INTERIM REPORT Q1 2017

Transcription

1 INTERIM REPORT Q1

2 First quarter Higher pre-tax profit: NOK 432 million (NOK 322 mill.) Higher return on equity: 10.6% (8.8%) Stable nominal net interest: NOK 610 million (NOK 609 mill.), up from NOK 597 million in the fourth quarter Net interest as a percentage: 1.47% (1.51%), up from 1.43% in the fourth quarter Improved profit from financial instruments: NOK 23 million (minus NOK 35 mill.) Higher contribution from associated companies: NOK 28 million (NOK 8 mill.) Lower expenses: NOK 355 million (NOK 370 mill.) Low write-downs on loans and guarantees: NOK 29 million (NOK 26 mill.) Profit per equity certificate: NOK 1.26 (NOK 0.99) Book equity per equity certificate: NOK 47.3 (NOK 45.5) Core Tier 1 capital: 14.8% (13.8%)*, advanced IRB approved for the corporate Main Figures Q1 Q1 Pre-tax profit 432 MNOK 322 MNOK 1956 MNOK Profit per equitiy certificate 1,26 kr 0,99 kr 6,24 kr Net interest (annualised) 1,47% 1,51% 1,47% Cost ratio 44,3% 52,1% 39,7% Return on equity (annualised) 10,6% 8,8% 13,1% Core Tier 1 14,8% 13,8% 14,9% Core Tier 1 (IRB) 18,0% 15,7% 16,9% * The capital adequacy figure for the first quarter includes 75% of the profit for the period. 2

3 Report for the first quarter Table 1: Key accounting figures NOKm Q1 Q1 Net interest income and credit commissions Commissions receivable and income from banking services Commissions payable and cost of banking services Net banking services Income from owner interests in group companies Net gain/(loss) on financial instruments Other operating income Net operating income Net operating income Salaries and general administration expenses Depreciation Other operating expenses Total operating expenses Profit before write-downs and tax Net gain on fixed assets Write-downs and losses on loans and guarantees Profit before tax Taxes Profit for the period First quarter Sparebanken Vest achieved a pre-tax profit of NOK 432 million (NOK 322 mill.) in the first quarter, and a return on equity of 10.6% (8.8%). The profit was positively affected by higher contributions from financial instruments and associated companies, lower expenses and low losses. Net interest was also stable from the first quarter, with an increase compared with the fourth quarter. Combined, associated companies made a contribution to profit of NOK 28 million (NOK 8 mill.). The improvement can largely be ascribed to the positive contribution from Frende Forsikring in the amount of NOK 22 million (NOK 6 mill.). The Group s target is a flat cost development (adjusted for non-recurring expenses) from to. The cost development in the first quarter exceeds the target, amounting to NOK 355 million (NOK 370 mill.). The reduction is the result of measures implemented in the restructuring project in. Write-downs on loans and guarantees were still low at NOK 29 million (NOK 26 mill.). The bank was granted advanced IRB approval for the corporate portfolio in the first quarter. This will help to strengthen the bank s competitiveness. Core Tier 1 capital is 14.8% (13.8%), and thereby exceeds the regulatory requirements by a good margin. Net interest income in the first quarter amounted to NOK 610 million (NOK 609 mill.). Accrual of the fee to the Norwegian Banks Guarantee Fund as in previous years. Lower product margins in the retail offset the growth in volume. Net interest as a percentage of average assets under management was 1.47% (1.51%) for the first quarter. That is an increase of four basis points compared with the fourth quarter. The increase in the last quarter was due to the effect of repricing of the lending portfolio in the retail from mid-january, and a lower Nibor rate. The lending margins in the retail and corporate s measured against the average 3-month NIBOR were 1.78 (1.90) and 3.09 (3.04) percentage points, respectively, in the first quarter. The decrease in the retail is due to a decrease in the customer interest rate of 21 basis points compared with the same period last year. A decrease in Nibor of 9 basis points in the same period has the opposite effect. In 3

