sparebanken sør sparebanken sør boligkreditt as · note(*): industribyggerne 2015 - rapport iris...

Sparebanken Sør Sparebanken Sør Boligkreditt AS

Investor Presentation

May 2017

Sparebanken Sør

• The sixth largest savings bank in Norway with a strong market position in Southern Norway

• High capitalization; Core Tier 1 ratio of 14.6 %, and leverage ratio of 8.9% as of March 31th 2017

• Rated A1 (stable outlook) by Moody’s

• Strong asset quality – 65 per cent of loan book to retail customers

Sparebanken Sør Boligkreditt

• 100 % owned and dedicated covered bond subsidiary of Sparebanken Sør

• Cover pool consisting of 100 % prime Norwegian residential mortgages

• High quality cover pool reflected by the weighted average LTV of 53.7 %

• Covered bonds rated Aaa by Moody’s with 5 notches of leeway

• Strong legal framework for covered bonds in Norway with an LTV limit of 75 % for residential mortgages

• Current OC of 14.2 %, of which 2.0 % is provided on a committed basis

Norwegian economy

• Economic growth in Norway has picked up after the downturn in the oil sector

• The rest of the economy is still supported by low interest rates, historically weak NOK and fiscal stimulus

• Unemployment has peaked and is expected to remain at current levels or lower. In the European context

unemployment is among the lowest

• The Norwegian government has a strong financial position with large budget surplus. The government

pension fund, which accounts over 300% of the GDP, provides the government with substantial economic

leeway

Southern region economy

• The Southern region is clearly less exposed to oil production than Western Norway

• Registered unemployment in the Southern region remains below 4 % and has decreased at a higher pace

than the national average

• House price development over the past years has been more moderate than average in Norway

Executive summary

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Financial key figures


Contact details

Table of content

Norwegian economy

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VI Appendix

Historical milestones 190 years of development and renewal

Arendal Sparebank was founded in 1825 as one of the first savings banks in Norway.

1973 The bank merged with 4 other savings banks in Aust-Agder, and formed Aust-Agder Sparebank.

Sparebanken Sør was established in 1984 after a merger between Aust-Agder Sparebank, 2 other savings banks in Aust-Agder and 9 from Vest-Agder.

1985 The bank entered for the first time Telemark, through a merger with Nissedal Sparebank and totals today 7 branches in the county, where the latest was the opening of an office in Skien in the fall of 2012.

The bank´s history dates back to 1824 when Christianssand Sparebank was established as one of the first savings banks in Norway.

The banks more recent history starts in 1984 when Sparebanken Agder was established through a merger between Christianssands Sparebank, Halse and Harkmark Sparebank, Iveland Sparebank, Oddernes Sparebank, Vennesla Sparebank and Øvrebø and Hægeland Sparebank.

Four savings banks in Telemark and Sparebanken Agder joined forces in 1987. Through the merger the bank was named Sparebanken Agder and Telemark. In 1988 the name was changed to Sparebanken Pluss

In January 1997 Sparebanken Pluss and Sparebanken NOR agreed that Sparebanken NOR was to take over Sparebanken Pluss’ branches in Telemark while Sparebanken Pluss was to take over Sparebanken Nor`s office in Kristiansand. Through this deal the banks business again was concentrated in the Agder counties.

2014 Merger between Sparebanken Pluss and Sparebanken Sør and the new bank is named Sparebanken Sør.

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Sparebanken Sør

Summary

Business

Balance

Employees

Products and services

Sparebanken Sør is an independent financial group with activities within banking, securities and real estate

431 employees in branch offices across the counties of Aust-Agder, Vest-Agder and Telemark General banking services- and products, in addition to real-estate brokerage, life- and non-life insurance, stock brokerage and leasing through wholly- and partially owned subsidiaries and companies As one of the largest regional banks, Sparebanken Sør is committed to further growth and development in the region

The sixth largest Norwegian bank with total assets above NOK 100 billions. Total lending of NOK 93 billions and total deposits of NOK 53 billions

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Sparebanken Sør (parent bank)

rated A1 Moody’s

Sørmegleren (real estate broker)

Ownership 90.1%

Sparebanken Sør Boligkreditt (Covered bond company) Covered bonds rated Aaa

Moody’s Ownership 100 %

Frende (insurance)

Ownership 10 %

Brage (leasing)

