43.1 % 13.7 % 16.4 % First quarter 2017 (Unaudited) Skandiabanken ASA. Annual lending growth ROE. Cost / Income

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1 Q1 First quarter 2017 (Unaudited) Skandiabanken ASA Annual lending growth 16.4 % Cost / Income 43.1 % ROE 13.7 % Quarter characterised by quality growth opportunities Increased lending to customers 16.4 per cent previous 12 months Net interest income increased by 9.5 per cent to NOK (273.0) million Net interest margin of 1.63 (1.65) per cent Solid capitalisation CET1 of 14.5 per cent Total loans to customers NOK million Earnings before tax* NOK million Return on equity** % 12.9 % 13.5 % 12.7 % 13.7 % Q16 2Q16 3Q16 4Q16 1Q17 1Q16 2Q16 3Q16 4Q16 1Q17 1Q16 2Q16 3Q16 4Q16 1Q17 * 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 Reference Q1 17 Q 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 % 12.3 % 18.1 % 11.3 % Net interest margin % 1.65 % 1.70 % 1.53 % Cost-to-income ratio % 44.9 % 35.5 % 51.3 % Balance sheet figures (in NOK million) Total loan volume Customer deposits Deposit-to-loan ratio % 79.5 % 77.1 % 83.1 % Lending growth (gross) previous 12 months 16.4 % 11.8 % 11.6 % 11.4 % Average total assets Total assets, end of period Losses and defaults Total loan loss (%) 6 (0.13 %) 0.06 % 0.09 % 0.05 % Capital adequacy and leverage ratio 7 Common equity Tier 1 capital ratio 14.5 % 14.5 % 14.9 % 14.5 % Tier 1 capital ratio 16.1 % 16.0 % 16.3 % 16.0 % Total capital ratio 18.2 % 17.8 % 18.0 % 17.8 % Leverage ratio 6.1 % 5.4 % 6.3 % 5.5 % 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 has been excluded from the ROE calculation. 2) Net interest income (annualised) as a percentage of average total assets 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 70 per cent of profit for the period PAGE 2/54

3 First Quarter Results The Skandiabanken group increased its net profit to NOK million in the first quarter of 2017, compared with NOK million last year. The increase in profit was primarily a result of strong growth in customer lending and the sale of a portfolio of non-performing loans in the quarter. At the end of the quarter, total customer lending amounted to NOK 67.9 billion, compared with NOK 58.4 billion at the end of the first quarter last year. This corresponds to an annual growth of 16.4 per cent. Return on equity was 13.7 per cent, compared with 12.3 per cent in the first quarter of last year. Operating expenses amounted to NOK (142.1) million. Increased marketing costs to support volume growth and one-off costs of NOK 3.4 million related to the rebranding of the bank affected the cost level in the quarter. Important events during the quarter The average Norwegian short-term money market rates fell compared with the fourth quarter of 2016, while Norges Bank kept its key policy rate stable at 0.5 per cent at the March meeting. Skandiabanken maintained its lending and deposit rate levels in the quarter. Competitive mortgage pricing contributed to strong volume growth in the quarter. The share subscription by senior management and board members in the fourth quarter of 2016 was completed through a share capital increase based on an authorisation to the Board of Directors to issue new shares. The Board of Directors and senior management subscribed for a total of shares at a price of NOK The share capital was increased by NOK through the issue of new shares each with a nominal value of NOK 10. The Financial Supervisory Authority of Norway gave its consent to the share capital increase, and the new share capital was registered with the Register of Business Enterprises on 26 January Following the share capital increase, the bank s share capital amounts to NOK consisting of shares each with a nominal value of NOK 10. Skandiabanken sold a portfolio of non-performing loans with a gross value of NOK 92.6 million in the quarter. As a result of the transaction, Skandiabanken has reversed previous impairment losses related to the portfolio. The sale had a positive effect on loan losses of NOK 35.8 million in the quarter. In March, Skandiabanken entered into an agreement to purchase 39.9 per cent of the shares in Quantfolio AS. Quantfolio is a company that develop software solutions for selection of securities and mutual funds, and the acquisition is part of the bank's strategy of increasing its efforts on the market for private savings. help the bank in selecting which products and services to prioritise and develop. In February, Kantar TNS presented the results of its Customer Service survey, in which Skandiabanken was ranked as having the best customer service among Norwegian banks. Skandiabanken recorded solid growth in the number of customers in the quarter. Of the customers that were granted a mortgage in the first quarter, 31 per cent were new customers of the bank, up from 27 per cent in the fourth quarter of 2016 and 23 per cent in the first quarter of Operating income Operating income increased to NOK (316.8) million after an increase in net interest income of NOK 26.0 million, a decrease in net fee and commission income of NOK 2.0 million and an increase in net other income of NOK 5.6 million. Net interest income increased to NOK (273.0) million, as a result of increased net lending to customers, partly offset by a slightly lower net interest margin. The net interest margin decreased to 1.63 per cent from 1.65 per cent in the first quarter of 2016, and from 1.74 per cent in the fourth quarter of The decrease was primarily due to a higher fee to the Norwegian Banks Guarantee Fund and increased cost of funding. The full-year fee to the Norwegian Banks Guarantee Fund of NOK 36.7 million will be accrued over the year. In order to further strengthen its position as the leading digital bank with the most satisfied customers, Skandiabanken launched Skandiabanken Beta in March. Skandiabanken Beta is a new service where customers are invited to test new products and services before they are released in the online banking solution, and the ambition is to PAGE 3/54

