Sparebanken Møre

Quarterly Report • Oct 20, 2016

Sparebanken Møre - the Group

Presentation 3rd quarter 2016

Runar Sandanger EVP October 20 2016

Agenda

• Summary
• Introduction
• Results
• Deposits and Loans
• Funding and Hedging
• Equity and ECs
• Economic outlook and future prospects
• Appendix: Housing Market

Historical performance and highlights

• The Norwegian economy is changing as a result of the consequences of the fall in oil prices. In our county we see the consequences differ between industries, however the total picture shows a favourable operating environment, albeit still high uncertainty
• Total assets ended at NOK 61.8 billion by quarter end
• We see a moderate growth in loans, very strong growth in deposits – the bank`s capital and liquidity position is strong
• The net interest margin is under pressure following high competition, different operating conditions, good liquidity and in general low interest rates
• The effect on profit before tax from the first part of the gain related to the Visa transaction was NOK 38 million in Q2 and further NOK 7 million in Q3
• Low level of loan losses and low volume of loans in default

High and stable return – based on our business model

• Reported ROE historical development *
• Less volatile key figures for Sparebanken Møre compared with peers
• Consequences of policy decisions
• Contract banking and a clean balance
• Core banking focusing on traditional banking services
• Focusing on lower growth to the corporate market
• Also compared with peers; our results are achieved with a high level of capital

Rebalancing of lending

Sparebanken Møre was until the early 2000s the bank among regional banks with the highest losses, while our dividend policy, then as now, has the objective of achieving financial results which provide a good and stable return on the bank`s equity

A too high share of - and too large growth in the corporate segment was not consistent with the objective above, and deliberate choices in relation to growth rebalancing was taken

• Reduced growth rate in loans to the corporate sector (see figure left) – over the last 15 years, the corporate share of lending has been reduced from about 48% to less than 30%
• Clearly defined limits for exposure and growth in different business sectors
• Further emphasis on credit quality especially in relation to fast growing sectors / industries

Introduction to the bank and the market

Introduction

Introduction to Sparebanken Møre

• Independent savings bank
• Head office in Ålesund
• 30 branches in Møre og Romsdal county

• NOK 61.8 billion in total assets, about 170,000 customers

• Listed on the Oslo Stock Exchange since 1989

• No. 1 bank in Møre og Romsdal

Introduction

Full service bank in Møre og Romsdal

Key business areas	Corporate Market	Retail Market	Capital Market	Adm/ support
Fully owned companies	Møre Boligkreditt The company has a license to operate as a mortgage company and issue covered bonds	AS	Møre	Eiendomsmegling AS Real estate brokerage towards retail and corporate customers
Core values	Enthusiastic "Maintain position as no. 1 bank in Møre og Romsdal"	Local "Local decision making, independent, and present"		Solid "High competence, financially solid and safe "

Sparebanken Møre – a brief overview

• Sparebanken Møre is the 8th largest Norwegian bank the bank serves customers from the county of Møre og Romsdal
• The population of Møre og Romsdal is just above 260,000, and the population in the municipalities where the bank is located is 200,000
• The bank serves about 170,000 customers, whereof
• 160,500 customers in the retail market
• 9,500 customers in the corporate market
• The activity is based on traditional banking services
• Loans to the retail market: 70.1 %
• Deposits from the retail market: 57.2 %
• Sparebanken Møre is a fully fledged foreign exchange bank
• Sparebanken Møre is rated A2 (stable outlook) by Moody`s
• Møre Boligkreditt AS(100 % owned covered bonds company) issues are rated Aaa by Moodys

Introduction

Sparebanken Møre's market area

Diversified business structure in the region Selected companies in Møre og Romsdal