Ownership 15 %

Norne (brokerage) Ownership 18 %

Subsidiaries

Affiliates

Company structure

6

A complete provider of financial services Considerable product range - still potential for increased product sales

Subsidiaries Vendors Business partners

• Sparebanken Sør Boligkreditt is a wholly owned subsidiary of Sparebanken Sør

• The subsidiary is licensed as a financial enterprise with the right to issue bonds, in which investors receive preferential coverage in home mortgages granted by the bank (covered bonds)

• Through the issuance of covered bonds, the Sparebanken Sør Group can offer mortgages with competitive terms to its customers

• Sparebanken Sør is a 90.1%-owner in Sørmegleren Holding AS, which is the parent company of the real estate agency Sørmegleren AS

• Sørmegleren is represented with a total of 14 offices, with its headquarters in Kristiansand

• Convey about 2.200 homes a year, and is the region's largest real estate agency

• Sparebanken Sør entered in 2008 as a 10%-owner in Frende Holding and is one of 15 independent savings banks with holdings

• Frende has 175 000 customers and offers insurance, both life and general, to corporate and retail customers

• Brage Finans is a financing company owned by 10 independent savings banks, and Sparebanken Sør is a 15%-owner

• The distribution of the company's products is done through the owners and through its own sales organization

• Sparebanken Sør became a 18%-owner in Norne Sec. in 2008, and is one of 14 independent savings banks with holdings

• Norne is a full service investment firm with corporate finance – services, analysis, and stock and bond brokerage

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A market with 470 000 inhabitants. No other bank covers this area as

Sparebanken Sør. The bank has approximately 150 000 retail customers

and 14 000 corporate customers.

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Vest-Agder

Aust-Agder

Telemark

RM – Retail Market CM – Corporate Market

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Contact details

Table of content

Norwegian economy

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VI Appendix

Geographical distribution of loans Distribution RM / CM

Gross loans Gross loans

• # 1 position in Vest-Agder and Aust-Agder, # 3 position in Telemark

• Close and long term cooperation with major firms/organizations in the region. The KNIF segment amounts to NOK 7.4 billion in loans to customers and NOK 4.5 billion in customer deposits. KNIF corporates constitute the biggest share with NOK 4.5 billion in loans and NOK 3.9 billion in deposits

• Loans to customers are concentrated in the banks market area

• High RM share is in itself risk reducing. Loans under NOK 2 million constitute a dominant portion (42 percent)

Note(*): KNIF = Kristen-Norges interessefellesskap (Norwegian Christian interest organization) -> Consists of more than 70 national organizations 10

A well diversified loan portfolio High RM share and geographical diversification contribute to a balanced portfolio

The loan portfolio in Sparebanken Sør Loan to Value (Group)

• Mortgages constitute a large part of the RM portfolio

• Loans with LTV (Loan to Value) below 75 percent constitute 82.1 percent

The LTV distribution is based on a distribution, of which the whole commitment is rated as the last part of the commitment.

As a consequence the actual LTV-distribution will be lower than what is displayed in the table.

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Sparebanken Sør – Mortgages

A well diversified loan portfolio CM portfolio with very low direct exposure to oil and oil service industry

Distribution Corporate Market (CM) Tenant distribution1): Property management (rental), real estate development

and building and construction (Loan commitment > NOK 10 million)

Property management - 49,9 %

Social services - 12,5 %

Real estate development - 10,8 %

Financial/commercial services - 6,9 %

Building and construction industry - 4,3 %

Retail trade - 3,1 %

Housing cooperatives - 3,0 %

Manufacturing industry - 2,8 %

Primary industry - 2,5 %

Transport - 1 ,8 %

Public sector 1,1 %

Hotel and restaurants - 1,0 %

Rental f in./com. serv ices - 26,4 %

Dev. Real estate - 12,5 %

Dev. plot area - 9,8 %

Rental rest./hotel - 9,6 %

Rental other trade - 8,0 %

Rental other - 7,0 %

Rental public - 7,0 %

Rental other industry - 3,1 %

Rental merchandising- 2,7 %

Rental shopping center - 2,3 %

Dev. trade - 2,2 %

Entrepeneur etc. - 1,9 %

Rental social services - 1,7 %

Dev. others - 1,7 %

Rental offshore ind. - 1,3 %

Others - 2,8 %

The CM loan portfolio reflects the business activity in the region with one major exception:

Sparebanken Sør has a very low direct exposure to the oil and oil service industry.