4 the corporate, the customer interest rate fell by 4 basis points the past year, while a reduction in Nibor of 9 basis points during the same period led to an improved overall margin. Lending margins in the retail have improved by 16 basis points compared with the fourth quarter. The improvement is due to an increase in the customer interest rate of 6 basis points and a decrease in average Nibor of 10 basis points. During the same period, there was an increase of 14 basis points in the corporate, which can largely be ascribed to an increase in the customer interest rate of 4 basis points and a decrease in Nibor of 10 basis points during the quarter. The deposit margins in the retail and corporate s in the first quarter measured against the average 3-month NIBOR were 0.21 (0.15) and 0.22 (0.21) percentage points, respectively. Compared with the fourth quarter, the deposit margin in the retail decreased by 15 basis points, due to the decrease in average NIBOR by 10 basis points and the increase in the customer interest rate of 5 basis points, based on the interest rate change in the first quarter. There was a decrease of 9 basis points in the deposits margin in the corporate during the same period, mainly due to the decrease in Nibor. Operating expenses in the first quarter amounted to NOK 355 million (NOK 370 mill.). The reduction of NOK 15 million can largely be ascribed to lower payroll and general administrative expenses. Seen in isolation, payroll expenses have been reduced to NOK 145 million (NOK 156 mill.). The reduction can be ascribed to the effects of the downsizing carried out by the bank in. In the first quarter, the financial tax had a negative effect of NOK 5.6 million, while operating expenses in the first quarter were affected by restructuring costs of NOK 4.7 million. The number of full-time equivalents in the Group is 708 (784). That is 76 fewer than in the corresponding period last year. The reduction in the number of branch offices during as a result of changed customer behaviour and increased automation has left to a shift in resources and expertise. This has reduced the number of full-time equivalents. Table 2: Number of full-time equivalents Quarterly Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Full-time equivalents Net commission income amounted to NOK 109 million (NOK 98 mill.) in the first quarter. The development in commission income from the sale of insurance products, profit commission on insurance and card sales is stable. Net income from financial instruments amounted to NOK 23 million (minus NOK 35 mill.). The start of has been marked by positive developments in the stock s. Sparebanken Vest has limited stock exposure because the bank sold its listed holding in The bank s holding of bonds and certificates shows an overall increase in value of NOK 52 million (minus NOK 23 mill.). The bank s currency trading activities contributed NOK 12 million (NOK 10 mill.) in the quarter. The prices of basis swaps that the bank uses to hedge the financing of covered bonds in foreign currency have decreased, and the bank has recognised a loss of NOK 54 million in the first quarter. Table 3: Financial instruments NOKm Q1 Q1 Dividend Gain/(loss) on commercial papers and bonds Gain/(loss) on shares Gain/(loss) on financial derivatives Gain/(loss) on financial instruments, recognised at fair value Gain/(loss) on currency Net gain/(loss) on financial instruments designated for hedge accounting Of which gain/loss related to basisswaps Other Net gain on financial instruments The contribution to profit from associated companies amounted to NOK 28 million (NOK 8 mill.), which breaks down as follows: 4

5 Table 4: Associated companies NOKm Q1 Q1 Frende Forsikring Norne Securities Brage Finans Other Companies Net profit from associated companies See the section on business in subsidiaries and associated companies for more information about the individual companies. Total write-downs on loans and guarantees amounted to NOK 29 million (NOK 26 mill.) in the first quarter. See the section on risk and capital factors and Notes 6 and 7, which describe the write-downs and the development in defaults and other potential bad debt. Developments in lending and deposits Gross lending increased by NOK 8.6 billion (NOK 5 bill.) to NOK billion (NOK bill.) from the first quarter, corresponding to a year-on-year growth of 6.5%. The average growth in the past three years is 5.4% in the corporate and 7.9% in the retail. Table 5: Growth in lending Growth last 12 months Growth last quarter Lending total 6,5% 1,8% Lending retail 6,9% 1,2% Lending corporate 5,4% 3,7% Of gross lending, loans to the retail amounted to NOK billion (NOK 99.4 bill.), NOK 60.2 billion of which were loans transferred to Sparebanken Vest Boligkreditt. Gross lending to the corporate amounted to NOK 33.4 billion (NOK 31.7 bill.). The growth in lending in the corporate is somewhat erratic, and must be seen in conjunction with the low growth in the fourth quarter. The growth is within the SME segment and a few larger engagements within prioritized segments. Customer deposits increased by NOK 2.5 billion to NOK 66.0 billion (NOK 63.5 bill.), corresponding to a year-on-year growth of 4.0%. Table 6: Growth in deposits Growth last 12 months Growth last quarter Deposits total 4,0% -0,8% Deposits retail 1,4% -1,0% Deposits corporate 8,9% -0,3% Deposits break down as follows: NOK 42.1 billion (NOK 41.5 bill.) from retail customers and NOK 23.9 billion (NOK 22.0 bill.) from corporate customers. The breakdown between deposits and lending is specified in Notes 8 and 9. On February 13,, it was announced that Sparebanken Vest, together with 105 other Norwegian banks, went into the ownership side of the mobile payment solution, Vipps. Sparebanken Vest s ownership will be exercised through the newly established company Balder Betaling ( Payment ), which the bank owns with the savings banks that also stand behind Frende Insurance. Balder Betaling will have a stake in Vipps at about 12%, and Sparebanken Vest will be the largest owner in Balder with a stake of 36%. Through it the joint venture in Vipps Sparebanken Vest will be even stronger equipped to offer customers simple, efficient and future-oriented payment solutions in demanding competition against international players. CEO in Sparebanken Vest, Jan Erik Kjerpeseth will enter the Board upon establishment. Risk and capital factors Credit risk At the end of the first quarter, the retail accounted for approx. 76% of the credit portfolio, and 96% of this portfolio consists of loans secured by mortgage. The risk in the retail is still stable and low. In the corporate, the risk profile is stable and moderate with a slight improvement in defaults of payment. Good portfolio management and moderate exposure in industries vulnerable to cyclical fluctuations make a positive contribution to the risk profile in this segment. Defaults and potential bad debt amounted to a total of NOK 1,274 million (NOK 1,267 mill.) for the corporate and NOK 247 million (NOK 220 mill.) for the retail. The volume in default in the corporate is mainly related to potential bad 5

