Key figures Group. Balance sheet

Transcription

1 Q2 2018

2 2 Contents Key figures Group 3 Board of Directors report 4 Income statement 12 Balance sheet 13 Cash flow statement 14 Equity statement 15 Notes 16 Risk and Capital management 29 Quarterly profit trend 30 Key figures Group Calculations 32 Declaration in accordance with section 5-6 of the Norwegian Securities Trading Act 34

3 Key figures Group 3 Income statement (NOK million) Q Q Net interest income Net commission income Net income from financial instruments Other operating income Total net income Total operating expenses Profit before losses on loans Losses on loans and guarantees Profit before taxes Tax expenses Profit for the period Income statement as percentage of average assets Net interest income 1,48 % 1,54 % 1,49 % 1,54 % 1,53 % Net commission income 0,29 % 0,31 % 0,27 % 0,29 % 0,28 % Net income from financial instruments 0,10 % -0,02 % 0,09 % 0,02 % 0,08 % Other operating income 0,07 % 0,01 % 0,04 % 0,01 % 0,02 % Total net income 1,93 % 1,84 % 1,89 % 1,86 % 1,92 % Total operating expenses 0,74 % 0,77 % 0,74 % 0,77 % 0,74 % Profit before losses on loans 1,19 % 1,07 % 1,15 % 1,09 % 1,17 % Losses on loans and guarantees 0,02 % 0,05 % 0,01 % 0,05 % 0,02 % Profit before taxes 1,17 % 1,02 % 1,14 % 1,04 % 1,16 % Tax expenses 0,22 % 0,23 % 0,25 % 0,24 % 0,26 % Profit for the period 0,95 % 0,80 % 0,89 % 0,80 % 0,90 % Key figures, Income statement Return on equity after tax 10,1 % 8,5 % 9,6 % 8,6 % 9,7 % Cost as % of income 38,5 % 41,8 % 39,3 % 41,2 % 38,7 % Cost as % of income, ex net income from financial instruments 40,5 % 41,4 % 41,4 % 41,6 % 40,4 % Balance sheet Total assets Average total assets Net loans to customers Growth in loans as %, last 12 mths. 6,2 % 4,9 % 7,2 % Customers deposits Growth in deposits as %, last 12 mths. 2,8 % 8,7 % 7,8 % Deposits as % of net loans 57,0 % 58,8 % 57,0 % Equity Losses on loans as % of net loans, annualised 0,01 % 0,06 % 0,02 % Gross defaulted loans over 90 days as % of gross loans 0,27 % 0,29 % 0,28 % Other key figures Liquidity reserve (LCR) (Group) 167 % 158 % 139 % Common equity tier 1 capital ratio 15,3 % 14,6 % 15,1 % Common equity tier 1 capital ratio, when including share of 15,0 % 14,5 % 14,9 % partially owned companies Tier 1 capital ratio 16,9 % 16,0 % 16,7 % Total capital ratio 19,1 % 17,8 % 18,9 % Common equity tier 1 capital Tier 1 capital Net total primary capital Leverage ratio 9,1 % 9,0 % 9,2 % Number of branches Number of man-years in banking activity Key figures, Equity certificates Equity certificate ratio, weighted average over the period 17,9 % 18,7 % 17,9 % 18,7 % 18,7 % Number of equity certificates issued Profit/diluted earnings per equity certificate (Parent bank) 2,5 2,1 4,5 4,0 8,9 Profit/diluted earnings per equity certificate (Group) 2,9 2,4 5,5 4,8 11,2 Dividend last year per equity certificate 6,0 6,0 Book equity per equity certificate 118,9 113,9 120,0 Price/Book value per equity certificate 0,8 0,9 0,9 Listed price on Oslo Stock Exchange at end of period *) 97,20 100,00 104,00

4 4 Board of Directors report General Sparebanken Sør is an independent financial institution that engages in banking, securities and real estate brokerage activities in the counties of Aust-Agder, Vest-Agder, Telemark and Rogaland. Real estate agency brokerage is carried out through the subsidiary Sørmegleren, while general insurance and life insurance products are supplied through Frende, an insurance company jointly owned by the bank. The bank is also a joint owner of Norne, a security trading company, in addition to Brage, a supplier of leasing products and consumer credit. Highlights in Q Good results from ordinary operations Positive development in net interest income Positive net income from financial instruments Efficient operations and low costs Very low level of losses on loans Loans to customers eceeded NOK 100 billion Year-on-year loan growth of 6.2 percent Year-on-year deposit growth of 2.8 percent Return on equity after tax of 10.1 percent Common equity tier 1 capital ratio of 15.0 percent Leverage ratio of 9.1 percent Highlights in 1st half of 2018 Good results from ordinary operations Positive development in net interest income Positive net income from financial instruments Efficient operations and low costs New model implemented for calculating loss allowances on loans Very low level of losses on loans Return on equity after tax of 9.6 percent Financial framework conditions The key interest rate remained at 0.50 percent during the first half of 2018 and Norges Bank decided to keep the key interest rate unchanged at it s most recent monetary policy meeting in June. Norges Bank has signalled that an upward adjustment of the key interest rate is likely during the autumn of In the reporting period, both domestic and foreign capital market have functioned efficiently, with a stable development in credit spreads, providing the Group easy access to funding through covered bonds and senior debt during the first half of At the end of June the annual growth in the general publics gross domestic debt (C2) was 5,8 percent, while debt. growth for households and industry amounted to 5,8 and 6,0 percent respectively.

5 Board of Directors report 5 Income statement The bank posted a profit before tax of NOK 343 million in Q2 2018, compared with NOK 277 million in the same period in The Group also returned a solid profit before tax thanks to an increase in net interest income, low costs, low losses on loans and positive income from financial instruments. Profits from ordinary operations(*) are stable. Due to the merger between Vipps AS, BankAxept AS and BankID Norge, a valuation of the companies has been carried out. The valuation has led to an upward adjustment in the value of the Group s ownership interests in the respective companies of NOK 59 million in Q The return on equity after tax was 10.1 percent in Q2 2018, compared with 8.5 percent in Q The Group is well-capitalized with a common equity tier 1 capital ratio of 15.0 percent and a leverage ratio of 9.1, when including 80 percent of accrued profit. Profit before tax the first half of 2018 amounted to NOK 658 million, compared with 553 million in the same period in The return on equity after tax was 9.6 percent in the first half of 2018, compared with 8.6 percent in the same period last year. Profit from ordinary operations (*) for the first half of 2018 show an increase of NOK 8 million on the comparable prior-half year. Net interest income Quarterly net interest (NOK million) At NOK 433 million, net interest income in Q was up NOK 16 million (4 percent) on the Q figure of NOK 417 million. The increase in net interest income is mainly attributable to the loan growth in the period. Net interest income as a percentage of average total assets in the Q was 1.48 percent, a decrease from 1.54 percent in the same period in Even though the market interest rates have decreased somewhat in Q2 2018, there has been an overall increase during the first half of Particularly in the retail marked, this has led to lower margins on loans to cumstomers. Margins in the corporate market, where 80 percent of the loan portfolio is linked to NIBOR, has been less affected. Higher market interest rates has also had a positive effect on deposit margins. *) Net interest income adjusted for accounting changes, commission income, other income and costs adjusted for the conversion of the pension scheme. See also the appendix for details on calculations.