1) Updated Q3 2016

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A well diversified loan portfolio Low exposure to oil and offshore industry - Stable exposure to real estate

Norways largest petroleum counties Exposure to oil- and oil service**

Sparebanken Sør has virtually no direct exposure to oil and offshore industry - A long term strategic choice

Even though Vest-Agder has a slightly above average exposure to oil, the Aust-Agder and Telemark counties ensure a total exposure under the average in Norway

Note(*): Industribyggerne 2015 - Rapport IRIS 2015/031 (Directly and indirectly empoyed in the petrolium industry)

Note(**): Swedbank Research, EAD Oil and Oil service, except * - in % of total lending

Total assets Equity

1) The equity incl. hybrid capital 2) Changes from the same accounting period in 2016

+1,3 %2)

+17,9 %2)

NOK billion

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Balance sheet items – Quarterly development

89,3 90,2 90,1 90,992,6

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

48,7 51,2 51,2 51,6

52,8

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Loans Deposits

+3,8 %1)2)

+8,4 %1)

NOK billion

1) Changes from the same accounting period in 2016 2) Loan growth in Q1 2017 amounted to NOK 1.7 billion, equivalent to 7.5 percent, of which retail

customers accounted for 3.2 percent and corporate customers 15.7 percent (annualized)

15

Balance sheet items – Quarterly development

Development in losses in NOK million and as a percentage of gross loans

Development in non-performing loans in NOK million and as a percentage of gross loans

Development in loss provisions in NOK million and as a percentage of gross loans

16

Losses and non-performing loans – Quarterly development

Net interest income

1) Changes from the same period in 2016.

Net commission income

+10,8 %1)

+6,0 %1)

NOK million

Net interest income, adjusted for the fee to the Norwegian Banks’ Guarantee Fund and interest on hybrid capital

17

Profit and loss – Quarterly development

Net interest income to total assets, adjusted for the fee to the Norwegian Banks’ Guarantee Fund

Cost income ratio excl. financial instruments

Net interest income to total assets Costs Income Ratio

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Profit and loss – Quarterly development

Loans: Average interest rates minus 3 month weighted average of 3 month NIBOR. Deposits: 3 month weighted average of 3 month NIBOR minus average interest rates. All numbers in % per annum.

Interest margin - Quarterly development

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Operating expenses Profit from ordinary operations1)

1) Net interest income, adjusted for accounting changes + Net commision income + Other operating income – Operating costs, adjusted for the conversion of the pension scheme

2) Changes from the same accounting period in 2016 3) Included the accounting effect of NOK 42 million from the conversion of the pension scheme

0 %2)

+3,5 %2)

NOK million

20

Profit and loss - Quarterly development

520 431

2013 Status 31.03.2017

44

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2013 Status 31.03.2017

Considerable potential has been realized – further efficiency improvements will take place as part of ongoing operations. The Group opened a new office in Jæren on 27 April 2017.

Number of employees Total assets in NOK million per

employee Number of offices

180

243

2013 Status 31.03.2017

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Restructuring and cost focus

One of the most cost effective financial institutions1)

Strong customer relations

The bank is customer relation oriented, known for fast decisions based on local knowledge through closeness to customers and market

Optimal channel interaction and digitalization

1) Costs as a percentage of total assets, Q1 2017 22

Three strategic pillars

Our focus areas

Regional business

INDUSTRY

REAL ESTATE

TRANSPORTATION

TOURISM

HEALTH

AGRICULTURE

FINANCIAL SERVICES

MERCHANDISING

PUBLIC SECTOR

EDUCATION

Differentiated and high growth potential

Local, regional and national customer segments

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Common equity tier 1 capital ratio including 80 % of profit and equity issuance in Q2 2016

Common equity tier 1 capital ratio Leverage ratio

Leverage ratio including 80 % share of profit and equity issuance in Q2 2016

24

Solid financial base – High capital ratios

• Sparebanken Sør has fullfilled the Financial Authorities’ expectations of a 14,5% common equity tier 1 (CET1) capital ratio

• Sparebanken Sør is the only of the large regional banks that uses the standard method in the capital adequacy calculations

• Sparebanken Sør is very solid, has a high CET1 capital and a very high Leverage ratio