6 debt commitments identified in previous years. The percentage provided for on these commitments is over 50%. Figure 1 Defaults and other potential bad debt ,99% ,96% ,96% ,92% Q1 Q2 Q3 Q4 Q1 Retail Corporate % of total ,96% Default in relation to gross lending is shown in Note 6. Total losses on lending and guarantees amounted to NOK 29 million (NOK 26 mill.) in the first quarter. The net effect on profit/loss of individual write-downs amounted to NOK 25 million for the quarter, while group write-downs amounted to NOK 4 million. The total percentage provided for in the portfolio was 0.77% at the end of the first quarter, exactly the same as in the fourth quarter. Figure 2: Write-downs 247 5% 4% 3% 2% 1% 0% in the bank s liquidity portfolio, and, to a very limited extent, through proprietary trading. The portfolio mainly consists of securities issued by Norwegian banks, residential mortgage companies, municipalities, county authorities, the Norwegian state and non-financial enterprises. The bank s reported credit spread risk is somewhat reduced in relation to the end of the first quarter. This is mainly due to adaption to new regulatory requirements and a changed calculation method as a result of the Financial Supervisory Authority of Norway s circular 12/. The bank s stock exposure (excluding subsidiaries and associated companies) at the end of the first quarter amounted to NOK 430 million (NOK 393 mill.). The identification, analysis and follow-up of operational risk is addressed at a general level through management confirmations, continuous assessments and the registration of events. No matters that are critical to the bank s operations were uncovered during the quarter. Liquidity and financing The Group s liquidity situation is good. It is managed at the overall level using LCR, liquidity indicators, stress tests (similar to LCR) and the deposits/loans ratio. The bank s Liquidity Coverage Ratio (LCR) at the end of the first quarter was 130%. The bank s LCR is a result of the bank having large maturity dates in the second quarter. Deposits 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0, ,77% 0,77% 0,78% 0,76% 0,76% Q1 Q2 Q3 Q4 Q1 Individual write-downs Group write-downs Write-downs as % of gross lendings Capitalised write-downs (MNOK) The introduction of NSFR (Net Stable Funding Ratio) in Norway is expected to enter into force on 1 January Regulatory liquidity and financing regimes (LCR and NSFR) favour stable deposits (covered by the deposits guarantee scheme) and deposits from the retail and SMEs. A large proportion of Sparebanken Vest s deposits come from such sources; see the table below. Table 7: Deposits Deposit Private SMB Corporate Finance Total Market risk and operational risk The bank s interest rate and currency risk is managed within limits adopted by the Board and is considered to be low. The bank is exposed to credit spread risk, primarily through the management of interest-bearing securities Over Total The deposits/loans ratio was somewhat lower than in the corresponding period last year: 47% (49%). The Group s liquid holdings (including cash and receivables from central banks) amounted to approx. 6

7 NOK 21.3 billion (NOK 20.6 bill) at the end of the quarter. The total capital financing amounted to NOK 84.9 billion (NOK 79.5 billion). The bank s relative proportion of covered bonds accounted for approximately 70% of the bank s capital financing at the end of the first quarter. The proportion of capital financing with a remaining term to maturity of more than three years was approximately 47% at the end of the quarter. Rating Sparebanken Vest is rated by Moody s. Moodys confirmed the bank s A1 Stable rating in the first quarter. Figure 3: Capital adequacy, Basel I floor 20% 18,6% 18,7% 18% 17,4% 17,0% 2,2% 2,2% 16% 1,8% 2,2% 1,7% 1,6% 1,3% 1,1% 14% 12% 10% 8% 13,8% 14,1% 14,8% 14,9% 6% 4% 18,4% 2,1% 1,5% 14,8% In conjunction with Sparebanken Vest s initiatives to increase efficiency, simplify operations and reduce costs, the bank has concluded that the rating from Moody s is sufficient for the company s issues. Sparebanken Vest has therefore asked Fitch Ratings to discontinue its rating in the first quarter. Bonds issued by Sparebanken Vest Boligkreditt AS are rated by Moody s and have an AAA rating with a stable outlook. Capital adequacy The bank s Core Tier 1 ratio pursuant to the Basel I floor is down 0.1 percentage points from the fourth quarter, at 14.8%. The decrease can largely be ascribed to an increase in the calculation basis from the fourth quarter by approx. NOK 2.7 billion relating to volume growth in the retail and corporate s, and the fact that, because of new rules, Verd Boligkreditt will be included in the consolidated accounts from. The bank thus meets the combined minimum and buffer requirement of 11.5% as well as the Pilar II requirement of 1.8%, in total 13.3% Core Tier 1 capital, by a very good margin. 2% 0% Total Capital Tier Capital Add. Tier 1 Cap. Core Tier 1 Capital Q1 17,0% 1,8% 1,3% 13,8% Q2 17,4% 2,2% 1,1% 14,1% Q3 18,6% In the first quarter, Sparebanken Vest was granted approval by the Financial Supervisory Authority of Norway to use the advanced IRB method (AIRB) to calculate regulatory capital requirements for credit risk in the corporate portfolio. The approval was granted on certain conditions. 2,2% 1,7% 14,8% Q4 18,7% 2,2% 1,6% 14,9% Q1 18,4% 2,1% 1,5% 14,8% The bank has already been granted such approval for the retail portfolio. The approval means that the calculation basis is reduced pursuant to IRB. Combined with the good quality of the portfolio, this increases Core Tier 1 capital by 1.1 percentage points in relation to the fourth quarter. Regardless of this, transitional rules involving a Basel I floor of 80% are binding on the bank in. 7