6 6 Board of Directors report Commission income Quarterly net commission income (NOK million) Net commission income amounted to NOK 84 million in Q2 2018, compared with NOK 83 million in Q2 2017, while gross commission income closed on NOK 98 million, compared with NOK 95 million in Q Gross commission income in the first half of 2018 amounted to NOK 185 million compared with NOK 179 million in the first half of The increase is mainly attributable to income from payment services and a non-recurring transfer of NOK 5 million linked to commissions from sale of life insurance in Q NOK million Q Q Change First half 2018 First half 2017 Change Payment services Real estate brokerage Others Total Financial instruments Net income from financial instruments in Q totalled NOK 28 million, compared with NOK -5 million in the corresponding prior- year period. Net income from financial instruments Q Q Change First half 2018 First half 2017 Change Bonds and certificates Shares incl. Dividends Fixed rate loans Securities issued - hedge accounting Repurchase of issued bonds Other financial instruments Sum Due to the merger of Vipps AS, BankAxept AS and BankID Norge AS, a valuation of the companies has been carried out. This has resulted in an upward adjustment of the value in the respective ownership interests, which had a positive accounting effect of NOK 59 million in Q A positive accounting effect of NOK 22 million has been recognized from the banks ownership interest in Balder Betaling AS, where the bank owns 22.4 percent of the shares. The value adjustment of the shares in BankAxept AS and BankID Norge AS amounted to NOK 37 million. The negative accounting effects linked to hedge accounting are mainly caused by changes in the value of basis swaps. Basis swaps are used to hedge fixed rate debt issued in Euro. The value of basis swaps fluctuates due to market changes, and the fluctuations are recognized in the income statement. These are hedging instruments, and assuming the underlying bonds are held to maturity, the change in market value over the instruments duration equals zero. Accounting effects will therefore be reversed over time. The Bank has made no value adjustments related to its ownership interests in Frende, Brage or Norne in first half of 2018, but has accounted for NOK 6.5 million in dividend from Frende.

7 Board of Directors report 7 Operating expenses Quarterly operating expenses (NOK million) Operating expenses closed on NOK 218 million in Q2 2018, compared with NOK 208 million in the same period in The increase is mainly attributable to the bank`s strategic focus on digital solutions, the establishment of a new office in Bryne, as well as Sørmeglerens establishment of new offices in Telemark. In addition, there has been an increase in pension costs in the first half of 2018, when comparing with the same period in Pension costs in 2017 was extraordinarily low due to the conversion of the bank`s collective defined-benefit scheme. Total operating expenses as a percentage of average assets amounted to 0.74 percent (0.77 percent) in Q The cost-income ratio is 38.5 percent (41.8 percent). The cost-income ratio, excl. financial instruments, closed on 40.5 percent (41.4 percent). Total operating expenses amounted to NOK 430 million in the first half of 2018, compared with NOK 407 million in the same period in The increase is mainly attributable to an increase in pension costs, which was NOK 15 million higher in the first half of 2018, compared with the first half of The cost-income ratio was 39.3 percent (41.2 percent), while the cost-income ratio excl. financial instruments closed on 41.4 percent (41.6 percent). Losses and defaulted loans Net losses on loans amounted to NOK 5 million in Q2 2018, which is equivalent to 0.02 percent of net loans. The corresponding figures in 2017 were NOK 13 million and 0.06 percent respectively. Net losses on loans amounted to NOK 5 million in the first half of 2018, which is equivalent to 0.01 percent of net loans. The corresponding figures in 2017 were NOK 28 million and 0.05 percent respectively. Effective 1 January 2018, IFRS 9 Financial Instruments replaced IAS 39 Financial Instruments; Recognition and Measurement. Under the new standard, the Group applies an expected loss model to calculate losses on loans. Please refer to Note 38 of the 2017 annual financial statements for further details on the effects of the transition. The Group s impairment losses at Q are based on the new model, and there were no material accounting effects in the period. At the end of Q2 2018, the Group s expected losses were calculated at NOK 559 million, which is equivalent to 0.56 percent of gross loans. Gross non-performing loans totalled NOK 270 million, which equates to 0.27 percent of gross loans. The corresponding figures for Q were NOK 281 million and 0.29 percent respectively.

8 8 Board of Directors report Loans Loans (NOK million) During the past 12 months, net loans increased by NOK 5.9 billion to a total of NOK billion, a growth of 6.2 percent. Loan growth in the reporting period was 1.8 billion, which is equivalent to an annualized growth of 7.5 percent. This has strengthened the bank s market share in the markets where we operate, and is a reinforcement of our market share from the bank s point of view. This is also in line with the bank s ambitions. Gross loans to retail customers rose by NOK 3.8 billion (6.2 percent) to NOK 65.7 billion the last 12 months, while in the same period, gross loan to corporate customers increased by NOK 2.0 billion (5.9 percent) to NOK 35.2 billion. Loans to retail customers accounted for 65 percent of total loans at the end of Q Deposits Deposits (NOK million) During the past 12 months, customer deposits has increased by NOK 1.6 billion (2.8 percent) to NOK 57.3 billion. During the same period, deposits from retail customers increased by NOK 1.5 billion (5.8 percent) to NOK 27.4 billion, and deposits from corporate customers rose by NOK 0.2 billion (0.5 percent) to NOK 29.8 billion. At the reporting date, Sparebanken Sør s deposits equated to 57.0 percent of net loans, down from 58.8 percent at the end of Q

