Sparebanken Møre

Investor Presentation • Oct 19, 2017

Sparebanken Møre - the Group

PRESENTATION 3RD. QUARTER 2017

October 19 2017

Runar Sandanger EVP

• Introduction and highlights
• Results
• Deposits and Loans, overview and details
• Liquidity and Capital
• Future prospects and main targets

Highlights from Q3 2017

- Good growth and improved conditions

STABILIZED ECONOMIC OUTLOOK	 Economic activity in the county has over the last months stabilized at a higher level  Key reasons for this are a weak NOK, low level of interest rates and an expansionary fiscal policy  In September, the registered unemployment rate in Møre og Romsdal (NAV) was 2.5 per cent. This was the same unemployment rate as for the country as a whole. The unemployment rate in the county is now at the lowest level in two years
GOOD GROWTH	 The bank is competitive and has recognized good, but reduced lending growth both to the retail market and to the corporate market  We expect lower rates in lending growth for the rest of the year
IMPROVED NET INTEREST INCOME	 Despite a persistent tough competition, lower risk and thus lower margins in parts of the corporate sector portfolio together with sustained low interest rates, the bank can show a positive development in net interest income in the quarter  The improvement is most marked in the retail market, among other things as a result of lower funding costs
COOPERATION WITH NTNU	 In September, Sparebanken Møre entered into a partnership with NTNU, which will contribute to research and development in service innovation, entrepreneurship, finance and technology. The collaboration is concretized through a lab, which is established at NTNU in Ålesund, and current research areas are artificial intelligence, machine learning, Big Data and sustainable business models
ORGANISATION	 Sparebanken Møre has recently changed the organisation with the aim of ensuring the Bank having a future-oriented, outwardly directed and efficient organisation. Among other things, the Bank has created a brand new division, Customer Experience, to ensure that both products and services meet customer requirements and expectations

Meeting the future New organisational structure from 01.10.17

The largest bank in the county

- Contributing considerably to the local society

28 OFFICES IN MØRE OG ROMSDAL

363 MAN YEARS

66 BILLION IN TOTAL ASSETS

Results in short

- In line with our plans

Result after taxation Return on Equity

• NOK million - In percent (ROE)

6

Changes from Q3 2016 to Q3 2017

- Result after taxation (NOK million)

Higher Net Interest Income in NOK

• Low level of losses also in Q3
• Gains from VISA contributed with NOK 7 million to Other Income in Q3 2016
• Lower operating costs

	30.09.2017		30.09.2016			Changes
Results (NOK million and %)	NOK	%	NOK	%	NOK	p.p.	%
Net Interest Income	810	1.70	809	1.79	1	-0.09	0.1
Net Income Financial Investments	19	0.04	27	0.06	-8	-0.02	-29.6
Gains from VISA			45	0.10	-45	-0.10
Gains/losses liquidity portfolio	22	0.05	27	0.06	-5	-0.01	-18.5
Other Income	143	0.30	137	0.30	6	0.00	4.4
Total Other Income	184	0.39	236	0.52	-52	-0.13	-22.0
Total Income	994	2.09	1,045	2.31	-51	-0.22	-4.9
Personnel costs	253	0.53	249	0.55	4	-0.02	1.6
Other costs	193	0.41	194	0.43	-1	-0.02	-0.5
Total operating costs	446	0.94	443	0.98	3	-0.04	0.7
Profit before losses	548	1.15	602	1.33	-54	-0.18	-9.0
Losses on loans, guarantees etc	14	0.03	0	0.00	14	0.03	-
Pre tax profit	534	1.12	602	1.33	-68	-0.21	-11.3
Taxes	134	0.28	141	0.31	-7	-0.03	-4.9
Profit after taxation	400	0.84	461	1.02	-61	-0.18	-13.2

	30.09.2017	30.09.2016	Changes
Balance in NOK million	NOK	NOK	NOK	%
Total Assets	66,189	61,790	4,399	7.1
Loans to customers	56,488	51,753	4,735	9.1
Deposits from customers	33,082	32,350	732	2.3
Net Equity and Subordinated Loans	6,535	5,971	764	12.8

Key Figures	30.09.2017	30.09.2016	Changes p.p.
Return on Equity	10.2	12.5	-2.3
Cost/Income Ratio	44.9	42.4	2.5
Total Capital	19.1	18.8	0.3
Core Capital	17.1	17.3	-0.2
Core Tier 1 Capital	14.5	14.9	-0.4
Leverage Ratio	8.5	8.1	0.4
Results per EC (NOK, the Group)	20.10	23.10	-3.00
Results per EC (NOK, the Bank)	22.30	25.70	-3.40