4 Net interest and fee and commission income NOK million Q16 2Q16 3Q16 4Q16 1Q17 Net interest revenue Interest margin (% right axis) Net fee and commissions 2,4 2,2 2 1,8 1,6 1,4 1,2 Operating expenses NOK million % 43% 39% 40% % Q16 2Q16 3Q16 4Q16 1Q17 Personnel Other operating expenses C/I (right axis) IT Marketing % 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% The effective lending rate was reduced to 2.57 per cent, compared with 2.66 per cent in the first quarter of 2016, mainly due to lower interest rates on home loans. Higher interest rates on consumer loans made a positive contribution to the effective lending rate. The effective funding rate was reduced from 1.01 per cent to 0.93 per cent compared to the first quarter of 2016, by corresponding reductions in deposit rates, partly offset by a higher fee to the Bank Guarantee Fund and higher cost due to a larger proportion of market funding. Average effective interest rate by product group 1Q16 2Q16 3Q16 4Q16 1Q17 Home loans 2.46 % 2.31 % 2.31 % 2.30 % 2.29 % Car loans 5.00 % 5.00 % 4.96 % 4.95 % 4.92 % Consumer credits 9.60 % 9.76 % 9.92 % % % Other credits % % % % % Net commission and fee income decreased to NOK 42.1 (44.1) million in the first quarter, and were unchanged from the fourth quarter of The decrease in net commission and fee income from the first quarter of 2016 is mainly due to the cap on card interchange fees introduced in the third quarter of Operating expenses Operating expenses amounted to NOK (142.1) million in the quarter. Adjusted for one-off costs of NOK 3.4 million related to the rebranding process, operating expenses amounted to NOK million thus showing a slight increase from previous quarters. In the first quarter of 2016, one-off costs amounted to NOK 8.3 million, related to the separation from the Swedish Skandia Group (Skandia Liv). Other operating expenses, adjusted for one-off costs, have thus increased by NOK 12.5 million, mainly due to increased marketing, increased personnel cost related to the replacing of services previously provided by Skandia Liv, and the financial tax introduced in The cost-to-income ratio was 43.1 per cent in the quarter, compared with 44.9 per cent in the first quarter of Adjusted for the one-off costs described above, the cost-to-income ratio was 42.3 per cent and 42.2 per cent, respectively. Impairments and losses Due to reversals of previous impairment losses, the net cost of losses was positive in the amount of NOK 20.4 (-8.3) million and the loan-loss ratio was (0.06) in the quarter. Adjusted for the positive effect of NOK 35.8 million from the sold portfolio of non-performing loans the loan-loss ratio was 0.10 in the quarter. Net write-downs on loans was positive in the amount of NOK 13.0 (-6.6) million. Actual losses were in the amount of NOK 28.8 (3.9) million. 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 fourth quarter of 2016 and NOK million at the end of the first quarter of Taxes The calculated tax expense amounted to NOK 52.6 (40.3) million, which corresponds to an effective tax rate of 24.2 (24.2) per cent. Loans to and deposits from customers Net loans to customers increased to NOK 67.8 (58.3) billion, following an increase of NOK 4.4 billion in the quarter. Lending growth over the past 12 months was 16.4 per cent. At the end of the quarter, outstanding consumer loans amounted to NOK (785) million, compared with NOK million at the end of the fourth quarter of This corresponds to a growth of 11.1 per cent in the quarter. Volumes of car loans and other credits (account credits, credit, cards and custody account lending) were stable. PAGE 4/54