• With a CET1 capital ratio of 14.3 percent, the bank has a considerable buffer beyond the regulatory requirements

• Norwegian banks are well-capitalized compared to European banks

31.03.2017

Sør 14,30 % 8,80 %

Peer 1 14,70 % 8,60 %

Peer 2 14,80 % 7,40 %

Peer 3 14,70 % 7,10 %

Peer 4 14,40 % 7,10 %

25 1) Common equity tier 1 capital ratio excluding 80 % of profit 2) Leverage ratio excluding 80 % share of profit

Capital ratio – Leverage ratio

Source: DNB Sparebanken Sør Q1 2017: 8,9 %1)

26 1) Leverage ratio including 80 % share of profit

Capital ratio – Leverage ratio Q4 2016 – Selected European banks

Distribution RM/CM (31.03.17) Deposit to net loans

Deposits as a percentage of net loans have increased over the last 12 months, with a deposit growth of 8.4 percent

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Solid financial base - Deposits

20 %

Total funding for the Group amounted to NOK 40.6 bn, with NOK 24 bn issued as covered bonds as at 31 March 2017

The bank has a reassuring maturity profile and limited maturities in 2017

Funding with maturities after 2017 amounts to 96% of the portfolio

Liquidity indicator 1 at 108%

Average maturity at 3.1 years

Remaining maturity of outstanding wholesale funding

20 % 4 %

NOK million

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Solid financial base – Well diversified funding profile

Category Rating

Total liquidity portfolio of NOK 10.9 bn

100 % investment grade and 100 % liquid instruments ( LCR eligible)

Liquidity reserve (LCR) of 114 % for the Group

4,3 %

23,1 %

71,7 %

0,9 %

Norwegian government bonds

0 weighted bonds/gov. guarantees/owned AAA/AA

Norwegian covered bonds/nordic/municipal

Finance/power production/other

89,3 %

9,4 %

1,4 %

AAA

AA

A

< B (1)

(1) Norwegian covered bonds without rating 29

Solid financial base – High liquid buffers to handle liquidity stress

Summary

Result

Finance

Capital

Capital

Improved profit from ordinary operations, through positive growth, stable net interest income, combined with low costs and losses on loans

The Bank’s financial strength is considered satisfactory in light of the current regulatory requirements. Included 80 percent of the profit, the common equity tier 1 capital ratio amounts to 14.6 per cent and the leverage ratio amounts to 8.9 percent Loan growth of NOK 3.4 billion the last 12 months, corresponding to a 3.8 percent annual growth. The deposit growth of NOK 4.1 billion, or 8.4 percent the last 12 months Sound operations contribute to a pre-tax result of NOK 276 million in Q1 2017

Positive net income from financial instruments due to positive changes in the market value of bonds

Status as of 31 March 2017

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Table of content

Norwegian economy

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VI Appendix

Sparebanken Sør

Interest- and currency swaps with external counterparties

Loan Transfer Agreement and Service Agreement

Credit Facilities

Loan origination and management

Covered Bonds

External auditor

Board of Directors

Cover Pool

Sparebanken Sør Boligkreditt AS

Covered Bonds Investors

External investigator appointed by NFSA

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Business concept - governed by Norwegian covered bond legislation

• Dedicated and integrated covered bond company 100% owned by Sparebanken Sør

• Overdraft facility with the bank to handle daily operations

• Revolving credit facility with Sparebanken Sør, which covers refinancing risk

• The company has no employees, all operations are handled by the mother company under legally binding service agreements

• Loans are originated by the bank and transferred to the CB company

• Borrowers are tested on income status and stress test analysis on changes of interest rates is performed

• Aaa long term rating by Moody´s

• Credit opinion from Moody´s updated by 1 March 2017 with basis on:

• High credit quality of the cover pool, collateral score of 5.0%

• Support provided by the Norwegian legal framework for covered bonds

• Credit strength of the issuer

• Minimum OC level consistent with current rating of 0.5%, TPI of High, Leeway of 5 notches

• Sparebanken Sør (parent bank) A1 rated by Moody´s

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• Cover pool

• The covered bonds have full recourse to the issuer

• The cover pool consists of 100 % prime Norwegian residential assets

• Low LTV of 53.7 % (indexed)