8 Figure 4: Capital adequacy, IRB 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Total Capital Add. Cap. (Tier 2) Hyb. Cap. (Tier 1) Core Tier 1 Cap. 19,3% 2,1% 1,5% 20,4% 21,2% 15,7% 16,5% 17,2% 16,9% Q1 19,3% 2,1% 1,5% 15,7% 2,6% 1,3% Q2 20,4% 2,6% 1,3% 16,5% 21,7% 2,6% 1,9% Q3 21,7% 2,5% 1,8% 22,4% 2,6% 1,9% 18,0% The leverage ratio was 7.1% at the end of the first quarter, down 0.2 percentage points from the fourth quarter. Sparebanken Vest thereby meets the regulatory minimum requirement (3%) and the buffer requirement (2%), in total 5%, which will apply from 30 June this year, by a good margin. 2,6% 1,9% 17,2% Q4 21,2% 2,5% 1,8% 16,9% Q1 AIRB corp. portfolio 22,4% 2,6% 1,9% 18,0% Business in subsidiaries and associated companies Subsidiaries Eiendomsmegler Vest (holding 100%) had a share of 13.4% in the first quarter, down from 13.8% in the fourth quarter. It recorded a pre-tax loss of NOK 2 million (minus NOK 8 million) in the first quarter. The company s performance is affected by increased top line growth of 28% compared with the first quarter, while increased costs led to a loss for the quarter. The first quarter was characterised by good figures for Hordaland and Bergen, where the share increased to 20.4%, making the company the biggest estate agency in the county. Market developments in Hordaland still look strong and healthy, with a slight price growth, a short time on the and a slight increase in supply. There is an improvement in the dynamics in Stavanger, but, as in Haugesund, Eiendomsmegler Vest s share has continued to fall and is now down 1.6% to 6.4%. Eiendomsmegler Vest s contribution to profits still has considerable potential. The effects of implemented measures are expected to contribute to increased profitability going forward. Figure 5: Leverage ratio 8 6 Sparebanken Vest Boligkreditt AS (holding 100%) manages housing loans in the amount of NOK 60.2 billion (NOK 54.9 bill.), and at the end of the first quarter, the company had issued covered bonds in the amount of NOK 60.2 billion (NOK 56.0 bill.) ,1% 6,1% 6,6% 7,3% 7,1% Associated companies The share of profit/loss from associated companies amounted to a total of NOK 28 million (NOK 8 mill.). It was included in the accounts in accordance with the equity method in the first quarter. 0 Q1 Q2 Q3 Q4 Q1 The bank s capital adequacy is specified in Note 11. Frende Holding (holding 39.7%) recorded a profit after tax of NOK 47.8 million (NOK 13.0 mill.) in the first quarter. Sparebanken Vest s share of the profit was NOK 22 million (NOK 6.2 mill.). Frende Skade recorded a pre-tax profit of NOK 24.7 million (minus NOK 0.8 mill.). At the end of the first quarter, total premiums amounted to NOK 1,612 million (NOK 1,449 mill.), divided between 136,100 customers (123,800). Frende Skade s share continues to grow, and it is estimated to be 3% for Norway as a whole. 8