5 million constituted increased market value. Loans to customers NOK billion Customers' investment in mutual funds (FuM) NOK billion ,00% 0,80% 0,60% ,40% 0,20% Q16 2Q16 3Q16 4Q16 1Q % 0.14 % 0.07 % 0.09 % 0.10 % (0.13 %) 1Q16 2Q16 3Q16 4Q16 1Q17 Home loans Consumer credit Loss ratio (right axis) Car loans Other loans 0,00% -0,20% Loss ratio adj. (right axis) Customer deposits decreased slightly to NOK 44.9 (45.1) billion, down from NOK 45.6 billion at the end of the fourth quarter of The average deposit-to-loan ratio in the first quarter was 69.6 per cent, compared with 74.2 per cent in the fourth quarter of 2016 and 79.5 per cent in the first quarter of The decrease in the deposit-to-loan ratio is primarily a result of the strong growth in customer lending. Customer deposits NOK billion % 48 78% 78% Customer investments in mutual funds increased from NOK 6.5 billion in the first quarter of 2016 to NOK 8.5 billion in the first quarter of Approximately 44 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 fourth quarter of 2016, customer investments in mutual funds increased by NOK 800 million, of which approximately NOK % 70% 1Q16 2Q16 3Q16 4Q16 1Q17 Customer deposits Deposit-to-loans ratio 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 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 ratios were well above these targets, with a CET 1 capital ratio of 14.5 per cent, a Tier 1 capital ratio of 16.1 per cent and a total capital ratio of 18.2 per cent. The capital ratios include 70 per cent of retained earnings from the first quarter of At the end of the quarter Skandiabanken had a leverage ratio of 6.1 per cent, well above the 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 53.2 (54.5) per cent. Mortgages account for 94.0 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 76.5 million at the end of the quarter, of which NOK 59.7 million was related to the valuation of the banks membership of Visa Norge FLI and NOK 4 million to the ownership of 39.9 per cent of Quantfolio AS. 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 8.4 billion in interest-bearing securities, and the corresponding credit spread risk was estimated at NOK 158 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 207 per cent, well above the regulatory minimum requirement of 80 per cent. The net stable funding ratio (NSFR) was 136 per cent. At the end of the quarter, Skandiabanken had outstanding capital market funding amounting to NOK 25.6 billion. Skandiabanken Boligkreditt AS s total nominal issue amounted to NOK 20.8 billion, of which Skandiabanken held NOK 0.07 billion. During the quarter, Skandiabanken Boligkreditt AS issued covered bonds in the amount of PAGE 5/54

6 NOK 5.7 billion. Skandiabanken ASA issued a perpetual Additional Tier 1 bond of NOK 100 million, a Subordinated Tier 2 bond of NOK 150 million and senior unsecured debt amounting to NOK 2.0 billion. At the end of the quarter, Skandiabanken had a deposit-to-loan ratio of 66.2 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 across Europe (EUR 0.1 million) by the end of 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 16 March 2017, Norges Bank points out that the unemployment rate is lower than previously projected and that economic growth appears to have gained some momentum. There are prospects that the growth will gradually improve and that unemployment will slowly be reduced in the coming years. Inflation is going down and has recently been lower than expected. The key policy rate remained unchanged at 0.5 per cent in the quarter. Given the macroeconomic outlook, Norges Bank signals that the key policy rate is expected to remain at today s level in the period ahead. In March, the Financial Supervisory Authority of Norway published draft guidelines for financial institutions treatment of unsecured credit. The draft 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. Subsequent events On 5 April, the Ministry of Finance published the Financial Market Report, presenting multiple governmental measures aimed to reduce the rapid growth in unsecured credit among Norwegian consumers. Restrictions on the marketing and establishment of a national debt register of unsecured credit was one of the measures presented in the report. In an update on 6 April 2017, Moody s Investors Service maintained Skandiabanken ASA s long-term credit rating of A3 with a stable outlook. In April, Skandiabanken was awarded for having the best reputation among Norwegian banks in Apeland and Reputation Institute s RepTrak survey. With effect from 31 December 2017, the Ministry of Finance increased the countercyclical capital buffer requirement from 1.5 per cent to 2.0 per cent in December PAGE 6/54

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 lower than projected 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 2017 have dampened the growth in house prices to some extent. Norges Bank still expects house prices in Norway to increase in The global interest rate level is low, but there are prospects that interest rates abroad will rise somewhat faster than Norges Bank had earlier projected. The uncertainty in the global economy is high because a number of US policy issues have yet to be clarified and due to several forthcoming elections in Europe. Norges Bank maintained a stable key policy rate of 0.5 per cent the rate decision meeting in May. The next interest rate decision will be announced on 22 June The latest Monetary Policy Report indicates that the key policy rate will remain close to 0.5 per cent in Skandiabanken s interest rate margin has increased over the previous year. The fee to the Norwegian Deposit Guarantee Scheme in 2017 and a change in the funding mix have had a negative impact on the margin in the first quarter of The full year s fee for 2017 will amount to NOK 36.7 million which will be accrued over the year. The positive volume growth seen in the first quarter of 2017 is expected to continue into the second quarter, but at a somewhat slower pace. Which is expected to have a positive effect on the net interest income going forward. If the draft guidelines from the Financial Supervisory Authority of Norway for financial institutions treatment of unsecured credit are implemented, it would temporary slow down the growth rate in the bank s volume of consumer lending. As the portfolio of unsecured lending matures, 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 strong capitalisation. In the short term, the bank exploits a market opportunity to employ capital by way of growth and develops new products and services. Among these is an increased effort in the market for savings for private individuals. In the short term, the development of new products and services will entail some increase in costs, aimed to accelerate future capital light revenues. Bergen, 8 May 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 Q1 17 Q 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 8/54