9 Board of Directors report 9 Wholesale funding and liquidity portfolio The Group s liquidity situation is satisfactory. The liquidity buffers are adequate and the maturity structure for the funding is welladjusted to the needs of the business. New long-term funding is established through the issuance of covered bonds and senior debt. The Group has also arranged for long term financing from the international market through an established EMTN program. This was utilized in Q2 when the Group issued senior bonds of Euro 300 million in April At the end of Q2 2018, wholesale funding amounted to NOK 57.3 million, of which 62 percent was sourced through covered bonds and 90 percent through long-term financing. At the reporting date, the Group s portfolio of interest-bearing securities in totalled NOK 13.8 billion, while the liquidity indicator for long-term financing closed on 108 percent. At the same date, the Group s liquidity reserves (LCR) were 167 percent (parent bank: 165 percent). Rating Sparebanken Sør has an A1 rating with negative outlook. The rating outlook was adjusted from stable to negative in July 2017 as following the introduction of the EU Bank Recovery and Resolution Directive (BRRD) for Norwegian banks, and has been applied to five regional banks. All covered bonds issued by Sparebanken Sør Boligkreditt AS are rated to Aaa by Moody s. Subordinated capital and capital adequacy At the end of Q2 2018, net subordinated capital amounted to NOK 12.8 billion, while hybrid capital closed on NOK 1.1 billion and subordinated loans totalled NOK 1.5 billion. The Group has consolidated a proportion of its cooperative companies when calculating the capital ratio at the end of Q The common equity tier 1 capital ratio, when including Brage Finans, amounts to 15.0 percent. The tier 1 capital ratio amounts to 16.6 percent and the (total) capital ratio amounts to 18.9 percent. 80 percent of profit after tax from the first half of 2018 has been included in common equity tier 1 capital. For the Parent Bank, the respective figures at the end of Q were a CET1 capital ratio of 15.5 percent, a tier 1 capital ratio of 17.3 percent and a (total) capital ratio of 19.9 percent. In July, the Bank received the Financial Supervisory Authority s assessment and decision regarding the Pilar 2 requirement. The assessment was based on the supervisory review and evaluation process (SREP) for 2018, and the Pilar 2 requirement for Sparebanken Sør was set to 2.0 percent of risk weighted assets. This requirement is related to an assessment of risk factors not covered by the Pilar 1 requirements, and also includes a new method for calculating capital requirements associated with partially owned insurance companies. The capital requirement regarding the shareholding in Frende Holding AS stands alone for 0.3 percentage points. The new Pilar 2 requirement is a significant downward adjustment from today s requirement of 2.1 percent. This means that the Group satisfies the new capital requirements for financial institutions effective from 31 December 2017 of 12.0 percent for common equity tier 1 capital, 13.5 percent for tier 1 capital and 15.5 percent for (total) capital. Including the new pilar 2 addition of 2.0 percent, the capital requirements are 14.0 percent for common equity tier 1 capital, 15.5 percent for tier 1 capital and 17.5 percent for total capital. Further adaptation of the buffer beyond this level will depend on market expectations and the Financial Supervisory Authority s (Finanstilsynet s) response to the banks Internal Capital Adequacy Assessment Process (ICAAP). One of the bank s key goals is to achieve a CET1 capital ratio at least equal to comparable banks. Sparebanken Sør is the only of the major regional banks to apply the standard method to calculate the capital adequacy. In November 2017, Sparebanken Sør decided in to initiate a process to request approval from Finanstilsynet to apply the internal ratings-based approach (IRB). The bank aims to submit the application by the end of At the end of Q2 2018, the Group s leverage ratio was 9.1 percent, compared with 9.0 percent at the same time last year. The bank s capital is deemed to be highly satisfactory.

10 10 Board of Directors report The bank s equity certificates As of 30 June 2018, equity certificates have been issued. The profit (Group) per equity certificate was NOK 2.9 for Q2 2018, and NOK 5.5 for the first half of The ownership ratio for Q was 17.9 percent. Hybrid capital classified as equity has been excluded when calculating the ownership ratio. Dividend Sparebanken Sør aims to ensure that its equity certificate owners achieve a competitive return in terms of dividends and returns on their equity certificates as a result of sound, stable and profitable operations. Surpluses are distributed between the equity certificate capital (equity certificate owners) and the subordinated capital in accordance with the owner s share of equity. In determining the annual dividend, Sparebanken Sør takes account for the bank s capital requirements, including regulatory requirements, investors expectations and the bank s strategic targets. The bank aims to distribute approximately half of the equity certificate capital after tax as dividend. Subsidiary and partner businesses Sparebanken Sør Boligkreditt AS, the Bank s wholly owned subsidiary, is licensed to issue covered bonds which are used as an instrument in the bank s long-term funding strategy. As of 30 June 2018, the bank had transferred NOK 34 billion to Sparebanken Sør Boligkreditt AS, equivalent to 51 percent of all loans to the retail market. Sørmegleren is the bank s own real estate agency and the leading estate agency business in the southern Norway. Toghether with Porsgrunn Bamble Borgestad Boligbyggelag, the agency has established new offices in Skien and Porsgrunn in Sørmegleren delivered positive results in the first half of 2018, but the results are somewhat weaker than in the corresponding period in Frende Holding (10% sharholding) is the parent company of Frende Skadeforsikring AS and Frende Livsforsikring AS, which provides general insurance and life insurance to retail and corporate customers. The company is producing strong growth in its customer base and premiums within both general and life insurance. The company has returned high profits over several years, even though the first half of 2018 was weaker. This is mainly a consequence of the high replacement volum caused by the extraordinarily cold and demanding winter season. Brage Finans (15% shareholding) is a financing company that offers leasing and loans secured against by the purchased objects to the corporate and retail markets. The company is continuing to generate profitable growth. Norne Securities (17.6% ownership interest) is an investment firm that provides online trading, traditional brokerage and corporate finance services. The company has a positive development in profit. Balder Betaling (22.4% shareholding) is owned by Sparebanken Sør together with the 14 other banks in the Frende collaboration. The company has a 12 percent shareholding in Vipps AS, and is responsible for further development of the mobile payment application Vipps, together with the other stakeholders. Outlook The Board of Directors is satisfied with the financial performance after Q The bank has a good development in profit from ordinary operations through customised growth, stable commission income, good cost control and low losses on loans. After a weak growth in GDP in recent years, growth in the Norwegian economy has picked up. A weak NOK exchange rate, low interest rates and an expansionary fiscal policy have generated positive growth impulses and contributed to higher export growth, a lower unemployment rate and increased private consumption. Going forward, the financial framwork for the Norwegian economy therefore seem good.

11 Board of Directors report 11 House prices in the bank s main market have returned a slightly positive growth over several years. Statistics for the first half of 2018 show slightly inceasing house prices in the bank s main market area. The Group s mortgage portfolio has a satisfactory LTV, and the bank is well positioned to absorb any further fall in house prices. This view is also supported by the stress tests that have been carried out. Norges Bank has kept its key interest rate unchanged since March 2016, and made no further adjustments at its most recent meeting on 21 June Norges Bank has signalled that an upward adjustment of the key interest rate is likely during autumn The Group has a requirement for a common equity tier 1 capital, including the new pillar 2 add-on of 2.0 percent, which amounts to 14.0 percent. Adjusments of the buffer beyond this level is dependent on market expectations and the Norwegian Supervisory Authoritys response to the bank s ICAAP in The Group aims for a common equity tier 1 capital ratio of 14.8 percent, with an operational interval between 14.5 and 15.0 percent. At the end of Q2 2018, common equity tier 1 capital ratio closed on 15.0 percent, wich is 1 percentage point above the regulatory requirement, and 0.9 percentage point above the current regulatory requirement. The Group expects loan growth to outstrip overall credit growth in 2018, and has set a target return on equity of 9 percent. Effective 1 January 2018, the Group has applied the new IFRS 9 standard, which will impact the calculation of the Group s impairment losses on loans. In the future, the Group will calculate its impairment losses based on expected loan losses. This approach is expected to result in greater fluctuations in loan lose moving forward. Based on the composition of the bank s loan portfolio, economic trends, historical figures and local market conditions, net losses are expected to remain low also in In accordance with its strategic focus on cost and long-term value creation, the bank shall continue to invest in technology in order to contribute to cost-efficient operations and streamlining of the office structure. This, together with high quality in customer credit assessments, will contribute to a continued profitable growth and development for Sparebanken Sør. Events after the reporting period There have been no recorded events since 30 June 2018 that affect the quarterly financial statements. Arendal, 10 August 2018 Stein A. Hannevik Chairman Inger Johansen Deputy chairman Tom Erik Jebsen Erling Holm Marit Kittilsen Mette Ramfjord Harv Jan Erling Tobiassen Employee representative Gunnhild Tveiten Golid Employee representative Geir Bergskaug CEO

