Investor presentation Q4 2018 CEO Geir Bergskaug 1
Well positioned in a region with positive development • Positive trend in employment market • Rising house prices • High customer satisfaction • Strong market position • Solid loan portfolio • Long-term commitment to digitisation and data analysis 2
Sparebanken Sør – A leading financial institution in Southern Norway A market with 470 000 inhabitants. No other bank covers this area as well as Sparebanken Sør. 3
Agenda • Current trends • Highlights from the quarterly report • Loan portfolio and risk situation • Funding status • Capital strategy and development • Goals and expectations ahead • Facing the future
Current trends 5
Strong position in the housing market Positive development in housing Maintaining a strong market position prices Percentage change in prices, Percentage market share, last 12 months 31 Dec 2018 # 1 position in Vest-Agder and Aust-Agder, # 3 position in Telemark. Positive development in Rogaland. 6 Sources: Eiendomsverdi, Norges bank (Regionalt nettverk 4/2018)
Solid loan portfolio – Marked improvement in non-performing loans 0,99 % 0,99 % 0,91 % 0,85 % 0,75 % 985 997 892 871 774 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Non-performing loans Non-performing loans to gross loans 7
Well positioned among customers Corporate market Retail market Highest customer satisfaction of all banks in the Nordic region Høyest kundetilfredshet i Skandinavia 8
Growth in the Southern region Increased production, Southern region Increase in investments, Southern region Growth last 3 months Expected development next 12 months The index ranges from -5 to +5, where -5 indicates a large fall and +5 indicates strong growth. The index are compiled quarterly by Norges Bank through a regional network and show the development in the Southern region, which consists of Aust-Agder, Vest-Agder, Telemark and Vestfold. 9 Sources: Norges bank (Regionalt nettverk 4/2018)
Reassuring development in the labour market Decrease in unemployed Increased employment rate, Southern region Percentage change last 12 months* Percentage growth last 3 months *A new online solution resulted in an abnormal increase in the number of registered unemployed in November. Consequently, the numbers are not directly comparable. However, the numbers still show 10 an upward trend in the regions where the bank is located. Sources: Eiendomsverdi, NAV
Highlights from the quarterly report
Highlights in 2018 NOK million 2018 2017 Change Net interest income 1.729 1.679 50 • Positive trend in net interest income Net commission 318 312 6 income • Increased net commission income Net income from 2 88 -86 financial instruments • Efficient operations and low costs Other operating 23 18 5 • Net entry on losses in 2018 income Total income 2.072 2.097 -25 • Reduced income from financial instruments Total expenses 884 811 73 • Year-on-year loan growth of 5.6 percent Profit before losses • Year-on-year deposit growth of 1.7 percent 1.188 1.286 -98 on loans • Return on equity after tax of 8.5 percent Losses on loans, -36 20 -56 guarantees • Common equity tier 1 capital ratio of 14.8 percent and leverage Profit before tax 1.224 1.266 -42 ratio of 9.1 percent Tax expense 285 282 3 • The Board of Directors will propose a dividend for 2018 of NOK 6 Profit for the period 939 984 -45 per equity certificate 12
Highlights in Q4 2018 NOK million Q4 Q4 Change 2018 2017 Net interest income 447 439 8 • Positive trend in net interest income Net commission 82 78 4 income • Increased net commission income Net income from -49 58 -107 financial instruments • Net entry on losses in Q4 Other operating 3 9 -6 income • Reduced income from financial instruments Total income 483 584 -101 • Good results from ordinary operations Total expenses 255 210 45 • Year-on-year loan growth of 5.6 percent Profit before losses 228 374 -146 on loans • Year-on-year deposit growth of 1.7 percent Losses on loans, -44 -12 -32 guarantees • Common equity tier 1 capital ratio of 14.8 percent and Profit before tax 272 386 -114 leverage ratio of 9.1 percent Tax expense 68 74 -6 Profit for the period 204 312 -108 • The Board of Directors will propose a dividend for 2018 of NOK 6 per equity certificate 13
14 Developments in profit before tax NOK million Profit before tax 2017 Net interest income Net commission income Net income from financial instruments Other operating income Operating expenses Losses on loans Tap på utlån og garantier Profit before tax 2018