• No non-performing assets in the cover pool

• Current OC of 14.2 %, of which 2.0 % is provided on committed basis

• Cover pool exposure towards Southern Norway, where price development is rather stable

• Further legal assessments

• Claw back risk

• All borrowers are notified when loans are transferred from the bank to the covered bonds company

• Provided that borrowers are notified, the transfers cannot be subject to claw back by the transferor or any public administration or any purchaser of a mortgage loan

• Any transfer done in accordance with the Loan Transfer Agreement will be valid and binding between the bank and the issuer

• Co-mingling risk

• In the event of a public administration of Sparebanken Sør, in which the issuer has its bank account and into which cash flows from the cover pool is transferred on a daily basis, the issuer will have an unsecured claim on the bank account

• Upon a rating downgrade of the account issuer bank below P-1, a more suitably rated bank should be considered

• No set-off

• A borrower whose residential mortgage loan has been transferred by the bank to the issuer may not set-off any obligation under the residential mortgage loan against;

• any sum owed by the bank to the borrower (e.g. deposits)

• any sum owed by the issuer to the borrower

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Eligibility criteria for cover pool mortgages

•Residential Norwegian properties

•Holiday homes – p.t. none, according to internal guidelines

•Minor volumes of buy to let

Type of properties

•Mortgages with floating or fixed interest rates – p.t. only floating interest rate

•Serial, annuity or non-amortizing loans Type of products

•No arrears

•Borrowers probability of default ≤ 2% Credit criteria

•LTV limit of 75 % for residential mortgages

•(LTV limit of 60 % for holiday homes)

•Quarterly valuation from independent third party (Eiendomsverdi)

Collateral

•Maximum loan per borrower of 12 MNOK (Euro 1,3 mill)

Loan volume

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Risk management

•Payment flow from the cover pool is to meet the payment obligations to the covered bond holders and derivative counterparties

•Revolving credit facility in place with the mother company

Liquidity risk

•Interest rate risk measured on a 2 basis points parallel shift in the interest rate curve, alternatively including the effects of non parallel shifts

•Should not exceed NOK 100 million

•P.t. only floating rate loans and floating funding base incl. swaps

Interest rate risk

•FX risk is fully hedged

•Long term FX funding is swapped into NOK

•Derivative contracts with external counterparties Foreign exchange risk

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Cover pool composition

• 100 % prime Norwegian residential mortgages

• Current OC level of 14.2 % and commitment to maintain level above 2.0 %

Cover Pool Composition 31.03.2017

Type of Collateral: 100% residential

Total LOAN BALANCE: 27.369.275.176

Average LOAN BALANCE: 1.188.522

NO. OF LOANS 23.028

WA SEASONING (in months): 39

WA REMAINING TERM (in months): 203

NO. OF BORROWERS 20.999

NO. OF PROPERTIES 23.077

WA Indexed LTV (LOAN BALANCE/INDEXED valuation) (e.g. 85% or 0.85): 53,70 %

WA LTV(LOAN BALANCE/original valuation)(e.g. 85% or 0.85): 60,20 %

Percentage of VARIABLE MORTGAGES (S.Def.): 100,00 %

Loans in arrears > 90 days (e.g. 1% or 0.01): 0,00 %

Substitute assets: 0

Committed over collateralisation: 2,00 %

Over Collateralisation: 14,20 %

Sparebanken Sør total loan portfolio

• Loans transferred to S.B. Sør Boligkreditt account for 30% of Sparebanken Sør´s total loan portfolio

35%

35%

30%

CM RM Cov.bond

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Cover pool characteristics

Current indexed LTV distribution

• The weighted average LTV is 53.7 % on an indexed basis

• Approx. 57% of the cover pool has an LTV below 60%

Historical development in weighted average indexed LTV

• On a historical level the weighted average LTV is well below the legislative maximum of 75 % for residential mortgages

21,1 %

14,2 %

21,5 %

33,6 %

8,7 %

0,8 %

0-≤40% 40%<-≤50% 50%<-≤60% 60%<-≤70% 70%<-≤80% >80%

57%

40,00%

45,00%

50,00%

55,00%

60,00%

65,00%

70,00%

75,00%

80,00%

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

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Cover pool geographic split

• The cover pool is primarily exposed towards Vest-Agder and Aust-Agder, and secondly to Telemark and Oslo/Akershus

• Property price development in Vest-Agder and Aust-Agder has been more modest than in the rest of the country