12 12 Income statement PARENT BANK Mill. kroner GROUP Q2 Q2 Q2 Q Notes Interest Income Interest expenses Net interest income Commission income Commission expenses Net commission income Dividend Net income from other financial instruments Net income from financial instruments Income from partner businesses Other operating income Total other operating income Total net income Wages and other personal expenses Depreciation and write-down of fixed assests and intangible assests Other operating income Total operating expenses Profit before losses on loans Loses on loans and guarantees Profit before taxes Tax expenses Profit for the period Minority interest Majority interest ,9 4,0 4,5 2,1 2,5 Profit/diluted earnings per equity certificate (in whole kroner) 2,9 2,4 5,5 4,8 11,2 Other comprehensive income Items that will not be reclassified to profit and loss account -13 Recognised estimate deviation and pensions Tax effect 3 Items that will not be reclassified to profit and loss account 0 0 change in value basisswaps Change in value loan to cutomers with securities 0 - in residentials 0 0 Tax effect Other comprehensive income Comprehensive income for the period Minority interest Majority interest ,8 4,0 4,5 2,1 2,5 Total Profit/diluted earnings per equity certificate (In whole NOK) 2,9 2,4 5,4 4,8 11,1

13 Balance sheet 13 PARENT BANK NOK million GROUP ASSETS Notes Cash and receivables from central banks Loans to credit institutions Net loans to customers 4,5,6,8, Bonds and certificates Shares Financial derivatives 10, Shareholdings in Group companies Shareholdings in associated companies Intangible assets Fixed assets Other assets TOTAL ASSETS 2, LIABILITIES AND EQUITY CAPITAL Debts to credit institutions Deposits from customers 2,7, Debt incurred due to issue of securities 10, Financial derivatives 10, Payable taxes Other liabilities Provisions for commitments Deferred tax Subordinated loan capital 10, Total liabilities Equity certificate capital Hybrid capital Other equity Total equity capital TOTAL LIABILITIES AND EQUITY CAPITAL 2,

14 14 Cash flow statement PARENT BANK NOK million GROUP Interest received Interest paid Other payments received Operating payments Loan recoveries Period tax paid Gifts paid Change in customers deposits Change in loans to customers Net cash flow from operational activities Payments received regarding securities Payments made regarding securities Payments received regarding sale of fixed assets Payments made regarding purchase of fixed assets Investment in subsidiary Change in other assets Net cash flow from investing activites Change in loans to credit institutions Change in deposits from credit institutions Payments received, bond debt Payments made, bond debt Payments made, dividend and interest hybrid capital Issuance of hybrid capital Paid hybrid capital Issuance of subordinated loan capital Paid subordinated loan capital Change in other liabilities Net cash flow from financing activities Net change in liqiud assets Cash and cash equivalents as at Cash and cash equivalents at end of period

15 Equity statement 15 GROUP NOK million Equity certificates Premium fund Dividend equalizationfund Hybrid capital Primary capital Gift fund Other equity Minority interests TOTAL Balance 31 Dec Dividend distributed for Profit first half Buy back of hybrid capital Interest on hybrid capital Essuance of hybird capital Allocated gift fund Balance Profit Buy back of hybrid capital Issuance of hybrid capital Other comprehensive income Allocated gift fund -8-8 Other changes -2-2 Balance 31 Dec Dividend distributed for Accounting effects on transition to IFRS 9 Profit first half Interest on hybrid capital Other comprehensive income -9-9 Allocated gift fund Balanse PARENT BANK Balanse Dividend distributed for Profit first half Buy back of hybrid capital Interest on hybrid capital Essuance of hybird capital Allocated gift fund Balanse Profit Buy back of hybrid capital Issuance of hybrid capital Other comprehensive income Allocated gift fund -8-8 Balanse Dividend distributed for Accounting effects on transition to IFRS 9 Profit first half Interest on hybrid capital Other comprehensive income 0 Allocated gift fund Balanse

16 16 Notes 1. ACCOUNTING PRINCIPLES The financial statements have been prepared in accordance with International Standards for Financial Reporting (IFRS), including IAS 34. The applied accounting policies are the same as those applied in the 2017 annual financial statements. Effective 1 January 2018, the Group changed its accounting principles for the recognition, de-recognition, classification and measurement of financial assets and liabilities, as well as hedge accounting, from the previously applied IAS 39 to IFRS 9. Please refer to Note 38 of the 2017 annual financial statements for further details on the accounting effects of the transition, new accounting policies and descriptions of the bank s applied impairment model. There are no other new standards applicable for 2018 that have a material impact on the financial statements. The ordinary tax rate of 25 percent has been used to calculate tax payable. 2. SEGMENT REPORTING Report per segment Income statement (NOK million) RM CM Undistrib. and elimin. Total RM CM Undistrib. and elimin. Total Net interest and commision income Net other operating income Operating expenses Profit before losses per segment Losses on loans and guarantees Profit before tax per segment Net loans to customers Other assets Total assets per segment Deposits from customers Other liabilities Total liabilities per segment Equity Total liabilities and equity per segment

17 Notes INTEREST INCOME AND INTEREST EXPENSES PARENT BANK Interest income Group NOK million Interest income from financial instruments at amortised cost: Interest on loans given to credit institutions Interest on loans given to customers Interests from financial instruments at amortised cost Interest income from financial instruments at fair value: Interest on loans given to customers (fixed rate loans) Interest on cerificates and bonds Interest income from financial instruments at fair value Interest income from financial instruments at fair value over OCI 238 Interest on loans given to cutomers (mortgage) 238 Interest income from financial instruments at fair value over OCI Total interest income PARENT BANK Interest expences Group NOK million Interest expenses from financial instruments at amortised cost: Interest on debt given to credit institutions Interest on debt to customers Interest on issued securities Interest on subordinated loans Fee to The Norwegian Banks`Guarantee Fund Interest expenses from financial instruments at amortised cost Total interest expenses LOSSES ON LOANS, GUARANTEES AND UNUSED CREDITS Allowances on loan losses and the loss and guarantee cost for the period, have been calculated in accordance with the new accounting principles in IFRS 9. Losses on loans, guarantees and unused credits are based on expected credit loss (ECL), applying the 3 stage method described in Note 38 to the 2017 annual financial statements. Figures for Q and as of 31 December 2017 have been recognized under the subsequent loss model in IAS 39. Consequently, the figures for the current period are not directly comparable to previous periods. PARENT BANK NOK million GROUP Loss expense on loans during the period Period's change inn write-downs stage Period's change inn write-downs stage Period's change inn write-downs stage Period's confirmed loss Change in individual write downs during the period Change in collective write-downs during the period Period's confirmed loss where individual write-downs has been performed previously Period's confirmed loss where no individual write-downs has been performed previously Recognised as interest income Period's recoveries relating to previous losses Change in write downs on guaranties Loss expenses during the period

