Norway Full Rating Report Ratings Foreign Currency Long-Term IDR Short-Term IDR BBB F3 Viability Rating bbb Support Rating 5 Support Rating Floor NF Sovereign Risk Long-Term Foreign-Currency IDR AAA Long-Term Local-Currency IDR AAA Outlooks Long-Term Foreign-Currency IDR Stable Sovereign Long Term Foreign- Stable Currency IDR Sovereign Long Term Local- Stable Currency IDR Financial Data 31 Dec 12 31 Dec 11 Total assets (USDm) 4,939 4,443 Total assets (NOKm) 27,490 26,612 Total equity (NOKm) 1,905 1,786 Operating profit (NOKm) 194 111 Net income (NOKm) 149 79 Fitch comprehensive income 149 79 (NOKm) Operating ROAA (%) 0.7 0.4 Operating ROAE (%) 10.6 6.4 Fitch core capital /weighted 11.2 10.0 risks (%) Tier 1 ratio (%) 14.9 13.7 Key Rating Drivers Standalone Strength Drives Ratings: 's ratings reflect its established, but regionally very concentrated retail and SME franchise in economically prosperous municipalities around Sandnes in south-west Norway. The ratings also factor in its reliance on wholesale funding, working-out of troubled legacy assets and small absolute size of capital. Strong Regional Economy: Sandnes benefits from operating in Norway, and south-west Norway in particular. In its base case scenario Fitch Ratings expects the region's macroeconomic environment to remain favourable, loan impairment charges (LICs) to remain low and growth opportunities to remain robust. Wholesale funding costs should continue to benefit from investors positive perception of Norwegian issuers. Performance to Remain Sound: After significant LICs led to an operating loss in 2010, Sandnes financial performance stabilised again in 2011 and 2012. Lending margins improved in 2012, offsetting lower deposits margins and supporting net interest income (NII), which is the bank s most important revenue stream. Sandnes operating profitability remains sensitive to rising LICs, which could be driven by a deterioration in the region s economy or from the bank s still material customer concentrations. Sound Headline Asset Quality: Sandnes non-performing loans represented a low 0.3% of gross loans at end-2012. However, Sandnes has a relatively significant legacy portfolio in its SME business, where non-performing plus impaired (but still performing) loans represented a more material 3.4% at end-2012 (end-2011: 5.7%). As a result of the bank working out legacy exposure, changing the business towards less risky business sectors and a strong Norwegian economy, Fitch expects the stock of impaired loans to continue to reduce. Dependent on Wholesale Funding: Sandnes' reliance on market funding is a key rating sensitivity, which makes the bank vulnerable to prolonged dislocations in the wholesale funding markets. Keeping its liquidity buffer adequate in size and quality is key to mitigating such risks. Small Absolute Capital Base: Fitch considers Sandnes small capital base a rating constraint. Capital ratios are improving as the bank has built up capital and reduced its risk-weighted assets. Basel III rules will only have a minor effect on the bank, Fitch understands. Low Probability of Support: Sandnes' Support Rating reflects Fitch's view of an only low extraordinary support probability from the Norwegian authorities, because of the bank's small size (11th-largest Norwegian bank). Fitch has not assigned a Support Rating Floor. Rating Sensitivities Regional Economy Drives Prospects: Its regionally very concentrated exposure means the bank s prospects are linked to the regional economy, which is highly correlated to oil and gas industry developments. The bank s exposure as a proportion of its loan book to more volatile sectors such as commercial real estate, although reducing, remains above that of peers. Analysts Jens Hallén +44 20 3530 1326 jens.hallen@fitchratings.com Olivia Perney Guillot +33 1 4429 9174 olivia.perney@fitchratings.com Environment, Asset Stability Likely: The Stable Outlook reflects Fitch's expectation of the operating environment in Norway remaining sound, supporting Sandnes' asset quality and maintained access to market funding. Fitch expects the bank to remain focused on reducing risk, which supports its ratings. www.fitchratings.com 19
