part of the consolidated Interim Financial Statements of Arion Bank hf.

The interim Financial Statements have been prepared in accordance with new rules from the Financial supervisory Authority regarding Financial Statements of UCITS and investment funds, effective 1 January 2016.
The new rules do not involve changes in estimates and assumptions that affect the reported amounts of assets nor the net earnings of the fund.

3.

Assessment and decisions When preparing the financial statements, the management is required by the Annual Accounts Act to assess and make decisions on important components of the financial statements which are subjective by their nature.

The assessment is based on experience and other relevant factors which are otherwise unavailable.
Any changes according to this assessment are recognized during the period in which they occur.

4.

Indexed assets and liabilities Indexed assets and liabilities are calculated on basis of indexes valid 1 of July 2016.

Accrued indexation on principal of assets and liabilities is recognised in the income statement.

5.

Interest income and expenses Interest income and expense are recognised in the income statement as they are incurred.

6.

Administration fee The fund pays Stefnir hf.


administration fee which includes the following operating costs for the fund: salaries of employees of the management company, marketing costs and administration; included in the administration fee is a custody fee to Arion banki hf.

Administration fees are 0.1% of the fund’s total assets.

The fund also pays fee for official supervisory.

7. a.
7. a.

Securities with fixed income Mortgages are recognised with accrued interest and indexation at the end of June 2016.

At the end of June 17,4% of the fund’s mortgages were calculated according to the index for mortgage payment adjustment.

b.

Provisions are done by a general provision and a special provision.

Total provision for losses amounts to ISK 197 millions, which of specific provision amounts to ISK 137 millions and collective provision amounts to ISK 60 millions.
The provision account has been deducted from Securities with fixed income in the Balance sheet.

c. Mortgages are specified as: 30.6.2016 31.12.2015 Mortgages before impairment ....................................................................................

Provision at the beginning of the year ........................................................................
Write-offs during the period ........................................................................................ Reversal during the period .........................................................................................
Mortgages at the end of the period ............................................................................ ( 95.902 248 ) 0 51 95.705 ( 102.635 364 ) 8 108 102.387 Provision for losses as a ratio of total loans ............................................................... 0,21% 0,24% Interim Financial Statements of ABMIIF 30.06.

2016 13 Amounts are in ISK millions Notes, cont.

: 8.

Cash Cash consists of cash and deposits with credit institutions including accrued interests.

9.

Other assets.
9.

Other assets.

Other assets include unsettled trades and deviations in exchange translations of assets.

10.

Taxation The fund does not pay income tax; instead profit or loss from operations are taxed with the unit holders.

Individuals pay capital gains tax on profits on their securities when redeemed.

Profit and loss on unit shares owned by companies are treated as taxable income and expenses, regardless of redemption.
The fund is exempt from capital gains tax in Iceland but not in those countries where capital gains tax is imposed on income of foreign residents and when no double taxation agreement stating that such income should be taxed in Iceland exists between Iceland and the relevant country.

Interim Financial Statements of ABMIIF 30.06.

2016 14 Amounts are in ISK millions