SpareBank 1 Boligkreditt. Green Covered Bond Investor Presentation January 2018

Transcription

1 SpareBank 1 Boligkreditt Green Covered Bond Investor Presentation January 2018

2 Disclaimer By attending the meeting where this presentation is made, you agree to be bound by the following conditions: This document may be distributed only: (a) (i) outside the United States in compliance with Rule 903 or 904 of Regulation S under the U.S. Securities Act of 1933, as amended (the Securities Act ), or (ii) to a person who is a Qualified Institution Buyer ( QIB ) within the meaning of, and in compliance with, Rule 144A of the Securities Act; and (b) in accordance with all applicable U.S. State securities laws. This document does not constitute an offering circular in whole or in part and you must read the actual offering circular related to the notes before making an investment decision. The offering circular for the issuance is available from the arranger. You should consult the offering circular for more complete information. This document is presented solely for information purposes and does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or related financial instruments and should not be treated as giving investment advice. It has no regard to the specific investment objectives, financial situation or particular needs of any recipient By electing to view this presentation, you represent, warrant and agree that you will not attempt to reproduce, re-transmit or otherwise divulge the contents of this presentation by any means without the prior consent of SpareBank 1 Boligkreditt AS (the SpareBank ). The recipient of this presentation should not base any behaviour in relation to qualifying investments or relevant products which would amount to market abuse on the information in this presentation until after the information has been made generally available, nor should the recipient use the information in this presentation in any way which would constitute market abuse. Any notes issued by SpareBank will not be registered under the Securities Act of 1933 (the Securities Act ), as amended, under applicable state securities laws, or under the law of any other jurisdiction. Notes will only be offered (i) in offshore transactions to non-u.s. persons in reliance upon Regulation S under the Securities Act; and (ii) to qualified institutional buyers in reliance upon rule 144A under the Securities Act. Any offering of notes to be made in the United States will be made by means of an offering circular that may be obtained from the dealers. Such offering circular will contain, or incorporate by reference, detailed information about SpareBank 1 Boligkreditt AS, its business and financial results. Under no circumstances shall the information presented herein constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the notes in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Any such offer would be made only after a prospective participant had completed its own independent investigation of the notes and related transactions and the collateral pool, and received all information it required to make its own investment decision, including, where applicable, a review of any prospectus, prospectus supplement, offering circular or memorandum describing such security or instrument. That information would supersede this material and contain information not contained herein and to which prospective participants are referred. We have no obligation to tell you when information herein is stale or may change, nor are we obligated to provide updated information on the notes. SpareBank is not responsible for the lawfulness of the acquisition of any notes by a prospective purchaser with regard to any law, regulation or policy applicable to it. A prospective investor may not rely on SpareBank when making determinations in relation to these matters. By accepting this document you acknowledge that (a) SpareBank is not in the business of providing (and you are not relying on SpareBank for) legal, tax or accounting risks associated with notes in this document, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice, and (d) you should appraise senior management in your organisation as to such legal, tax and accounting advice (and risks associated with the notes) and this disclaimer to these matters. 2

3 Disclaimer continued This presentation includes statements that are, or may be deemed to be, forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms anticipates, believes, estimates, expects, aims, continues, intends, may, plans, considers, projects, should or will, or in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places and include, but are not limited to, statements regarding SpareBank s intentions, beliefs or current expectations concerning, amongst other things, results of operations, financial positions, prospects, growth, strategies and expectations of the banking industry and Norwegian mortgage market. By their nature, forward-looking statements involve risk and uncertainty, because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance, and the actual results, performance, achievements or industry results of SpareBank s and its group s operations, results of operations, financial position and the development of the markets and the industry in which they operate or are likely to operate ant their respective operations may differ materially from those described in, or suggested by, the forward-looking statements contained in this presentation. In addition, even if the operations, results of operations, financial position and the development of the markets and the industry in which SpareBank and its group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results of developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, process in the residential mortgage industry, changes in regulation, currency fluctuations. Forward-looking statements may, and often do, differ materially from actual results. Any forward-looking statements in this document reflect SpareBank s and its group s current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumption relating to SpareBank s financial position, prospects, operations, results of operations, growth, strategy and expectations of the residential mortgage industry. Any forward-looking statement speaks only as of the date on which it is made. New factors will emerge in the future, and it is not possible for SpareBank to predict which factors they will be. In addition, SpareBank cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those described in any forward-looking statements. Although the statements of fact in this presentation have been obtained from, and are based upon, sources that SpareBank believes to be reliable, no representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. The information contained in this document has not been independently verified. All opinions and estimates included in this presentation constitute SpareBank s judgement, as of the date of this presentation and are subject to change without notice and SpareBank is not under any obligation to update or keep current the information contained herein. None of SpareBank 1 Boligkreditt AS or any of its respective affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss whatsoever arising from any use of this document or its contents, or otherwise arising in connection with this presentation. This presentation is confidential and is the property of SpareBank. 3

4 Table of contents SpareBank 1 Alliance Sustainability in Norway Sustainability within the SpareBank 1 Alliance Green Bond Framework Residential real estate market and Spabol cover pool Covered Bond Funding Norwegian Economic Overview Appendix 4

5 5 SpareBank 1 Alliance and SpareBank 1 Boligkreditt

6 Banks in Norway: ca. 130 (103 Savings banks Sparebanks) SpareBank1 Eika Other savings banks Foreign banks Other banks (commercial banks) Partially and/or fully state owned banks Alliance of the largest regional savings banks Alliance of the smallest, mostly rural banks Independent savings banks SpareBank 1 SR Sandnes Sparebank Sparebanken Vest Nordea Storebrand Bank DNB SpareBank 1 SMN Toten Sparebank Sparebanken Sør Danske Bank Gjensidige Bank KBN SpareBank 1 SNN Lofoten Sparebank Sparebanken More Handelsbanken KLP Bank Eksportfinans SpareBank 1 Eastern Norway Etc. Etc. Santander Bank Norwegian 10 smaller SpareBank 1 banks Swedbank Landkreditt Bank

7 Norwegian savings banks - characteristics Savings banks are private banks, where the equity is voted / controlled by different constituencies External equity investors: up to 40% of the equity vote (most larger savings banks are listed on the stock exchange) Bank customers Bank employees public sector officials (rare) A savings bank is maximizing its profits as a commercial enterprise. Savings banks are not restricted in their banking activities (i.e. universal banks), though the typical customer focus is lending to private households, smaller businesses and commercial property Customers of the bank receive no direct economic benefit, but the bank and its foundation supports cultural, sports and other projects/activities in its region with annual gifts or contributions No formal liability sharing (or common support fund) amongst savings banks Savings banks are not necessarily bound to a home region, but may expand freely geographically 7 *Customers of the savings banks have typically 35% of the vote in a bank. An external foundation may have been founded which is wholly governed by the bank customers. The foundation will typically own Equity certificates and will be part of the external equity group.