Quarterly development in Net Interest Income

- Increased net interest income

Net Interest Income Net Interest Income

• NOK million - % of Average Assets

Other Income

- Changes in NOK million compared with Q3 2016

• Valuation of the liquidity portfolio changed from + 17 million to 0 million from Q3 2016 to Q3 2017
• Negative change in other financial investments are mainly related to the VISA transaction and the development of basis swaps
• Continued good activity in our Discretionary Portfolio Management Department contributes positively during the quarter

Quarterly development Other Income

- Negative effects from financial instruments

Gains from the VISA transaction were booked in second and third quarter of 2016, NOK 38 million in Q2 and NOK 7 million in Q3 2016

Other Income Other Income

• NOK million - % of Average Assets

Total Income

- Quarterly development

345 ^{318 327 331 336} Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

Total Income Total Income

• NOK million - % of Average Assets

Costs

Reduction in personnel costs even with the introduction of financial tax with effect from January this year, amounting to NOK 3 million in Q3

Total Operating Costs

Operating Costs Operating Costs

• NOK million - % of Average Assets

High efficiency

- Internal target will be met (C/I< 45%)

Cost/Income ratio Total Assets and Man Years

• Total Assets in NOK billion

Result before losses

- Positive quarterly development

Result before losses Result before losses

Low level of losses over time

Losses on loans and guarantees Losses on loans and guarantees

• NOK million - % of Average Assets

Losses

Losses on loans and guarantees Losses on loans and guarantees

• NOK million - % of Average Assets

Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

Losses on loans and guarantees Detailed losses – corporate market

• NOK million - NOK million

Impairments

- Solid and comfortable levels

Impairments Impairments

Group of loans Not in default Loans in default> 90 days

• NOK million - % of Gross Loans

Group of loans Not in default Loans in default> 90 days

21

Problem Loans and Impairments

- Continued positive development

Problem Loans and Impairments (per cent)

Impairments in % of Problem Loans

Pre tax profit

- Positive quarterly development

Profit after losses Profit after losses

• NOK million - % of Average Assets

Balance

- Growth in line with our plans

Customer lending has increased by 9.1% the last 12 months

Loans Deposits

• NOK billion and per cent (y/y) - NOK billion and per cent (y/y)

• Deposits grew by 2.3% the last 12 months

• High deposit to loan ratio, 58.6%

Lending

- Good growth in the market

• Retail lending has increased by 7.8 % the last 12 months
• Loans to the retail market amount to 69.1 % of total loans

Retail market Corporate market

• NOK billion and per cent y/y - NOK billion and per cent y/y

• Corporate lending has increased by 12.3 % the last 12 months

• During Q3: -1.6 %
• Loans to the corporate market amount to 30.9 % of total loans

Loans by sector

Other:

Other Industry	1.7 %	Agriculture	0.7 %
Financial services	2.3 %	Fishing Industry	1.5 %
Building and construction	1.1 %	Furniture	0.1 %
Ship Yards	1.3 %	Other	0.6 %
Retail/wholesale trade	1.1 %

Lending - High proportion of secured loans

69.1 %

• % of total loans

• The bank complies with the regulations from the Norwegian authorities (Boliglånsforskriften)

• Deviations reported in the third quarter of 2017 were 5.4% outside Oslo, 6.0% in Oslo which are well within the requirement in section 8 Flexibility

Loans to retail customers Loan to value – retail loans

96.2% of mortgage-backed loans to retail customers are within 85% of value

Differences in house prices

- Development in average house prices September 2003 – September 2017

• The county of Møre og Romsdal has experienced lower growth in average house price per square meter than Norway as a whole
• Albeit negative development in Oslo over the last months, the y/y growth is still positive

Key information (pre-owned dwellings)	Norway	County of Møre og Romsdal	City of Ålesund	City of Stavanger	City of Oslo
Price development last 12 months	+1.5 %	+1.0 %	+0.1 %	+0.8 %	+0.9 %
Price per square meter (NOK)	40,200	24,600	31,200	38,300	69,600
Average days on market (DOM) sold units in September 2017	38 days	70 days	41 days	49 days	27 days
Price median dwelling (NOK)	3,064,000	2,400,000	2,650,000	3,250,000	3,968,000

