12.4% 40.2 % 18.1 % Second quarter 2017 (Unaudited) Skandiabanken ASA. Annual lending growth ROE. Cost / Income

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1 Q2 Second quarter 2017 (Unaudited) Skandiabanken ASA Annual lending growth 18.1 % Cost / Income 40.2 % ROE 12.4 % Continued strong loan growth per cent past 12 months Strong growth in FuM 18 per cent growth in Net Client Cash Flow past 12 months Net interest income increased by 5.1 per cent to NOK (295.5) million Net interest margin of 1.57 (1.72) per cent Cost-to-income reduced to 40.2 per cent Solid capitalisation CET1 of 14.4 per cent* Total loans to customers NOK million Earnings before tax** NOK million Return on equity*** Per cent % 13.5% 12.7% 13.7% 12.4% Q16 3Q16 4Q16 1Q17 2Q17 2Q16 3Q16 4Q16 1Q17 2Q17 2Q16 3Q16 4Q16 1Q17 2Q17 * Including 90 per cent retained earnings. ** The graph depicting earnings before tax for Q is shaded to show the impact of the profit from Visa Inc. s acquisition of Visa Europe. ***The Q ROE is adjusted for the profit from the Visa transaction. The unadjusted ROE for Q is 36.2 per cent.

2 Key figures (group) In NOK thousand Ref Q2 17 Q2 16 Jan-Jun 17 Jan-Jun Summary of income statement Net interest income Net fee and commission income Net other income Total income Other operating expenses Operating profit before loan losses Loan losses Earnings before tax Calculated tax Net profit Profitability Return on equity % 36.3 % 13.4 % 24.7 % 18.1 % Net interest margin % 1.72 % 1.60 % 1.68 % 1.70 % Cost-to-income ratio % 25.0 % 41.7 % 32.2 % 35.5 % Balance sheet figures (in NOK million) Total loan volume Customer deposits Deposit-to-loan ratio % 77.6 % 67.7 % 78.2 % 77.1 % Lending growth (gross) previous 12 months 18.1 % 13.5 % 18.1 % 13.5 % 11.6 % Average total assets Total assets, end of period Losses and defaults Total loan loss (%) % 0.14 % (0.03 %) 0.10 % 0.09 % Capital adequacy and leverage ratio 7 Common equity Tier 1 capital ratio 14.4 % 14.8 % 14.4 % 14.8 % 14.9 % Tier 1 capital ratio 16.0 % 16.2 % 16.0 % 16.2 % 16.3 % Total capital ratio 17.9 % 18.0 % 17.9 % 18.0 % 18.0 % Leverage ratio 5.9 % 5.3 % 5.9 % 5.3 % 6.3 % Shares Earnings per share (Basic) References 1) Return to shareholders after tax (annualised) as a percentage of average shareholder equity in the period (not adjusted for the profit from the Visa transaction). Compared to previous quarters AT1 capital and accrued interest have been excluded from the ROE calculation. 2) Net interest income (annualised) as a percentage of average total capital 3) Operating expenses before loss as a percentage of total income (not adjusted for the profit from the Visa transaction) 4) Average deposits from customers as a percentage of average loan volume 5) Average total assets in the period 6) Loan losses as a percentage of average loan volume in the period 7) Including 90 per cent of the profit for the period in 2017 and 70 per cent of the profit for the period in Capital ratios calculated for Q in note 3 and note 4 are including 70 per cent retained earnings. PAGE 2/64

