SpareBank 1 Sørøst-Norge

Earnings Release • Feb 8, 2024

Good result with strong net interest income and very low losses

Good result with strong net interest income and very low losses

SpareBank 1 Sørøst-Norges profit in the fourth quarter of 2023 was NOK 301 million almost the same as third quarter. For the full year 2023 the result is NOK 1 310 million, an increase of NOK 244 million, from the corresponding year of 2022 (pro forma). The result is driven by a positive development in net interest income, but the contribution from SpareBank 1 Group has a negative impact. The loan growth is still low but has slightly improved towards the end of the year. The quality of the loan portfolio is considered good with very low losses in 2023.

The Board of Directors is proposing dividends/gifts of NOK 543 million, corresponding to NOK 3.88 per equity certificate and NOK 352 million in gift funds for community capital. The total proposed dividend for 2023 NOK 895 millioner or a dividend share of 68 percent of the group result and 64 percent of the parent banks result. The dividends and gifts calculated are in accordance with the merger plan with SR-Bank.

The return on equity for the quarter was 9.3 %, compared with 9.4% in the previous quarter. Taking into account one-time costs, the return on equity was 9.8% this quarter. Increased net interest income for the quarter. The total operation cost have increased in the quarter mainly due to costs to related to bonuses, merger expenses, pensions (transition to ITP for 65 employees) as well as consultant expenses related to the crisis management project. The results is also affected by a negative outcome from SpareBank 1 Gruppen. A review of the loss provision model related to adjustments of safety margins on LGD calculations and changes in scenario weighting in the corporate market portfolio has resulted in recognition of losses both in the quarter and in 2023.

Return on equity for the hole year 10.2% (8.8% pro forma) and adjusted for one-time effects 10.4% (9.6% pro forma)

Net interest income including commission income from mortgage credit institutions grew by 3% this quarter and 21% in the past 12 months. In the current year, the policy rate has been increased from 2.75 % to 4.50 %. The bank has adjusted customer interest rates based on changes in the policy rate set by Norges Bank. The most recent interest rate change in December 2023 took effect from 24 January 2024 for corporate customers and from 10 March 2024 for retail customers.

Other commission and other income (pro forma) have reduced by NOK 3 million this quarter and NOK 16 million in 2023. This decline is primarily due to a reduction in payment processing, securities trading, and management, in addition to low activity in real estate brokerage.

Net profit from finance has decreases by NOK 3 million compared with the previous quarter and NOK 77 million in 2023. The decline in the quarter and in 2023 is primarily due to a negative financial result in SpareBank 1 Gruppen of NOK -17 million in the quarter and NOK -11 million for 2023. SpareBank 1 Gruppen AS has conducted a valuation of the jointly controlled company, Kredinor AS. The updated valuation results in an impairment of the ownership stake and has a negative impact on SpareBank 1 Gruppen's parent and consolidated net profit of NOK 769 million in the 4th quarter of 2023 and for the year 2023. A good result for Fremtind AS and SpareBank 1 Forsikring AS, however, contributes positively and offsets parts of the write-down of the equity stake in Kredinor.

Compared to the previous year, the operating expenses in the group have increased by NOK 90 million (7%), excluding one-time costs. Operating expenses in the parent bank during the same period have increased by NOK 66 million (7%). The increase is mainly due to higher costs of the alliance collaboration, ICT costs, consultant expenses for implementation and compliance with regulatory requirements, as well as underlying salary and price growth. The increased operating expenses in subsidiary companies are a result of the acquisition of Grenland Gruppen AS, with full effect from 2023, as well as general price and wage inflation.

The Group's financial target is for a cost-income ratio of less than 40%. The cost-income ratio excl. one-time cost per 4th quarter was 43.7% (44.8%) for the Group and 35,8% (39.6%) for the parent bank excluding one-time costs.

The loan growth has been weak in the quarter and over the past year. Lending growth in the quarter of 0.2 % compared with -0.6% in the same period the year before. Lending growth for 2023 was 0.1%, compared with 2.5% for 2022. The loan portfolio is considered to have good quality, as evidenced by low loan losses. 99 percent of the loan portfolio is classified in stage 1 and stage 2. Income recognition of losses in the quarter and in 2023 amounted to NOK 42 million and NOK 57 million respectively. The confirmed losses amount to a net of NOK 2 million for the year.

At the end of the year, the proportionally consolidated Common Equity Tier 1 capital ratio was 19.4% (19.5%)

On October 26, 2023, the companies announced a plan for the merger of SpareBank 1 SR-Bank ASA and SpareBank 1 Sør-Norge, with the aim of implementation 1st July 2024.

-Due to capacity constraints with external partners, suppliers, and internally, we believe it makes sense to allow the process more time. Therefore, we are working towards completing the legal merger 1st October 2024, says CEO of SpareBank 1 Sørøst-Norge, Per Halvorsen.

This assumes that the corporation has obtained the necessary regulatory approvals by that time.

Highlights of the 4th quarter of 2023 (figures in brackets concern the 4th quarter of 2022)

• Ordinary profit after tax of NOK 301 million (NOK 343 million)

• EPS group NOK 1,27 (1,46)

• Return on equity 9.3% (10.9%), adjusted for one-time effects 9.8% (11.3%)

• Net interest income, inclusive of mortgage credit institutions, of NOK 563 million (NOK 523 million)

• Net other commission and other income NOK 171 million (NOK 190 million)

• Net income from financial assets NOK 6 million (NOK 129 million)

• Profit contributions from SpareBank 1 Gruppen and BN Bank ASA of NOK -17 million (NOK 39 million) and NOK 16 million (NOK 11 million), respectively

• Losses on loans of income NOK 42 million (costs NOK 29 million)

• Lending and deposit growth in the past quarter was 0.2% (-0.6%) and -1.2% (-1.3%), respectively.

• Common Equity Tier 1 capital ratio 19.4% (19.5%)

Highlights for 2023 (figures in brackets relate to pro forma for 2022)

• Ordinary profit after tax of NOK 1 310 million (NOK 1 067 million)

• EPS group NOK 5.47 (NOK 4.29)

• Return on equity 10.2% (8.8%), adjusted for one-time effects 10.4% (9.6%)

• The Board is proposing a cash dividend for equity certificate holders of NOK 3.88 (4.10) per equity certificate, totalling NOK 543 million (NOK 574 million), and gift funds for community capital amounting to NOK 352 million (NOK 372 million)

• Net interest income, inclusive of mortgage credit institutions, of NOK 2 163 million (1 795 million)

• Net other commission and other income NOK 724 million (NOK 740 million)

• Net income from financial assets NOK 100 million (NOK 177 million)

• Profit contributions from SpareBank 1 Gruppen and BN Bank ASA of NOK -11 million (NOK 53 million) and NOK 55 million (NOK 43 million), respectively

• Losses on loans of income NOK 57 million (costs NOK 40 million)

• Lending and deposit growth in the past quarter was 0.1% (2.5%) and -0.1% (1.2%), respectively

The full quarterly report can be downloaded from the Bank’s website sparebank1sorost.no

*) Figures in brackets indicate the amount for the corresponding period in 2022 pro forma for SpareBank 1 Sørøst-Norge.

Sandefjord, 08.02.2024

For further information:

Per Halvorsen, CEO, Tel. +47 934 07 441

Roar Snippen, CFO/IR, Tel. +47 976 10 360

This information must be disclosed pursuant to section 5-12 of the Securities Trading Act.