8 SpareBank 1 Alliance National champion, regional focus The SpareBank 1 Alliance consists of 14 banks; independent in each their region Operate exclusively in Norway Norway s most extensive branch network SpareBank 1 Nord-Norge (Tromsø) But physical branch structure is changing and SpareBank 1 banks are at the forefront of incorporating technological innovation into its distribution channels Market leaders in their core regional markets 30-50% The largest banks (~ 80% of total assets) have the following ratings: SpareBank 1 SMN (Trondheim) Sr. Unsecured Fitch Moody s A- / F2 A1 / P-1 SpareBank 1 SR (Stavanger) SpareBank 1 Ostlandet (Oslo/Hamar) A- / F2 A1 / P-1 A / F1 A1 / P-1 n/a A1 / P-1 8

9 SpareBank 1 Alliance Achieving benefits of scale, while being local The saving banks are independent banks with very strong regional focus, and operate solely in the regions where they have been active for almost 200 years The largest Norwegian Savings banks established the SpareBank 1 Alliance in 1996 to address efficiency in banking operations and realize the benefits of size, also through creating jointly owned product companies Local Market Focus Efficiency Decisions are made close to the customer and transaction originations Each bank continues to develop its link with its local community Keeping its own name and legal identity Work as if one integrated concern Operational integration Offer non-core banking products through jointly owned product companies SEPARATE LEGAL IDENTITIES COMMON SUPERBRAND ALLIANCE PROGRAMME

10 SpareBank 1 Alliance Overview Retail and Corporate Banking; approx retail and SME customers in Norway Alliance Members SpareBank 1 SMN SpareBank 1 SR-Bank SpareBank 1 Nord-Norge SpareBank 1 Østlandet SpareBank 1 Østlandet 10 smaller Alliance bank members 10 smaller bank members Products, commissions, dividends Loan sales, capital, human resources SpareBank 1 Alliance companies SpareBank 1 Group Covered Bonds Residential Covered Bonds Commercial Odin Asset Management Life and Property Insurance Real Estate Broker Credit Cards Factoring Collection Mobile Pay BN Bank Banking Cooperation: Brand building and marketing, IT systems, operational processes, credit models, Fintech/Bus. development The Alliance member banks are listed on the Oslo Stock Exchange The banks issue senior unsecured, subordinated and capital instruments individually

11 SpareBank 1 Alliance common process: identical mortgage credit underwriting across all banks Cash flow and affordability are key criteria for evaluating a mortgage application One common Alliance credit scoring model across all SpareBank 1 banks The mortgage approval process is moving online, starting on the bank s internet banking site Customer requirement Rating and verification Affordability stress testing Collateral assessment Decision, pricing and contract Customer information and loan product fit Regulatory checks Income verification External and internal credit database check SpareBank 1 credit model result Increase of applicable mortgage interest rate by 5% Given income and living expenses (SIFO Model) Valuation Foreclosure valuation estimate Ranking of claims Pricing Legally binding contract 11 11

12 SpareBank 1 Alliance lending Aggregated Balance Sheet (14 banks) Deposit and lending growth Loans to deposit ratio Total lending across all banks approximately NOK 750 bn ( bn) Mortgages approximately NOK 525 bn ( bn) Share of mortgages transferred to Boligkreditt for CB issuance: approx. 33% 12 Source: SpareBank 1 banks financial reporting; weighted avg. deposit, credit growth and loan to deposit for four largest SpB1 banks (loans to deposits for bank balance sheet excludes loans in the covered bond companies)

13 SpareBank 1 Alliance - market position Ranking of banks in Norway by credit volume, YE 2016 SpareBank 1 Alliance market shares 2nd largest banking group in the market Regional market share leader with 30-50% shares 13 Source: Banks annual reports, SpareBank 1

14 SpareBank 1 Alliance - capital Norwegian bank Pillar 1 capital requirement: 17% since July 2016 SpareBank 1 banks w.a. capital ratios * Countercyclical buffer increases to 2% from 31. Dec 2017 Additional capital requirements arise from the Pillar 2 requirement of Norway s regulatory and supervisory authorities, typically % additional core capital A Basel I floor is in effect, ensuring high levels of risk weighted assets in Norwegian banks SpareBank 1 banks leverage ratios 14 * Weighted average of the four largest Alliance banks

15 SpareBank 1 key aggregated figures 4 largest banks Return on equity Income composition Cost to income Lending margin (household and business lending) 15 Source: Financial reporting for largest four SpareBank 1 banks: SR, SMN, SNN and East (own averaging and aggregation)

16 SpareBank 1 key aggregated figures 4 largest banks Loan quality and loss provisions Oil services industry related exposures in two Alliance banks increase losses in 2016 Figures in per cent of all lending Price to book ratios for all SpareBank 1 large banks above 1 16 Sources: Norges Bank, financial reporting for SpareBank 1 SR, SMN, SNN and East (SPOL), own averaging and aggregation

17 Boligkreditt: Cover Bond issuing entity of the SpareBank 1 banks SpareBank 1 SR- Bank SpareBank 1 SMN SpareBank 1 SNN SpareBank 1 East 10 smaller SpareBank 1 banks 13.9% 19.1% 14.6% 20.3% 32.1% 17 Banks pay in common equity according to mortgage volume transferred Bank support arrangements: Joint and several commitment for Min. Equity Liquidity Requirement for qualified mortgages in reserve (individual test per bank) Mortgage criteria compliance Mortgage Loan Mortgage Loan Mortgage Loan True sale of qualified mortgage loans SpareBank 1 Boligkreditt Specialist Bank (Covered Bond Issuer) Covered Bonds in NOK, EUR, USD, GBP Currency and interest hedges / Swaps Ownership shares in Covered Bond Issuer (Boligkreditt) as of BK pays commissions on mortgages to the banks Mortgage rate less funding costs Not defaulted LTV limits Boligkreditt has no financial commitments vs. the banks

18 Cover pool credit quality Weighted average current LTV history Weighted average LTV history SpareBank 1 Boligkreditt Strict credit policy No realized losses No foreclosed mortgages No arrears over 90 days SpareBank 1 Alliance Total mortgages default (90 days past due) across all banks in the Alliance approx. 0.2%, with actual losses near zero Mortgage loan arrears (in pct. of pool balance) Norway High willingness to pay: high home ownership and strong credit culture High ability to pay: Low unemployment Regulatory mortgage underwriting standards Source: SpareBank 1 Boligkreditt cover pool report, as of September 30, 2017

