"The positive difference as compared to the management board's expectation at the end of April of a loss of 200 million euros results from significantly lower deferred taxes than initially expected," the bank said in a statement.
IKB's fiscal year runs from April 1 to March 31.
The news was well received by investors, who pushed IKB shares up by 4.53 percent to €3 on Frankfurt's SDax index of small-cap companies. The specialist in loans to small and medium-sized enterprises was one of the main victims in Germany of the collapse of the US market for high risk, or subprime, mortgages.
Securities backed by the home loans had been repackaged and sold to banks worldwide, and IKB had invested heavily in such instruments, which fell sharply in value after borrowers began to default in large numbers on the loans.
IKB was bolstered with €8.5 billion provided by the government, the state-owned development bank KfW and a group of private banks, to prevent its collapse last year.
KfW owns 45.5 percent of IKB and wants to sell its holding but has found it hard to attract bidders even though IKB still makes profits from its business loans. Several mooted buyers have pulled out, and financial sources said it was not sure that KfW would get the 700-800 million euros it sought from a sale.
The bank said Thursday that it had increased provisions for possible loan losses from €240 million in the previous fiscal year to €255 million. It also said that that once it had restructured its operations it "expected to have a substantially different earnings structure and lower earnings level overall, because the income from portfolio investments will decline significantly."
"The result of the sales process will be of great importance to the future
of the bank," the statement said.