SpareBank 1 Sørøst-Norge

Earnings Release • Aug 10, 2023

Stronger results driven by good underlying operations and increased income

Stronger results driven by good underlying operations and increased income

SpareBank 1 Sørøst-Norge delivered good results driven by good underlying operations and increased other income and financial income. Lending growth is low, and it appears that people and businesses are more pessimistic about how their finances will develop, according to the Bank’s own survey of expectations.

Based on the Bank's good financial strength, the Board of Directors decided to exercise its authorisation from the Supervisory Board and pay out the additional dividend for 2022 of NOK 1.50 per equity certificate. Of the total dividend of NOK 346 million, NOK 136 million was allocated to the community capital, while NOK 210 million was paid out to equity certificate holders. In total, following the payment of additional dividends, the Group has paid 91% of the official profit for 2022.

SpareBank 1 Sørøst-Norge posted a profit after tax of NOK 387 million for the second quarter, compared with NOK 320 million for the first quarter. The return on equity for the quarter was 12.4%, compared with 10.4% in the previous quarter.

The improvement in profit from the previous quarter was due to increases in financial and other income of NOK 18 million and NOK 23 million, respectively. Net interest income also strengthened in the quarter, although warning deadlines and higher market interest rates mean the effects will be seen in the coming quarter.

Net interest income including commission income from mortgage credit institutions grew by 1.4% in the second quarter and 25% in the past 12 months. The policy rate has been raised a total of nine times in 2022 and so far in 2023, from 0.5 percentage points at the start of 2022 to 3.75% at the end of the second quarter of 2023. The Bank has adjusted customer interest rates on the basis of Norges Bank's interest rate hikes. The latest interest rate change from June 2023, came into effect on 12.07.2023 for corporate customers and on 09.08.2023 for retail customers.

Lending growth has been weak in the quarter and the past year. In the second quarter, lending growth was 0.2%, compared with 1.6% in the same period last year, and for the past 12 months it is -0.6%, compared with 5.1% 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) was on a par with 2022, although growth in the current quarter is good. The increase in the quarter is due to increased activity in the real estate brokerage operations.

Net profit from finance was up by NOK 18 million compared with the previous quarter. This was mainly due to dividend recognition, as well as positive changes in the value of derivatives and the fair value of fixed-rate loans.

The Group's operating expenses show an increase compared to last year of 7.7% (NOK 44 million) excluding one-off expenses. Operating expenses in the parent bank in the same period increased by 6.0% (NOK 28 million). The increase was due to increased operating expenses in the SpareBank 1 Alliance and underlying wage growth and price inflation. The increase in operating expenses in the subsidiaries was due to the acquisition of Grenland Gruppen AS with full effect from 2023, as well as general price inflation and wage growth.

The parent bank and the Group maintain a strong focus on cost management. The Group's financial target is for a cost-income ratio of less than 40%. The cost-income ratio for the first half-year was 41.5% (53.2%) for the Group and 32.2% (46.8%) for the parent bank.

The quality of the loan portfolio is good, which is confirmed by the low losses on loans and guarantees. The loss cost was positive in the amount of NOK 34 million for the quarter and NOK 34.5 million for the year to date. Changes in model-calculated impairment provisions, Stages 1 and 2, made a positive contribution of NOK 5 million. Changes in the individual impairment provisions for Stage 3 resulted in income recognition of NOK 28 million, mainly due to the repayment of exposures, while the net losses for the period amounted to income recognition of NOK 1 million.

The Bank adjusted its lending and deposit rates following Norges Bank’s interest rate decisions in June. A general rise in market rates is expected to improve the Group’s interest rate margin and earnings. Higher interest rates and increased competition, particularly in the mortgage segment, may be contributory factors to the low lending growth in recent quarters.

Increased ownership interest in Samarbeidende Sparebanker AS, SpareBank 1 SamSpar AS and Samarbeidende Sparebanker Utvikling DA following the acquisition of shares from SpareBank 1 SMN following its merger with the former SamSpar-bank SpareBank 1 Søre Sunnmøre. Following negotiations, an agreement was signed on 29.06.2023 in which the other banks in SamSpar purchased all of the shares that SpareBank 1 Søre Sunnmøre, now merged into SpareBank 1 SMN, owned in Samarbeidende Sparebanker AS, SpareBank 1 SamSpar AS and Samarbeidende Sparebanker Utvikling DA, respectively. Based on this, SpareBank 1 Sørøst-Norge will, upon completion the transaction, own 32.2% of Samarbeidende Sparebanker AS, 32.4% of SpareBank 1 SamSpar and 46.7% of Samarbeidende Sparebanker Utvikling DA. This corresponds with an indirect ownership interest of 6.3% in SpareBank 1 Gruppen AS and 8.4% in SpareBank 1 Utvikling DA.

At the end of the quarter, the consolidated Common Equity Tier 1 capital ratio was 19.4% (19.3%) and the leverage ratio was 8.3% (8.5% pro forma).

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

• Ordinary profit after tax of NOK 387 million (NOK 271 million)

• Net interest income, inclusive of mortgage credit institutions, of NOK 530 million (NOK 426 million)

• Net income from financial assets NOK 52 million (NOK 19 million)

• Profit contributions from SpareBank 1 Gruppen and BN Bank ASA of NOK -1 million (NOK 5 million) and NOK 12 million (NOK 10 million), respectively

• Losses on loans and guarantees of NOK -34 million (NOK 15 million)

• Return on equity 12.4% (9.4%), adjusted for one-time effects in 2022 (10.0%)

• Additional dividend of NOK 1.50 per equity certificate, NOK 210 million in total, and NOK 136 million for gift funds for community capital.

• Lending and deposit growth in the past quarter was 0.2% (1.6%) and 3.5% (2.8%), respectively

• Common Equity Tier 1 capital ratio 19.4% (19.3%)% Consolidated Common Equity Tier 1 capital ratio

Highlights for H1 2023 (figures in brackets relate to pro forma for H1 2022)

• Ordinary profit after tax of NOK 707 million (NOK 466 million)

• Net interest income, inclusive of mortgage credit institutions, of NOK 1 053 million (NOK 836 million)

• Net income from financial assets NOK 85 million (NOK 46 million)

• Profit contributions from SpareBank 1 Gruppen and BN Bank ASA of NOK 10 million (NOK 10 million) and NOK 25 million (NOK 21 million), respectively

• Losses on loans and guarantees of NOK -34 million (NOK 4 million)

• Return on equity 11.3% (7.9%), adjusted for one-time effects in 2022 (9.5%)

• Lending and deposit growth in the past 12 months of -0.6% (5.1%) and 0.0% (4.3%), 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, 09.08.2023

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.