19 19 Sustainability in Norway

20 Norway is a key contributor to green initiatives Paris Agreement and Kyoto Protocol Signatory Become climate neutral by 2030 Cut emissions by 40% by 2030 compared to 1990 levels No deforestation policy, allocating NOK 3bn a year to this cause, in total NOK 17bn since 2009 and partnering with eleven countries Enova is the government agency to effectuate a green shift in Norway Enova implements practical solutions to reduce climate gas emissions Offers advice and subsidies for renewable energy production and energy efficiency improvements for the household sector (residential properties) Subsidises industry, transport and commercial construction for additional costs which arise from choosing energy efficient and climate friendly solutions Norway is a leader in renewable energy production Renewable energy produced was approx. 60% of energy consumption in Norway in 2015 Hydroelectric power is the largest source and covers 122% of energy consumption in Norwegian households and industry (or 90% of all energy consumption outside of transportation) 1 Ban the sale of petrol powered cars by % of cars sold in 2017 were electric/hybrid (40% in 2016) Incentives for electric / hybrid cars are attractive Oslo banned all car parking at street level in the inner city and approved a plan to build a 580 km bicycle network for $2bn Oil production and CO 2 carbon capture Carbon capture and storage (CCS) has been implemented on a few major oil and gas platforms Another initiative is the electrification of the off shore oil production; several production facilities (including Johan Sverdrup) will be electrified CCS from land based industry: Norway has ample storage space in underground formations but the technology is expensive to develop and there is ongoing debate 20

21 Norwegian economy: hydroelectric power Norway: 95% mountains, highlands, lakes Share of hydro power in electricity production (2016): 96.3% 1 21 Around existing hydroelectric facilities Large potential for upgrades and extensions Nearly all electric power production in Norway comes from hydro-power Norway can cover a material portion of Europe s renewable energy storage ( green battery ) requirement when renewable energy makes up a large portion of the continent s energy mix Source: Statnett Directly linked power cables under construction between Norway England and Norway Germany With upgrades and investments, Norway may function as a green battery when renewable energy makes up a large portion of the continent s energy mix

22 Sector energy use and Co2 emissions Energy consumption in Norway, 2015, Twh CO 2 emissions in Norway, mill tons The energy consumption in Norway was 212,5 TWh in 2015 The household sector used 45 TWh in 2015 and was the third largest sector Electricity is the dominant source of energy consumption in the household sector (83 per cent in 2015); fossil fuels have been phased out Emissions from energy consumption were in total 35 mill. tons CO 2 equivalents in 2015 Transportation is the largest emitter (fossil fuels) Households emissions from energy consumption are small compared to energy use and approximately 1/3rd of emissions in 1990* The reason for the low emissions is the extensive use of electricity, alongside biofuels as a minor component Through targeting the most energy efficient buildings in Norway, SpaBol s green covered bond ensures that only the greenest of buildings are financed (through low energy consumption & low CO 2 emissions) 22 Source: energifaktanorge.no by the Norwegian oil and energy ministry. * Co2 emissions from the household sector is based on the Norwegian electricity production only (hydro power). In reality there is effectively a mix of input factors in the electricity production due to both exports and imports of electricity through countries connected to the Norwegian grid.

23 23 Sustainability within the SpareBank 1 Alliance

24 Core values within the alliance Human rights The external environment Employee rights and social conditions allow us to continuously reduce our impact on the environment and, in turn, contribute to a more sustainable future Criteria for suppliers Ethical guidelines 24 Detailed initiatives and CSR policies are given in the Green Bond Framework for the largest member banks

25 Sustainability governance SpareBank 1 Most major member alliance banks 1 have signed up for the United Nations Global Compact Ensures all 10 principles of sustainability are integrated in day-to-day operations The SpareBank 1 banks are in the process of setting up GRI reporting from 2018/2019 The whole Sparebank 1 Alliance is a member of the Norwegian Green Building Council The Norwegian Green Building Council, a part of the World Green Building Council, was established in 2010 to drive sustainability in the Norwegian built environment, primarily through the introduction of environmental rating tools All members have developed a joint policy on sustainability for The joint policy encompasses all four major areas of suppliers 2 sustainability, including environmental factors SpareBank 1 Nord-Norge (Tromsø) The SpareBank 1 Alliance s asset manager and insurance company are guided by sustainability in their investments The SpareBank 1 asset manager ODIN is a signatory of the UN PRI principles for responsible investments SpareBank 1 insurance integrated ESG factors in its investments and is in the process of evaluating international initiatives to sign up to. Nearly all external fund managers for the insurance company are UN PRI signatories SpareBank 1 SMN (Trondheim) 25 Many of SpaBol s member banks, including the largest banks, are certified as Ecolighthouses in Norway This is an initiative where over 5400 Norwegian companies, public institutions and other organizations have become certified and follow certain industry specific rules and principles to reduce their environmental impact. The EU recognised Norway s Eco-lighthouse arrangement in December 2017, meaning it complies with the ecomanagement and audit scheme (EMAS) in the European Union. 1 (approximately 80 per cent. of the total assets of the SpareBank 1 banks) 2 SpareBank 1 SR-Bank (Stavanger) SpareBank 1 Ostlandet (Oslo/Hamar)

26 Sustainability within Environment The SpareBank 1 banks detail their environmental impact through climate accounts, and most have set targets for reduction of resources and emissions. The banks are certified Ecolighthouses in Norway (a Norwegian certification standard approved by the EU for companies to systematically improve their environmental impact) Suppliers Specific common policy has been developed regarding all suppliers which reflect the banks own commitments through the UN Global Compact Responsible lending Human rights Follows Norwegian law and supports the UN convention on human rights, the International Labour Organization standard principles and the UN environmental and anti-corruption conventions Working conditions Promotes equality among all employees, regardless of gender, ethnicity, national origin, sexual orientation and religion. Both Norwegian culture and legislation supports equal opportunity Ethical guidelines The banks have all developed ethical guidelines and conducts annual training for employees in ethical questions through discussion forums Responsible management Complies with Norwegian laws and regulations to ensure that the Group does not contribute to violations of human and labour rights, corruption, serious environmental damage or other acts that may be perceived as unethical Environmental risk is considered to be one of several risk factors to be analysed (within the lending decision). Integral assessments for all member banks include whether each corporate client is complying with all environmental laws and regulations and whether a potential business customer is engaged in activities which harm the physical environment Most banks are explicit in the exclusion of lending in certain areas such as coal production and mining or other. In the area of personal mortgages, Norwegian regulations prescribe that all banks must adhere to strict criteria and advise against taking on mortgage debt that is or can become unsustainable Money laundering & terrorist financing The banks comply with legal requirements and take measures aimed at combating economic crime and terrorist financing. This involves making good risk assessments, as well as having good knowledge of customers and the purpose of the customer relationship Reporting All reporting and description of initiatives are included on the banks websites (where some information is in Norwegian only but is being translated into English). The banks produce CSR sections of their annual reports as well as energy and climate accounts, which gives a detailed account of the CO 2 equivalent emissions for the organisation. These reports are in line with the international standard Corporate Accounting and Reporting Standard which was developed by the Greenhouse Gas Protocol Initiative 26 Source: SpareBank 1 banks