18 18 Notes GROUP Stage 1 Stage 2 Stage 3 NOK million Expected losses in the next 12 months Lifetime expected credit losses Lifetime expected credit losses Total Allowenses on loan losses Transfers Transfered to stage Transfered to stage Transfered to stage Losses on new loans Losses on deducted loans * Confirmed losses Entered into previous confirmed losses Losses on older loans and other changes Allowenses on loan losses * Losses on deducted loans consist of loss on loans redeemed in the period, or loan transferred between the parent bank and Sparebanken Sør Boligkreditt AS. The table also includes impairment losses on non-balance items (unused credits and guarantees). These are presented as other liabilities in the balance sheet. PARENT BANK Stage 1 Stage 2 Stage 3 NOK million Expected losses in the next 12 months Lifetime expected credit losses Lifetime expected credit losses Totalt Allowenses on loan losses Transfers Transfered to stage Transfered to stage Transfered to stage Losses on new loans Losses on deducted loans * Confirmed losses Entered into previous confirmed losses Losses on older loans and other changes Allowenses on loan losses * Losses on deducted loans consist of loss on loans redeemed in the period, or loan transferred between the parent bank and Sparebanken Sør Boligkreditt AS. The table also includes impairment losses on non-balance items (unused credits and guarantees). These are presented as other liabilities in the balance sheet. For changes in balance sheet items from 31 December 2017 to 1 January 2018 due to the transition to new accounting standards, please refer to Note 38 of the 2017 annual financial statements. The following table shows reported figures for the comparable prior-year period and as of 31 December 2017 in accordance with IAS 39.

19 Notes 19 PARENT BANK NOK million Group Individual write-downs Individual write-downs at start of period Period`s confirmed loss where individual write-down has been performed previously Increased individual write-downs during hte period New individual write-downs during the period Reversal of individual write-downs during the period = Individual write-downs at the end of period PARENT BANK Group Collective writedowns on loans Collective writedowns on loans at start of period Change in collective write-downs during the period Collective write-downs of loans at the end of period DEFAULTED LOANS A non-performing loan is the sum of a customer s total loan amount if part of the loan has been overdrawn or has been in arrears exceeding NOK 1,000 for more than 90 days. Please refer to note 38 in the 2017 annual financial statements for a detailed explanation of loans recognised in stage 3 when calculating expected losses. MORBANK Mill. kroner KONSERN Gross non-performing loans Individual write-downs Stage 3 write-downs Net non-performing loans ,41 % 0,43 % 0,40 % Gross non-performing loans as % of gross loans 0,27 % 0,29 % 0,29 %

20 20 Notes 6. WRITE-DOWNS BROKEN DOWN PER SECTOR, INDUSTRY AND STAGE PARENT BANK NOK million GROUP Stage 1 Stage 2 Stage 3 Write-down on loans, garantees and unused credits as of Write-down on loans, garantees and unused credits as of Stage 3 Stage 2 Stage Retail customers Public administration Primary industry Manufacturing industry Real estate development Building and construction industry Property management Transport Retail trade Hotel and restaurant Housing cooperatives Financial/commercial services Social services Total write-down on loans, garantees and unused credits The distribution is based on official industry codes, and corresponds with the Group s internal reporting. Calculated losses as of based on the different steps in the model NOK million Group Stage Commitment As % Calculated loss As % Corporate customers ,1 % 43 7,7 % ,0 % 78 14,0 % ,8 % ,1 % Corporate customers total ,9 % ,7 % Retail customers ,7 % 5 0,9 % ,2 % 23 4,1 % ,2 % 35 6,3 % Retail customers total ,1 % 63 11,3 % Total ,0 % ,0 % NOK million Parent bank Stage Commitment As % Calculated loss As % Corporate customers ,6 % 45 8,3 % ,6 % 81 14,8 % ,2 % ,5 % Corporate customers total ,3 % ,5 % Retail customers ,4 % 3 0,5 % ,9 % 15 2,8 % ,3 % 34 6,1 % Retail customers total ,7 % 52 9,5 % Total ,0 % ,0 %

21 Notes CUSTOMERS DEPOSITS BROKEN DOWN PER SECTOR AND INDUSTRY PARENT BANK NOK million GROUP Retail customers Public administration Primary industry Manufacturing industry Real estate development Building and construction industry Property management Transport Retail trade Hotel and restaurant Housing cooperatives Financial/commercial services Social services Accrued interests Total deposits from customers The distribution is based on official industry codes, and corresponds with the Group s internal reporting. 8. LOANS TO CUSTOMERS BROKEN DOWN PER SECTOR AND INDUSTRY PARENT BANK NOK million GROUP Retail customers Public administration Primary industry Manufacturing industry Real estate development Building and construction industry Property management Transport Retail trade Hotel and restaurant Housing cooperatives Financial/commercial services Social services Accrued interests Total gross loans Write-downs on lending Total net loans The distribution is based on official industry codes, and corresponds with the Group s internal reporting.

22 22 Notes 9. SUBORDINATED CAPITAL AND CAPITAL ADEQUACY PARENT BANK NOK million GROUP Total equity Tier 1 capital Equity not eligible as common equity tier 1 capital Share of profit not eligible as common equity tier 1 capital Deduction for intangible assets and deferred tax assets Deduction for aditional value adjustments (AVA) Other withdrawl Total common equity tier 1 capital Other tier 1 capital Hybrid capital Deduction in other tier 1 capital Total tier 1 capital Additional capital over tier 1 capital Subordinated loan capital Deduction in additional capital Total additional capital Net primary capital Minimum requirement for subordinated capital Basel II calculated according to the standard method: Engagements with local and regional authorities Engagements with institutions Engagements with enterprises Engagements with mass market Engagements secured in property Engagements which have fallen due Engagements which are high risk Engagements in covered bonds Engagements in collective investment funds Engagements, other Capital requirements for credit- and counterparty risk Capital requirements for position-, currency- and product risk Capital requirements for operational risk CVA addition Deduction from the capital requirement Total minimum requirement for primary capital Risk-weighted balance (calculation basis) ,5 % 15,2 % 15,5 % Common equity tier 1 capital ratio, % 15,3 % 14,6 % 15,1 % 17,5 % 16,7 % 17,3 % Tier 1 capital ratio, % 16,9 % 16,0 % 16,7 % 19,9 % 18,8 % 19,9 % Total capital ratio, % 19,1 % 17,8 % 18,9 %, 8,4 % 8,2 % 8,4 % Leverage ratio 9,2 % 9,0 % 9,2 %