3 Second Quarter Results The Skandiabanken group recorded a net profit of NOK million in the second quarter of 2017, compared with NOK million last year. The net profit in the second quarter of 2016 was positively affected by a profit of NOK million from Visa Inc. s acquisition of Visa Europe. The increase in the adjusted profit of NOK 23.6 million is primarily a result of strong growth in customer lending and the sale of a portfolio of non-performing loans in the quarter. At quarter-end, total customer lending amounted to NOK 71.1 billion, compared with NOK 60.2 billion at the end of the second quarter of This corresponds to an annual growth of 18.1 per cent. Return on equity was 12.4 per cent, compared with an adjusted return on equity of 12.9 per cent in the second quarter of Important events during the quarter The average Norwegian short-term money market rates continued to decrease in the second quarter of 2017, while Norges Bank decided to keep its key policy rate stable at 0.5 per cent at the June meeting. Skandiabanken increased its lending rate for home loans with 0.15 per cent in the quarter, and made a corresponding 0.15 per cent increase in the interest rate for deposits over NOK , both effective from 14 August Competitive mortgage pricing contributed to strong volume growth in the quarter. Skandiabanken sold a portfolio of non-performing loans with a gross value of NOK 19.3 million in the quarter. As a result of the transaction, Skandiabanken has reversed previous impairment losses related to the portfolio. The sale reduced loan losses by NOK 7.8 million in the quarter. On its Capital Markets Day on 21 June, Skandiabanken announced that it aims to strengthen its offering with new products and services in savings and insurance, and expand into the market for the smallest SMEs. In May, Skandiabanken became the first Norwegian bank to release a new service that provides an overview of cryptocurrency balances in the online bank. BI Norwegian Business School, Barcode Intelligence and Norstat published their annual customer loyalty and customer satisfaction survey in May. Skandiabanken was reported as having the most satisfied customers in the Norwegian banking industry for the 16 th consecutive year, as well as the most loyal customers in the industry, and was rated sixth across all industries. In April, Skandiabanken was awarded for having the best reputation among Norwegian banks in Reputation Institute s RepTrak survey. In an update on 29 June 2017, Moody s Investors Service maintained Skandiabanken ASA s long-term credit rating of A3, with a stable outlook. In June, the Norwegian Financial Supervisory Authority (FSA) adopted new guidelines for unsecured credit, implementing multiple measures aimed to reduce the rapid growth in unsecured credit among Norwegian consumers. The measures include requirements for debt servicing capacity, maximum loan-to-income ratio and instalment payments. The new guidelines will take effect from the fourth quarter of Operating income Operating income decreased to NOK (565.0) million after an increase in net interest income of NOK 15.1 million, a decrease in net fee and commission income of NOK 1.2 million and a decrease in net other income of NOK million, mainly due to the profit from the Visa transaction in the second quarter of Adjusted for the Visa transaction, operating income increased by NOK 22.1 million. Net interest income increased to NOK (295.5) million as a result of increased net lending to customers, partly offset by a lower net interest margin. The net interest margin decreased to 1.57 per cent from 1.72 per cent in the second quarter of 2016, and from 1.63 per cent in the first quarter of The decrease from the second quarter of 2016 was primarily due to a higher fee to the Norwegian Banks Guarantee Fund and increased funding costs. Net interest and fee and commission income NOK million The effective lending rate was 2.50 per cent, compared with 2.52 per cent in the second quarter of Q16 3Q16 4Q16 1Q17 2Q17 Net interest revenue Interest margin (% right axis) Net fee and commissions PAGE 3/64

4 The effective funding rate increased from 0.81 per cent to 0.93 per cent compared with the second quarter of 2016, primarily due to a higher fee to the Banks Guarantee Fund and an increased share of market financing. Average effective interest rate by product group Net commission and fee income decreased to NOK 39.5 (40.7) million in the second quarter, down from NOK 42.1 million in the first quarter. The decrease from the first quarter of 2017 was mainly due to lower compensation from Visa related to previously recorded fraud losses. The decrease in net commission and fee income from the second quarter of 2016 is mainly due to the cap on card interchange fees introduced in the third quarter of 2016, partly offset by increased volumes of cards transactions by customers. Operating expenses Operating expenses amounted to NOK (141.5) million in the quarter. Adjusted for one-off costs of NOK 2.2 million related to the rebranding process, operating expenses amounted to NOK million thus showing a slight increase from previous quarters. In the second quarter of 2016, one-off costs related to the separation from the Swedish Skandia Group (Skandia Liv) amounted to NOK 8.1 million. Other operating expenses, adjusted for one-off costs, have thus increased by NOK 8.8 million, mainly due to the financial tax introduced in 2017 and expenses related to new initiatives undertaken to expand the bank s product range. Operating expenses NOK million % 39% 40% 43% 40% Q16 3Q16 4Q16 1Q17 2Q17 Personnel Other operating expenses C/I (right axis) 2Q16 3Q16 4Q16 1Q17 2Q17 Home loans 2.31 % 2.31 % 2.30 % 2.29 % 2.29 % Car loans 5.00 % 4.96 % 4.95 % 4.92 % 4.93 % Consumer credits 9.76 % 9.92 % % % % Other credits % % % % % 75% 65% 55% 45% 35% 25% 15% The cost-to-income ratio was 40.2 per cent in the quarter, compared with 42.0 per cent adjusted for the profit from the Visa transaction in the second quarter of Adjusted for one-off costs related to the rebranding of the bank, the cost-to-income ratio in the second quarter of 2017 was 39.6 per cent. Impairments and losses Net write-downs on loans amounted to NOK 10.2 (13.9) million in the quarter. An amount of NOK 10.4 (2.7) million was recovered from previously written-off loans. Actual losses amounted to NOK 11.0 (8.7) million. The net cost of losses amounted to NOK 10.8 (20.0) million, and the loan-loss ratio was 0.06 (0.14). IT Marketing At the end of the quarter, the bank had recorded total write-downs of NOK million, compared with NOK million at the end of the first quarter of 2017 and NOK million at the end of the second quarter of The net cost of losses was positively affected by NOK 7.8 million from the sale of a portfolio of non-performing unsecured credit in the quarter. Adjusted for the sale the underlying loan-loss ratio was Taxes The calculated tax expense amounted to NOK 48.9 (44.2) million, which corresponds to an effective tax rate of 24.0 (10.9) per cent. The significant deviation from the effective tax rate in the second quarter of 2016 is primarily due to the profit from the Visa transaction complying with the exemption method. Loans to and deposits from customers Loans to customers increased to NOK 71.1 (60.2) billion, following an increase of NOK 3.2 billion in the quarter. Lending growth over the past 12 months was 18.1 per cent. At the end of the quarter, outstanding consumer loans amounted to NOK (866) million, compared with NOK million at the end of the first quarter of This corresponds to a growth of 5.8 per cent in the quarter. The volume of car loans was stable while other types of credit (account credit, credit, cards and custody account lending) were slightly down due to seasonality. Loans to customers NOK billion % % 0.09% % % 0.11% 0.06% 2Q16 3Q16 4Q16 1Q17 2Q17 Home loans Consumer credit Loss rate (right axis) Car loans Other loans 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% -0.20% Loss rate adj. (right axis) Customer deposits increased slightly to NOK 48.1 (48.0) billion, up from NOK 44.9 billion at the end of the first quarter of The increase in deposits from the first quarter of 2017 is mainly due to seasonality. The average deposit-to-loan ratio in the second quarter was 65.9 per cent, compared with 69.6 per cent in the first quarter of 2017 and 74.2 per cent in the fourth quarter of The decrease in the average deposit-to-loan ratio is primarily a result of the bank s strategy of quality loan growth facilitated by solid capitalisation and an attractive funding position. PAGE 4/64