27 UN Sustainable Development Goals SpareBank 1 has traditionally taken on its corporate responsibility in local communities where it operates by partnering with local businesses, serving inhabitants by services and counselling, and sponsoring local initiatives One of these initiatives where the SpareBank 1 group is a main sponsor (1 of 4), is the Global Opportunity Explorer 1, which is directly based on the UN s SDG s The Global Opportunity Explorer is a project created on the conviction that the SDG s offer a range of business opportunities with great value to companies, society and the environment Aside from mapping a world of cutting-edge innovation and new markets, the Explorer aims to help business leaders, entrepreneurs and investors connect with new partners, projects and markets to foster more partnerships for the SDGs and a greener and fairer world by 2030 SpaBol s green covered bonds will be allocated to a loan portfolio of new and existing mortgages for energy efficient residential buildings The most energy efficient buildings in Norway will only be considered (less than 15% of the total housing stock), which is in line with the Climate Bond Initiative standard SpaBol green covered bonds target the most energy efficient buildings and ensures that through low energy consumption & low CO 2 emissions, only the most sustainable of buildings are financed Strict CSR policies from the respective alliance banks additionally allow for responsible management regarding consumption and production, for example in managing waste responsibly SpareBank 1 members produce climate account reporting which detail their direct impact on CO 2 emissions The CO 2 impact study has revealed that SpaBol s eligible green loan portfolio under criteria 1 emits 57% less CO 2 than the average Norwegian residential building (saving of 26,558 tons CO 2 )

28 28 Green Bond

29 SpaBol inaugural green covered bond highlights Summary The first SpaBol Green Bond is expected to be a EUR denominated covered bond with an intermediate tenor The net proceeds of the Green Bonds will be allocated to a loan portfolio of new and existing mortgages for energy efficient residential buildings SpaBol adheres to the latest edition of the Green Bond Principles (June, 2017) 1 Multiconsult has produced a document which validates the use of proceeds selection criteria to identify eligible green assets DNV-GL has conducted a positive second party opinion and verified the Green Bond Framework The intention is to seek post-issuance certification with the CBI (Climate Bond Initiative) The second party opinion confirms full alignment with the Green Bond Principles SpaBol s commitment to Green Bonds SpaBol will be Norway s first green and covered issuer in a EUR denominated benchmark transaction format Creating a benchmark for Norwegian FI s in terms of green issuance Rationale Alignment with SpareBank 1 s sustainability strategy Increases the visibility of SpareBank 1 s sustainability strategy Stimulating the further development of the strategy Contributing to national environmental objectives being met Supporting the environmental values of investors Enables investors to invest their money responsibly following the increased demand for responsible investments Diversifying our investor base and deepening our relations to existing and new investors 29 1 Published by the International Capital Markets Association

30 Green Bond criteria developer and verifier Multiconsult and DNV are both approved verifiers under the Climate Bond Standards Multiconsult provided assistance to the Norwegian regulatory body on developing the new building codes and advised the regulatory body DiBK on achieving energy efficiency. Multiconsult ASA is Norway s leading engineering consultancy, with global knowledge and local experience across multiple markets in Europe, Africa and Asia. provides technical and commercial advisory services within the whole renewable energy value chain from production, transmission and distribution, to consumption and energy efficiency/building technologies. verifies green bonds focused on investments in solar and wind power and biomass work with battery storage, energy-efficient buildings as well as electric transportation. DNV-GL is the world's leading ship and offshore classification society leading expert for the energy value chain including renewables and energy efficiency. One of the top three certification bodies in the world. 30 Source: Climate Bond Initiative

31 Green Bond Framework Use of Proceeds The net proceeds of the Green Bonds will be assigned to new and existing mortgages for energy efficient residential buildings in Norway The mortgage loans have been selected based on the energy efficiency of the residential buildings Process for Project Evaluation and Selection The selection criteria for the eligible green assets are based on the Norwegian system of residential Energy Performance Certificates (EPC) As the precise EPC labels are not yet public, the initial selection of Eligible Green Assets will be derived from the year of construction of the buildings Once the EPC labels are publically available (expected in 2019), SpaBol will also use EPC energy labels (A, B and C) to select the eligible green assets In addition to this, refurbished buildings that show a 30% improvement in energy efficiency will also be eligible Management of Proceeds The proceeds of the Green Bond will be managed in a portfolio approach At all times: Outstanding Green Bonds < Eligible Green Assets SpaBol will replenish any Eligible Green Assets that cease to become eligible in the Portfolio Reporting Reporting will be based on the Eligible Green Asset Portfolio, which will be aggregated for all green bonds outstanding Post issuance disclosures will cover both allocation and impact reporting Multiconsult has performed a CO 2 impact study on the provisional pool DNV-GL has performed a Second Party opinion and has also initiated the process for the accreditation of the CBI certificate 31

32 Evaluating and selecting eligible green assets Eligibility Criteria: 1. Residential buildings that meet building code TEK 07 or later (2009 or later) 2. Residential buildings with EPC energy labels of A, B or C 1 (built before 2009) 3. Refurbished residential buildings that show a large improvement in their energy efficiency 1 1. Building codes (building year as of 2009) Residential buildings that have building codes of 2007 (TEK07), 2010 (TEK10) or 2017 (TEK17) have significantly better energy standards and account for 8% of the residential building stock A conservative two year lag between implementation of a new building code and the year of the building being built is assumed, hence buildings finished as of 2009 are eligible for the green portfolio 2. EPC energy labels (building year before 2009) Residential buildings with an EPC label of A, B or C represent approximately 10.6% of the total housing stock (for all building years) 3. Refurbished buildings Initially Criteria 1 will be used until the EPC labels become publically available The EPC label database is not publicly available pending a change in the Norwegian regulation governing it (data privacy issue) As such, the eligible green asset portfolio will be expanded when Criteria 2 and 3 come into use Additionally, homes that have realised a 30% energy efficiency improvement as a result of refurbishment will also qualify Multiconsult has calculated that a two step EPC label improvement indicates more than a 30% improvement in energy efficiency 32 1 Given that the data for EPC labels are not yet publically available, these criteria will be predominantly used after the introduction of a public database (expected in 2019) Note: All figures are given as point in time estimates on a countrywide basis, and have been validated by Multiconsult ASA