9 The loss ratio at the end of the first quarter (month of March) was 83.1% (65.6%). The company s combined ratio for the first quarter was 102.5% (85.8%). Frende Skade has delivered good actuarial results for the relevant time period, but has had a slightly higher incidence of fire and general insurance claims in the quarter. Frende Liv recorded a pre-tax profit of NOK 23.2 million (NOK 13.9 mill.) in the first quarter. The first quarter has shown good risk results, particularly in the retail segment, and a good development in the administrative result. The return on financial assets in the first quarter amounted to NOK 17.1 million (NOK 6.6 mill.). Premiums in Frende Liv increased by NOK 84.4 million (NOK 48 mill.) in the first quarter compared with the corresponding period in, and amounted to NOK million (NOK 743 mill.) at the end of the first quarter. Norne Securities AS (holding 47.6%) is a securities firm that offers investment services to the corporate and retail s. The company makes a contribution to profits for the first quarter of NOK 1.1 million (minus NOK 2.7 mill.). There was high activity in the company s three business areas. Corporate finance made a particularly good contribution with a turnover of NOK 8.8 million (NOK 4 mill.) by facilitating several large transactions. In, and to date in, the company has been the leading adviser on equity certificate issues to Norwegian savings banks. Together with good underlying growth for online stockbroking and stable developments in equity and bond trading for professional investors, this is expected to contribute to positive earnings for the company in. Brage Finans AS (holding 49.9%) is a financing company that offers leasing and loans secured by the purchased object to the corporate and retail s. The company recorded a pre-tax profit of NOK 12.1 million (NOK 7.2 mill.) in the first quarter, and a return on equity of 5.7% (4.2%). At the end of the first quarter, the company had a gross portfolio of NOK 4,632 million (NOK 3,527 mill.). The increase in the portfolio breaks down as NOK 786 million for the corporate and NOK 330 million for the retail. Sparebanken Vest s share of the profit in Brage Finans amounted to NOK 4.9 million (NOK 2.5 mill.) in the first quarter. Brage expects continued profitable growth in, in both the corporate and retail s. The company will also focus more on car loans this year. Post balance sheet events No significant events have taken place since the balance sheet date (31 March ) that affect the quarterly accounts. Outlook The macroeconomic situation Global growth has picked up. Mature economies in particular are experiencing increased growth, but emerging economies have also contributed to the increase. The US economy is still leading the cyclical upturn. The Federal Reserve has already raised the interest rate twice since last year, and is expected to raise it twice more this year. This is in contrast to the central banks in the Eurozone, the UK and Sweden, where interest rates are expected to remain low, and negative in some countries, for a long time. More protectionism, greater financial imbalances in China and struggling Italian banks are among the risk factors that may contribute to slower growth in the global economy. At home, the growth in GDP for mainland Norway last year was the lowest since the financial crisis. However, there are signs that the slowdown in the oil industry is levelling off. Unemployment is still falling, now in Western Norway as well. Consumer confidence has picked up. The decline in oil investments is expected to cease in the course of the year. On the other hand, the factors that are expected to contribute to this growth are fairly moderate. Housing investments are likely to be nearing a peak. Corporate investments are still very moderate, and exports have been disappointing to date given the weak Norwegian krone. The growth in public sector demand is also likely to be more subdued going forward. The fact that the banks are applying a tighter credit practice, as a result of more stringent requirements in the housing loan regulations, has probably led to a slightly weaker development in house prices. This trend is expected to continue throughout the year. The growth in mainland GDP is expected to rise slightly this year, to 1.25%. Norges Bank will probably leave the interest rate unchanged for at least another two years. 9

10 Western Norway The Western Norway Index 1/, which is a survey of 700 business managers in Western Norway, shows that the companies in the region report positive developments in the past three months. Rogaland, in particular, contributed positively, while the development in Sogn og Fjordane continues to make a negative contribution. The oil-heavy county is now at the same level as the other counties in the region. Demand continues to lift the Western Norway Index. Cautious progress has been recorded all the way back to the second quarter among the businesses in Western Norway. In the first quarter, the businesses in Western Norway also reported a slight increase in investments. The expectation index shows that optimism is returning to Western Norway, and is now at its highest level in three years. After several quarters with businesses reporting increased demand, they are now reporting a slightly higher willingness to invest, which may have positive ripple effects for economic growth. The upturn has taken hold. The Western Norway Index 1/ also shows that there is a still lot of spare capacity and weak wage pressure among the businesses. However, downsizing expectations are considerably lower for the next six months. There are particularly encouraging signs from Rogaland, which has long downsized the most. Businesses in Rogaland now expect downsizing to be at the same level as the other counties in Western Norway. Oil-related companies still dominate among the businesses that report downsizing. Sparebanken Vest Sparebanken Vest implemented significant measures throughout to keep up with the rapid technology developments and changes in customer behaviour by introducing new service concepts, increased and changed expertise, and by implementing a number of digital processes and solutions. This work will continue in, with the aim of ensuring better customer experiences and increased sales. The results for the first quarter of show that the positive developments seen in are continuing. The expectation of a long-term return on equity of more than 11% thus remains unchanged. The distribution percentage for the equity certificate holders share of the profit for is expected to be in the mid-interval of the bank s dividend policy. The bank s capital situation is good. Through profit accumulation in, the bank will meet the requirement for a higher countercyclical capital buffer from the turn of the year. The AIRB approval for the corporate from the Financial Supervisory Authority in the first quarter will make it possible to further strengthen the bank s competitiveness. The assumption is that the Basel I floor will no longer apply from the turn of the year /2018. The interest rate change implemented with effect from mid-january has had a positive effect on profits in the first quarter. Given an unchanged situation, this is expected to have further positive effects on the bank s net interest in the quarters to come. The lower Nibor rate will also have a bearing in step with the interest rate fixing of the bank s capital financing. Costs are below target in the first quarter, and the bank maintains its goal of a flat cost development (adjusted for non-recurring effects) from to. The bank s total loss write-downs in the first quarter are at a lower level than the bank has previously assumed for the year as a whole. The high quality of the lending portfolio, and a slightly better macroeconomic outlook, indicate that the loss write-downs will be lower than previously expected. The loss estimate is thus adjusted to NOK million. Bergen, 2 May The Board of Directors of Sparebanken Vest Trygve Bruvik Arild Bødal Birthe Kåfjord Lange Chair of the Board Deputy Chair of the Board Magne Morken Richard Rettedal Gunnar Skieie Anne Marit Hope Marianne Jacobsen Kristin Axelsen Fred David Risløw Jan Erik Kjerpeseth Managing Director 10