5 Customer deposits NOK billion % 78.0% % 69.6% Customer investments in mutual funds increased from NOK 6.6 billion in the second quarter of 2016 to NOK 9.1 billion in the second quarter of Approximately 43 per cent of the increase over the past year is related to growth in customers' net client cash flow in mutual funds. Compared with the first quarter of 2017, customer investments in mutual funds increased by NOK 596 million, of which approximately NOK 350 million constituted customers net client cash flow. Comments on results for the first half-year of 2017 Skandiabanken made a net profit of NOK million in the first half of 2017, compared with NOK million the first half of The first half of 2016 was positively impacted by the profit from the Visa transaction of NOK million. Net interest income in the first half of 2017 increased by 7.2 per cent to NOK (568.5) million, primarily due to strong growth in lending. Net fee and commission income decreased by 3.7 per cent to NOK 81.6 (84.8) million. Net fee and commission income in the first half year of 2017 was negatively affected by the cap on card interchange fees introduced in the third quarter of Operating expenses increased by NOK 10.2 million to NOK (283.6) million. While the cost level in the first half of 2016 was impacted by one-off costs of NOK 16.4 million related to replacing services previously provided by Skandia Liv, costs in the first half of 2017 were impacted by NOK 5.6 million in one-off costs related to rebranding of the bank % 2Q16 3Q16 4Q16 1Q17 2Q17 Customer deposits Customers' investment in mutual funds (FuM) NOK billion Deposit-to-loan ratio 2Q16 3Q16 4Q16 1Q17 2Q % 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 9.1 The underlying cost level increased by NOK 21.0 million from first half year 2016, reflecting higher personnel costs and higher other operating costs as Skandiabanken has established new services, systems and capabilities for being a stand-alone bank. Net write-downs and provisions on loans and guarantees were positive in the amount of NOK 2.8 (-20.6) million in the first half of The net cost of losses was positive in the amount of NOK 9.6 (-28.3) million. The loan loss ratio was (0.10). The net cost of losses was positively affected by portfolios of nonperforming loans sold in the first half-year of Capital adequacy, leverage ratio and risk factors Skandiabanken has a CET1 capital ratio target of 13.5 per cent, a Tier 1 capital ratio target of 15 per cent and a total capital ratio target of 17 per cent. At the end of the quarter, Skandiabanken s capital exceeded these targets, with a CET 1 capital ratio of 14.4 per cent, a Tier 1 capital ratio of 16.0 per cent and a total capital ratio of 17.9 per cent. The capital ratios include 90 per cent of retained earnings from the first half year of At the end of the quarter, Skandiabanken had a leverage ratio of 5.9 per cent, well above the regulatory requirement of 5 per cent. Skandiabanken s financial risk mainly consists of credit risk, market risk and liquidity risk. The credit risk comprises lending to the public primarily in the form of home loans, car loans, custody account loans, consumer credit and other unsecured credit such as overdrafts and credit cards. Skandiabanken has a high-quality lending portfolio, that includes mortgages with a relatively low loan-to-value ratio (LTV). At the end of the quarter, the average LTV was 52.9 (54.0) per cent. Mortgages account for 94.4 per cent of the lending portfolio. Skandiabanken is mainly exposed to market risks such as interest rate risk, share price risk and credit spread risk. Skandiabanken does not have lending or funding in foreign currency and the currency risk is thus negligible. The exposure to share price risk amounted to NOK 79.4 million at the end of the quarter, of which NOK 61.7 million was related to the valuation of the bank s membership of Visa Norge FLI. All lending provided by Skandiabanken has variable interest rates. The same applies to deposits, while capital market funding mainly uses the NIBOR three-month rate as its reference rate. This results in low interest rate risk. At the end of the quarter, Skandiabanken had NOK 8.0 billion in interest-bearing securities, and the corresponding credit spread risk was estimated at NOK 136 million, related to securities issued by sovereigns, municipalities and covered bonds. At the end of the quarter, Skandiabanken had a liquidity coverage ratio (LCR) of 519 per cent, well above the regulatory minimum requirement of 80 per cent. The net stable funding ratio (NSFR) was 141 per cent. At the end of the quarter, Skandiabanken had outstanding capital market funding amounting to NOK 27.5 billion. Skandiabanken Boligkreditt AS s total nominal issue amounted to NOK 22.6 billion, of which Skandiabanken held NOK 0.03 billion. During the quarter, Skandiabanken Boligkreditt AS issued covered bonds in the amount of NOK 2.5 billion. Skandiabanken ASA issued senior unsecured debt amounting to NOK 0.8 billion. At the end of the quarter, Skandiabanken had a deposit-to-loan ratio of 67.9 per cent, with 96 per cent of deposits covered by the existing Deposit Guarantee Fund (NOK 2.0 million) and 84 per cent by the harmonised Deposit Guarantee Scheme, which is expected to be implemented in EU (EUR 0.1 million) by the end of PAGE 5/64