23 Notes 23 Cooperative Group s NOK million Proportion of common equity tier 1 capital Proportion of tier 1 capital Proportion of net primary capital Deductions from internal eliminations Common equity tier 1 capital after proportionate consolidation Tier 1 capital after proportionate consolidation Subordinated capital after proportionate consolidation Porportion of risk weighted balance Deductions from internal eliminations Risk weighted balance after proportonate consolidation Common equity tier 1 capital after proportionate consolidaton, % 15,0 % 14,5 % 14,9 % Tier 1 capital after proportionate consolidation, % 16,6 % 15,8 % 16,6 % (Total) capital after proportionate consolidation, % 18,9 % 17,6 % 18,7 % Leverage ratio after proportionate consolidation, % 9,1 % 8,9 % 9,2 %

24 FAIR VALUES OF FINANCIAL INSTRUMENTS Classification of financial instruments Financial instruments are classified at different levels. Level 1: Includes financial assets and liabilities valued using unadjusted observable market values. This includes listed shares, derivatives traded via active marketplaces and other securities with listed market values. Level 2: Instruments whose value is based on valuation techniques in which all assumptions (all input) are based on directly or indirectly observable market data. Such values may be obtained from external market players or reconciled against external market players offering these types of services. Level 3: Instruments whose value is based on valuation techniques in which at least one essential requirement cannot be supported based on observable market values. This category includes investments in unlisted companies and fixed-rate loans where none of the required market information is available. For a more detailed description, see Note 21 Fair value of financial instruments in the 2017 annual financial statements.

25 Notes 25 Recognized PARENT BANK NOK million GROUP Fair value Recognized Fair value value Level 1 Level 2 Level 3 value Level 1 Level 2 Level 3 Assets recognized at amortised cost Cash and receivables from central banks Loans to credit institutions Net loans to customers (floating interest rate) Assets recognized at fair value Net loans to customers (fixed interest rate) Net loans to customers (mortgage) Bonds and certificates Shares Financial derivatives Total financial assets Liabilities recognized at amortised cost Debt to credit institutions Deposit from customers Debt incurred due to issue of securities Subordinated loan capital Liabilities recognized at fair value Financial derivatives Total financial liabilities Recognized PARENT BANK NOK million GROUP Fair value Recognized Fair value value Level 1 Level 2 Level 3 value Level 1 Level 2 Level 3 Assets recognized at amortized cost Cash and receivables from central banks Loans to credit institutions Net loans to customers (floating interest rate) Assets recognized at fair value Net loans to customers (fixed interest rate) Bonds and certificates Shares Financial derivatives Total financial assets Liabilities recognized at amortised cost Debt to credit institutions Deposit from customers Debt incurred due to issue of securities Subordinated loan capital Liabilities recognized at fair value Financial derivatives Total financial liabilities Recognized PARENT BANK NOK million GROUP Fair value Recognized Fair value value Level 1 Level 2 Level 3 value Level 1 Level 2 Level 3 Assets recognized at amortized cost Cash and receivables from central banks Loans to credit institutions Net loans to customers (floating interest rate) Assets recognized at fair value Net loans to customers (fixed interest rate) Bonds and certificates Shares Financial derivatives Total financial assets Liabilities recognized at amortised cost Debt to credit institutions Deposit from customers Debt incurred due to issue of securities Subordinated loan capital Liabilities recognized at fair value Financial derivatives Total financial liabilities

26 26 Notes Movement level 3 GROUP / PARENT BANK NOK million Net loans to customers Of which credit risk Shares Recognized value as at Acquisitions 1 halår Of which, transferred from level 1 or 2 0 Change in value recognized during the period Disposals 1 halvår Recognized value as at Acquisitions 2 halvår Of which, transferred from level 1 or 2 0 Change in value recognized during the period Disposals 2 halvår Recognized value as at Acquisitions first half of Of which, transferred from level 1 or 2 0 Change in value recognized during the period Disposals first half of Recognized value as at Sensitivity analysis Changes in value as a result of the change in credit spread of 10 basis points. GROUP / PARENT BANK NOK million Loan o customers of which, loans to corporate market (CM) of which, loans to retail market (RM) OFFSETTING GROUP NOK million (1) Net presented (1) Net presented Assets Financial derivaties Liabilities Financial derivaties PARENT BANK NOK million (1) Net presented (1) Net presented Assets Financial derivaties Liabilities Financial derivaties (1) Includes assets and liabilities where the bank and the Group have recognized their financial derivatives net for each individual counterparty. The bank and the Group s counter-claim rights comply with prevailing Norwegian law. The Bank and Sparebanken Sør Boligkreditt AS have the right to offset other outstanding balances through ISDA agreements and a master agreement if certain events occur. The amounts have not been offset in the balance sheet because the transactions are generally not settled on a net basis.

27 Notes DEBT SECURITIES AND SUBORDINATED LOAN CAPITAL Debt securities - Parent bank NOK million Bonds, nominal value Value adjustments Accrued interest Debt incurred due to issue of securities Change in debt securities - Parent bank Matured/ Other changes NOK million Issued Redeemed during the period Bonds, nominal value Value adjustments Accrued interest Debt incurred due to issue of securities Debt securities - Group NOK million Bonds, nominal value Value adjustments Accrued interest Debt incurred due to issue of securities Change in debt securities - Group Matured/ Other changes NOK million Issued Redeemed during the period Bonds, nominal value Value adjustments Accrued interest Debt incurred due to issue of securities Change in subordinated loan capital and hybrid capital - Parent bank and Group Matured/ Other changes NOK million Issued Redeemed during the period Subordinated loans Accrued interest 4 4 Total subordinated loan capital

28 28 Notes 13. EQUITY CERTIFICATE OWNERS The twenty largest equity certificate owners as at 30 June NAME NUMBER OF EC SHARE OF EC-CAP. % NAME NUMBER OF EC SHARE OF EC-CAP. % 1. Sparebankstiftelsen Sparebanken Sør , Allumgården AS ,11 2. Bergen Kom. Pensjonskasse , Otterlei Group AS ,96 3. Arendal Kom. pensjonskasse , MP Pensjon PK ,89 4. Holta Invest AS , Ottersland AS ,64 5. Pareto AS , Profond AS ,60 6. Glastad Invest AS , Wenaas Kapital AS ,55 7. Merrill Lynch , Artel Holding A/S ,52 8. EIKA utbytte VPF c/o Eika kapitalforv , Apriori Holding AS ,49 9. Wenaasgruppen AS , Varodd AS , Gumpen Bileiendom AS , Birkenes Sparebank ,45 Total - 10 largest owners ,53 Total - 20 largest owners ,20 The ownership ratio as at 1 January 2018 was 17.9 percent. Hybrid capital classified as equity has been excluded when calculating the ownership ratio. At the reporting date, Sparebanken Sør owned of its own equity certificates. The equity certificate capital amounted to NOK distributed over equity certificates each with a nominal value of NOK 50.