• Fisheries/seafood
• Aluminum
• Marine construction
• Agricultural

Tourism

Furniture

• Offshore services

• Oil & gas

• Sparebanken Møre with about 30%

• market share

Møre og Romsdal county

among 19 counties in Norway

Diversified business structure

Norway's 3rd largest export county

263,719 inhabitants

Introduction

Møre og Romsdal – Diversified industries

Maritime industry

Fisheries and seafood

• Norwegian maritime areas are rich in natural resources, and play a very important role in commercial activities in Møre og Romsdal
• The petroleum sector has been responsible for 1/4 of the total investments in Norway
• Nyhamna in Møre og Romsdal receives gas from The Ormen Lange Oilfield, and delivers from there through another pipeline to Easington UK
• A large part of Norway's strength in the field of advanced marine operations is concentrated within an hours drive from the town of Ålesund.
• The region is home to 14 shipyards, and is one of very few complete maritime clusters in the world. The order books are good for most of the yards, the industry has been highly skilled to adapt to other building projects than oil-related
• Over 75 % of the worlds large, hi-tech offshore vessels are designed in our area
• 40% of the world's most advanced offshore fleet is controlled by 19 ship owning companies in the region – some owners last year laid up vessels to balance the market
• Norway has beaten all previous records and has exported seafood worth NOK 65 billion this year to date. This is an increase of 26 per cent or NOK 13.2 billion compared with the same period last year. Møre og Romsdal is by far the largest food exporting Norwegian county, responsible for 1/3 of the nations total food export
• In addition to fish and fish products the food production and exports also include agricultural products (fruit and berries) and other foodstuff industry (pizza, cured ham, salami, etc.)
• Trollstigen Mountain Road is one of Norway's most dramatic and most visited attractions
• The UNESCO-protected Geirangerfjord has been visited by more than 180 cruise vessels in 2016
• The city of Ålesund is known for its architecture in Art Nouveau style, its surrounding fjords and the high peaks of the Sunnmøre Alps

Tourism

Norway

• •The Norwegian mainland economy has grown since late 2009
• •Large government budget surplus, high petroleum investments and strong household sector
• •Ability and willingness to move monetary and financial policy in more expansive direction if needed
• •Well managed petroleum wealth, value of government pension fund of more than NOK 7 000 billion
• •Good labour market performance with low unemployment and high participation

Møre og Romsdal

• •Population of just above 260,000
• •Dominant industrial and commercial sectors are fisheries, tourism, maritimeand oil industry
• •Responsible for approximately 1/3 of Norway's total export of food, mainly fish and fishery
• products
• •Stabilized level of unemployment during the quarter, 3.0 %, national average of 2.8%
• •Below average national real estate prices and above average disposable income levels

Sparebanken Møre

• •8th. largest savings bank in Norway, solid financial performance with total assets of NOK 61.8 billion
• •Market leader in main market, the county of Møre og Romsdal
• •70.1% of lending to retail customers, of which more than 95 % are mortgages
• •Strong capitalization reflected by Core Capital of 17.3%, Core Tier 1 of 14.9% and a Leverage Ratio of 8.1%
• •The Bank is rated A2 (stable) by Moody's

14

Results

Main figures

	Q3 2016		Q3 2015			Changes
Results	NOK mill	%	NOK mill	%	NOK mill	p.p.	%
Net interest income	830	1.83	837	1.94	-7	-0.11	-0.8
Norwegian Banks` Guarantee Fund - fee	-27	-0.06	-24	-0.06	-3	0,00	12.5
Net interest income - total	803	1.77	813	1.88	-10	-0.11	-1.2
Net return, financial investments	27	0.06	56	0.12	-29	-0.06	-51.8
Gain Visa Transaction	45	0.10			45	0.10
Gain/losses liquidity portfolio	27	0.06	-41	-0.09	68	0.15
Other income	137	0.31	150	0.35	-13	-0.04	-8.7
Total other income	236	0.53	165	0.38	71	0.15	43.0
Total income	1,039	2.30	978	2.26	61	0.04	6.2
Personnel costs	249	0.55	248	0.57	1	-0.02	0.4
Other costs	194	0.43	189	0.44	5	-0.01	2.6
Total ordinary operating costs	443	0.98	437	1.01	6	-0.03	1.4
Result before credit losses	596	1.32	541	1.25	55	0.07	10.2
Losses on loans and guarantees	0	0,00	25	0.06	-25	-0.06
Result before tax cost	596	1.32	516	1.19	80	0.13	15.5
Tax cost	138	0.31	141	0.33	-3	-0.02	-1.9
Result after tax cost	458	1.01	375	0.86	83	0.15	22.1
Total assets	61,790		59,641		2,149
Lending	51,753		51,419		334
Deposit from customers	32,350		29,286		3,064
Capital	6,180		5,745		435
Capital %	18.8		17.2
Core capital %	17.3		15.7
CET 1 %	14.9		13.3
Leverage Ratio (LR) %	8.1		7.8
ROE	12.4		10.8
Cost/income ratio	42.6		44.7
Earnings per EC (Group in NOK)	22.95		18.80
Earnings per EC (Bank in NOK)	25.50		21.30