6 Skandiabanken ASA has a long-term credit rating of A3 with a stable outlook from Moody s. Covered bonds issued by Skandiabanken Boligkreditt AS have a long-term rating of Aaa from Moody s. Macroeconomic developments and regulatory framework In the Monetary Policy Report of 22 June 2017, Norges Bank points out that registered unemployment is falling and that economic growth has gained some momentum. There are prospects that the growth will be higher in 2017 than in recent years and stay firm in the years ahead. Unemployment is expected to slowly be reduced in the coming years. The key policy rate remained unchanged at 0.5 per cent in the quarter. Given the macroeconomic outlook, Norges Bank indicates that the key policy rate is expected to remain at today s level in the period ahead. The Ministry of Finance has proposed new legislation on the Deposit Guarantee Scheme and crisis management for Norwegian banks. The proposed legislation will implement the EU s revised Deposit Guarantee Schemes Directive and the Bank Recovery and Resolution Directive in Norway. The Norwegian Deposit Guarantee Scheme s general coverage level is proposed to remain at NOK 2 million for the aggregate deposits of each depositor in each bank. In order to establish financing arrangements that are in accordance with the Deposit Guarantee Schemes Directive and the Bank Recovery and Resolution Directive, the Ministry of Finance proposes to transfer the existing Deposit Guarantee Fund into two new funds; a deposit guarantee fund and a resolution fund. The Ministry proposes an annual contribution requirement equivalent to 0.08 and 0.1 per cent of covered deposits to the deposit guarantee fund and the resolution fund respectively, with adjustments according to the individual banks risk profile, size and complexity. These contribution requirements are, in general, somewhat higher than the current contribution level. If the new legislation is implemented, payments from Skandiabanken to the funds are expected to increase from today s level. In December 2016, the Ministry of Finance decided to increase the countercyclical capital buffer requirement from 1.5 per cent to 2.0 per cent with effect from 31 December In June, the FSA published guidelines for financial institutions treatment of unsecured credit. The guidelines impose requirements on companies' documentation of credit assessments, and requirements for customers repayment ability, minimum requirements of deductions and a maximum level of aggregate debt in relation to income. The Ministry of Finance s new leverage ratio requirements for Norwegian banks and credit institutions were effective from 30 June The general minimum requirement was set at three per cent, with an additional buffer of two per cent for all banks, thus indicating a total leverage ratio requirement of five per cent for Skandiabanken. As of 30 June 2017, Skandiabanken had a leverage ratio of 5.9 per cent. PAGE 6/64

7 Outlook Macroeconomic developments in Norway indicate that economic growth in 2017 will be moderate. Monetary policy is expansive and supportive of structural adjustments in the Norwegian economy, but it is expected to take time for the effects of the oil price fall to dissipate and for the level of activity to normalise. The most recent surveys show that unemployment is decreasing and that economic growth appears to be gaining some momentum. Low interest rates supported the strong inflation in house prices in Norway in The new regulations on requirements for new residential mortgage loans that took effect in Q have dampened the growth in house prices, and recent statistics show a marginal decrease in Norwegian housing prices in June, with regional differences. Norges Bank still expects house prices in Norway to increase in 2017, but at a slower pace due to increased supply of housing and lower population growth. Norges Bank decided to maintain a stable key policy rate of 0.5 per cent at the interest rate decision meeting in June. The next interest rate decision will be announced on 21 September The latest Monetary Policy Report indicates that the key policy rate will remain close to 0.5 per cent in the nearest future. Skandiabanken s interest rate margin has decreased over the previous two quarters. The fee to the Norwegian Deposit Guarantee Scheme in 2017 and a change in the funding mix had a negative impact on the margin in the first half-year of The full year s fee for 2017 of 36.7 million is accrued over the year. The increased share of wholesale funding is expected to continue throughout the year. The bank s interest rate adjustments effective from 14 August 2017 are expected to have a positive impact on the net interest margin going forward. Skandiabanken experienced strong volume growth in the first half-year of Growth is expected to continue into the third quarter at a slower pace, partly due to the interest rate increase mentioned above. Volume growth and the announced price increase are expected to have a positive effect on the net interest income going forward. The new guidelines from the FSA for financial institutions treatment of unsecured credit, which takes effect from the fourth quarter, are expected to reduce the market growth rate of these products. As the portfolio of unsecured lending seasons, a slight increase in related losses is expected. Losses related to mortgages and car loans are expected to remain at normal historical levels, resulting in an overall expected loss level of around 0.1 per cent in Skandiabanken s growth, efficiency and profitability have in recent quarters developed in line with the targets. The bank has confirmed its solid market position and utilised its strong capitalisation for growth. On its 2017 Capital Markets Day, Skandiabanken announced several new initiatives to expand the bank s product range. They include increased efforts in insurance and savings, as well as entering the market for the smallest SMEs. The bank is well positioned for the regulatory change in savings, and the introduction of the ASK account on 1 September The new initiatives will entail some increase in costs, aimed to increase future capital-light revenues. Bergen, 10 August 2017 The Board of Directors of Skandiabanken ASA Niklas Midby (Chairman) Mai-Lill Ibsen August Baumann Hugo Maurstad Ragnhild Wiborg Jon Holmedal Magnar Øyhovden (CEO)