11 Key figures, Group Summary of profit and loss CHANGE -17 vs 4Q vs -16 Net interest and credit commission income Net commission income and income from banking services Income from associated companies Net gain/(loss) on financial instruments Net other operating income Net operating income Operating expenses Net profit on tangible fixed assets Write-downs of loans and losses on guarantees Profit/loss before tax expense Tax expence Profit/loss for the period Equity certificates` share of profit/loss divided by the number of equity certificates 1,26 0,99 6,24 11

12 Key figures, Group (cont.) Key figures Profitability Return on equity after tax 10,6 % 8,8 % 13,1 % Net interest as a percentage of average assets under management 1,47 % 1,51 % 1,47 % Net other operating income as a percentage of net operating revenues 25,7 % 15,4 % 26,3 % Operating expenses as a percentage of net operating income (cost-income) 44,3 % 52,1 % 39,7 % Operating exspenses as a percentage of net operating income, corrected for financial instruments 45,6 % 49,7 % 41,2 % Losses and defaults Losses on loans as a percentage of gross lending (UB) 0,02 % 0,02 % 0,03 % Commitments in default (>90days) as a percentage of gross lending 0,27 % 0,25 % 0,24 % Potential bad debt as a percentage of gross lending (before write-down) 1,07 % 1,12 % 1,03 % Balance sheet figures and liqudity Assets undre management Average assets under management Gross loans to customers Lending growth, last 12 months 6,5 % 7,7 % 5,6 % Customer deposits Deposit growth, last 12 months 4,0 % -2,2 % 4,0 % Deposit coverage 47,6 % 48,8 % 48,9 % Liquidity Coverage Ratio (LCR) 130 % 142 % 158 % Capital adequacy Risk-weighted balance sheet total Core Tier 1 capital adequacy 14,8 % 13,8 % 14,9 % Core capital adequacy 16,3 % 15,1 % 16,5 % Capital adequacy, transitional arrangement 18,4 % 17,0 % 18,7 % Core Tier 1 capital excluding non-audited profit/loss 14,4 % 13,6 % Capital adequacy, IRB 18,0 % 15,7 % 16,9 % Leverage ratio 7,1 % 7,3 % Personnel Number of full-time equivalents Number of branch offices The equity certificate Owner fraction on balance sheet date 23,2 % 24,7 % 23,2 % Weighted owner fraction in the period 23,2 % 24,6 % 24,7 % Equity cert. Capital's share of profit/loss divided by no of equity certificates (NOK) 1,26 0,99 6,24 Book equity per equity certificate 47,3 45,5 50,6 Listed price of equity certificate 52,0 33,9 48,4 Price-to-book 1,10 0,75 0,96 12

13 Income statement PARENT BANK Notes Interest income and similar income Interest expenses and similar expenses Net interest and credit commission income Commission income and income from banking services Commission expenses and expenses relating to banking services Income from ownership interests in associated companies Net gain/(loss) on financial instruments Other operating income Net other operating income Net operating income Payroll and general administration expenses Depreciation Other operating expenses Total operating expenses Profit before write-downs and tax Net gain on fixed assets Write-downs on loans and guarantees Pre-tax profit Tax Profit for the period ,26 0,49 1,19 Profit/Diluted profit per equity certificate 1,26 0,99 6,24 Statement of comprehensive income PARENT BANK Profit/loss for the period Estimate variance, pensions Tax effect of estimate variance, pensions Other profit/loss elements that will not be reclassified to profit or loss after tax Other profit/loss elements that will be reclassified to profit or loss after tax Total other profit/loss elements in the period Total profit for the period