Profile: Small Savings Bank with Regional Footprint Strategic Focus on Retail and SME Clients Sandnes is a small savings bank (around 170 staff at end-2012) whose main operating region is Rogaland, in oil-rich south-western Norway. The bank s strategy centres on the retail and SME segments where it serves 42,000 and 5,000 customers, respectively. Its strong regional roots give it market shares of around 16% in the SME and 11% retail markets in its home market. Sandnes also has a branch in Oslo. Figure 1 Ownership Structure a (%) Share Sparebank 1 SR-Bank 10.1 Finansavdelingen Top 20 37.5 Widely held 62.5 a Holdings of equity certificates at end-2012 Source: Sandnes Sandnes expanded its SME loan book aggressively until the start of the global financial crisis in 2008, including to the property development sector. The quality of some of these exposures started to suffer in 2008 and the bank s stock of doubtful loans jumped (see Figure 6). Since then the bank s senior management, including its CEO, has changed, and the bank has invested significantly in upgrading its risk functions and working out troubled legacy exposures. Sandnes primary focus has shifted to building and maintaining profitable customer relationships, rather than growth. Enhanced customer focus, simpler products and a robust risk management framework are at the heart of this strategy. The bank also owns SSB Boligkreditt, a funding vehicle for covered bonds. Competitive Banking Sector Sandnes faces fierce competition in its operating region. Sparebank 1 SR-Bank (A /Stable), the largest bank in the Sparebank 1 Alliance (which also holds a 10% stake in Sandnes) is a very strong regional player and so is DnB Bank (A+/Stable), Norway s largest banking group. Competition has led to an erosion of interest margins, and rising costs in the wholesale funding markets have affected net interest income (NII). Banks have started to increase rates but competition may limit their pricing power. However, Fitch expects lending margins to increase in 2013, but deposit margins to remain low as a result of the generally low interest rates. A strong focus on cost efficiency and improving cross-selling are important aspects for Sandnes to remain competitive. Economic Environment Likely to Remain Favourable Fitch expects the Norwegian banking sector to continue to benefit from Norway s favourable economic environment. Despite the slow eurozone growth likely in 2013, Fitch forecasts healthy real Norwegian GDP growth and expects unemployment to remain low. Sandnes prospects are highly linked to its economic home region. Rogaland s regional economy, which is one of Norway s main regions for oil production and Sandnes main operating area, has developed very strongly in recent years, driven by high investments in the oil industry. Fitch expects investments to remain high. This has fuelled demand for labour and housing. Unemployment in the area is significantly below the Norwegian average, but wage increases and net migration to the region combined with limited building activity has also led to Norway s most rapid increase in real estate prices. Figure 2 Economic Data (%) Avg. 2005-09 2010 2011 2012e 2013f Real GDP (Total) 1.2 0.3 2.4 2.7 2.9 Real GDP (Mainland) 3.0 1.8 2.5 2.2 2.5 Unemployment 3.2 3.5 3.5 3.3 3.1 Inflation 2.1 2.3 1.4 1.6 1.8 Source: Fitch Related Criteria Global Financial Institutions Rating Criteria (August 2012) Neither Rogaland nor Norway s economy is immune from global economic uncertainty. As a small, open economy with large export-driven and oil-price dependent industries, Norway, and consequently its banks, are vulnerable to slowing global growth, falling commodity prices and an appreciation of the Norwegian krone. 2
Corporate Governance Sandnes owners are the holders of equity capital certificates. Representatives of the owners, together with public appointees, employees and customer representatives, sit on the supervisory board, whose nomination committee appoints the board of directors. Corporate governance principles are in line with the Norwegian code on corporate governance. Figure 3 Profitability (%) 100 80 60 40 20 0 2009 2010 2011 2012 Source: Sandnes, Fitch Cost/Income (LHS) NIM (RHS) Operating ROE (RHS) (%) 12 10 8 6 4 2 0-2 Performance: Improving Profitability Driven by Resilient Margins, Cost Focus and Low LICs Like other Norwegian banks, Sandnes benefits from the benign economic operating environment, which has led to negligible loan losses for most banks, particularly in the retail portfolios. Intense competition has led to pressure on margins, but since the beginning of 2012 the major banks have started to increase margins. There is high re-pricing flexibility on existing exposures as banks can alter pricing at six weeks notice. NII is Sandnes most important revenue source, accounting for around two-thirds to threequarters of total revenue. Higher lending margins offset contracting deposit margins and low loan book growth, and NII improved somewhat in 2012. Income from fees and commissions was virtually flat in the year. Mark-to-market gains on financial instruments and other revenue streams made up the balance. Reflecting tight cost