33 Eligibility Criteria 1: Building codes and building year Building code Applications for buildings starts Specific energy demand apartment buildings (model homes) Specific energy demand other dwellings (model homes) TEK kwh/m kwh/m 2 Cumulative share of the total housing stock by building year 100% 80% 55% TEK 10/ TEK kwh/m kwh/m 2 20% 8% It takes approximately 1 year from when the housing permission is granted until the date of a building s completion Multiconsult has included a conservative starting point from January 2009 for housing completions to ensure that houses reflect building code TEK07 Houses completed as of 2009 are approximately 8% of the total housing stock in Norway This complies with and is well inside the Climate Bond Initiative s recommendation of 15% 33 Source: Multiconsult, Statistics Norway (table 06266)

34 Eligibility Criteria 1: Building codes and building year Development in calculated specific net energy demand based on building code and building tradition, (Multiconsult, simulated in SIMIEN) 34 Source: Multiconsult

35 Eligibility Criteria 1: Spabol mortgage portfolio Mortgage volumes and building completion year in mill. NOK In total there are approx. NOK bn of mortgages at Spabol that are from 2009 or newer, and thereby are within 8% of the most energy efficient residential buildings in Norway Source: Cover Pool Analysis as of 30/11/2017

36 Criteria 2 and 3: Energy labels Distribution of EPC energy labels by building code The distribution of existing energy labels (based on a sample of of the overall approximately labels in existence) show that A, B and C dominate the newer building codes 4.2% of the total housing stock built before 2009 A TEK 07 building would receive a C grade as a minimum (source: Multiconsult), however there may be some erroneous registrations, some missing but required registrations and some buildings may have large surfaces or a special position which gives a grade below C More labels exist in the TEK 10 category as the law requiring energy certificates became effective on January 1, 2010 (for all new constructions finished thereafter and for all transactions of older buildings) Criteria 2 and 3 will focus on energy certificates when they become available Multiconsult estimates that 4.2% of the total housing stock would be within criteria 2 Multiconsult estimates that 2% of the total housing stock would be within criteria 3 36 Sources: Enova, Multiconsult,

37 Management of Proceeds The proceeds of the Green Bond will be managed in a portfolio approach Spabol flags mortgage loans for green buildings through an internal monitoring system Eligible Green Assets are already on Spabol s balance sheet at issuance At all times: Outstanding Green Bonds < Eligible Green Assets Spabol will replenish any Eligible Green Assets that cease to become eligible in the Portfolio Eligible Green Asset Portfolio Green Bonds Outstanding 37

38 Reporting Reporting will be based on the Eligible Green Asset Portfolio, which will be aggregated for all green bonds outstanding Reporting will be covered through two streams: Allocation Reporting Impact Reporting Total amount of proceeds allocated to eligible loans Number of eligible loans Balance of unallocated proceeds or the amount of new financing and refinancing Estimated ex-ante annual energy consumption in KWh/m 2 or energy savings in MWh Estimated annual GHG emissions reduced/avoided in tons of CO 2 equivalent Intention to report on a quarterly basis for allocation reporting (as a part of the regular cover pool report) The impact reporting will be produced in connection with the consultant: Multiconsult Both allocation report and impact report will be made available via the SpaBol website, in addition to the Green Bond Framework and DNV-GL s Second Party Opinion 38

39 kgco2/m2 Impact of the green covered bond Calculated specific energy related CO 2 emissions [kgco 2 /m 2 ] Average SpaBol green building under criteria 1 (2009 and younger) Average Norwegian residential building stock Average German residential building stock Average Dutch residential building stock Source: Multiconsult CO 2 reduction per year equivalent to 2 Green buildings under criteria 1 emit 57% less CO 2 than the average Norwegian residential building (saving of 26,558 tons CO 2 ) 5,159 passenger vehicles driven for one year 55,780 barrels of oil consumed 132 railcars' worth of coal burned Green buildings under criteria 1 emit 73% less CO 2 than the average Western European 1 residential building (saving of 34,012 tons CO 2 ) 6,607 passenger vehicles driven for one year 71,436 barrels of oil consumed 168 railcars' worth of coal burned 39 1 Average of German and Dutch figures 2 All figures are approximations

40 DNV-GL s second party opinion Pillar 1: Use of proceeds Pillar 2: Process for Project Selection and Evaluation Pillar 3: Management of proceeds Pillar 4: Reporting DNV-GL opinion DNV GL can confirm that the SpaBol Green Bond falls within the category of a Green Use of Proceeds Bond The designated Eligible Green Loans provide clear environmentally sustainable benefits SpaBol has defined the process by which it will allocate funds to Eligible Green Loans and described the key merits used as well as the governance level responsible for selecting projects SpaBol will appropriately manage the Green Bond on a portfolio approach from the issuance of the Bond through to allocation to the Eligible Green Loan Portfolio DNV GL can confirm SpaBol has committed to ensuring that its outstanding balance of Eligible Green Loans always exceeds the total balance of all outstanding Green Bonds DNV GL can confirm SpaBol has committed to report on the allocation of proceeds of the Green Bond on an annual basis via the SpareBank 1 Boligkreditt website Confirmation of alignment with the Green Bond Principles 2017 In addition, DNV-GL has initiated the process for the accreditation of the CBI certificate 40

41 Alignment with the EeMAP initiative The Energy Efficient Mortgages Action Plan (EeMAP) is an initiative by the European Mortgage Federation (EMF) and the European Covered Bond Council (ECBC) The EeMAP aims to tap into the huge potential regarding bridging the domains of finance and energy efficiency, thus unlocking the benefits of mortgage financing for energy efficient buildings for issuer, investor and customer Green financing SpaBol green covered bond EeMAP: Bridging the gap between financing + energy efficiency Energy efficiency SpaBol s green covered bond contributes directly with the EeMAP s core goal 41 Source:

42 Example mortgage products Increase energy efficiency in existing buildings Complete refurbishments of older buildings Construct new passive houses Terms: 0% - year 1 (money market rate is 0,8%, normal mortgage rate 2,50%) 0,5 % - year 2, increasing 0,5% to maximum 1,5% 42 Source: Climate Mortgage Products In SpareBank1 Hallingdal Valdres

43 43 Residential real estate market and Spabol cover pool

44 Residential real estate market 12 months index change Regions, last 12 months March 2010: max LTV of 90% for all mortgage loans Dec 2011: max LTV of 85% for all mortgages 70% for non-scheduled repayment (revolving) mortgages 2013: Higher risk weights for mortgages higher capital requirements for banks July 2015: Existing LTV limits become legally binding Mandatory interest test Amortisation requirement Jan. 2017: Max 60% LTV for revolving/flexible mortgages Max. 5x debt / income Addt l Oslo regulation introduced 44 Source: Eiendomsverdi, through Dec 2017