Development in operating expenses NOK million Non-recurring expenses* Tap på utlån og garantier Digitisation and analysis Pensions 2017 Price changes Wages 2017 2018 Operating expenses Operating expenses *Mainly related to refurbishment and development of the bank’s headquarters 15
Key figures – quarterly development NOK million Net interest income Net commission income +1.4 % 1) 5.1 % 1) Net interest income to total assets Cost-income Ratio Cost-income ratio excl. financial instruments 1) Changes from the corresponding prior-year period
Interest margin and NIBOR3M Even with a significantly higher NIBOR3M than in the NIBOR3M corresponding prior-year period, net interest income has steadily improved, primarily due to: • Growth in total loans • Interest rate change in Q4 (20bp in RM and 6bp in CM) • A CM loan portfolio which accounts for 35 percent of total loans (of which about 80 percent is linked to NIBOR) • CM deposits linked to NIBOR 17
Profit and returns NOK million Operating expenses Profit from ordinary operations 1) 21.4% 2) -10.5% 2) Return on equity Return on equity excl. financial instruments and non-recurring events3 ) 1) Net interest income, adjusted for accounting changes + Net commission income + Other operating income – Operating expenses, adjusted for the conversion of the pension scheme 2) Changes from the corresponding prior-year period 18 3) Return on equity excl. accounting effects from financial instruments, interest on hybrid capital, revaluation of Balder Betaling/Vipps and conversion of the pension scheme
Structure and cost focus Number of FTEs Number of offices Total assets in NOK million per FTE Considerable potential has been realised – further efficiency improvements is part of ongoing operations. Millioner NOK New initiatives New technologies 2018, 2013 Pro forma, Operating expenses operating expenses 19 * Excl. financial tax
New expertise will improve efficiency Changes in employees • There has been a significant decrease in FTEs in recent years, and further efficiency improvements are expected • We have a solid market position, and will continue our growth through the streamlining of digital solutions 20
Balance sheet NOK billion Net loans Deposits +5.6% 1,2) +1.7% 1) Total assets Equity Equity incl. hybrid capital +5.95% 1) +8.0% 1) 1) Changes from the corresponding prior-year period 2) Loan growth in Q4 2018 amounted to NOK 5.4 billion, equivalent to 5.6 percent, of which retail 21 customers accounted for 5.3 percent and corporate customers 5.5 percent
Capital adequacy Common equity tier 1 capital ratio Leverage ratio Common equity tier 1 capital ratio with Brage Finans partially consolidated Leverage ratio with Brage Finans partially consolidated 22
Purchase of shares in Frende Holding AS Share of profit after Q4 amounted to NOK 1 million. Pre-purchase analysis in Q4. Added value amounted to NOK 213 million. Equity method applied and impairments of NOK 5 million in Q4. • Frende recorded a profit before tax of NOK 84.7 million and a Net loss from Frende of NOK 4 million in Q4 and NOK 17 million in 2018 return on equity of 4 percent in 2017. (dividend, revaluation, share of profit, impairments). • Frende recorded a profit before Assuming 2019 profits are on a par with 2017, the share of profit for tax of NOK 301 million and a return on equity of 19.9 percent in Sparebanken Sør in 2019 will amount to about NOK 50 million, together 2017. with a net profit adjusted for impairments on added value of about NOK 30 million. 23
Purchase of shares in Brage Finans AS Shareholding in Brage increased from 15.5 percent to 19.9 percent in January 2019. Equity method will be applied in future, including share of profit from Brage. • Brage recorded a profit before tax of NOK 93.9 million and a return Profit of NOK 7 million and a positive effect of 0.08 percentage points on equity of 7.6 percent in 2017. on the capital adequacy ratio. • Brage recorded a profit before tax of NOK 35.7 million and a return Agreed price for 4.34 percent of the shares of NOK 47.4 million, on equity of 6.5 percent in 2017. equivalent to a price/book of 0.9 If 2019 profits are on a par with 2018, Sør’s share of profit will amount to about NOK 15 million in 2019. 24
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