control and a more focussed business model, Sandnes has reduced its staff numbers to just over 170 at end-2012 from 240 since overhauling its strategy. Its cost/income ratio has improved as a result and at around 60% in 2012 was more in line with that of other rated Norwegian savings banks. LICs and net charge-offs remained very low, reflecting the benign economic operating environment and the bank s efforts in recent years to de-risk its balance sheet. Although Fitch does not expect significant increases in the policy rate in Norway in the short term, a generally higher rate environment would benefit Sandnes, as it is reliant on interest income. In light of the bank s regionally highly concentrated operations, Fitch considers an adverse development of the regional economy, which could feed through into the income statement via significantly higher LICs, a key risk to Sandnes financial performance. Adverse effects from working-out legacy assets are reducing and the bank has refocused its business away from generating higher-risk exposures. Good Progress in Implementing More Robust Risk Management Framework When new management came into the bank in 2009-2010, additional focus on risk management became an integral part of the reshaping. Risk management is good in the context of the bank s size and the complexity of its business model. Figure 4 Segmental Breakdown Retail market Corporate market Real estate brokerage Other segments Total (NOKm) 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Net interest income 197 150 172 204-11 -11 359 344 Net fees and commissions 31 31 24 24 55 55 Fair value gains/losses 6 50 7 50 13 Other revenues 22 28 37 19 59 47 Total operating revenue 228 181 196 228 22 34 76 15 523 459 Operating expenses 165 166 105 105 18 27 17 29 305 327 Loan impairment charges -5 11 8-36 3-25 Operating profit before tax 58-1 74 127 4 1 57-16 193 111 Source: Fitch 3
Figure 5 Breakdown of Loan Book (%) 2012 2011 Retail 65.6 64.1 Property management 20.4 20.1 Public and private 1.4 6.5 services Construction 4.6 3.4 Manufacturing 1.1 1.4 Other 6.9 4.5 Total 100.0 100.0 Source: Sandnes Figure 6 Asset Quality Analysis % of gross loans (%) 6 4 2 0 End- End- End- End- End- End- End- 2006 2007 2008 2009 2010 2011 2012 Source: Sandnes, Fitch Figure 7 Non-perfoming loans Impaired Loans Residential Real Estate Prices (%) 220 200 180 160 140 120 100 Oslo Bergen Nord-Norge Q105 Q306 Q108 Q309 Q111 Q312 Source: Fitch Stavanger Trondheim Credit Risk the Most Significant Risk; NPLs Driven by Commercial Real Estate Exposures Loans and advances accounted for more than 80% of Sandnes total assets at end-2012, with the bank s liquidity portfolio around 10%. Sandnes asset-quality ratios have to be seen both in the context of its legacy book, including large exposures to property development, and the benign macroeconomic environment in Rogaland, to which 80% of gross loans relate. Although Fitch does not consider legacy exposures to pose a major downside risk to asset quality in its base case scenario, as troubled exposures are being worked out and are adequately provisioned, the bank s high single-name, geographical and sector concentrations in its loan book expose the bank to tail risk. Positively, Sandnes has reduced its exposure to development finance and as part of its revised strategy now also focuses on SMEs rather than medium-sized corporate customers. Asset Quality in Troubled SME Portfolio Improving Despite robust performance by the commercial real estate market in Rogaland, the bank has only limited appetite for new business in the property management sector. The key focus remains on managing down concentrations in the portfolio. Since changing its strategy in 2009, Sandnes has reduced its exposure to the corporate and SME segments by just over 20% from end-2008, to around NOK8bn at end-2012. In 2008 the bank impaired a significant part of its exposures to property developments where the ultimate sale of the properties had become uncertain (see Figure 6). The volume of these impaired loans has reduced since end-2008, with no material increases in reserves required during 2011 and 2012. Fitch expects the stock of impaired loans to reduce further in 2013. Nevertheless, Fitch considers that in light of its size and concentrations within overall loans the property management portfolio is a potential downside risk for the bank. Retail Lending Dominated by Low-risk Mortgages Retail lending accounted for around two-thirds of total loans at end-2012, most of which related to low-risk mortgage lending. Driven by continuing increases in house prices, very low unemployment and high affordability due to historically low interest