Result as a percentage of average assets - still very low losses

Lower net interest income

AS A PERCENTAGE OF AVERAGE ASSETS

Net interest income is lower than in the three first quarters of 2015

• Strong competition on loans and deposits
• More liquidity on the balance sheet with higher quality
• Still low interest rate level with low return on free capital
• Gradually higher funding margins through 2015, levelling out in 2016

Other operating income

Higher other operating income, compared with the three first quarters of 2015

• Slightly higher income from customer`s hedging activity in the fx market, lower from the interest rate market and from financial instruments
• The market value of our liquidity portfolio is higher
• The Visa Transaction gives a strong positive contribution to other income
• Lower income from guarantees and from our real estate brokerage activity

Development in cost/income - target will be met

Losses at a very low level

Losses totalled NOK 0 million

• Corporate: NOK -1 million
• Retail NOK -4 million
• Collective impairments NOK 5 million

Total impairments amounted to

Losses - details

Problem Loans and impairments - continued positive development

Problem Loans and Impairments(per cent)

Problem Loans in % of Gross Loans (left hand scale) Impairments in % of bad and doubtful loans

• The volume of Problem Loans has declined over the last years
• As a percentage of gross loans this figure ended at 0.43 % by the end of Q3 2016
• The Bank`s loan loss reserve coverage ratio shows a similar positive development and ended at 150 % by quarter end

Reduced growth

Lower growth - breakdown of gross lending

NOK mill.

Annual net lending growth
2013:	6.2 %
2014:	5.7 %
2015:	4.9 %
Q3 2016:	0.6 %

Lending growth last 12 months

Gross, retail banking	6.2 %
Gross, corporate	-9.8 %

Composition of loans

Retail market:	70.1 %
Corporate market:	29.9 %

Loans by sector

Other 8.8 %

Other industry	1.3	Financial services	1.5	Agriculture	0.7
Building/construction	1.2	Fishing Industry	1.6	Furniture	0.1
Retail/wholesale trade	1.0	Ship Yards	1.0	Other	0.4

Total exposure – Offshore/Supply

Segment	Exposure MNOK	Total	Guarantees	Loans
Seismic	813	40%	23%	55%
PSV	783	38%	64%	14%
AHTS	316	15%	13%	18%
MPV	139	7%	0%	13%
Total	2,051	100%	100%	100%

Seismic

• Total exposure MNOK 813
• 3 companies and 10 ships
• Market leading counterparties

PSV

• Total exposure MNOK 783
• 4 companies and 9 ships
• Largest exposure MNOK 262 on contract to 2020 with a very strong counterparty

Impairments – Offshore/Supply

Impairments according to risk classes and EAD by end of Q3 2016

MNOK	EAD	Individual impairments	Collective impairments	Total	Percentage of EAD
Low risk (A-C)	946	0	0	0	0 %
Medium risk (D-G)	745	0	62	62	8 %
High risk (H-M)	424	0	107	107	25 %
Impaired committments	0	0	0	0	0 %
Total	2,116	0	169	169	8 %

Stronger growth - breakdown of deposits

Annual deposit growth
2012:	6.9 %
2013:	3.6 %
2014:	1.1 %
2015:	3.5 %
Q2 2016:	10.5 %