8 Income statement (Skandiabanken group) In NOK thousand Note Q2 17 Q2 16 Jan- Jun 17 Jan- Jun Interest income Interest expense Net interest income Commission and fee income Commission and fee expense Net commission and fee income Net gain/(loss) on financial instruments Other income Other operating income Personnel expenses Administrative expenses 18, Depreciation and impairment of fixed and intangible assets Profit before loan losses Loan losses Profit before tax Tax expense Profit for the period Attributable to Shareholders Additional Tier 1 capital holders Profit for the period Earnings per share, see note 26. PAGE 8/64

9 Statement of comprehensive income (Skandiabanken group) In NOK thousand Q2 17 Q2 16 Jan- Jun 17 Jan- Jun Profit for the period Other comprehensive income: Net change in fair value of financial assets available for sale Tax effect Other comprehensive income that can be reclassified to profit or loss after tax Actuarial gains (losses) Tax effect Other comprehensive income that can not be reclassified to profit or loss after tax Total components of other comprehensive income (after tax) Total comprehensive income for the period Attributable to Shareholders Additional Tier 1 capital holders Total comprehensive income for the period PAGE 9/64

10 Balance sheet (Skandiabanken group) In NOK thousand Note Assets Cash and receivables with central bank 9, 20, Loans to central bank 9, 20, Loans to and receivables from credit institutions 9, 20, Loans to customers 6, 7,8, 20, Net loans to customers, central bank and credit institutions Commercial paper and bonds available for sale 20, Shares and funds 20, 21, Derivatives Intangible assets Deferred tax assets Property, plant and equipment Other assets Advance payment and accrued income Total assets Liabilities Loans and deposits from credit institutions 9, 20, Deposits from customers 20, Debt securities issued 13, 20, Derivatives Taxes payable Pension commitments Other liabilities Subordinated loans 13, 20, Total liabilities Equity Share capital Share premium Additional Tier 1 capital Other equity Total equity Total liabilities and equity Subsequent events 28 PAGE 10/64

11 Statement of changes in equity (Skandiabanken group) In NOK thousand Share capital Share premium Additional Tier 1 capital Actuarial gains and losses Changes in fair value of financial instruments available for sale Other equity Total equity Balance sheet as at Profit for the period to other equity ( to ) Profit for the period to Tier 1 capital holders ( to ) Payments to Tier 1 capital holders ( to ) Actuarial gains and losses for the period ( to ) Net change in fair value of financial instruments available for sale ( to ) Balance sheet as at Profit for the period to other equity ( to ) Profit for the period to Tier 1 capital holders ( to ) Payments to Tier 1 capital holders ( to ) Actuarial gains and losses for the period ( to ) Net change in fair value of financial instruments available for sale ( to ) Capital increase not registered in the Register of Business Enterprises* Balance sheet as at Profit for the period to other equity ( to ) Profit for the period to Tier 1 capital holders ( to ) Payments to Tier 1 capital holders ( to ) Issue of Tier 1 capital net of issuing cost Actuarial gains and losses for the period ( to ) Net change in fair value of financial instruments available for sale ( to ) Capital increase registered in the Register of Business Enterprises* Paid dividend to shareholders Balance sheet as at * Capital increase related to share incentive programme, see also note 27. PAGE 11/64