rates, the quality of the portfolio continues to improve. Less than a fifth of mortgage loans had loan/value ratios of above 75% at end-2012, down from around a third at end-2010. This reflects the bank s new lower-risk strategy, but also increasing house prices. In light of the bank s low loan growth in this segment in recent years, when compared with the Norwegian market, the quality of the bank s retail portfolio has some protection should prices decline. As part of its revised strategy, Sandnes has moved away from aiming to be a price leader in the mortgage market to developing profitable, long-term relationships. Customer numbers have decreased slightly as a consequence. As part of the effort to clean up the portfolio the bank is discontinuing business with customers whose accounts with Sandnes centre on legacy products, mainly in structured finance. It has reduced the number of these accounts by more than 30% since 2009. Moderate Credit Risk in the Liquidity and Investment Portfolio Sandnes liquidity and investment portfolio represented around 10% of the bank s total assets at end-2012. Sandnes liquidity portfolio consists of central bank eligible assets and focuses on Basel III-eligible assets. Covered bonds made up almost half of the portfolio and around a third of the portfolio was rated AAA at end-2012. The liquidity and investment portfolio is almost entirely made up of Nordic issuers. Moderate Market Risk Market risk measurement is based on the standardised approach. The bank has conservative market risk limits and uses derivatives to hedge exposures. Interest rate exposure is measured 4
at three-monthly intervals from 0-10 years. At end-2012, a 200bp parallel shift in the yield curve would have had a low NOK2m impact on net income. This is well within the NOK15m limit set by the board. At end-2012, 7% of Sandnes total balance sheet assets were denominated in foreign currencies, dominated by Swiss francs, euros and Japanese yen. The risk framework limits Sandnes net positions to NOK110m intraday and NOK100m overnight. The bank daily measures currency risk on the basis of net positions in different currencies. Figure 8 Liquidity and Investment Portfolio by Rating Category (End-H112, NOKm) AAA AA A BBB BB and below Source: Sandnes Figure 9 0 200 400 600 800 Non-equity Funding (End-2012) Covered bonds 15% Wholesale deposits 25% Source: Sandnes Retail deposits 33% Unsecured market funding 27% Operational Risk Sandnes uses the basic indicator approach to measure its capital requirement for operational risk. Operational risk mainly arises from legacy items such as FX loans and legal risks related to the sale of structured products. These key sources of operational risk have reduced in line with the volumes of foreign-currency loans and structured products under the bank s new, more risk focussed strategy. The bank has not experienced any major operational risk losses. It is simplifying processes, reducing the complexity of products offered and has implemented improved monitoring tools for operational risk to reduce its future levels. Funding and Liquidity Wholesale Funding Dependence Sandnes non-equity funding base is dominated by retail customer deposits, covered bonds and unsecured market funding (mostly senior unsecured bonds). The bank s loan/deposit ratio was around 180% at end-2012, broadly in line with the bank s internal target and those of other Fitch-rated savings banks in Norway; the latter in particular taking into account nonconsolidated covered bonds funding. The ratio should improve while loan growth remains slow. The deposit base is quite granular owing to the bank s retail focus. Although deposits have proved very stable in behavioural analysis, the bank is looking to source more long-term funding and diversify its investor base through international issuance and longer-dated bonds. The bank s reported Net Stable Funding Ratio was 98% at end-2012. At end-2012 the bank had transferred NOK6.4bn of loans to Boligkreditt and issued NOK5.3bn of covered bonds; it used NOK2bn of the latter in the government bond swap scheme. The bank s internal limit on the amount of loans that can be transferred to Boligkreditt is the higher of 45% of retail loans or 30% of total loans. The limit at end-2012 would therefore have been around NOK7bn. Liquidity Sandnes high loan/deposit ratio and position as a net borrower in the interbank market are potential sensitivities. The bank s liability maturity profile shows some larger maturities in 2014, but is well spread in general. The bank s liquidity portfolio consists mostly of highly rated, central bank-eligible government and government-guaranteed bonds, and covered bonds. Internal requirements for free liquidity and strategic liquidity have each been increased by three months to nine and 15 months, respectively. The bank reports a Liquidity Buffer Indicator to the Norwegian central bank, similar to the Liquidity Coverage Ratio, which was 126% at end-2012. Improving Capitalisation At NOK1.9bn at end-2012, the size of the bank s Fitch core capital base is small in absolute terms and relative to its largest exposures. Although it is part of Sandnes strategy to manage down concentrations, the small absolute amount of capital will remain a constraint in Fitch s assessment of Sandnes capital position; it could also leave the bank vulnerable to shocks. 5