29 Risk and Capital management 29 The Group s risk management procedures ensure that the Group s risk exposure is known at all times and are instrumental in helping the Group to achieve its strategic objectives and comply with legal and regulatory requirements. Governing targets are established for the Group s overall risk level and each spesific risk area, and systems are in place to calculate, manage and control risk. The aim of capital management is to ensure that the Group has an acceptable tier 1 capital ratio, is financially stable and achieves a satisfactory return commensurate with its risk profile. The Group s total capital ratio and risk exposure are monitored through periodic reports. Credit risk Credit risk is defined as the risk of loss due to customers or counterparties failing to meet their obligations. One of the key risk factors relating to Sparebanken Sør s operations is credit risk. Future changes in the bank s losses will also be impacted by general economic trends. This makes the granting of credit and associated processes one of the most important areas for the bank s risk management. Credit risk is managed through the Group s strategy and policy documents, credit routines, credit processes, scoring models and authority mandates. Market risk Market risk generally arises from the Group s unhedged transactions in the interest rate, currency and equity markets. Such risk can be divided into interest rate risk, currency risk, share risk and spread risk, and relates to changes in results caused by fluctuations in interest rates, market prices and/or exchange rates. The Board of Directors establishes guidelines and limits for managing market risk. Liquidity risk Liquidity risk relates to Sparebanken Sør s ability to finance its lending growth and fulfil its loan obligations subject to market conditions. Liquidity risk also includes risk of the financial markets that the Group wishes to use ceasing to function. The Board of Directors established guidelines and limits for the management of liquidity risk. Operational risk Operational risk is defined as the risk of losses resulting from inadequate or failing internal processes, procedures or systems, human error or malpractice, or external events. Examples of operational risks include undesirable actions and events, including the failure of IT systems, money laundering, corruption, embezzlement, insider dealing, fraud, robbery, threats against employees, breaches of authority and breaches of established routines, etc. Business risk Business risk is defined as the risk of unexpected fluctuations in revenue based on factors other than credit risk, liquidity risk, market risk and operational risk. This risk could, for example, derive from regulatory amendments or financial or monetary policy measures, including changes in fiscal and currency legislation, which could have a negative impact on the business. All risk at Sparebanken Sør must be subject to active and satisfactory management, based on objectives and limits for risk exposure and risk tolerance established by the Board of Directors.

30 30 Quarterly profit trend Group Q2 Q1 Q4 Q3 Q2 NOK million Net interest income Net commission income Net income from financial instruments Other operating income Total net income Total operating expenses Profit before losses Losses on loans and guarantees Profit before taxes Tax expenses Profit for the period % of average assets Net interest income 1,48 % 1,49 % 1,54 % 1,51 % 1,54 % Net commission income 0,29 % 0,26 % 0,27 % 0,29 % 0,31 % Net income from financial instruments 0,10 % 0,09 % 0,20 % 0,07 % -0,02 % Other operating income 0,07 % 0,01 % 0,03 % 0,01 % 0,01 % Total net income 1,93 % 1,85 % 2,05 % 1,87 % 1,84 % Total operating expenses 0,74 % 0,75 % 0,74 % 0,69 % 0,77 % Profit before losses 1,19 % 1,11 % 1,32 % 1,18 % 1,07 % Losses on loans and guarantees 0,02 % 0,00 % -0,04 % 0,01 % 0,05 % Profit before taxes 1,17 % 1,11 % 1,36 % 1,17 % 1,02 % Tax expenses 0,22 % 0,27 % 0,26 % 0,29 % 0,23 % Profit for the period 0,95 % 0,84 % 1,10 % 0,88 % 0,80 % Key figures, income statment Return on equity after tax 10,1 % 9,1 % 12,0 % 9,8 % 8,5 % Cost as % of income 38,5 % 40,2 % 36,0 % 37,0 % 41,8 % Cost as % of income, ex net income from financial instruments 40,5 % 42,3 % 39,9 % 38,5 % 41,4 % Balance sheet Total assets Average total assets Net loans to customers Growth in loans as %, last 12 mths. 6,2 % 6,5 % 7,2 % 6,6 % 4,9 % Customers deposits Growth in deposits as %, last 12 mths. 2,8 % 4,0 % 7,8 % 6,6 % 8,7 % Deposits as % of net loans 57,0 % 55,6 % 57,0 % 56,9 % 58,8 % Equity , Losses on loans as % of net loans, annualised 0,02 % 0,00 % -0,05 % 0,02 % 0,06 % Gross defaulted loans over 90 days as % of gross loans 0,26 % 0,32 % 0,28 % 0,27 % 0,29 % Other key figures Liquidity reserve (LCR) (Group) 167 % 165 % 139 % 144 % 158 % Common equity tier 1 capital ratio (added share of profit) 15,3 % 15,2 % 15,1 % 14,7 % 14,6 % Common equity tier 1 capital ratio (incl. partly owned companies) 15,0 % 15,0 % 14,9 % 14,5 % 14,4 % Tier 1 capital ratio 16,9 % 16,8 % 16,7 % 16,3 % 16,0 % Total capital ratio 19,1 % 18,9 % 18,9 % 18,1 % 17,8 % Common equity tier 1 capital Tier 1 capital Net total primary capital Leverage ratio 9,1 % 9,1 % 9,2 % 9,1 % 9,0 % Number of branches Number of man-years in banking activity Key figures, Equity certificates Equity certificate ratio 17,90 % 17,90 % 18,70 % 18,7 % 18,7 % Number of equity certificates issued Profit/diluted earnings per equity certificate (Parent bank) 2,5 1,9 2,8 2,1 2,1 Profit/diluted earnings per equity certificate (Group) 2,9 2,6 3,6 2,8 2,4 Dividend last year per equity certificate 6,0 6,0 6,0 6,0 6,0 Book equity per equity certificate 118,9 116, ,6 113,9 Price/Book value per equity certificate 0,8 0,8 0,9 0,9 0,9 Listed price on Oslo Stock Exchange at end of period 97,2 98, ,00