12 Statement of cash flows (Skandiabanken group) In NOK thousand Note Jan- Jun 17 Jan- Jun Cash flows from operating activities Net payments on loans to customers Interest received on loans to customers Net receipts on deposits from customers 20, Interest paid on deposits from customers Net receipts/payments from buying and selling financial instruments at fair value 20, 21, Interest received from commercial paper and bonds Net receipts/payments on deposits from credit institutions Interest paid on deposits from credit institutions Interest received on loans to credit institutions and central bank Receipts related to commissions and fees Payments related to commissions and fees Payments related to administrative expenses Payments related to personnel expenses Taxes paid Other receipts/payments Net cash flows from operating activities Cash flows from investment activities Dividend from Visa Norge FLI Invested in associated company Payments on the acquisition of fixed assets Payments on the acquisition of intangible assets Net cash flows from investment activities Cash flows from financing activities Receipts on share capital and share premium net of issuing cost EQ* Paid dividend to shareholders EQ* Receipts on subordinated loans net of issuing cost Interest paid on subordinated loans Receipts on issued additional Tier1 capital Interest paid on additional Tier 1 capital EQ* Receipts on issued bonds and commercial paper Payments on matured and redeemed bonds and commercial paper Interest paid on issued bonds and commercial paper Net cash flows from financing activities Total net cash flow Cash at the beginning of the period Cash at the end of the period Change in cash Cash Cash and receivables with central bank Loans to central bank Loans to credit institutions Total cash EQ* = Statement of changes in equity PAGE 12/64

13 Notes (Skandiabanken group) Note 1 - Accounting principles and critical accounting estimates and judgment The quarterly financial statement for the Skandiabanken group has been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board and adopted by the EU. A description of the accounting principles applied in the preparation of the financial statements appears in the annual report for The quarterly financial statements of Skandiabanken ASA is prepared in accordance with the Norwegian regulations on annual accounts for banks, sections 1-6 ("simplified IFRS") and IAS 34. Simplified IFRS permits recognition of provisions for dividend and group contribution through profit and loss and as a liability at the balance sheet date. A full application of IFRS would require the proposition to remain part of the equity until approved by the general meeting. For Skandiabanken ASA there will be no other differences between the use of simplified IFRS and full IFRS. Skandiabanken ASA has changed its accounting principle in respect of the levy from the Norwegian Banks Guarantee Fund. The annual levy to the Norwegian Banks Guarantee Fund is imposed 1 January each year. In 2016 the Norwegian Ministry of Finance changed the practise related to repayment of the levy if a bank should exit the Guarantee Fund during a year. The levy is thus recognised as a proportional share of the annual levy and not in its entirety in Q1 as it was in Refer to note15 for effects from the change. In Q1 2017, Skandiabanken ASA acquired 39.9% of the shares in Quantfolio AS. The company is classified as an associated company. An associated company is a company where Skandiabanken has a significant, but not a controlling influence over financial and operating policies. This normally applies when Skandiabanken owns between 20 and 50 percent of the voting share capital in another company. Associated companies are recognised in the financial statements according to the equity method. The investment is initially recognised at cost (incl. goodwill) at the time of acquisition and adjusted for Skandiabankens share of changes in the associated company s equity in subsequent periods. When preparing the financial statements, management makes estimates, judgments and assumptions that affect the application of the accounting principles and the carrying amount of assets, liabilities, income and expenses. Estimates and assumptions are subject to continual evaluation and based on historical experience and other factors, including expectations of future events that are believed to be probable on the balance sheet date. A description of the critical accounting estimates and areas where judgment is applied appears in note 2 in the annual report for New and revised standards effective from 1 January 2018 or later A number of new standards and interpretations will enter into force for the annual periods beginning 1 January 2018 or later, and they have not been used in the preparation of the accounts. For a description of the standards IFRS 15 Revenue from contracts with customers and IFRS 16 Leases we refer to the annual report for IFRS 9 Financial Instruments IASB published the final version of IFRS 9 Financial Instruments in July The standard, which was approved by the EU in November 2016, will replace the current standard, IAS 39, from 1 January The standard contains new rules in three areas: classification and measurement of financial assets, financial liabilities, recognition of impairment losses and hedge accounting. Skandiabanken ASA has established an IFRS 9 project divided into four work flows, with an interdisciplinary core team comprising resources from the finance, risk management, data warehouse and credit department. The project s focus areas so far have been classification and measurement, the choice of model for calculating expected losses and the need for data for modelling purposes. At present, it is too early to quantify the effects that the transition to IFRS 9 will have on the bank s accounts. The project is progressing according to plan. For further information regarding IFRS 9, please refer to note 1 in the annual report for Note 2 - Segments No segment information has been prepared, as the entire operation of the Skandiabanken group is deemed to constitute one segment, the Private Consumer Market, under IFRS 8. Currently, the Skandiabanken group offers services and products intended exclusively for private individuals. In the supervisory activities performed by the board and management, the customer base is not divided into different business segments that are followed up over time. The company s products are divided into various groups which are followed up by different value chains and product managers. The groups comprise the following products and services: - Lending: Home loans, car loans, credit cards, overdraft facilities, personal loans and custody account lending - Deposits: All-in-one, high-interest and security deposit accounts, as well as BSU (young home-buyer s savings account) - Payment services: Invoice payments, international payments, card transactions etc. - Security: Log-in, security solutions etc. PAGE 13/64