Figure 10 Capital (NOKm) 3,000 2,500 2,000 1,500 1,000 500 0 Total capital (LHS) Tier 1 capital (LHS) Tier 1 ratio (RHS) Fitch core capital/rwa (RHS) Equity/assets (RHS) (%) 20 End- End- End- End- End- 2008 2009 2010 2011 2012 Source: Sandnes, Fitch 15 10 5 0 At 11% at end-2012 Sandnes core Tier 1 ratio was above the 10% minimum target it set itself. The bank uses the standardised approach to calculate its capital requirement, which leaves average risk weights higher than at many of its larger Norwegian peers. Its medium-term minimum capital target is a 12.5% core Tier 1 ratio by 2015, and it intends to reach this through retained earnings. Its flexible dividend policy should help the bank expand its capital base. 6
Income Statement 31 Dec 2012 31 Dec 2011 31 Dec 2010 31 Dec 2009 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm NOKm NOKm Earning NOKm Earning NOKm Earning Unaudited Unaudited Earning Assets Unqualified Assets Unqualified Assets Unqualified Assets 1. Interest Income on Loans n.a. n.a. - 1,053.1 4.02 1,250.9 4.77 1,722.3 6.40 2. Other Interest Income 205.9 1,146.2 4.30 122.4 0.47 104.9 0.40 164.7 0.61 3. Dividend Income 0.1 0.6 0.00 0.6 0.00 1.0 0.00 4.0 0.01 4. Gross Interest and Dividend Income 206.0 1,146.8 4.30 1,176.1 4.49 1,356.8 5.18 1,891.0 7.03 5. Interest Expense on Customer Deposits n.a. n.a. - 317.3 1.21 501.2 1.91 968.4 3.60 6. Other Interest Expense 141.5 787.5 2.95 514.3 1.96 473.3 1.81 560.0 2.08 7. Total Interest Expense 141.5 787.5 2.95 831.6 3.17 974.5 3.72 1,528.4 5.68 8. Net Interest Income 64.6 359.3 1.35 344.5 1.31 382.3 1.46 362.6 1.35 9. Net Gains (Losses) on Trading and Derivatives n.a. n.a. - n.a. - n.a. - n.a. - 10. Net Gains (Losses) on Other Securities n.a. n.a. - n.a. - n.a. - n.a. - 11. Net Gains (Losses) on Assets at FV through Income Statement 8.9 49.4 0.19 12.0 0.05 27.6 0.11 48.7 0.18 12. Net Insurance Income n.a. n.a. - n.a. - n.a. - n.a. - 13. Net Fees and Commissions 9.8 54.7 0.21 55.3 0.21 51.1 0.20 52.0 0.19 14. Other Operating Income 10.5 58.7 0.22 46.9 0.18 45.3 0.17 52.4 0.19 15. Total Non-Interest Operating Income 29.2 162.8 0.61 114.2 0.44 124.0 0.47 153.1 0.57 16. Personnel Expenses 25.8 143.4 0.54 158.5 0.60 151.5 0.58 166.9 0.62 17. Other Operating Expenses 32.7 182.1 0.68 214.2 0.82 208.6 0.80 209.1 0.78 18. Total Non-Interest Expenses 58.5 325.5 1.22 372.7 1.42 360.1 1.37 376.0 1.40 19. Equity-accounted Profit/ Loss - Operating n.a. n.a. - n.a. - n.a. - n.a. - 20. Pre-Impairment Operating Profit 35.3 196.6 0.74 86.0 0.33 146.2 0.56 139.7 0.52 21. Loan Impairment Charge 0.6 3.1 0.01 (25.3) (0.10) 166.0 0.63 13.2 0.05 22. Securities and Other Credit Impairment Charges n.a. n.a. - n.a. - n.a. - n.a. - 23. Operating Profit 34.8 193.5 0.73 111.3 0.42 (19.8) (0.08) 126.5 0.47 24. Equity-accounted Profit/ Loss - Non-operating n.a. n.a. - n.a. - n.a. - n.a. - 25. Non-recurring Income n.a. n.a. - n.a. - n.a. - n.a. - 26. Non-recurring Expense n.a. n.a. - n.a. - n.a. - n.a. - 27. Change in Fair Value of Own Debt n.a. n.a. - n.a. - n.a. - n.a. - 28. Other Non-operating Income and Expenses n.a. n.a. - n.a. - n.a. - n.a. - 29. Pre-tax Profit 34.8 193.5 0.73 111.3 0.42 (19.8) (0.08) 126.5 0.47 30. Tax expense 8.1 44.9 0.17 32.4 0.12 (8.1) (0.03) 46.3 0.17 31. Profit/Loss from Discontinued Operations n.a. n.a. - n.a. - (3.4) (0.01) n.a. - 32. Net Income 26.7 148.6 0.56 78.9 0.30 (15.1) (0.06) 80.2 0.30 33. Change in Value of AFS Investments n.a. n.a. - n.a. - n.a. - n.a. - 34. Revaluation of Fixed Assets n.a. n.a. - n.a. - n.a. - n.a. - 35. Currency Translation Differences n.a. n.a. - n.a. - n.a. - n.a. - 36. Remaining OCI Gains/(losses) n.a. n.a. - n.a. - n.a. - n.a. - 37. Fitch Comprehensive Income 26.7 148.6 0.56 78.9 0.30 (15.1) (0.06) 80.2 0.30 38. Memo: Profit Allocation to Non-controlling Interests 0.3 1.8 0.01 (0.3) (0.00) 1.0 0.00 (2.2) (0.01) 39. Memo: Net Income after Allocation to Non-controlling Interests 26.4 146.8 0.55 79.2 0.30 (16.1) (0.06) 82.4 0.31 40. Memo: Common Dividends Relating to the Period 3.8 21.4 0.08 2.3 0.01 3.7 0.01 0.0 0.00 41. Memo: Preferred Dividends Related to the Period n.a. n.a. - n.a. - n.a. - n.a. - Exchange rate USD1 = NOK5.56590 USD1 = NOK5.99000 USD1 = NOK5.88780 USD1 = NOK5.78000 7