14 Balance sheet PARENT BANK 31/ / /03-17 Notes 31/ / /12-16 Assets Cash to and receivables from central banks Loans to and receivables from credit institutions Net lendings 7, Shares at fair value through profit or loss Shares available for sale Commercial papers and bonds Financial derivatives Shareholdings in group companies Shareholdings in associated companies Deferred tax asset Pension funds Other intangible assets Tangible fixed assets Prepaid expenses Other assets Total assets Liabilities and equity Liabilities to credit institutions Deposits Securitised liabilities Financial derivatives Accrued expenses and pre-paid income Pension commitments Deferred tax Other provision for commitments Tax payable Subordinated loan capital Other liabilities Total liabilities Equity certificates Own equity certificates Premium reserve Equalisation reserve Total equity certificate capital Primary capital Gift fund Compensation fund Total primary capital Other equity Hybridcapital Total equity Total liabilities and equity

15 Cash flow statement Cash flows from operations Interest, commission and customer fees received Interest, commission and customer fees paid Interest received on other assets Interest payments on other funding Payments to other suppliers for goods and services Payment to employees, pension schemes, National Insurance contributions, tax withholdings etc Payment of taxes Dividends received on securities for trading purposes Net receipts/payments on sales/purchases of securities for trading purposes Net cash flow from operations Cash flows from investment activities Payments received/made relating to customers' loans Net receipts/payments on loans to credit institutions Dividends received on securities not for trading purposes Net receipts/payments on sales/purchases of securities not for trading purposes Net receipts/payments on sales/purchases of other financial instruments Payment received from sale of associated companies Payments related to associated companies Payments received from the sale of operating assets etc Payments made on purchases of operating assets etc Net cash flows from investment activities Cash flows from financing activities Payments received/made relating to customer deposits Payments received/made on deposits from Norges Bank and other financial institutions Receipts related to issues of subordinated loan capital Payments related to redemptions of subordinated loan capital Receipts related to issues of bonds and commercial papers Payments related to redemptions of bonds and commercial papers Dividends paid / Gifts for the public benefit Net cash flow from financing activities Net cash flow for the period Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

16 Changes in equity Equity certificates Own equity certificates Premium reserve Equalisation Primary reserve capital Gift fund Comp. fund Other equity Hybridcapital Minority interests Equity at 31 Dec Profit/loss first quater Other comprehensive income 0 Purchase/sale of own equity certificates -1-1 Distributed dividend and donations Interest paid on hybrid capital -8-8 Tax on interest on hybrid capital, directly against equity 2 2 Donations from gift fund Equity at 31 Mar Total Equity at 31 Dec Profit/loss Other comprehensive income Distributed dividend and donations Issuance of new hybrid capital Interest paid on hybrid capital Tax on interest on hybrid capital, directly against equity Donations from gift fund Equity at 31 Dec Profit/loss first quater Other comprehensive income 0 Purchase/sale of own equity certificates Distributed dividend and donations Redemption of hybrid capital Issuance of new hybrid capital Interest paid on hybrid capital Tax on interest on hybrid capital, directly against equity 3 3 Equity at 31 Mar

17 Changes in equity (cont.) PARENT BANK Equity certificates Own equity certificates Premium reserve Equalisation Primary reserve capital Gift fund Comp. fund Other equity Hybridcapital Minority interests Equity at 31 Dec Profit/loss first quater Other comprehensive income 0 Purchase/sale of own equity certificates -1-1 Interest paid on hybrid capital -8-8 Tax on interest on hybrid capital, directly against equity 2 2 Donations from gift fund Equity at 31 Mar Total Equity at 31 Dec Profit/loss Other comprehensive income Purchase/sale of own equity certificates Tax on interest on hybrid capital, directly against equity Issuance of new hybrid capital Interest paid on hybrid capital Tax on interest on hybrid capital, directly against equity Donations from gift fund Equity at 31 Dec Profit/loss first quater Other comprehensive income 0 Purchase/sale of own equity certificates Redemption of hybrid capital Issuance of new hybrid capital Interest paid on hybrid capital Tax on interest on hybrid capital, directly against equity 3 3 Equity at 31 Mar Notes Note 1 Accounting principles The consolidated accounts for the first quarter have been prepared in accordance with IAS 34. The accounts have been prepared on the basis of the same principles and with the same estimate methods as the annual accounts for. The accounting principles are described in the annual report. All amounts are stated in NOK million unless otherwise specified. 17

18 Note 2 Segment information The management has evaluated the segments that it is appropriate to report in relation to corporate governance. The segments are: Corporate Banking, Retail, Treasury and Real Estate Markets. Operating expenses are allocated, with the exception of IT costs, staff costs and depreciation. Net interest income is allocated based on internally calculated interest based on 3-month NIBOR. Banking operations Corporate Retail Treasury Estate agency business Not allocated by segment Total Income statement Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -100 Profit for the period /03-17 Balance sheet Net lendings Deposits Income statement Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -80 Profit for the period /03-16 Balance sheet Net lendings Deposits Income statement Net interest income Operating income Operating expenses Net gain on fixed assets Losses Pre-tax profit Tax -435 Profit for the period /12-16 Balance sheet Net lendings Deposits