• Weighted average seasoning is 3 years

• 84% of the cover pool consists of mortgages with longer age than 1 year

Seasoning of mortgages in the cover pool (in % of total loan balance)

Regional diversification

Vest-Agder 43,40 %

Aust-Agder 28,30 %

Telemark 9,20 %

Oslo 8,00 %

Akershus 4,10 %

Other 7,00 %

16,20%

25,20%

18,00% 19,60%

21,00%

< 1 year 1≤-<2 years 2≤-<3 years 3≤-<5 years ≥5 years

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Pool notional

• Average loan value of NOK 1.2 million

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20,07%

43,03%

22,73%

8,41%

3,23% 2,53%

MNOK 0-1 MNOK 1-2 MNOK 2-3 MNOK 3-4 MNOK 4-5 MNOK > 5

68 %

18 %

11 %

3 %

Detached House

Semi DetachedHouse

Apartment

Other

Property type

Principal payment frequency

Monthly 76 %

Quarterly / Semi-annually 0,24 %

Annually 0,02 %

BULLET 1 %

Non-amortizing 23 %

Stress test of the cover pool

Historical development in over collateralisation

• Committed OC: 2.0%

• OC consistent with current rating: 0,5%

• Current OC: 14.2%

• Commited OC: The minimum level of OC included in Sparebanken Sør Boligkreditt Covered bond program

Current situation

53,7 % 74,3 %

14,2 % 6,2 %

Status Q1 17 House price decline 30%Weighted average LTV Nominal OC

16,30%

17,80% 17,00% 17,00%

18,30% 17,40%

16,75% 16,76%

10,66%

14,38% 14,24% 14,44% 14,20%

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

Rating requirements Surplus OC Current OC

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-

2.000

4.000

6.000

8.000

10.000

2017 2018 2019 2020 2021 2022 2023 2028

EUR funding

NOK funding

18% 19%

• Total funding amounts to NOK 24 bn in issued covered bonds

• The company has a diversified maturity profile and few expiring bonds in 2017

• Funding > 12 months totalled 96%

• Soft bullet structure on all outstanding debt

Annual maturity of wholesale funding

Ticker ISIN Outstanding Amount Issuance Date Expected Maturity Interest Rate Type Coupon

SORB02 NO0010623945 NOK 1000 million 24.08.2011 24.08.2017 Floating rate Nibor 3 mnd + 53 bps






SORB09 NO0010671597 NOK 350 million 13.02.2013 13.02.2023 Fixed rate 3.850 %

SORB08 NO0010670409 NOK 500 million 24.01.2013 24.01.2028 Fixed rate 4.000 %

- XS1383921803 EUR 500 million 22.03.2016 22.03.2021 Fixed rate 0.250%

4% 18% 38% 0% 1% 2%

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Funding as of 31.03.2017

• Sparebanken Sør established a €4,000,000,000 Euro Medium Term Covered Note Program (EMTN) in the third quarter of 2015

• In the first quarter of 2016 the company issued covered bonds amounting to EUR 500 million under the program

• Sparebanken Sør Boligkreditt AS plans to further acquire loans from Sparebanken Sør, and the company intends to issue new covered bonds towards investors in Norway and abroad

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Euro Medium Term Covered Note Programme

Credit opinion from Moody´s updated by 1 March 2017

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Credit opinion from Moody´s updated by 1 March 2017

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Looking ahead

Sparebanken Sør

Boligkreditt

Macro

The region

Capital requirements

Funding and liquidity

The Norwegian economy was affected by low growth in 2016. The outlook is considered positive, but the rate of change in growth is uncertain Government finances are rock solid, with a Oil fund EUR 850 bn, and a positive net financial position of 300 % of GDP

The Group has a common equity tier 1 capital ratio of 14.6 percent and leverage ratio of 8.6 percent. Along with a positive profit from ordinary operations, the opportunities for further loan growth are positive

The Group is well positioned to establish long-term funding from the Norwegian and the international financial market

Sparebanken Sør Boligkreditt AS will further acquire loans from the bank to issue public covered bonds in Norway and abroad, primarily as benchmark issuances that are eligible to LCR requirements for level 1 assets

The economic outlook for the bank's market area is considered positive. Housing prices show moderate positive development and unemployment is falling