Balance Sheet 31 Dec 2012 31 Dec 2011 31 Dec 2010 31 Dec 2009 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm NOKm Assets NOKm Assets NOKm Assets NOKm Assets Assets A. Loans 1. Residential Mortgage Loans n.a. n.a. - n.a. - n.a. - n.a. - 2. Other Mortgage Loans n.a. n.a. - n.a. - n.a. - n.a. - 3. Other Consumer/ Retail Loans n.a. n.a. - n.a. - n.a. - n.a. - 4. Corporate & Commercial Loans n.a. n.a. - n.a. - n.a. - n.a. - 5. Other Loans 4,116.6 22,912.7 83.35 22,308.7 83.83 23,826.6 88.46 24,559.5 86.94 6. Less: Reserves for Impaired Loans/ NPLs 44.8 249.3 0.91 266.3 1.00 269.4 1.00 181.6 0.64 7. Net Loans 4,071.8 22,663.4 82.44 22,042.4 82.83 23,557.2 87.46 24,377.9 86.30 8. Gross Loans 4,116.6 22,912.7 83.35 22,308.7 83.83 23,826.6 88.46 24,559.5 86.94 9. Memo: Impaired Loans included above 12.3 68.4 0.25 226.6 0.85 105.5 0.39 55.7 0.20 10. Memo: Loans at Fair Value included above n.a. n.a. - n.a. - n.a. - n.a. - B. Other Earning Assets 1. Loans and Advances to Banks 113.4 631.4 2.30 1,131.7 4.25 129.4 0.48 103.5 0.37 2. Reverse Repos and Cash Collateral n.a. n.a. - n.a. - n.a. - n.a. - 3. Trading Securities and at FV through Income n.a. n.a. - n.a. - n.a. - n.a. - 4. Derivatives 34.3 190.8 0.69 117.2 0.44 111.7 0.41 134.4 0.48 5. Available for Sale Securities 2.8 15.5 0.06 15.5 0.06 15.5 0.06 27.2 0.10 6. Held to Maturity Securities n.a. n.a. - n.a. - n.a. - n.a. - 7. At-equity Investments in Associates 8.4 46.6 0.17 49.0 0.18 37.3 0.14 33.9 0.12 8. Other Securities 558.3 3,107.2 11.30 2,730.4 10.26 2,089.4 7.76 1,967.7 6.97 9. Total Securities 603.7 3,360.1 12.22 2,912.1 10.94 2,253.9 8.37 2,163.2 7.66 10. Memo: Government Securities included Above n.a. n.a. - n.a. - n.a. - n.a. - 11. Memo: Total Securities Pledged n.a. n.a. - n.a. - n.a. - n.a. - 12. Investments in Property n.a. n.a. - 120.8 0.45 122.1 0.45 270.6 0.96 13. Insurance Assets n.a. n.a. - n.a. - n.a. - n.a. - 14. Other Earning Assets n.a. n.a. - n.a. - 140.2 0.52 n.a. - 15. Total Earning Assets 4,789.0 26,654.9 96.96 26,207.0 98.48 26,202.8 97.29 26,915.2 95.28 C. Non-Earning Assets 1. Cash and Due From Banks 104.1 579.5 2.11 94.0 0.35 403.1 1.50 1,193.6 4.23 2. Memo: Mandatory Reserves included above n.a. n.a. - n.a. - n.a. - n.a. - 3. Foreclosed Real Estate n.a. n.a. - n.a. - n.a. - n.a. - 4. Fixed Assets 13.1 73.0 0.27 100.2 0.38 148.1 0.55 26.7 0.09 5. Goodwill n.a. n.a. - n.a. - n.a. - n.a. - 6. Other Intangibles 6.4 35.5 0.13 26.3 0.10 18.7 0.07 19.6 0.07 7. Current Tax Assets n.a. n.a. - n.a. - n.a. - n.a. - 8. Deferred Tax Assets 3.1 17.4 0.06 41.4 0.16 57.1 0.21 18.7 0.07 9. Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a. - 10. Other Assets 23.2 129.3 0.47 143.1 0.54 103.7 0.39 75.5 0.27 11. Total Assets 4,938.9 27,489.6 100.00 26,612.0 100.00 26,933.5 100.00 28,249.3 100.00 Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 2,278.4 12,681.4 46.13 11,584.5 43.53 11,326.5 42.05 11,718.8 41.48 2. Customer Deposits - Savings n.a. n.a. - n.a. - n.a. - n.a. - 3. Customer Deposits - Term n.a. n.a. - n.a. - n.a. - n.a. - 4. Total Customer Deposits 2,278.4 12,681.4 46.13 11,584.5 43.53 11,326.5 42.05 11,718.8 41.48 5. Deposits from Banks 471.8 2,625.9 9.55 4,674.9 17.57 6,010.2 22.31 8,043.0 28.47 6. Repos and Cash Collateral n.a. n.a. - n.a. - n.a. - n.a. - 7. Other Deposits and Short-term Borrowings n.a. n.a. - n.a. - n.a. - n.a. - 8. Total Deposits, Money Market and Short-term Funding 2,750.2 15,307.3 55.68 16,259.4 61.10 17,336.7 64.37 19,761.8 69.96 9. Senior Debt Maturing after 1 Year 1,650.4 9,186.0 33.42 7,121.4 26.76 6,288.6 23.35 5,206.7 18.43 10. Subordinated Borrowing 135.2 752.5 2.74 1,063.0 3.99 1,167.3 4.33 1,164.6 4.12 11. Other Funding n.a. n.a. - n.a. - n.a. - n.a. - 12. Total Long Term Funding 1,785.6 9,938.5 36.15 8,184.4 30.75 7,455.9 27.68 6,371.3 22.55 13. Derivatives 24.5 136.1 0.50 138.4 0.52 195.6 0.73 140.8 0.50 14. Trading Liabilities n.a. n.a. - n.a. - n.a. - n.a. - 15. Total Funding 4,560.3 25,381.9 92.33 24,582.2 92.37 24,988.2 92.78 26,273.9 93.01 E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt n.a. n.a. - n.a. - n.a. - n.a. - 2. Credit impairment reserves n.a. n.a. - n.a. - n.a. - n.a. - 3. Reserves for Pensions and Other 10.3 57.4 0.21 70.9 0.27 59.0 0.22 58.3 0.21 4. Current Tax Liabilities 5.8 32.3 0.12 14.5 0.05 14.5 0.05 73.2 0.26 5. Deferred Tax Liabilities 0.0 0.0 0.00 4.4 0.02 2.0 0.01 1.5 0.01 6. Other Deferred Liabilities n.a. n.a. - n.a. - n.a. - n.a. - 7. Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a. - 8. Insurance Liabilities n.a. n.a. - n.a. - n.a. - n.a. - 9. Other Liabilities 20.3 113.0 0.41 154.3 0.58 175.8 0.65 129.2 0.46 10. Total Liabilities 4,596.7 25,584.6 93.07 24,826.3 93.29 25,239.5 93.71 26,536.1 93.94 F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt n.a. n.a. - n.a. - n.a. - n.a. - 2. Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a. - n.a. - n.a. - G. Equity 1. Common Equity 339.0 1,887.1 6.86 1,761.3 6.62 1,684.7 6.26 1,688.9 5.98 2. Non-controlling Interest 3.2 17.9 0.07 24.4 0.09 9.3 0.03 24.3 0.09 3. Securities Revaluation Reserves n.a. n.a. - n.a. - n.a. - n.a. - 4. Foreign Exchange Revaluation Reserves n.a. n.a. - 0.0 0.00 n.a. - n.a. - 5. Fixed Asset Revaluations and Other Accumulated OCI n.a. n.a. - n.a. - n.a. - n.a. - 6. Total Equity 342.3 1,905.0 6.93 1,785.7 6.71 1,694.0 6.29 1,713.2 6.06 7. Total Liabilities and Equity 4,938.9 27,489.6 100.00 26,612.0 100.00 26,933.5 100.00 28,249.3 100.00 8. Memo: Fitch Core Capital 332.8 1,852.1 6.74 1,718.0 6.46 1,618.2 6.01 1,674.9 5.93 Exchange rate USD1 = NOK5.56590 USD1 = NOK5.99000 USD1 = NOK5.88780 USD1 = NOK5.78000 8
Summary Analytics 31 Dec 2012 31 Dec 2011 31 Dec 2010 31 Dec 2009 Year End Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans n.a. 4.57 5.09 6.78 2. Interest Expense on Customer Deposits/ Average Customer Deposits n.a. 2.82 4.34 8.46 3. Interest Income/ Average Earning Assets 4.40 4.58 5.04 6.78 4. Interest Expense/ Average Interest-bearing Liabilities 3.21 3.38 3.75 5.55 5. Net Interest Income/ Average Earning Assets 1.38 1.34 1.42 1.30 6. Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets 1.37 1.44 0.80 1.25 7. Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets 1.38 1.34 1.42 1.30 B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues 31.18 24.90 24.49 29.69 2. Non-Interest Expense/ Gross Revenues 62.34 81.25 71.12 72.91 3. Non-Interest Expense/ Average Assets 1.21 1.40 1.29 1.27 4. Pre-impairment Op. Profit/ Average Equity 10.72 4.95 8.60 8.38 5. Pre-impairment Op. Profit/ Average Total Assets 0.73 0.32 0.52 0.47 6. Loans and securities impairment charges/ Pre-impairment Op. Profit 1.58 (29.42) 113.54 9.45 7. Operating Profit/ Average Equity 10.55 6.41 (1.16) 7.59 8. Operating Profit/ Average Total Assets 0.72 0.42 (0.07) 0.43 9. Taxes/ Pre-tax Profit 23.20 29.11 40.91 36.60 10. Pre-Impairment Operating Profit / Risk Weighted Assets 1.19 0.50 0.81 0.74 11. Operating Profit / Risk Weighted Assets 1.17 0.65 (0.11) 0.67 C. Other Profitability Ratios 1. Net Income/ Average Total Equity 8.10 4.54 (0.89) 4.81 2. Net Income/ Average Total Assets 0.55 0.30 (0.05) 0.27 3. Fitch Comprehensive Income/ Average Total Equity 8.10 4.54 (0.89) 4.81 4. Fitch Comprehensive Income/ Average Total Assets 0.55 0.30 (0.05) 0.27 5. Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a. 6. Net Income/ Risk Weighted Assets 0.90 0.46 (0.08) 0.42 7. Fitch Comprehensive Income/ Risk Weighted Assets 0.90 0.46 (0.08) 0.42 D. Capitalization 1. Fitch Core Capital/Weighted Risks 11.18 9.99 8.97 8.86 3. Tangible Common Equity/ Tangible Assets 6.75 6.47 6.03 5.94 4. Tier 1 Regulatory Capital Ratio 14.90 13.70 12.60 12.30 5. Total Regulatory Capital Ratio 15.50 16.10 15.40 15.00 6. Core Tier 1 Regulatory Capital Ratio 11.00 n.a. n.a. n.a. 7. Equity/ Total Assets 6.93 6.71 6.29 6.06 8. Cash Dividends Paid & Declared/ Net Income 14.40 2.92 (24.50) 0.00 9. Cash Dividend Paid & Declared/ Fitch Comprehensive Income 14.40 2.92 (24.50) 0.00 10. Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a. 11. Net Income - Cash Dividends/ Total Equity 6.68 4.29 (1.11) 4.68 E. Loan Quality 1. Growth of Total Assets 3.30 (1.19) (4.66) (10.90) 2. Growth of Gross Loans 2.71 (6.37) (2.98) (7.90) 3. Impaired Loans(NPLs)/ Gross Loans 0.30 1.02 0.44 0.23 4. Reserves for Impaired Loans/ Gross loans 1.09 1.19 1.13 0.74 5. Reserves for Impaired Loans/ Impaired Loans 364.47 117.52 255.36 326.03 6. Impaired Loans less Reserves for Imp Loans/ Equity (9.50) (2.22) (9.68) (7.35) 7. Loan Impairment Charges/ Average Gross Loans 0.01 (0.11) 0.67 0.05 8. Net Charge-offs/ Average Gross Loans 0.02 (0.16) 0.23 (0.09) 9. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Asse 0.30 1.02 0.44 0.23 F. Funding 1. Loans/ Customer Deposits 180.68 192.57 210.36 209.57 2. Interbank Assets/ Interbank Liabilities 24.05 24.21 2.15 1.29 3. Customer Deposits/ Total Funding excl Derivatives 50.23 47.39 45.69 44.84 9