45 Residential real estate- price indexes National nominal and adjusted indexes Regional nominal indexes House prices had a strong run in most Norwegian regions in until spring 2017 Income, but also domestic moving patterns, population growth and upgrades to the building code and standards fuelled the price appreciation An important factor was also lower mortgage rates Since spring 2017 prices are depreciating despite continued low rates 45 Source: Eiendomsverdi, through December 2017

46 Residential real estate regulation summary Loan to value: maximum 85 per cent for all mortgages and maximum 60 per cent for loans without scheduled instalments (revolving credit line mortgage loans); for a property located in Oslo, which is not a borrower s primary residence, the maximum possible LTV is 60 per cent. Repayment: minimum 2.5 per cent p.a. (on the full balance outstanding) for any mortgages at or above 60 per cent LTV Income limitation: total debt maximum is 5x a borrower s before-tax income Stress test: applications must pass an affordability test of a 5 per cent increase over the prevailing (offered) mortgage rate Flexibility: 10 per cent of a banks s mortgage lending contracts per quarter may be in breach with one or more of the limitations (8 per cent in Oslo), and must be reported 46 Source: Norwegian Ministry of Finance

47 Residential real estate market population and housing production Population development Housing construction Builders (and households) reacted to the higher prices and housing starts picked up materially in late 2015/early 2016 The tightening regulations have had the desired effect of cooling the real estate market But immigration (and especially European immigration) declined post the oil-price induced Norwegian economic slump, contributing to less housing demand, weighing on prices 47 Source: Statistics Norway

48 Cover pool quality Weighted average current LTV history Weighted average LTV history SpareBank 1 Boligkreditt Strict credit policy No realized losses No foreclosed mortgages No arrears over 90 days SpareBank 1 Alliance Total mortgages default (90 days past due) across all banks in the Alliance approx. 0.2%, with actual losses near zero Mortgage loan arrears (in pct. of pool balance) Norway High willingness to pay: high home ownership and strong credit culture High ability to pay: Low unemployment Regulatory mortgage underwriting standards Source: SpareBank 1 Boligkreditt cover pool report, as of September 30, 2017

49 Cover pool loan quality - LTV distribution Current LTV buckets (Numbers of loans in % of pool) Current LTV buckets (Loan volume in % of pool) The collateral (residential properties) is revalued every quarter based on an automated valuation model by Eiendomsverdi, based on the most comprehensive set of real estate transactions in Norway Loans which rise above the legal 75% LTV limit as a result of the revaluation stay in the cover pool, but the share of the loan above 75% is disregarded for asset liability testing (matching) It is always the current value of collateral which are taken into account for the LTV calculations Source: SpareBank 1 Boligkreditt cover pool report, as of September 30, 2017

50 Cover pool quality stress test Weighted average current LTV history Cover pool mortgage balance As residential real estate prices decline, some the share of mortgages above the 75% legal limit become ineligible as cover assets Accordingly, mortgages need to be replaced, this is the required top-up in the chart It will be the mortgages in the highest LTV brackets that needs replacing (or parts thereof) The reserve requirement for each bank states that the qualified reserves (outside the cover pool on the bank s balance sheet) must be sufficient to cover a 30% price decline The reserve assets decline as their LTV increase and as the top-up is provided to the cover pool Reserves strictly represent existing pre-qualified mortgages on the banks balance sheet for the cover pool based on legal and quality criteria (27 defined rules each mortgage must pass) The LTV shown in the chart is prior to the top-up, only considering the price declines based on the current pool mortgage balance 50 50

51 Cover pool quality - regional diversification Mortgage Lending by Administrative region (Fylker) The loan portfolio is well diversified across Norway and in line with the SpareBank 1 Alliance s distribution channels 7.4% Nordland (5%) 6.5% Troms (3%) 3.1% Finnmark (1%) 6.0% Nord-Trøndelag (3%) Mortgage Lending by main region 6.2% Møre og Romsdal (5%) 9.5% Sør-Trøndelag (6%) 0.2% Sogn og Fjordane (2%) 1.3% Hordaland (10%) 6.8% Rogaland (9%) 4.0% Oppland (4%) 0.8% Vest-Agder (4%) 0.2% Aust-Agder (2%) 11.2% Hedmark (4%) 6.7% Buskerud (4.5%) 4.8% 8.1% Akershus (11%) Telemark (3%) 8.7% Oslo (12%) 3.9% Østfold (6%) 4.7% Vestfold (5%) Distribution of number of loans by county for SpareBank 1 Boligkreditt. Approx. population in parenthesis 51 Source: SpareBank 1 Boligkreditt cover pool report, as of September 30, 2017

52 Cover pool quality diversified portfolio Mortgage loans by type of property Index Norway vs. Spabol Mortgages SpareBank 1 Boligkreditt has a cover pool which is more broadly diversified compared to the national Index construction (which is transactionally weighted towards the Oslo markets and flats). 52 Source: Eiendomsverdi, June 2017

53 Cover pool quality - mortgage granularity Per cent of the number of loans in each size interval Per cent share of the NOK volume in each size interval Mortgage Characteristics Number of large loans (above NOK 3 mill) is small The NOK amount of these loans are 20% of the pool No buy-to-let mortgages (cash flow not only from letting) No multi-households loans in the cover pool (housing coop joint mortgage debt) No subprime mortgages 53 Source: SpareBank 1 Boligkreditt cover pool report, as of September 30, 2017

54 54 Covered Bond Funding

55 Norwegian covered bonds Norwegian covered bond market by issuer volume I. Norway s covered bond legislation Specialist banking principle; ring fencing of assets and transparency Standard principles in the legalisation in effect since 2007 Harmonisation (EBA proposal from 2017) welcome and can be easily implemented in Norway with a few law changes Norwegian covered and government debt outstanding II. III. Regulatory Norwegian covered bonds are category 1 for LCR purposes (above EUR 500 mill.) 10% preferential risk weighting SpareBank 1 Boligkreditt covered bonds SpareBank 1 Boligkreditt (Spabol) is a labelled covered bond issuer ( Spabol covered bonds are rated Aaa by Moodys Typical issuance is EUR 1 bn in the Euro market 55 Source: Statistics Norway, Finance Norway

56 Covered bond funding Spabol covered bonds outstanding NOK EUR USD GBP A tap market Most cost efficient: no swap costs and SpareBank 1 is household brand Market cannot accommodate all larger issuers Approx. NOK bn annually Long term funding Deep market Private placements Hedging costs considerations Major funding currency For diversification reasons a 144A programme was set up in benchmark bonds issued (3 repaid) Documentation demanding Investor universe not so large in covered Investor diversification Inaugural issue (FRN 500 mill) in Nov Debt is shown at current fx rates, although currencies are fixed with swaps at issuance of the bonds