14 The products in these groups are followed up by management, but the focus is shifted depending on the overall situation for the business as a whole. The Bank s own investment activities do not form a separate reportable segment and are therefore presented in conjunction with Private Market. Since the Bank operates only in Norway, the reporting of geographical and secondary segments is not considered relevant. Important classes of assets (e.g. home loans) are, however, broken down geographically and presented in a separate note. Note 3 - Capital adequacy The capital adequacy regulations are intended to improve institutions risk management and achieve closer concordance between risk and capital. The applicable regulations for Norwegian banks are adapted to the EU s capital adequacy regulations for credit institutions and investment firms (CRD IV/CRR). Skandiabanken ASA uses the standard method to establish the risk-weighted volume credit risk and the basic method to establish the risk- weighted volume for operational risk. At the balance sheet date no exposure was included in the risk-weighted volume for market risk. The group mainly engages in banking business and the Bank s wholly owned subsidiary, Skandiabanken Boligkreditt AS, is fully consolidated. There is no difference between solvency and accounting consolidation In NOK thousand Nominal exposure Riskweighted volume Nominal exposure Riskweighted volume Nominal exposure Riskweighted volume Central governments Regional governments Multilateral Development Banks Institutions Retail Secured by mortgages on immovable property Exposures in default Covered bonds Equity Other items Total credit risk, standardised method Credit value adjustment risk (CVA) Operational risk Total risk-weighted volume Capital base Share capital Share premium Other equity Additional Tier 1 capital Profit for the period Total booked equity Additional Tier 1 capital instruments included in total equity Common equity Tier 1 capital instruments, not paid up Common equity Tier 1 capital instruments Deductions Goodwill, deferred tax assets and other intangible assets Value adjustment due to the requirements for prudent valuation (AVA) Profit for the period, not eligible* Common equity Tier 1 capital Additional Tier 1 capital Tier 1 capital Tier 2 capital Own funds (primary capital) PAGE 14/64

15 Capital requirements Minimum requirements - common equity Tier 1 capital 4.5 % % % Capital conservation buffer 2.5 % % % Systemic risk buffer 3.0 % % % Countercyclical capital buffer 1.5 % % % Additional Tier 1 capital 1.5 % % % Tier 2 capital 2.0 % % % Total minimum and buffer requirements own funds (primary capital) 15.0 % % % Available common equity Tier 1 capital after buffer requirements Available own funds (primary capital) Capital ratio % Common equity Tier 1 capital 14.2 % 14.8 % 14.9 % Additional Tier 1 capital 1.5 % 1.4 % 1.4 % Tier 2 capital 2.0 % 1.8 % 1.7 % Total capital ratio 17.8 % 18.0 % 18.0 % * Included 70 per cent of retained earnings. PAGE 15/64

16 Note 4 - Leverage Ratio The leverage ratio requirements is a supplement to the risk-weighted minimum capital requirements and states that the capital base in financial institutions shall also comprise a defined percentage of the value of the company s assets and off-balance-sheet liabilities, calculated without risk weighting. The regulations are intended to prevent banks from using too low of a risk weight in the capital adequacy calculations, and to ensure that the banks maintain a minimum capital level, even with skewing of the portfolio towards low-risk segments. The capital target is to consist of Tier 1 capital and the exposure target to follows the rules in the Commission Delegated Regulation (EU) The minimum leverage ratio requirement for Norwegian banks and credit institutions is three per cent. In addition, banks will have to meet a buffer requirement of two per cent. The requirements have effect from 30 June If the requirements are not met, institutions will have to submit a plan for the necessary increase in leverage ratio within five days. The automatic restrictions that occur for institutions dividend policy, bonus payments and share buybacks under the risk-weighted minimum capital requirements, does not apply to the non-fulfilment of buffer requirements for leverage ratio. The table below shows the calculation for the Bank, on the basis of existing rule proposals and with CCFs based on the current standardised approach, subject to a CCF-floor of 10 per cent. In NOK thousand Derivatives market value Potential future exposure on derivatives Off-balance sheet commitments Loans and advances and other assets Regulatory adjustments included in Tier 1 capital Total leverage exposure Tier 1 capital* Leverage ratio % 5.9 % 5.3 % 6.3 % Leverage Ratio requirements Minimum requirements 3.0 % Buffer requirements 2.0 % Total minimum and buffer requirements (Tier 1 capital) 5.0 % Available Tier 1 capital after minimum and buffer requirements * Included 70 per cent of retained earnings. Note 5 - Financial risk management The bank s risk strategy comprises its risk philosophy, risk appetite and risk management principles. Risk policy The bank s core business involves offering standard banking services such as deposits, savings, lending and payment transactions to private customers. The bank shall not assume any material risk other than risk derived from maintaining and developing this core business. The bank shall be a secure and solid bank for private individuals, and shall adhere to a credit policy within a specified risk appetite. The bank shall have a sound risk culture based on openness, transparency and expertise, and shall continuously challenge its own methods, processes and procedures with a view to improving its performance. Risk appetite For purposes of risk management, the bank classifies risk into the following categories: - Credit risk - Liquidity risk - Market risk - Operational risk - Compliance risk - Commercial risk - Strategic risk Skandiabanken s Board of Directors determines the bank s risk appetite with respect to each of the above-mentioned categories, and issues guidelines to the business on how this risk appetite should be operationalised. The bank operates in accordance with the following risk appetite: - Credit risk: Low - Liquidity risk: Low - Market risk: Moderate - Operational risk: Moderate - Compliance risk: Low - Commercial risk: Moderate - Strategic risk: Moderate PAGE 16/64

