Sparebanken Sør

Investor Presentation • May 7, 2024

Sparebanken Sør

Investor presentation Q1 2024

Low risk and increasing ROE

Increasing ROE

Good for the Bank = Good for the region

NOK 208 million for non-profit purposes in the region NOK 417 million directly to customers in customer dividends NOK 417 million in dividends to owners of equity certificates

Significant gifts to the region during the anniversary year

Good start for Frendegruppen

Frendegruppen shall be the preferred cooperation option for non-aligned banks

• The recruitment work for key positions has started and several very good candidates are in the process
• Started explorations related to a possible future collaboration on Technology
• We are working on a powerful investment within asset management

Positive economic development in the region

Source: Norges Banks regionale nettverk, Rapport 1/2024

7

Housing price growth in Agder is at 1.9% in the last 12 months and 1.2% in Norway

The nurse index shows that a single nurse can buy 46 % of the homes sold in Kristiansand, 63 % in Grenland and 64 % in Arendal.

Unemployment is slowly increasing, but is still at a low level. (2.0 per cent in Norway and 2.1 per cent in Agder)

The economy is affected by high activity and investment in the energy sector

A good start to 2024

• Net interest income increased by 16 percent
• Stable net comission income
• Positive financial income
• Lower profit contributions from associated companies
• Low losses and defaults still at a historically low level
• Result per equity certificate (EC) of NOK 5.3 (NOK 4.3)
• Return on equity of solid 14.4 percent (12.5 percent)

NOK million	2024 Q1	2023 Q1	Change
Net interest income	824	712	113
Net commission income	86	85	-1
Net income from financial instruments	39	-4	43
Associated companies	5	34	-30
Other operating income	3	1	2
Total income	956	828	128
Total expenses	330	304	26
Profit before losses on loans	626	525	101
Losses on loans, guarantees	6	-5	11
Profit before tax	620	529	91
Tax expenses	47	67	-20
Profit for the period	573	462	111

Decomposition of changes in profit before tax

Q1 2023 Profit before tax

Very strong growth in net interest income

• The interest rate changes have led to increased interest margins for both the retail and corporate markets
• Positive deposit and lending growth in the last 12 months
• Positive momentum into Q2

Net interest income

Increased loan margins and falling deposit margins

NIBOR 3M development

1) Interest margin is the average lending rate minus the average deposit rate

Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Retail Market (CM) Corporate Market (CM)

Profit contributions from associated companies

• The share of profit from Brage Finans in Q1 2024 was affected by a provision for losses linked to a single commitment, but the company can otherwise show a good quarter with growth in both income and portfolio.
• The share of profit from Frende in Q1 was negative, the start of 2024 has been challenging for the claims business, with results characterized by natural damages and a relatively high number of large claims
• Increased holdings in Brage Finans to 27.6% in Q1 2024
• Increased holdings in Frende Holding to 20.3% in Q1 2024

Effect on results after consolidation

NOK million		Q1 2024	Q1 2023	Change
Frende Holding*	Share of profit	-2 11		-12
(20,3 %)	Amort.	-6	-6	0
	Sale
Brage Finans (27,6%)	Share of profit	12	18	-6
Balder Betaling (23,0 %)	Share of profit	0	11	-11
SUM		5	34	-30

Strong return on equity and low cost percentage

NOK million

1) Net interest income + Net commission income + Other operating income – Operating expenses +/- One-off items

2) Return on equity excl. accounting effects from financial instruments and one-off items and incl. interest on hybrid capital

Ambition for high cost-efficiency

• Among the most cost-effective banks
• Ambition to continue to be among the most efficient banks going forward
• Ambition for cost growth at the level of inflation

Prioritise profitable growth

124,6 125,4 126,1 127,5 128,9 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Deposits NOK billion Net loans

• 12 month growth of 3.5 %
  • 12 month growth in gross loans of 2.1 % for retail customers and 6.0 % from corporate customers
• Annualised quarterly growth of 4.2 %
  • 1.1 % for retail customers and 9.8 % from corporate customers

• 12 month growth of 5.5 %
  • 12 month growth in deposits from retail customers of 3.8 % and corporate customers of 6.5 %
• Deposit coverage of 54.5 % (53.7 %)

Low losses and non-performing loans

Development in losses in NOK million and as a percentage of gross loans (annualised))

Development in non-performing loans (IFRS 9, step 3) in NOK million And as a percentage of gross loans

Development in loss provisions in NOK million and as a percentage of gross loans

Diversified loan portfolio with low risk

Total Geographical distribution of the overall lending portfolio

Corporate Market

36 % of the loan portfolio

Distribution of loans by size

Sector distribution

Retail loan book – 96% mortgages and good security (low LTV)

19 Average loan-to-value of approx. 57 percent for mortgages (Group)

Solid asset backing in commercial real estate portfolio (property management)*

LTV distribution – «whole-loan approach» LTV distribution – "loan-splitting approach"**

* Additional collateral for all above 80 %. Collateral in other types of pledged assets than real estate not taken into account

20 (guarantees, equipment, receivables etc.)