57 Covered bond funding (EUR, USD, GBP) Covered Bonds the 2 nd most important source of funds for the SpareBank 1 Alliance (20-25%) after deposits and before senior bank bonds Public benchmark covered bonds outstanding: Issue Date Size (mill) Tenor (years) Maturity Spread at issue (basis points) EUR EUR MS+ Feb , / Sept , / Feb , / August , / June , / Nov , / Aug , / Nov , / Mar , / August , / January , / June , / USD 144A USD MS+ Nov , / April , / GBP Sterling 3M LIBOR+ Nov /

58 Covered bond funding (NOK) NOK bonds are available for taps Outstanding NOK benchmark covered bonds available for taps in the table below Issues are targeted to be tapped to a minimum size eligible for LCR 1 category treatment (LCR 1 >= NOK 4 bn) Minimum tap size: 250 mill. NOK floating, 100 mill. NOK fixed format Senior, Hybrid and Tier 2 bonds are also issued in NOK Original Issue Date Current size (NOK Mill.) Last issuance (tap) Number of issuances (taps) Maturity Coupon Spread at last tap (3M NIBOR + bps) ISIN Format 10/2017 5,000-6/ Floating [6/2023] Fixed 10/2011 1,650 11/ / % NO Fixed 3/2016 1,120 4/ / % 78 NO Fixed 58

59 59 Norwegian Economic Overview

60 Norwegian economy: overview Economic Indicators (real growth or level in per. cent) P 2018E GDP growth - mainland Household consumption growth Investment growth (mainland*) Investment growth offshore oil and gas Inflation rate (CPI) month NIBOR / mortgage rate 1.8 / / / / / /2.5 Household savings ratio Unemployment rate (survey) HH sector real disp. income growth Current account surplus / GDP Gov. budget surplus / GDP Sovereign Wealth Fund / GDP Sources: Statistics Norway as of Nov 28, 2017, NBIM, Ministry of Finance * Business, housing and public sector

61 Norwegian economy: overview GDP (mainland), Y-o-y per cent. change, incl. forecast Oil and gas production as a share of total Norwegian production Proportion of all industries (basic value*) Per cent change in main GDP components (Y-o-y), incl. forecast External trade in goods and services 61 Source: Statistics Norway * Basic value is amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any tax payable to government, and plus any subsidy receivable from government. Intermediate consumption is recorded in purchasers' prices.

62 Norwegian economy: labour market Unemployment rate and employed persons Jobs related to oil and gas have disappeared in the last The continued low unemployment conditions shows the flexibility in the labour market; but there has also been a decline in labour force participation Traditionally a low unemployment rate in Norway Employment by sector Per cent. change in employment Sources: Statistics Norway, NAV

63 Household indebtedness Debt as a share of after tax disposable income Debt service coverage ratio Norwegian debt levels, by sectors and in total (% of GDP) Debt and assets in the household sector 63 Sources: SSB, Tax rolls, Norges Bank Assets are not inclusive of pension reserves

64 Household debt to income multiples Higher debt multiple brackets are dominated by younger households 23% of households have student debts and this represents on average 15% of their total debt Source: Statistics Norway

65 Residential real estate market house price and income House price to income multiples The chart shows the relationship between average income for all households with min. 2 persons and median valuation for all houses Compounded annual growth rate over the period for the median house price is 4.5% and the net and gross income 3.8% 65 Source: Statistics Norway, Eiendomsverdi

66 Appendix 66 Source:

67 Least energy efficient Energy grade (kwh/m 2 ) Most energy efficient Overview of the Norwegian approach to measuring energy efficiency Certification of Norwegian buildings with respect to energy efficiency is governed and monitored by the Norwegian Water Resources and Energy Directorate (NVE). As of July 2016, Enova, a governmental agency responsible for promotion of environmentally friendly production and consumption of energy, has taken over the responsibility for the scheme A two pronged approach is used in Norway when labelling a building in terms of energy efficiency: 1. An energy grade (letter) - ranges from A to G, and is based on the estimated energy consumed by a building 2. A heating grade (colour) - given by a 5 category colour scheme that ranges from red to green, which ranks the building according to how dependent the building is on fossil fuels & electricity as an energy source. The heating grade and energy grade labels are independent of each other Labels for specific buildings are not available yet to the public, due to privacy laws, however the expected date for publically available information on energy labels is expected to be in % 0% Heating grade: Fossil fuel / electricity sourced consumption 67 1 According to the Norwegian standard NS3031 (2007) Source: ;

68 Energy efficiency labels in Norway Energy Grade The Energy grade, which ranges from A (best) to G (weakest), is based on calculated total annual supplied energy to the building (kwh/m²a) 1 A building that is constructed according to the prevailing building code TEK 7 and TEK10 (assumed built after 1. January 2009) is estimated to have an energy grade of at least C In order to receive energy grade B or A, the thermal properties of the building have to be improved and/or a heat pump or solar heating system, that reduce the supplied energy to the building, has to be installed Heating Grade The Heating grade for the energy certificate was implemented in order to favour heating systems based on renewable energy sources with minimal greenhouse gas emissions The Heating grade ranks the building according to the type of heating system and the energy carriers that are being used Dark green represents systems with a large share of renewable energy sources, such as biomass, solar heat and ambient heat Red represents direct electric and/or fossil-fuelled heating systems Delivered energy per m2 heated space (kwh/m2) Type A B C D E F G Houses above F sqm. meter adjustment Flats/ Apartmnts. sqm. meter adjustment +800/A +1600/A +2500/A +4100/A +5800/A +8000/A above F +600/A +1000/A +1500/A +2200/A +3000/A +4000/A A = heated floor area of the dwelling Example: a 150 sq.m house would have a C limit of /150 = kwh/m2 Whilst buildings heated by electricity may be labelled as red, it is likely that they consume largely renewable energy, in the form of hydroelectric power Fossil fuel / electricity consumption share 30% 47.5% 65% 82.5% 100% Typical energy source Water-borne heating with boiler and electricity as a loose load District heating Water-borne heating with heat pump from mountain / ground / water, thermal collectors and electricity as a headlamp Water-borne heating with heat pump from mountain / land / water, and electricity as peak load Water-borne heating with med pellet stove and electricity as a peak load Air to air heat pump and closed wood stove, combined with direct electric heating Thermal collectors and air to water heat pump, combined with direct electric heating Direct electric heating and closed woodstove Thermal collectors combined with direct electric heating Air to air heat pump combined with direct electric heating Only direct electric heating Waterborne heating with oil jug and electricity as a loose load 68 1 According to the Norwegian standard NS3031 (2007).