31 Key figures Group * * Income statement (NOK million) Proforma Net interest income Net commission income Net income from financial instruments Other operating income Total net income Total expenses Profit before losses on loans Losses on loans and guarantees Profit before taxes Tax expenses Profit for the period Income statement as percentage of average assets Net interest income 1,53 % 1,49 % 1,58 % 1,60 % 1,60 % Net commission income 0,28 % 0,28 % 0,31 % 0,30 % 0,28 % Net income from financial instruments 0,08 % 0,21 % -0,07 % 0,20 % 0,22 % Other operating income 0,02 % 0,03 % 0,01 % 0,02 % 0,03 % Total net income 1,92 % 2,01 % 1,83 % 2,12 % 2,13 % Total expenses 0,74 % 0,75 % 0,83 % 0,88 % 0,89 % Profit before losses on loans 1,17 % 1,26 % 0,99 % 1,24 % 1,24 % Losses on loans and guarantees 0,02 % 0,05 % 0,10 % 0,28 % 0,14 % Profit before taxes 1,16 % 1,21 % 0,90 % 0,96 % 1,10 % Tax expenses 0,26 % 0,27 % 0,24 % 0,23 % 0,24 % Profit for the period 0,90 % 0,94 % 0,66 % 0,73 % 0,86 % Key figures, income statement Return on equity after tax 9,7 % 11,3 % 8,4 % 10,1 % 12,3 % Cost as % of income 38,7 % 37,3 % 45,6 % 41,7 % 41,7 % Cost as % of income, ex net income from financial instruments 40,4 % 41,7 % 44,0 % 45,9 % 46,6 % Total assets Total assets Average total assets Net loans to customers Grows in loans as %, last 12 mths. 7,2 % 7,1 % 9,2 % 4,5 % 6,8 % Customers deposits Growth in deposits as %, last 12 mths. 7,8 % 6,6 % 0,2 % 10,3 % 8,3 % Deposits as % of net loans 57,0 % 56,7 % 49,3 % 51,2 % 56,5 % Equity Losses on loans as % of net loans, annualised 0,02 % 0,05 % 0,11 % 0,33 % 0,16 % Gross defaulted loans over 90 days as % of gross loans 0,28 % 0,30 % 0,47 % 0,71 % 0,60 % Other key figures Liquidity reserves (LCR) 139,0 % 128,0 % 108,0 % Common equity tier 1 capital ratio (added share of profit) 15,1 % 14,7 % 12,7 % 13,1 % 12,8 % Common equity tier 1 capital ratio (incl. partly owned companies) 14,9 % 14,7 % 12,7 % 13,1 % 12,8 % Tier 1 capital ratio 16,7 % 16,0 % 13,5 % 14,4 % 14,2 % Total capital ratio 18,9 % 17,9 % 15,5 % 15,1 % 15,1 % Common equity tier 1 capital Tier 1 capital Net total primary capital Leverage ratio 9,2 % 8,6 % 7,0 % 7,0 % Number of branches Number of man-years in banking activity Key figures, Equity certificates Equity certificate ratio before profit distribution 18,7 % 19,8 % 13,5 % 14,1 % 7,1 % Number of equity certificates issued Profit per equity certificate (Parent bank) 8,9 8,5 10,6 12,2 10,3 Profit per equity certificate (Group) 11,2 10,7 17,6 20,3 18,1 Dividend last year per equity certificate (Parent bank - proposed dividend 2014) 6,0 6,0 9,0 10,0 10,0 Book equity per equity certificate 120,0 115,2 219,0 212,0 187,0 Price/Book value per equity certificate 0,9 0,8 0,6 0,9 0,8 Listed price on Oslo Stock Exchange at end of period 104,0 91,3 139,0 196,0 150,0

32 32 Calculations NOK million Q Q Q Q Q Q Return on equity adjusted for hybrid capital Profit after tax Interest on hybrid capital Profit after tax, incl. interest on hybrid capital IB Equity IB Hybrid capital IB Equity excl. hybrid capital UB Equity UB Hybrid capital UB Equity excl. hybrid capital Average equity Average equity excl. hybrid capital Return on equity 9,8 % 8,6 % 11,3 % 9,2 % 8,5 % 9,2 % 9,3 % Return on equity excl. hybrid capital 10,1 % 9,1 % 12,0 % 9,8 % 8,5 % 9,6 % 9,7 % Net interest income, adjusted for accoutning changes Net interest income Interest on hybrid capital Net interst income, adjusted for accounting changes Average total assets As a percentage of total assets 1,41 % 1,45 % 1,50 % 1,47 % 1,49 % 1,43 % 1,49 % Operating costs, adjusted for conversion of the pension scheme Operating costs Conversion of pension scheme 8 8 Operating costs, adjusted for conversion of the pension scheme Profit from ordinary operations Net interest income, adjusted for accounting changes Nett commission income Share of profit from coopertative companies -4-4 (excl. Valueadjustment Balder betaling/vipps) Other operational income Operating income, adjusted for conversion of pension scheme Profit from ordinary operatins, before tax Profit excl. finance and adjusted for accounting changes Net interest income, adjusted for accounting changes Net commission income Share of profit from coopertative companies (excl. Valueadjustment Balder betaling/vipps) -4 Other operational income Losses on loans and guarantees Operating income, adjusted for conversion of pension scheme Profit excl. finance and adjusted for accounting changes Tax (25 %) Ordinary operations / adjusted profit after losses and tax Average equity, excl. Hybrid capital Return on equity, profit excl. Finance and adjusted for 8,0 % 8,3 % 9,3 % 9,1 % 8,5 % 8,2 % 8,7 % accounting events Average interst / interest margins Average lending rate RM (Return) 2,65 % 2,69 % 2,72 % 2,75 % 2,77 % 2,78 % Average lending rate CM (Return) 3,42 % 3,26 % 3,20 % 3,25 % 3,35 % 3,32 % Average deposit rate RM 0,81 % 0,82 % 0,81 % 0,82 % 0,82 % 0,82 % Average deposit rate CM 1,00 % 0,97 % 0,92 % 1,04 % 1,06 % 1,03 % Average 3 month NIBOR 1,07 % 0,95 % 0,81 % 0,81 % 0,92 % 0,89 % Lending margin RM (lending rate - 3 month NIBOR) 1,58 % 1,74 % 1,91 % 1,94 % 1,85 % 1,89 % Lending margin CM (lending rate - 3 month NIBOR) 2,35 % 2,31 % 2,39 % 2,44 % 2,43 % 2,43 % Deposit margin RM (3 month NIBOR - deposit rate) 0,26 % 0,13 % 0,00 % -0,01 % 0,10 % 0,07 % Deposit margin CM (3 month NIBOR - deposit rate) 0,07 % -0,02 % -0,11 % -0,23 % -0,14 % -0,14 %

33 Calculations 33 Board of Directors report and accounting presentation refer to certain adjusted numbers which are not defined by IFRS (Alternative Performance Measures (APM)). This is done to give a better picture of the banks underlying operations, and is not meant to replace the ordinary financial report. The table above reconciles the adjusted and the unadjusted figures. For more information and how to achieve the individual performance measures see further descriptions on our website.

34 34 Declaration in Accordance with Section 5-6 of the Norwegian Securities Trading Act The Board of Directors and CEO of Sparebaken Sør hereby confirm that the bank and the Group s half-yearly financial statements for 2018 have been prepared in accordance with applicable accounting standards, and that the information provided in the financial statements provides a true and fair view of the company s assets, liabilities, financial position and overall result. In addition, we confirm that the half-year report provides a true and fair view of the company s development, result and position, together with a description of the most significant risk and uncertainty factors facing the company. Arendal, 10 August 2018 Stein A. Hannevik Chairman Inger Johansen Deputy chairman Tom Erik Jebsen Erling Holm Marit Kittilsen Mette Ramfjord Harv Jan Erling Tobiassen Employee representative Gunnhild Tveiten Golid Employee representative Geir Bergskaug CEO

35 0110 Sparebanken Sør Pb. 200, 4662 Kristiansand tlf