** Only the part of a loan exceeding a certain threshold of LTV is included in the next bracket of higher LTV ratio

Good margin for regulatory capital requirements

Capital requirements

	Requirement 31.03.24	Requirement 31.12.24
Minimum Tier 1 Capital Requirements	4,5 %	4,5 %
Conservation buffer	2,5 %	2,5 %
Systemic Risk Buffer	4,5 %	4,5 %
Countercyclical Buffer	2,5 %	2,5 %
Pillar-2 requirements	1,0 %	0,9 %
CET1 requirements	15,0 %	14,9 %
Pillar-2 Guidance 1)	1,0 %	1,0 %
CET1 requirements Incl. P2G	16,0 %	15,9 %

1) The bank received final feedback on the SREP on April 30, 2024.

Capital adequacy

IRB application during 2024

• The bank is planning to submit the IRB-F application during the second half of 2024, with an expected processing time of at least 1 year from Finanstilsynet. Significant project deliveries are completed and implemented.
• The database for defaults has been completed, and new PD models are in production internally during Q2.

Analyses indicate expected capital effects of approximately 3.5 % on CET-1.

22

Positive capital effects from "Basel IV" / IRB-F

Capital release from Basel IV / IRB (NOKm)*

Higher ROE due to new capital regulations**

** Assumes the same profit after tax and reduced equity as a result of "Basel IV"/IRB-F

***ROE adjusted for financial income and normalized tax rate

23

20 00 0

14.2%

Diversified financing

Deposits split

Capital market funding split

Capital market maturity profile*

Subordinated loans

Covered bonds Senior unsecured bonds SNP Subordinated loans TOTAL

Key comments

• Predominantly funded with customer deposits and covered bonds (OMF)
• NOK 70.5 bn in customer deposits 48 % retail customers
• NOK 64.3 bn in capital market funding ~24% maturing in 2028 and later
• Sparebanken Sør has an A1 rating, "stable outlook"
• Sparebanken Sør Boligkreditt AS received an A1 rating in June 2023, in line with the bank
• Bonds issued by Sparebanken Sør Boligkreditt AS is rated AAA

Strong liquidity position

25 613 1 372 Bonds and certificates Other liquid assets

Sources of liquidity Main features Liquidity ratios

• Bonds and certificates constitute the majority of the liquidity portefolio
• Covered bonds make up for (OMF) 64% of all bonds and certificates
• Satisfying liquidity ratios LCR ratio of 150 % and NSFR ratio of 123 %

Bonds and certificates split Other liquid assets split

Delivers on the financial targets

Positive future prospects

Strong market position

Low risk in the loan portfolio

High cost efficiency and low complexity

Leader in ESG

Measures to increase ROE in the future

Equity certificate owners

20 largest equity certificate owners as of 31.03.2024

	Name	Amount EC	Share EC %		Name	Amount EC	Share EC %
1	Sparebankstiftelsen Sparebanken Sør	10.925.765	26,20	11	AF Capital AS	504.000	1,21
2	J.P. Morgan Securities LLC	2.400.000	5,75	12	Verdipapirfondet Fondsfinans Norge	364.585	1,11
3	Sparebanken Vest	2.400.000	5,75	13	Vpf Fondsfinans Utbytte	450.000	1,08
4	Geveran Trading Company LTd	1.800.000	4,32	14	J.P. Morgan SE	362.848	0,87
5	EIKA utbytte VPF c/o Eika kapitalforv.	1.426.319	3,42	15	U.S. Bank National Association	345.800	0,83
6	Spesialfondet Borea Utbytte	1.304.979	3,13	16	Drangsland Kapital AS	302.107	0,72
7	Pershing LLC	1.020.000	2,45	17	Verdipapirfondet Nordea Norge Verd	280.902	0,67
8	KLP Gjensidige Forsikring	869.013	2,08	18	State Street Bank and Trust Comp	266.729	0,64
9	Verdipapirfondet Holberg Norge	658.542	1,58	19	Hjellegjerde Invest AS	243.507	0,58
10	Goldman Sachs & Co. LLC	614.633	1,47	20	Pareto Invest Europa AS	240.000	0,58
	Sum 10 largest owners	23.419.251	56,16		Sum 20 larges owners	26.879.729	64,46

• 41.703.057 equity certificates with a face value of NOK 50 each have been issued.

• The earnings (Group) for Q1 2024 amounted to 5.4 NOK per equity certificate and 16.4 NOK per equity certificate in 2023

• The ownership fraction as of March 31, 2024 was 40 percent

SOR – share price and liquidity

Share price development as of 31.03.2024

• The share price for SOR was NOK 139 and book value was NOK 145.2, equivalent to a P/B of 0.96
• The equity certificates gave a return of 16.4 % last 12 months
• Profit per equity certificates 31.03.2024 of NOK 5.3, representing a P/E 6.6.

Liquidity

• Significantly improved liquidity after the sale of equity certificates.
• Turnover of 28 mill. equity certificates last 12 months.
• 41 703 057 total issued, and an EQ rate of 40.0 %.

Dividend

• A dividend of NOK 10 per equity certificate has been distributed for 2023.
• Goal to have ~ 50 % of the EC owners' share of the result should be paid out.
• The banks capital requirements will be taken into consideration when determining the annual dividend

Solid capital situation

Common equity tier 1 capital ratio

Leverage ratio

• Common equity tier 1 (CET1) well above the current capital requirement of 15,0 percent

Low losses and non-performing loans

Development in losses in NOK million and as a percentage of gross loans (annualised)

Development in non-performing loans (IFRS 9, step 3) in NOK million And as a percentage of gross loans

Development in loss provisions in NOK million and as a percentage of gross loans

Loss provisions divided into steps

Corporate loan book – 49% property management and 52% < NOK 50m.

Corporate lending by size Sector distribution