19 Note 3 Net interest and credit commission income PARENT BANK Interest and similar income from loans to and receivables from credit institutions Interest and similar income from loans to and receivables from customers Interest and similar income from commercial papers, bonds and other interestbearing securities Interest income and similar income Interest and similar expenses on debt to credit institutions Interest and similar expenses on deposits from and debt to customers Interest and similar expenses on issued securities Interest and similar expenses on subordinated loan capital Other interest expenses etc. 1) Fee Norwegian Banks' Guarantee Fund Interest expenses and similar expenses Net interest and credit commission income ) Interest from derivatives entered into to manage the interest rate risk attached to the bank s ordinary portfolios is classified as interest income and recognised as an adjustment of the bank s other interest income/ interest expenses. Note 4 Net other operating income PARENT BANK Guarantee commissions Fees from payment transfers Fees from insurance Fees from funds and other placement products Comissions income from group companies Other commissions and fees Commission income and income from banking services Fees payment transfers Expences funds and other placement products Other commissions and fees Commission expenses and expenses relating to banking services Net banking services Income from ownership interests in associated companies Dividend (cf. note 15) Gain/(loss) on commercial papers and bonds 1) Gain/(loss) on shares Gain/(loss) on financial derivatives 1) Gain/(loss) on financial instruments, recognised at fair value 1) Gain/(loss) on currency Net gain/(loss) on financial instruments designated for hedge accounting Of which gain/loss related to basisswaps Other Net gain/(loss) on financial instruments Brokerage commission Other operating income Other operating income Net other operating income ) The value adjustment of derivatives used to manage interest and currency risk is distributed between the financial instruments they are managed together with. 19

20 Note 5 Operating expenses PARENT BANK Salaries Pensions Profit/loss effect related to change in pension plan Other personnel expences Fees ICT expenses Marketing and public relations Payroll and general administration expenses Depreciation Operating expenses, premises Wealth tax Other operating expenses Total other operating expenses Total operating expenses

21 Note 6 Losses and defaults on loans and guarantees PARENT BANK Change in individual write-downs during period Confirmed losses on loans for which provisions have been made Confirmed losses on loans for which no provision has been made Recoveries of previously recognised losses Net effect of individual write-downs Change in group write-downs in period The period's net losses on loans Confirmed losses on guarantees Change in provision for bad debt The period's net losses on guarantees Write-downs on loans and guarantees Defaults and other problem loans The table shows booked value of total loans in default based on Basel regulations. PARENT BANK Retail Corporate Total Retail Corporate Total Gross loans in defaults of payment exceeding 90 days Gross other defaults and other problem loans Gross default and other problem loans Individual write-downs Net default and other problem loans Retail Corporate Total Retail Corporate Total Gross loans in defaults of payment exceeding 90 days Gross other defaults and other problem loans Gross default and other problem loans Individual write-downs Net default and other problem loans Age distribution of commitments in default The table shows defaults of payment exceeding 30 days where the amount in default is more than NOK 1,000 in one of the commitment s accounts not caused by payment service delays. PARENT BANK Retail Corporate Total Retail Corporate Total Up to 30 days days days More than 90 days Gross loans in default of payment Retail Corporate Total Retail Corporate Total Up to 30 days days days More than 90 days Gross loans in default of payment

22 Note 7 Capitalised write-downs on loans and guarantees PARENT BANK 31/ / / / / /12-16 Individual write-downs Individual write-downs of loans at 1 January (nominal values) Realised losses on loans covered by previous write-downs Increase in write-downs of loans written down previously Write-downs of loans not written down previously Reduction in previous years' write-downs on individually assessed loans Changes due to exchange rate movement Individual write-downs Group write-downs Group write-downs at 1 January (nominal values) Change in group write-downs for the period Group write-downs Total write-downs on loans Provision for bad debt for guarantees Provision for bad debt to cover losses on guarantees at 1 January Change in write-downs Total write-downs on guarantees Note 8 Loans by sector and industry PARENT BANK 31/ / / / / /12-16 Gross loans Primary industries Manufacturing and mining Power and water supply Building and construction Commerce International shipping and pipeline transport Hotel and restaurants Property management Services Municipal/public sector Other financial corporations Total corporate sector Retail customers Gross loans to customers Write-downs Primary industries Manufacturing and mining Power and water supply Building and construction Commerce International shipping and pipeline transport Hotel and restaurants Property management Services Municipal/public sector Other financial corporations Individual write-downs corporate sector Individual write-downs retail customers Group write-downs corporate sector Group write-downs retail customers Total write-downs on loans Net loans to customers