• Norway- price per square meter NOK - In per cent of total dwellings

Price development different dwellings Part of dwellings which are apartments

• Growth in average apartment prices in Norway is levelling out
• We see differences in price development and number of days on market also between municipalities in the county of Møre og Romsdal
• In the county of Møre og Romsdal detached and semi-detached housing are more common
• In % of mortgages, Ålesund is the single largest municipality
• 3 out of 4 mortgages are secured by detached and semi-detached houses

Deposits

- Growth in deposits the last 12 months

• NOK billion and per cent y/y - NOK billion and per cent y/y

• Retail deposits have increased by 6.4 % the last 12 months

• Deposits from the retail market amount to 59.5 % of total deposits

Retail market Corporate and public

• Deposits from corporate customers have been reduced by 1.7 % the last 12 months and ended at NOK 12.4 billion by quarter end
• Deposits from public customers have decreased and ended at NOK 0.8 billion by quarter end

Discretionary Portfolio Management

- Strong return and strong growth - volume in NOK million

• In addition to deposits, increasingly more of the Bank's customers also ask for other investments
• Møre Aktiv Forvaltning (Møre Discretionary Portfolio Management) offers the Bank's larger clients professional management services

• Our local Asset Managers continuously monitor the portfolio

• 9 municipalities

• 8 foundations
• 1 pension fund
• 2 insurance companies
• 132 investment companies
• 177 wealthy private individuals

Deposits from customers and market funding

- Deposits are the Group`s most important source of funding, 58.6 % coverage

• NOK million

Deposits and market funding Sparebanken Møre with good access to the market – diversifying the investor base

• Total market funding ended just above NOK 25.4 billion by quarter end – more than 85 per cent with remaining maturity of more than one year
• Senior Bonds: Weighted average maturity of 2.28 years (FSA defined key figures)
• Covered Bonds issued through Møre Boligkreditt AS have a weighted average maturity of 3.72 years (FSA defined key figures)
• By quarter end five of Møre Boligkreditt`s bond issues are listed on Oslo Børs Covered Bond Benchmark list and also qualifies for Tier 2A liquidity in LCR. In Q2 Møre Boligkreditt AS successfully issued a Public EUR 250 million Covered Bond in the European market

Equity and related capital

- Capital and leverage ratio (LR) well above regulatory requirements

Core Capital in Sparebanken Møre Minimum requirements

• By quarter end our CET1 stood at 14.5 %, total capital at 19.1 %
• Sparebanken Møre`s capital targets are:
• Total Capital: Min. 17.3 %
• Core Capital: Min. 15.3 %

• CET1: Min. 13.8 %

• % of risk weighted assets - % of risk weighted assets

• The Group's Capital shall follow the announced regulatory capital escalation plan

• Our capital is calculated according to the IRB Foundation Approach for corporate commitments, IRB Approach for the retail market

MORG – price and Price/Book (P/B) value The Dividend Policy is adjusted

Equity per MORG is calculated on Group figures

• Sparebanken Møre`s allocation of earnings shall ensure that all equity owners are guaranteed equal treatment
• Sparebanken Møre has the recent years specified a dividend ratio in the range of 40 to 50 per cent
• The adjusted policy states that about 50 per cent of the profit can be distributed as dividends in the form of cash dividend to the equity certificate owners and dividend to the local community

GOALS IN OUR STRATEGIC PLAN «MØRE 2020»

• CET1 > 13.8 %
• Cost/Income < 45%
• ROE > 10 %
• Low level of losses
• Healthy financial structure

The history shows that we achieve our goals.

FUTURE PROSPECTS

• Continued, but somewhat declining lending growth for the rest of the year
• Positive development in net interest income
• Enhanced focus on other income
• Stable cost base increased efficiency
• Strong and forward-looking measures to meet the digital shift
• Still low losses

Contact

Trond Lars Nydal, CEO

Phone: E-mail: + 47 951 79 977 trond.nydal@sbm.no

Runar Sandanger, EVP

Phone: E-mail: +47 950 43 660 runar.sandanger@sbm.no

Tone S. Gjerdsbakk, Chief Information Officer

Phone: E-mail: + 47 990 44 346 Tone.gjerdsbakk@sbm.no sbm.no facebook.com/sbm.no Instagram @sbmno

engasjert.sbm.no

Disclaimer

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