17 Risk management principles The bank adopts a comprehensive approach to risk management. The following principles therefore apply: - The bank s specifications of risk appetite shall be translated into specific risk management frameworks. - Each risk area shall be allocated capital in accordance with its actual risk status, which in turn shall be adapted to the bank s risk appetite. - Risk management and reporting shall be performed in accordance with the above-mentioned frameworks and objectives. - The bank s risk management systems and procedures shall be appropriate to the complexity of the business. - Risk management shall be an ongoing and continuous process. - Risk reporting shall be structured in an understandable manner and provide a clear picture of the bank s risk situation to all stakeholders. - Risk management shall be performed across group companies, at all levels within each individual group company, and for the group as a whole. - The bank shall only assume risks that are understood by the bank and the individual decision-makers. - Responsibility for entering into agreements that cause the bank to incur risk is delegated through personal authorisations. - Efforts shall be made to achieve as great a correspondence as possible between risk and profitability. Profitability shall be measured individually and on a risk-adjusted basis, and on the basis of financial capital allocated. Organisation of risk management The bank s organisation is based on its risk management and internal control principles, and has been designed to ensure implementation of the bank s risk strategy. The bank s framework for internal control and risk management consists of three lines of defence, which constitute the organisational model for the bank s risk management, risk control and compliance. First line of defence The first line of defence includes all categories of employees and managers in the bank (except second-line employees). The first line performs risk assessments and implements risk control measures that enable the bank to operate within the risk framework and risk appetite defined by the Board of Directors. The first line is deemed to be the risk owner, i.e. the party responsible for monitoring and implementing control actions. Second line of defence The second line of defence consists of two independent control functions the Risk Management function and the Compliance function which monitor and check that the bank operates within its risk limits and relevant laws and regulations. The Chief Risk Officer (CRO) is head of the bank s Risk Management function. The Risk Management function is responsible for establishing and maintaining systems and processes that support the bank s compliance with the risk strategies, policies and procedures that have been adopted. The function prepares regular risk reports for the Board of Directors, and reports any breaches of relevant frameworks and guidelines. The CRO is independent of managers with responsibility for risk-taking, and does not take part in decisions that are directly related to the areas that are monitored and reported. Organisationally, the CRO reports directly to the CEO, but in certain cases, the CRO also has a right and a duty to report directly to the Board of Directors if the CRO does not receive necessary information regarding material risks as part of ordinary reporting. The CRO cannot be dismissed without the Board of Directors consent. The Chief Compliance Officer (CCO) leads the part of the second line of defence that covers compliance with procedures and regulations. Administratively, the function reports to the CEO. In practice, however, the COO is independent of the bank s management and other control functions. The CCO verifies compliance with regulations based on the Board of Directors instructions, and reports to the Board of Directors on matters related thereto. Third line of defence The internal auditor constitutes the third line of defence and is responsible for independent testing of risk management procedures. The function is independent of the management and is appointed by and reports to the Board of Directors. Credit risk Credit risk accounts for the majority of Skandiabanken s risk. Credit risk is defined as the risk of loss resulting from a counterparty not fulfilling its obligations, and any pledged collateral not covering the outstanding claim. Skandiabanken s lending to the public comprises mass-market exposures, primarily in the form of loans to individuals secured by mortgage, real estate, amortised loans, securities, and motor vehicle loans as well as unsecured personal loans, overdrafts and credit cards. Risk shall be weighed against returns and balanced so that the bank remains within the specified risk appetite. Credit risk that exceeds the bank s specified risk appetite shall not be compensated for by means of high prices. Rules and tools for credit assessment shall ensure that the bank avoids high-risk credit exposure. Risk classification of lending to the mass market Credit risk is measured and monitored by calculating economic capital in the lending portfolio. The main components of this calculation are Probability of Default (PD), expected Exposure at Default (EAD) and Loss Given Default (LGD). PD is defined as the probability of a customer defaulting on its exposure during the next 12 months. This could include default of payment in excess of 60 days of a minimum of NOK 200 or other specific matters that affect the customer s ability to service the loan. Among other changes that will be implemented when introducing IFRS9, the bank will change the definition of default to more than 90 days of a minimum of EUR 100, ref. the EBA guidelines. PD for the home loan portfolio is calculated using statistical models based on logistic regression of internal data. PD for the other products is calculated using a model based on external data that is calibrated for an internal product-specific PD. The following categorisation is used to classify PD: Low risk: PD < 1.25% Medium risk: PD 1.25% 5% High risk: PD > 5% PAGE 17/64