Reference Data 31 Dec 2012 31 Dec 2011 31 Dec 2010 31 Dec 2009 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm NOKm Assets NOKm Assets NOKm Assets NOKm Assets A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. - n.a. - n.a. - n.a. - 2. Other off-balance sheet exposure to securitizations n.a. n.a. - n.a. - n.a. - n.a. - 3. Guarantees n.a. n.a. - 810.1 3.09 865.0 3.30 730.7 2.71 4. Acceptances and documentary credits reported off-balance sheet n.a. n.a. - n.a. - n.a. - n.a. - 5. Committed Credit Lines n.a. n.a. - n.a. - n.a. - n.a. - 6. Other Contingent Liabilities n.a. n.a. - n.a. - n.a. - n.a. - 7. Total Business Volume 4,938.9 27,489.6 103.13 27,422.1 104.64 27,798.5 106.09 28,980.0 107.67 8. Memo: Total Weighted Risks 2,975.7 16,562.6 62.14 17,202.9 65.64 18,048.7 68.88 18,913.8 70.27 9. Fitch Adjustments to Weighted Risks. n.a. n.a. - n.a. - n.a. - n.a. - 10. Fitch Adjusted Weighted Risks 2,975.7 16,562.6 62.14 17,202.9 65.64 18,048.7 68.88 18,913.8 70.27 B. Average Balance Sheet Average Loans 4,035.0 22,458.3 84.26 23,024.3 87.86 24,595.7 93.87 25,392.4 94.34 Average Earning Assets 4,683.9 26,070.3 97.81 25,666.1 97.94 26,937.9 102.81 27,886.4 103.61 Average Assets 4,825.5 26,858.4 100.76 26,655.2 101.71 28,011.1 106.90 29,606.3 110.00 Average Managed Securitized Assets (OBS) n.a. n.a. - n.a. - n.a. - n.a. - Average Interest-Bearing Liabilities 4,406.0 24,523.3 92.00 24,603.4 93.88 25,959.0 99.07 27,551.7 102.36 Average Common equity 325.3 1,810.5 6.79 1,719.7 6.56 1,680.2 6.41 1,635.9 6.08 Average Equity 329.5 1,834.2 6.88 1,737.3 6.63 1,700.9 6.49 1,667.7 6.20 Average Customer Deposits 2,146.1 11,945.1 44.81 11,260.1 42.97 11,551.8 44.09 11,448.0 42.53 C. Maturities Asset Maturities: Loans & Advances < 3 months n.a. n.a. - n.a. - n.a. - n.a. - Loans & Advances 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Loans and Advances 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Loans & Advances > 5 years n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Interbank < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Interbank 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Interbank 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Interbank > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Liability Maturities: Retail Deposits < 3 months n.a. n.a. - n.a. - n.a. - n.a. - Retail Deposits 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Retail Deposits 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Retail Deposits > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Interbank < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Interbank 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Interbank 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Interbank > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Senior Debt Maturing < 3 months n.a. n.a. - n.a. - n.a. - n.a. - Senior Debt Maturing 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Senior Debt Maturing 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Senior Debt Maturing > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Total Senior Debt on Balance Sheet n.a. n.a. - n.a. - n.a. - n.a. - Fair Value Portion of Senior Debt n.a. n.a. - n.a. - n.a. - n.a. - Covered Bonds n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing < 3 months n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing 1-5 Year n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Total Subordinated Debt on Balance Sheet 135.2 752.5 2.82 1,063.0 4.06 1,167.3 4.45 1,164.6 4.33 Fair Value Portion of Subordinated Debt n.a. n.a. - n.a. - n.a. - n.a. - D. Equity Reconciliation 1. Equity 342.3 1,905.0 7.15 1,785.7 6.81 1,694.0 6.46 1,713.2 6.37 2. Add: Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a. - n.a. - n.a. - 3. Add: Other Adjustments n.a. n.a. - n.a. - n.a. - n.a. - 4. Published Equity 342.3 1,905.0 7.15 1,785.7 6.81 1,694.0 6.46 1,713.2 6.37 E. Fitch Eligible Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 342.3 1,905.0 7.15 1,785.7 6.81 1,694.0 6.46 1,713.2 6.37 2. Fair value effect incl in own debt/borrowings at fv on the B/S- CC only 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 3. Non-loss-absorbing non-controlling interests 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 4. Goodwill 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 5. Other intangibles 6.4 35.5 0.13 26.3 0.10 18.7 0.07 19.6 0.07 6. Deferred tax assets deduction 3.1 17.4 0.07 41.4 0.16 57.1 0.22 18.7 0.07 7. Net asset value of insurance subsidiaries 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 8. First loss tranches of off-balance sheet securitizations 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 9. Fitch Core Capital 332.8 1,852.1 6.95 1,718.0 6.56 1,618.2 6.18 1,674.9 6.22 Exchange Rate USD1 = NOK5.56590 USD1 = NOK5.99000 USD1 = NOK5.88780 USD1 = NOK5.78000 10
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