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Norwegian economy

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VI Appendix

Source: Estimates from Norges Bank’s March Monetary Policy report and Statistics Norway (Current account)

In % 2015 2016 2017E 2018E 2019E

GDP growth, mainland 1.1 0.8 1.6 2.0 2.2 Core inflation 2.7 3.1 1.7 1.5 1.3 Unemployment rate registered 3.0 3.0 2.9 2.8 2.7 Key policy rate (Average) 1.05 0.6 0.4 0.4 0.6 Current account surplus / GDP 8.7 4.9 6.9 7.4 7.6 Sovereign wealth fund / GDP 224 276 N.A N.A N.A

• Economic growth in Norway has picked up after the downturn in the oil sector

• The rest of the economy still supported by low interest rates, historically weak NOK and fiscal stimulus

• Unemployment has peaked and is expected to remain at current levels or lower. In the European context unemployment is among the lowest

• Excellent financial position for the Norwegian government with a large budget surplus and a government pension fund accounting nearly 300% of GDP

Key indicators for the Norwegian economy Growth on its way back

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The economy has picked up Both hard and soft data are pointing upwards

50

Negative drag from oil sector diminishing Oil investments have bottomed

51

NOK, oil price and competitiveness We have benefitted from weak NOK and increased competitiveness

52

• The Government Pension Fund currently amounts to close to NOK 8,000bn (approx. EUR 850bn) which is near three times the size of Mainland GDP and equals six annual national budgets

• The Fund and large petroleum revenues give the Norwegian government substantial economic leeway

• The fiscal rule: 3% (previously 4%) of the fund’s value can be used in the national budget (expected real return on the fund)

• The rule is to ensure that the fund itself would not be tapped. Thus the fiscal break even oil price is zero

• In response to lower oil price public spending has increased. The fiscal policy stimulus is estimated to be 0.4% of the Mainland GDP in 2017

Strong public finances Fiscal policy has supported the economy

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Unemployment has peaked and is falling back - Even in the oil counties

54

Number of

unemployd

As a percentage

of the work

force

Change from

last year

Percentage

change from last

year

As a percentage

of the work

force, last year

Total 78 212 2,8 % -7 259 -8 % 3,1 %

Østfold 4 405 3,1 % - 274 -6 % 3,3 %

Akershus 6 973 2,2 % - 780 -10 % 2,5 %

Oslo 10 708 2,9 % -1 663 -13 % 3,3 %

Hedmark 2 065 2,1 % - 293 -12 % 2,4 %

Oppland 1 756 1,8 % - 263 -13 % 2,1 %

Buskerud 3 804 2,6 % - 331 -8 % 2,8 %

Vestfold 4 039 3,2 % 176 5 % 3,1 %

Telemark 2 641 3,0 % - 331 -11 % 3,4 %

Aust-Agder 1 833 3,2 % - 339 -16 % 3,8 %

Vest-Agder 3 153 3,3 % - 399 -11 % 3,7 %

Rogaland 10 865 4,2 % - 898 -8 % 4,5 %

Key figures from the Norwegian labour market, April 2017

Source: NAV.no

55

Unemployment is now decreasing

Debt and income Rich countries have higher debt relative to income

56

Norwegian housing market House prices have increased alongside income growth

57

Source: Eiendomsverdi AS

Year over year :

Vest-Agder + 2,7 %

Aust-Agder + 2,1 %

Telemark + 8,4 %

Rogaland - 0,6 %

Oslo + 22,4 %

February - March:

Vest-Agder + 0,1 %

Aust-Agder + 0,3 %

Telemark + 0,6 %

Rogaland + 0,3 %

Oslo + 1,0 %

58

House price development March 2017

Source: Eiendomsverdi AS

Year over year:

Kristiansand + 3,6 %

Stavanger - 1,5 %

Oslo + 22,7 %

February - March:

Kristiansand - 0,5 %

Stavanger - 0,2 %

Oslo + 0,9 %

59

Apartment price development March 2017

• Cost of serving downpayment and interest rate for buying the average house in Norway at the price level at each time

• 25 years downpayment and 85% loan-to-value • Share of median income after tax for nuclear familiy (couple with two kids)

Sources: Statistics Norway, Real Estate Norway and Macrobond

How expensive is housing? House prices have increased, but cost of serving has not

60

Sources: Statistics Norway and National Institute for Consumer Research

Income and living expenses Income has increased a lot and households spend less on living expenses

61

Sources: Statistics Norway, Real Estate Norway and National Institute for Consumer Research

Income and living expenses Income has increased a lot and households spend less on living expenses

62

Source: Finance Norway, Norwegian Labour and Welfare Administration

High home ownership • Around 80% of Norwegian households own their home, which is among the highest home ownership ratios in the world. Hence, the buy-to-let market is limited in Norway

Key features of residential mortgage loans in Norway

• Residential mortgage loans are predominantly granted by banks and mortgage credit institutions (97% as of January 2015)

• Lenders have access to a wide range of information about borrowers before granting the mortgage (e.g. tax records for the last three years, any debt collection outstanding, any bankruptcies)

• Properties are registered in a central register to which banks have direct access

• Typical maturity of a new loan is 25 to 30 years

• The majority of residential mortgage loans have a floating interest rate meaning that banks are allowed to increase the interest rate with a six weeks’ notice

• Borrowers are personally liable for their debt also after foreclosure or forced sale

Good tax incentives and supportive social security system

• Borrowing costs on mortgages are tax deductible (the tax rate applied is 24%)

• Tax valuation of dwellings is favourably treated in the wealth tax system

• If a dwelling is occupied by the owner for a minimum of one year, capital gain is tax free when the dwelling is sold

• Unemployment benefit equals approximately 62% of the previous calendar year’s gross income and is paid for up to 104 weeks

Norwegian housing market Key characteristics

63

Marianne Lofthus – Director Capital Market/CEO Sparebanken Sør Boligkreditt AS

Phone, mobile + 47 90 51 41 83

E-mail [email protected]

Bjørn Erik Kittelsen – Head of Treasury, Sparebanken Sør

Phone, mobile + 47 90 92 86 63

E-mail [email protected]

www.sor.no

Contact details and website

I Sparebanken Sør

II

III

IV

V



Contact details

Table of content

Norwegian economy

65

VI Appendix

Key features 1st quarter 2017

• Good results from ordinary operations

• Positive development in net interest income

• Positive net income from financial instruments due to a positive change in the market value of bonds

• Costs under control

• Low loan losses

• Defaults on loans further reduced

• Loan growth of 3.8 percent during the last 12 months

• Deposit growth of 8.4 percent during the last 12 months

• Return on equity after tax of 8.7 percent

• Common equity tier 1 capital ratio of 14.6 percent and leverage ratio of 8.9 percent, when including 80 percent of accrued profit

66

Income statement Sparebanken Sør

Profit before tax at the end of Q1 2017 amounted to NOK 276 million

The main features for Sparebanken Sør in Q1 2017:

• Satisfactory development in net interest income

• Positive net income from financial instruments due to changes in the value of bonds

• Good cost control

• Low losses on loans

The profit in Q1 2017 gives a return on equity after tax of 8.7 percent

NOK million 31.03.2017 31.03.2016 Change

Net interest income 401 362 39

Net commission income 71 67 4

Net income from financial instruments

14 -21 35

Other operating income 4 5 -1

Total income 490 413 77

Total expenses 199 199 0

Profit before losses on loans

291 214 77

Losses on loans, guarantees

15 13 2

Profit before taxes 276 201 75

Tax expenses 66 51 15

Profit for the period 210 150 60

67

Q1 2016 Q1 2017

NOK million

Net

inte

rest

inco

me

Net

co

mis

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n in

com

e

Net

in

com

e f

rom

fi

nan

cial

in

stru

men

ts

Oth

er o

per

atin

g in

com

e

Op

erat

ing

co

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Loss

es

on

loan

s

Improvement in profit before taxes, Q1 2016 – Q1 2017

201

276

39

435

0-1 2

68

Return on equity after tax1) Return on equity after tax excl. financial instruments2)

69

Key figures – quarterly development

Cost development

Return on equity Common equity tier 1 capital

(Group)1) 3)

Loan growth2)

Dividend ratio

1) Tillagt andel av resultat

2) Vekst hittil i år annualisert

1) Incl. share of profit 2) Growth YTD annualized 3) Will be determined with regard to market expectations, the Financial Supervisory Authority recommendations and ICAAP

14,5-15 %3)

Financial key variables and ambitions

70

sparebanken sør sparebanken sør boligkreditt as · note(*): industribyggerne 2015 - rapport iris...

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