Deposit growth last 12 months

Retail sector	5.2 %
Corporate sector	20.0 %
Public sector	21.4 %

High deposit to loan ratio - total financing by quarter end

• Deposits from customers are the Group`s most important source of funding
• We maintain a high deposit to loan ratio (62.5 % in the Group). Sparebanken Møre experiences the market access as very good
• Total market funding ended just above NOK 21.8 billion by quarter end – nearly 80 per cent with remaining maturity of more than one year
• Senior Bonds: Weighted average maturity of 1.98 years, Covered Bonds with a weighted average maturity of 3.81 years (FSA defined key figures)
• By quarter end four of Møre Boligkreditt`s bond issues have a size that qualifies for Tier 2A liquidity in LCR. Møre Boligkreditt AS will going forward issue and build up more loans in this category

Lower funding margins

Margins

• The bank's funding in excess of deposits are covered in the money and capital markets
• In the first half of 2015 we saw a slight recovery in margins in the market, but after the summer we recorded a sharp increase, accelerating especially in the second half of September and following Norges Bank's interest rate decision
• Margins rose further until the end of February this year and the liquidity was weak. Increase in margins during the period as a whole has been highest for senior bonds – these bonds also experienced the most positive development the last weeks of Q1 and in Q2
• The reduction in margins was current broken in connection with brexit, but continued through the late summer. Borrowing margins lies by the end of Q3 approximately at the level we saw in August/September last year
• The refinancing of existing loans and financing of new growth will be adapted to regulatory requirements as LCR and L1 (including our targets related to transfer of mortgages to Møre Boligkreditt AS), and bail-in rules. Sparebanken Møre will also going forward maintain a share of senior financing according to bail in regulations and market expectations
• In addition to rating the LCR rules have led to differentiated margin pricing depending on size of the issue

The quality of the liquidity portfolio is good - and LCR compliant

Rating	Market Value	Country	Market Value	Currency	Market Value
AAA	6.395.961	Norway	4.811.463	NOK	6.443.227
AA+	582.365	Denmark	574.867	EUR	555.337
AA	16.808	Sweden	556.489	DKK	223.300
A+	10.034	Int`l org	375.513
A	131.924	Finland	293.836
BBB	54.842	Germany	253.466
Not rated	29.929	Luxembourg	214.240
		Austria	50.007
		Netherlands	46.984
		UK	44.999
Total	7.221.864	Total	7.221.864	Total	7.221.864

Off balance activity - quarterly

NOK MILL

Low risk profile in the interest rate, equity and FX markets

• Sparebanken Møre has no trading portfolio in these or other similar markets/instruments
• Client's positions are hedged in the market
• The bank's positions are hedged

Number of commercial payments

Equity and ECs

Equity and related capital:

• strong capital compliant with new requirements

Strong Capital

• Sparebanken Møre will maintain a strong financial position as the leading bank in the region and will follow the announced schedule related to core capital. Our capital targets are:
• Total Capital: Min. 16.5 %
• Core Capital: Min. 14.5 %
• CET1: Min. 13.0 %

Dividend policy

"Sparebanken Møre's aim is to achieve financial results which provide a good and stable return on the Bank's equity. The results shall ensure that the owners of the equity receive a competitive, long-term return in the form of dividends and increase in the value of the equity.

The equity owners' share of the net result being set aside as dividend funds, will be adapted to the Bank's equity situation. Sparebanken Møre's allocation of earnings shall ensure that all equity owners are guaranteed equal treatment."

Given Sparebanken Møre`s strategic plan and stipulated return on equity, we expect the normalized dividend payout ratio to be in the range 40-50%

Dividend and EC-price

• The PCCs/ECs of Sparebanken Møre have been listed at Oslo Stock Exchange since 1989
• Total EC capital: NOK 989 million by September 2016
• In general Norwegian savings banks are traded at a discount compared to book value

Moderate production growth in Møre og Romsdal in 2017

Most sectors are doing well

• Increasing growth in traditional exports, in particular fish exports
• Higher demand for personal services
• Increased activity in the public sector and within construction.
• Further decline in oil investments and reduced production in the delivery industries
• Considerable restructuring in the labour market
• Unemployment seems to be levelling out. In September 2016 the registered unemployment rate was 3.0 per cent.

Most important risk factors:

• International economy
• The oil price and oil investments
• The Norwegian krone
• Domestic house prices

Summing up and outlook

From the CEO:

• Continued economic uncertainty
• The strong competition will continue
• Main targets from our business plan Møre 2020 will be met
• CET1 > 13.0 %
• ROE > 10 %
• Avoid losses
• Healthy financial structure

Appendix: The Housing Market

Key characteristics Home ownership • Among the highest in the world – around 80% of households own their own home • Limited buy-to-let market Mortgage lending requirements • LTV shall not exceed 85% • Min. amortization of 2.5% per year or max. 30 year repayment if LTV exceed 70% • Debt-service ability should be stressed for a 5 % increase in customer interest rate Personal Liability • Borrowers are personally liable for their debt – also after foreclosure / forced sale • Transparent and reliable information aboat borrowers available to the lenders Mortgage lending • More than 95% of all mortgage lending is granted by banks / mortgage companies • Approximately 90% of residential mortgages are floating rate loans • The interest rate on floating rate mortgages can be increased with six weeks notice • Typical residential mortgage maturity is 25-30 years Social benefits • According to OECD, Norway has the best unemployment benefits • On average about 60% of previous salary paid benefit for 104 weeks minimum Tax incentives • All interest expenses are tax deductible at capital gains tax rate (25%) • Property is given preferential treatment when calculating wealth tax • Capital gain on dwellings is tax free under certain circumstances

Differences in housing types and prices

- Norway

Household housing type distribution

58% 80% 100% Housing type distribution - Detached vs apartment

Detached Apartment

In Møre og Romsdal county detached and semi-detached housing are more common.

Differences in development of housing prices

Year-over-year average growth in Norwegian housing prices by September 2016 is 10.0 per cent, compared to 3.0 per cent in Møre og Romsdal.

The average national price per square meter in Norway is higher than the average price per square meter in the county of Møre og Romsdal.

Detached

Housing market

Differences in house price

In Oslo the average growth in house prices was +18.5 per cent last twelve months, compared to -5.3 per cent in Stavanger, and +6.0 per cent in the city of Ålesund.

The median house price in Norway was NOK 2.9 million in September 2016, compared to NOK 2.3 million in the county of Møre og Romsdal.

Source: Eiendomsverdi AS

Contact

Head Office		Chief Information Officer Tone Skotheim Gjerdsbakk	tone.gjerdsbakk@sbm.no	+47 99 04 43 46
Keiser Wilhelmsgt. 29-33
P.O.Box 121 6001 Ålesund		Treasury and Markets Division
Tel:	+47 70 11 30 00	Head of Division Runar Sandanger, EVP:	runar.sandanger@sbm.no	+ 47 70 11 31 73
Reuters Dealing:	MORE			+ 47 95 04 36 60
Fax: General Management	+47 70 12 26 70	Chief Economist Inge Furre:	inge.furre@sbm.no	+ 47 70 11 31 44
Corporate Division	+47 70 12 44 67	Treasury
Retail Customers Division	+47 70 12 98 85	Ove T. Ness, Head of Treasury	ove.ness@sbm.no	+ 47 70 11 31 74
Treasury & Markets	+47 70 12 13 01	Møre Boligkreditt AS: Ole Andre Kjerstad, Managing Director: ole.andre.kjerstad@sbm.no		+ 47 41 40 09 55
International Payments	+47 70 12 99 12
www.sbm.no		Sparebanken Møre Markets Martin H. Skuseth SVP, Head of Markets martin.skuseth@sbm.no		+47 70 11 31 85
		Discretionary Asset Management Trond Moldskred, Head of Dept.	trond.moldskred@sbm.no	+ 47 70 11 31 87
		International Payments and Settlements Karl Otto Hessen, Head of Dept.	karl.otto.hessen@sbm.no	+ 47 40 20 09 54