SpareBank 1 Sørøst-Norge

Earnings Release • Oct 26, 2023

Good results, high solvency, strong underlying operations, and positive activity in the quarter

Good results, high solvency, strong underlying operations, and positive activity in the quarter

SpareBank 1 Sørøst-Norges profit in the third quarter of 2023 was NOK 303 million. This is an increase of NOK 45 million, or 17%, from the corresponding quarter of 2022. The result is driven by strong underlying operations. Loan growth is still low, but it has picked up at the end of the quarter.

The return on equity for the quarter was 9.4%, compared with 12.4% in the previous quarter. The deviation from the previous quarter is primarily due to financial items and reversals of provisions made in the second quarter, as well as a poor result in the third quarter for SpareBank 1 Gruppen.

Net interest income including commission income from mortgage credit institutions grew by 3.3% in the third quarter and 20% in the past 12 months. In the current year, the policy rate has been increased from 2.75 % to 4.25 % by the end of the third quarter of 2023. 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 September 2023 took effect from October 12 for corporate customers and will take effect from November 28 for retail customers.

Lending growth has been weak in the quarter and the past year. But it has picked up towards the end of the quarter. In the third quarter, lending growth was 0.3%, compared with 0.5% in the same period last year, and for the past 12 months it is -0.8%, compared with 4.1% for the same period last year. The Group's growth ambitions stand. The Group's ambition is to outperform market growth in the region, although it will focus on profitable growth based on the Group's financial targets.

Other commission and other income (pro forma) have increased by NOK 8 million compared to 2022. Lower activity in the real estate brokerage business and somewhat reduced activity in the accounting firm have resulted in a reduction of other income by NOK 24 million in the quarter.

Net profit from finance has decreases by NOK 43 million compared with the previous quarter. This is mainly due to the dividend income recognized in the second quarter, as well as a negative change in value on derivatives and the fair value of fixed-rate loans.

Compared to the previous year, the operating expenses in the group have increased by 10% (NOK 82 million), excluding one-time costs. Operating expenses in the parent bank during the same period have increased by 8.4 % (NOK 56 million). The increase is mainly due to higher 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 per third quarte was 42.2% (45.6%) for the Group and 33.8% (39.8%) for the parent bank excluding one-time costs.

The loan portfolio is of good quality, as evidenced by low loan losses. 99.0% of the loan portfolio is classified in stages 1 and 2. In the quarter, the cost of losses on loans amounted to NOK 19 million. By the end of the third quarter, NOK 15 million of the loss cost has been recognized as income. Changes in model-calculated provisions for losses, stages 1 and 2, contribute positively by NOK 20 million. The scenario weighting and safety margin from the second quarter have been carried forward into the third quarter.

A general rise in market rates is expected to improve the Group’s interest rate margin and earnings.

At the end of the quarter, the consolidated Common Equity Tier 1 capital ratio was 18.7%. Since the financial statements have not been reviewed by an auditor, the result year to date is not included in the calculation. If we assume a dividend share of 50 percent, the common equity tier 1 capital ratio for the group is 19.7%.

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

• Ordinary profit after tax of NOK 303 million (NOK 258 million)

• Net interest income, inclusive of mortgage credit institutions, of NOK 548 million (NOK 457 million)

• Net income from financial assets NOK 9 million (NOK 1 million)

• Profit contributions from SpareBank 1 Gruppen and BN Bank ASA of NOK -3.6 million (NOK 5.1 million) and NOK 13.6 million (NOK 11.5 million), respectively

• Losses on loans and guarantees of NOK 19 million (NOK 7 million)

• Return on equity 9.4% (8.4%), adjusted for one-time effects in 2022 (8.9%)

• Lending and deposit growth in the past quarter was 0.3% (0.5%) and -2.3% (-2.1%), respectively

• Common Equity Tier 1 capital ratio 18,7%

Highlights for Q3 2023 (figures in brackets relate to pro forma for Q3 2022)

• Ordinary profit after tax of NOK 1 010 million (NOK 724 million)

• Net interest income, inclusive of mortgage credit institutions, of NOK 1 601 million (NOK 1 293 million)

• Net income from financial assets NOK 94 million (NOK 48 million)

• Profit contributions from SpareBank 1 Gruppen and BN Bank ASA of NOK 8.4 million (NOK 14.9 million) and NOK 38.9 million (NOK 32.5 million), respectively

• Losses on loans and guarantees of NOK -15 million (NOK 11 million)

• Return on equity 10.7% (8.2%), adjusted for one-time effects in 2022 (9.1%)

• Lending and deposit growth in the past 12 months of -0.8% (4.1%) and -0.1% (1.5%), 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, 25.10.2023

Contact people:

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.