9 Statement of comprehensive income (Skandiabanken group) In NOK thousand Q1 17 Q 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 9/54

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, 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 10/54

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 ) 0 0 Net change in fair value of financial instruments available for sale ( to ) Capital increase registered in the Register of Business Enterprises * Balance sheet as at * Capital increase related to share purchase programme, see also note 27. PAGE 11/54

12 Statement of cash flows (Skandiabanken group) In NOK thousand Note Q1 17 Q 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 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* Receipts on subordinated loans 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 0 0 Loans to credit institutions Total cash EQ* = Statement of changes in equity PAGE 12/54

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 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. PAGE 13/54

14 - Security: Log-in, security solutions etc. 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) Dividends payable Profit for the period, unaudited Common equity Tier 1 capital Additional Tier 1 capital Tier 1 capital Tier 2 capital Own funds (primary capital) PAGE 14/54

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 % 14.2 % 14.9 % Additional Tier 1 capital 1.6 % 1.5 % 1.4 % Tier 2 capital 2.1 % 1.8 % 1.7 % Total capital ratio 17.9 % 17.5 % 18.0 % Capital ratio % (including 70 per cent of interim profits*) Common equity Tier 1 capital 14.5 % 14.5 % 14.9 % Additional Tier 1 capital 1.6 % 1.5 % 1.4 % Tier 2 capital 2.1 % 1.8 % 1.7 % Total capital ratio 18.2 % 17.8 % 18.0 % * Based on expected dividend of 30 per cent and full or partial external audit of the quarterly accounts, except for the full-year figures PAGE 15/54

16 Note 4 - Leverage Ratio The leverage ratio requirement 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. On 20 December 2016 the Norwegian Ministry of Finance announced that the minimum leverage ratio requirement for Norwegian banks and credit institutions will be three per cent. In addition, banks will have to meet a buffer requirement of two per cent. The requirements will take 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 capital target is to consist of Tier 1 capital and the exposure target to follows the rules in the Commission Delegated Regulation (EU) The regulation has not yet been incorporated into the EEA Agreement, or translated into Norwegian. The Norwegian Ministry of Finance will issue further rules for calculating the exposure target during the spring of 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 % 6.0 % 5.3 % 6.3 % Leverage ratio % (including 70 per cent of interim profits*) 6.1 % 5.4 % 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 Available Tier 1 capital after minimum and buffer requirements (including 70 per cent of interim profits*) * Based on expected dividend of 30 per cent and full or partial external audit of the quarterly accounts, except for the full-year figures 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 PAGE 16/54

17 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 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. PAGE 17/54

18 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% Market risk Market risk is the risk of loss due to unfavourable changes in market variables, such as interest rates, exchange rates and credit spreads. Skandiabanken is exposed to the following market risks: Interest rate risk is the risk of loss resulting from a general change in market rates due to different terms to maturity on the asset and liability sides of the balance sheet. Currency risk is the risk of loss resulting from changes in exchange rates. If borrowing is to be undertaken in any currency other than NOK, hedging transactions shall be entered into to minimise the currency risk. Share price risk is the risk of loss resulting from a fall in share prices. Credit spread risk is the risk that the value of interest-bearing securities will be reduced as a result of an increase in the margin for corresponding credit instruments in the market. The bank calculates its exposure to credit spread risk in accordance with the methodology prescribed by the Financial Supervisory Authority of Norway (Circular 12/2016). Interest rate sensitivity The part of Skandiabanken s balance sheet that is sensitive to interest rates primarily comprises variable interest rate positions, with the exception of some fixed-interest bonds. A two percentage point parallel shift in interest rates is used to measure interest rate risk, in accordance with Circular 12/2016 from the Financial Supervisory Authority of Norway. Skandiabanken Group Parallel shock up; 2 percentage points increase in interest rates 0 months - 3 months 3 months - 6 months months - 9 months - 9 months - 12 months > 12 months Total Currency The net currency position (long or short) is measured in each currency. Long and short positions are also summarised. Exposure measured against the limit is the highest absolute value of the long and short position. The exchange rate risk as of 31 March 2017 is NOK 0.9 million. An exchange rate change of 25 per cent in disfavour of the bank would increase the exchange rate risk to NOK 1.1 million. Net currency risk (thousand) USD SEK EUR JPY CHF GBP Sensitivity Total Currency risk, total: 869 Currency risk by 25 % change in currency rate: PAGE 18/54