69 Norwegian legal covered bond framework Specialist banking principle Only specialised institutions whose articles of association comply with prescribed mandatory requirements may issue covered bonds LTV limits Assets Matching Requirement Special Supervision 75% for residential mortgages 60% for commercial mortgages The cover pool may consist of mortgaged real estate assets, public sector loans and substitute assets (max 20% of cover pool, 30% with NFSA approval) Value of the cover pool shall at all times exceed the value of the covered bonds with a preferential claim on the pool. NPV principle applied to all assets and liabilities. Supervised by the Financial Supervisory Authority of Norway (NFSA) NFSA appoints an independent inspector who regularly (at least every three months) supervises the matching requirement of the cover pool and the cover pool registry the Inspector submits annual reports of observations and assessments to the NFSA Over Collateralisation Voluntary OC is part of the pool and is bankruptcy remote Liquidity Requirement Cash flow from the cover pool shall at all times suffice to cover payments on the covered bonds and payments to counterparties under related derivatives agreements. A liquidity reserve needs to be established which shall be included in the Cover Pool Currency risk The credit institution must establish reasonable and conservative limits. SB1B fully hedges currency risk Interest rate risk Issuer Insolvency Interest rate risk must be analysed (rate curve shifts and twists). SB1B hedges interest rate risk on its bonds to 3 month NIBOR If timely payments can no longer be ensured, a halt to all payments is introduced. All covered bond investors have preferential pari passu claim, must be consulted on material points. An insolvent issuer is placed under public administration (i.e. Norwegian Treasury) tasked with preserving the value of the cover pool, maintain law & regulations. Covered bond investors must be informed about any material decisions. Primary aim is creditor (CB Investor) protection 69

70 Mortgage market: key characteristics Mortgage Market Howe Ownership Social security Personal Liability Regulation Interest Payments Tax Incentives Total size approximately NOK 3,000 billion (USD 375bn, 330bn) Private banks (incl. savings banks) are the dominant suppliers of mortgages with over 95% market share Scheduled repayment mortgages: 83.4%, flexible: 16.6% Typical maturity: 25 years First priority security market with thorough documentation vetting Over 80% of households owner occupied (little buy to let) Between 50 and 60% are detached one-family houses Unemployment benefits represents ca 60% of salary for 2 years Borrowers are personally liable for their debt Swift foreclosure regime upon non-payment Transparent information about borrowers Loan to value: 85% (75% legal limit for cover pool) Flexible repayment mortgages: max 60% LTV 5% mortgage interest rate increase as stress test High risk weighting for banks for mortgage lending (20-25%) Maximum 5x debt / gross income for borrowers 90-95% of mortgages are variable rate Interest rates can be reset at the lender s discretion, by giving the debtor 6 weeks notice 24% of interest paid is tax deductible (equal to the basic rate of tax) Low effective real estate tax (lower net worth tax on real estate than financial assets) Household credit growth (12 months growth rate) Avg. variable interest rate for new mortgages 70 Source: Statistics Norway

71 SpareBank 1 Boligkreditt cover pool Assets / Status 100% first lien mortgages on Norwegian private residential properties / 100% performing loans. Loans and rate 127,895 loans at a weighted average interest rate of 2.6% Average Loan Balance NOK 1,374,953 (approximately 145,000 / $160,000) Weighted Average Original LTV Weighted Average Current LTV Weighted Average Seasoning Mortgages 59.9 % 51.0 % 3 years and 7 months Weighted Average Remaining Term Mortgages 21 years and 6 months Cover Pool NOK 202 bn (ca. 22 bn): Residential Mortgages: 87%, Liquid Assets: 13% Current O/C 7.7% (stressed O/C post 15% house price decline: 5.7%) Source: SpareBank 1 Boligkreditt cover pool report, as of September 30, 2017

72 What is a Norwegian savings bank? - a Savings Bank has 2 layers of equity capital: external and the bank s own Partial Balance Sheet: Order of priority at insolvency Subordinated Debt Equity Capital Certificates (ECC) ECC s / Bank s paid-in capital reserves 1. External Capital: max. 40% of votes Equalization Fund Savingsbank s Reserve Fund Gift Fund Cumulative profits not paid out as dividends. Belongs economically to the ECC holders and may be used for future dividends or converted to EC certificates by the bank 2. The Savings Bank s own capital, voted by bank customers publicly appointed officials for the region where the bank is domiciled (optional) and the bank s employees (up to 25%) A portion of the annual profit is given to specific community projects A key consequence of the specific savings banks law which defines the ownership structure above is the exclusion of the possibility of a hostile takeover as non-ecc shareholders always have a majority vote 72

73 General eligibility criteria for cover pool mortgages Assets Retail Residential mortgages only Employed (99% of mortgage book) or self-employed Mortgage loans solely originated by the SpareBank 1 Alliance banks and certain other banks owned by the Alliance banks Uniform underwriting criteria and credit assessment model in the SpareBank 1 Alliance banks Customer Credit Quality Criteria Collateral Types of Property Type of Products Risk category A-F (SpareBank 1 credit scoring model best PD classes) No past due or over the limit customer notifications in the last 12 months 75% LTV limit or 60% for any revolving balance mortgage Recent valuation date Valuation from independent 3 rd party, documented First priority / first lien only Located in Norway only Detached houses, terraced houses or apartments Repayment Mortgages with fixed or floating interest rates (serial and annuity loans) Revolving (flexible) loans with floating interest rates Excluded Categories LTV > 75% SB1 rating < F Loans below NOK 200,000 or above NOK 16 mill Loan applicant / co- applicant or guarantors who have not met previous loan obligations, resulted in loss for the bank or are insolvent Speculative investments in housing, e.g. mortgages to individuals owning more than 3 properties (buy-to-let) 73

74 Boligkreditt relative balance sheet Cash (0.2%) Liquid, highly rated Bonds (13.5%) Gov debt Gov g teed Nordic CB 91.9% Aaa covered bonds Residential mortgages 86.3% Senior unsecured (2.0%) T2 capital (0.8%) Equity (5.4%) 16.4% equity on RWA 74 Source: SpareBank 1 Boligkreditt financial reporting (excluding hedging derivatives and resulting collateral posted by swap counterparties)

75 SpareBank 1 Boligkreditt Arve Austestad Managing Director/CEO arve.austestad@sparebank1.no Fixed Line: Mobile: Eivind Hegelstad CFO and Investor Relations eivind.hegelstad@sparebank1.no Fixed Line: Mobile: Henning Nilsen Chief Operating Officer henning.nilsen@sparebank1.no Fixed Line: Mobile: