SpareBank 1 Boligkreditt Investor Presentation June 2010
Overview The Norwegian Economy: The Norwegian economy was impacted by the financial crisis, but to a lesser extent than most other economies with GDP growing since Q3 2009 Government financials are very healthy compared to other countries with budget surplus and no net debt (large welfare fund exceeds outstanding debt) The national financial position is strong, and the government has been using this position to mitigate the effects of the crisis The authorities give full support to the Financial System SpareBank 1 Alliance: A profitable alliance of 22 strong regional Norwegian savings banks One of the best recognised brand names in Norway 2nd largest Norwegian retail mortgage lender The Assets: Covered Bonds are backed by prime Norwegian residential mortgage receivables which are low risk compared to mortgages in other European countries Weighted average LTV of 52 % Pool performing very well 2
Norwegian Economy Norway s starting point as the world headed into the financial crisis was excellent: high current account and budget surpluses and a large and growing sovereign wealth fund. The Norwegian Economy has proved robust through the credit crisis, with both the Government and the Central Bank coming out early with appropriate liquidity and stimulus measures. Norway Norway Economic Indicators (%) 2006A 2007A 2008A 2009 A 2010 E GDP Growth, year on year (mainland) 4.9 5.6 2.2-1.5 2.0 Inflation, CPI 2.3 0.8 3.8 2,1 1.7 Private Consumption, real 4.8 5.4 1.3 0.0 5.5 Interest Rate (3m Money Market) 3.1 5.0 6.2 2,5 2.6 Unemployment 3.4 2.5 2.6 3.1 3.5 Current Account Surplus / GDP 17 14 19 15 16 Budget Surplus / GDP 17 17 14 11 7 Government Pension fund / GDP 83 94 93 112 120 * Estimate for 2009 Sources: Statistics Norway, Bloomberg, SpareBank 1, NBIM, Norwegian Ministry of Finance 3 3
Norwegian Economy Norway saw a smaller impact of the recent crisis than the Nordic neighbours Unemployment rates GDP growth rates 10,00 % 2,00 % 9,00 % 8,00 % 7,00 % 6,00 % 1,00 % 0,00 % -1,00 % Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 5,00 % -2,00 % 4,00 % 3,00 % 2,00 % 1,00 % -3,00 % -4,00 % -5,00 % 0,00 % 2006 2007 2008 2009 2010f Norway Denmark Sweden Finland -6,00 % Norway (mainland) Denmark Sweden Finland Quarter over quarter seasonally adjusted volume change Source: National Statistics Agencies and Bloomberg Source: National Statistics Agencies 4
Norwegian Economy Government surplus (in % of GDP) -13,3 % UK -10,7 % USA -8,2 % Japan -8,0 % Sweden -6,7 % EuroZone -5,4 % Denmark Norway 9,9 % -15 % -10 % -5 % 0 % 5 % 10 % 15 % Forecast for 2010 Source: OECD 5
Norwegian Economy Government debt (in % of GDP) 150 % General government net financial liabilities 2010 projections 100 % 50 % 0 % Italy Greece United States France United Kingdom Euro area Germany Spain Denmark Sweden Norway -50 % -100 % -150 % -200 % 6 Source: OECD
Norwegian Economy Sovereign CDS Spreads Consistently in the low end among the Nordics 120 100 80 60 40 Norway Sweden Denmark Finland 20 0 Source: Bloomberg 7
Norwegian Mortgage Market Key Characteristics Norwegian Mortgage Market Still growth in the mortgage market - Total mortgage market around NOK 1,500 bn (approx EUR 170 bn) (Q2 2009) - Banks are the dominant supplier of mortgages with over 88% market share Home ownership rate amongst highest in Europe - Approximately 80% of properties are owner occupied Strong credit culture and strong commitment to maintaining debt payments - Individual borrowers have a strong relationship with their lenders - 99% of borrowers pay by direct debit - No subprime mortgage market in Norway Amongst the lowest arrears and default levels seen in Europe Predominant floating rate loan market - App. 95% of all mortgage lending - Interest rates can be reset at the lender s discretion, by giving the debtor 6 weeks notice Average loan size of around NOK 900,000 (EUR 110,000) - Tenor of loans is normally between 20 to 25 years Norwegian Household Credit Growth Norwegian Mortgages (by dwelling type) Holiday homes; 7,61 % Multi-dwelling houses; 18,90 % Terraced houses; 5,15 % Other buildings; 1,46 % Detached houses; 66,89 % 8 8 Sources: Association of Norwegian Real Estate Agents, ECON, Statistics Norway, SpareBank 1 and Norges Bank
mar.00 jul.00 nov.00 mar.01 jul.01 nov.01 mar.02 jul.02 nov.02 mar.03 jul.03 nov.03 mar.04 jul.04 nov.04 mar.05 jul.05 nov.05 mar.06 jul.06 nov.06 mar.07 jul.07 nov.07 mar.08 jul.08 nov.08 mar.09 jul.09 nov.09 mar.10 Norwegian Mortgage Market Housing market the financial crisis have had limited impact on the house prices House prices Norway 2000 2009 (Jan 2000 = 100) 250 200 150 100 50 0 Source: Eiendomsverdi 9 9
Norwegian Mortgage Market House price development houses for sale and houses sold No of dwellings for sale and sold Housing starts (annual rate) Source: Eiendomsverdi Source: Eiendomsverdi The current balance between supply and demand in the housing market (dwellings for sale) seems to be stable The housing starts continues to languish at the low levels last seen during the housing crisis of the early to mid nineties. 10
Norwegian Mortgage Market The overall degree of liabilities compared to assets is modest for Norwegian households. Housing remains the most valuable asset 8.000 Household Total Debt and Assets, NOK bn 7.000 6.000 5.000 4.000 371 331 856 804 362 348 896 844 Other loans Mortgages Other claims 3.000 2.000 1.000 4.011 379 379 1.490 1.552 4.449 Securities Insurance reserves Notes, coins and bank deposits Housing wealth - Liabilities Q4 2008 Assets Q4 2008 Liabilities Q2 2009 Assets Q2 2009 Source: Norwegian Central Bank The recovery from the drop in house prices in 2008 and following growth is evident in the chart and values are still high compared to mortgage debt outstanding 11
Norwegian Economy Summary The Norwegian Economy came through the financial crisis in good shape Healthy fundamentals Strong government finances give space to remedial actions If the government stimulus had not been available, the experience from the last downturn may be an indication (1987 1992) 7 % unemployment 27 % drop in house prices 14-16 % borrowing rates The banks had close to no losses in residential mortgages No no recourse lending Low levels of buy to let (high home ownership) Transparent information about borrowers 12
SpareBank 1 Alliance Summary SpareBank 1 Alliance founded in 1996 2nd largest mortgage lender in the Norwegian Retail Market Market leader in its local markets - Market share app. 40% Approx two thirds are retail lending - Rest is SME lending Conservative risk profile in all areas Ratings Fitch Moody s SpareBank 1 Midt-Norge A (neg)/ F1 A1 (neg) / P-1 SpareBank 1 SR-Bank A (neg)/ F1 A1 (neg) / P-1 SpareBank 1 Nord-Norge A / F1 A1 (neg) / P-1 Source: Fitch, Moody s 13
SpareBank 1 Alliance Structure SpareBank 1 SpareBank 1 SpareBank 1 Samarbeidende Sparebanken SR-Bank Midt-Norge Nord-Norge Sparebanker Hedmark SpareBank 1 Boligkreditt (Covered Bonds Company) SpareBank 1 Gruppen Alliance Co-operation Program Brand Building IT Operations and Systems Development Risk Management Centres of Excellence Product companies Life Insurance Non-life Mutual fund (Odin) Brokerage (Argo) 14
pst SpareBank 1 Alliance Second largest in Norway based on Total Assets 2008 2009 700,0 1 823 1815 600,0 500,0 617 534 400,0 300,0 200,0 100,0 173 166 150 123 100 98 75 48 46 43 41 35 35 29 28 28 24 22 18 16 12 12 11 0,0 DnB NOR SpareBank 1 Nordea Bank Norge Handelsbanken N Fokus Bank SB1SR SB1 SamSpar SB1 SMN Spb Vest SB1NN BNBank SB1 Hedmark Storebrand Bank Spb Møre Spb Sør Spb Pluss Bank 1 Oslo Sandnes Spb Spb Sogn & Fjordane SB1 Buskerud-Vestfold Spb Øst Helgeland Spb Rygge-Vaaler Spb Fana Spb Toten Spb Spb Nordvest 15
SpareBank 1 Alliance SpareBank 1 s market share is growing 25 20 19,1 19,7 15 16,4 15,4 15,4 17,4 17,5 14,6 16,0 12,2 12,0 11,7 12,6 12,3 10 5 0 2002 2004 2005 2006 2007 2008 2009 Loans - retail market Loans - corporate market Source: SpareBank 1 16
SpareBank 1 Alliance Sound Performance in the local banks 31.03.2010 Cost to Income Deposit to Loan Return on Equity Tier 1 ratio Retail vs commer cial Growth in Retail Lending Loss % SpareBank 1 SR-Bank SpareBank 1 SMN SpareBank 1 Nord-Norge 40 % 55 % 14,8 % 9,4% 60 % 12,1 % 0,28 % 39% 61% 12,1% 11,0% 60% 7,0% 0,33% 40% 73% 15,9% 11,7% 69% 7,8% 0,17% Source: SpareBank 1 17
SpareBank 1 Alliance Strong profitability over time ROE average SB1 Banks 2004 2009 25 % 23,5 % 23,1 % 20 % 19,4 % 18,9 % 17,2 % Average for the period: 18,6% 15 % 10 % 9,3 % 5 % 0 % 2004 2005 2006 2007 2008 2009 1) Weighted sum of 3 largest SB1 Banks 18
Covered Bond Issuer & Cover Pool Covered Bonds Company SpareBank 1 Boligkreditt SpareBank 1 Boligkreditt ( SB1B ) is a separate legal entity wholly owned by SpareBank 1 Alliance banks Ownership -Shareholding of Alliance banks in covered bond company is based on percentage of assets of the alliance bank in SB1B -Experienced and full-time management team with the sole purpose of managing SB1B and programme -The mortgages are physically moved from the local bank into SB1B, and included in SB1B s balance sheet (true sale) Support from the owners -Strong commitment to maintain sound core capital ratio -SB1B can set-off up to 1 year of credit losses in the portfolio with the excess margin payable to the owners -Diversified owner structure increases the remoteness to bankruptcy in originating banks: Bank 1 Oslo ; 5 % Sparebanken Hedmark ; 6 % SamSpar; 21 % SpareBank 1 Nord- Norge; 15 % SpareBank 1 SR-Bank; 33 % SpareBank 1 SMN ; 21 % 19
Covered Bond Issuer & Cover Pool What the rating agencies stated at our inaugural issue 2,5 years ago Fitch has concluded that Norwegian loans have one of the lowest risk profiles for default in Europe Source: Fitch pre sale report The credit quality of the collateral in the Cover Pool is measured by the Collateral Score For this transaction, the Collateral Score is 2.00%, which is one of the lowest (best) Collateral Scores achieved for a cover pool of mortgage loans backing a covered bond rated by Moody s Source: Moody s pre sale report 20
Covered Bond Issuer & Cover Pool Strong credit quality in the mortgage portfolio Residential mortgages as of 31.03.2010 Realised losses: 0 Mortgages in foreclosure 0 Mortgages in arrears (>90 days) 0 1,00 % 0,80 % Arrears history, SpareBank 1 Boligkreditt Strong economy Credit culture Low unemployment Credit policy stricter than the law 0,60 % 0,40 % 30-60 days 60-90 days 90+ days 0,20 % 0,00 % Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 21
Covered Bond Issuer & Cover Pool Portfolio Characteristics Residential / Commercial 100% prime residential properties Number of Loans 57,805 Average Loan Balance Weighted Average Original LTV Weighted Average Current LTV Weighted Average Seasoning NOK 1,074,000 ( 135 000) 56.5 % 51.6 % 27 months Weighted Average Remaining Term 22 years Pool Status 100% performing loans Geographical Location Western 33%, Eastern 30%, Central 19%, Northern 13%, Southern 5% 22 Data as of March 31, 2010
Covered Bond Issuer & Cover Pool Mortgage Portfolio Overview - LTVs Current LTV (% of pool by loan amount) 35 % 30 % 25 % 20 % 15 % 10 % 5 % Historical development of pool LTV (WA) 75 % 70 % 65 % 60 % 55 % 50 % 45 % 40 % 35 % 0 % 0-40% 40-50% 50-60% 60-70% 70-80% 30 % Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Loan portfolio predominantly consists of loans with low LTV ratios - The WA CLTV of 51,6% is low compared to both Norwegian and European portfolios - The recent LTV increase in Q1 2010 from 49% to 51,6% is due to the inclusion of undrawn commitments in the outstanding loan balance, i.e. a technical change in the LTV calculation Source: SpareBank 1 23 Data as of 31.03.2010
Covered Bond Issuer & Cover Pool Mortgage Portfolio Overview geographical distribution Mortgage Lending by Region (by Loan Amount) Western 33 % Eastern 30% Central 19 % Southern 5 % Northern 13 % The loan portfolio is well diversified across Norway and in line with the SpareBank 1 Alliance s distribution channels - The highest regional concentration is Rogaland with 24,7% of loans Geographical distribution detailed overview ROGALAND Western 24,7 % SØR TRØNDELAG Central 11,9 % NORD TRØNDELAG Central 7,0 % AKERSHUS Eastern 6,5 % HEDMARK Eastern 6,1 % TROMS Northern 6,1 % MØRE OG ROMSDAL Western 6,0 % NORDLAND Northern 5,1 % OSLO Eastern 4,8 % BUSKERUD Eastern 4,4 % VESTFOLD Eastern 2,9 % ØSTFOLD Eastern 2,9 % HORDALAND Western 2,6 % VEST AGDER Southern 2,5 % FINNMARK Northern 2,2 % TELEMARK Southern 1,9 % OPPLAND Eastern 1,8 % AUST AGDER Southern 0,5 % SPITSBERGEN Northern 0,1 % SOGN OG FJORDANE Western 0,1 % 24 Data as of 31.03.2010
Cover Bond Issuer & Cover Pool Funding Strategy of the SpareBank 1 Alliance The SpareBank 1 Alliance still continues to benefit from a strong deposit base and senior unsecured capital markets funding. Covered bonds forms part of the core funding sources - Domestic and international issuance - Access to public and private markets - Extending SpareBank1 s maturity profile - To ensure the ability to enter the capital markets at any time for liquidity purposes - Diversifying SpareBank1 s Investor Base The SpareBank Alliance is committed to the covered bond market - Committed to maintain a EUR benchmark curve - Plan to issue at least 1 benchmark a year given economic justification - Actively develop (international) debt investor relations - Issuance of private placements 25
Cover Bond Issuer & Cover Pool Regular presence in the international benchmark space Timing Size (EUR mn) Tenor Maturity Public EUR Covered Bond Issues Sept 2007 1.500 3 years 2010 Feb 2008 1.000 3,3 years 2011 Sept 2008 1.000 5 years 2013 Nov 2009 1.000 3 years 2012 March 2010 1.250 7 years 2017 26
Covered Bond Issue and Cover Pool Redemption profile outstanding covered bonds 25.000 20.000 15.000 Pool 2 10.000 Pool 1 5.000-2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 27
Highlights Highly Rated Covered Bonds with full support from Norwegian authorities Rated AAA / Aaa by Fitch and Moody s Scarcity value due to a lack of Norwegian AAA rated paper Norwegian economy is performing strongly compared to most other economies Supported by the Norwegian Legal Framework for Covered Bonds Special supervision by the Norwegian FSA and dedicated independent inspector for monitoring purposes Strict LTV criteria of 75% for residential mortgages Prudent risk with regards to liquidity, currency and interest rate High quality of cover pool 100% prime Norwegian residential mortgages Very low levels of arrears and no losses in the past Common, strict underwriting criteria of the SpareBank 1 Alliance Banks and even stricter criteria for transfer of mortgages to the Covered Bond Company Full support of the SpareBank 1 Alliance Diversified ownership (low D-factor) - Alliance of 22 strong regional Norwegian savings banks 2nd largest Norwegian financial institution Market leader in its local markets with a market share of approximately 40% 28
Contact Details Kjell Fordal, Chairman SpareBank 1 Boligkreditt Direct Telephone: +47 90 54 16 72 Fax: +47 51 50 95 89 E-mail: kjell.fordal@smn.no Arve Austestad, Chief Financial Officer, SpareBank 1 Boligkreditt Direct Telephone: +47 51 50 94 11 Fax: +47 51 50 95 89 E-mail: arve.austestad@sparebank1.no Updated info regarding Cover Pool and Cover Bond Issuer: http://www.sparebank1.no/boligkreditt 29
Norwegian Economy With strong government finances there is room to counter-act. The authorities have shown a strong commitment to dampen the effect of the credit crisis and subsequent downturn Stimulus measures Banking Package I (nov 2008) Swap facility to ensure long term funding for the banking sector by depositing covered bonds (up to 5 years) total size NOK 350 bn (approx 40 bn) Public spending Package I (jan 2009) Increased public spending by 2,5% of GDP (mainland) related to infrastructure (roads, maintenance public buildings) Banking package II (feb 2009) Finance fund for capital support for Norwegian Banks - NOK 50 bn Bond fund for corporate refinancing (including banks) NOK 50bn Monetary stimulus Cuts in deposit rate at Central Bank The rate went from 5.75% in Sept 2008 to a low of 1.25% in June 2009. The current rate is 2.0 %. 30
Norwegian Economy Norway is applying relatively more stimulus to the economy than comparable countries 5 Underlying spending increase in government budget from 2008 to 2009 (% of GDP) 4 3 2 1 0 Norway (mainland) Sweden Denmark Finland USA EMU Source: OECD outlook no 85 31
Disclaimer This material does not constitute an offering circular in whole or part and you must read the actual offering circular related to the Covered Bond program and the notes which may be issued from time to time thereunder as referred to in this material (respectively the "Program" and the Notes ) before making an investment decision. The offering circular for the Program is available from the Arrangers. You should consult the offering circular for more complete information about SpareBank 1 Boligkreditt and the Program. The Notes are not to be offered or sold in any jurisdiction in circumstances in which the distribution of this document or the Notes would be prohibited in such jurisdiction. This document must not be acted on or relied on by persons who are not eligible to invest in the Notes. Any investment or investment activity to which this communication relates is available only to person's eligible to invest in the Notes and will be engaged in only with such persons. By electing to receive this transmission, you represent, warrant and agree that you will not attempt to reproduce or re-transmit the contents of this presentation by any means. By receiving this presentation, each recipient (i) acknowledges that the offering is being made only outside the United States to non-u.s. persons in reliance upon Regulation S under the U.S. Securities Act Of 1933 and (ii) is deemed to represent that it is not a U.S. person within the meaning of Regulation S and is not accessing the presentation from a location within the United States. In addition, institutions mentioned in this material, affiliates, agents, directors, partners and employees may make purchases and/or sales of the Notes as principal or agent or may act as market maker or provide investment banking or other services in respect of the Program or the Notes which may be issued from time to time thereunder. SpareBank 1 Boligkreditt, its owners, the Arrangers and the Dealers and their respective affiliates, agents, directors, partners and employees accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. Although the statements of fact in this presentation have been obtained from and are based upon sources that SpareBank 1 Boligkreditt 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. All opinions and estimates included in this presentation constitute SpareBank 1 Boligkreditt s judgement, as of the date of this presentation and are subject to change without notice and SpareBank 1 Boligkreditt is not under any obligation to update or keep current the information contained herein. This presentation is the property of SpareBank 1 Boligkreditt AS. 32