Sparebank 1 Ostlandet · OSL:SPOL
Sparebank 1 Ostlandet — SpareBank 1 Østlandet — Debt Investor Presentation (September 2018)
66 slides from Sparebank 1 Ostlandet's debt investor presentation, September 2018
Slide 1: Investor presentation
Investor presentation September 2018 Geir-Egil Bolstad Cathrine Mordal Runar Hauge CFO Head of Treasury Portfolio manager/IR - Norway’s fastest growing region is our home market
Slide 2: Executive summary
Executive summary • Norway’s fourth largest savings bank • The best capitalised regional savings bank in Norway - CET1 16.1%, Capital ratio of 19.3%, Leverage ratio 7.3% SpareBank 1 Østlandet • Low risk bank book with a 74% retail share, of which 96% housing mortgages • Diversified income stream • L
Slide 3: Transaction rationale
Transaction rationale The Bank’s ambitions have implications for our funding strategy SpareBank 1 Østlandet rated A1 (outlook • The Bank’s revised business strategy has implications for the neg.) by Moody's has mandated BNP funding strategy going forward Paribas, Deutsche Bank, LBBW and • Deposits a
Slide 4: Content
Content Introduction to SpareBank 1 Østlandet Region, strategy and ambitions Asset quality, rating and funding plans Norwegian and regional outlook Appendix (Financials H1-2018) 4
Slide 5: Introduction to SpareBank 1 Østlandet
Introduction to SpareBank 1 Østlandet © crazybutterflys.com © berkutschi.com
Slide 6: SpareBank 1 Østlandet at a glance
SpareBank 1 Østlandet at a glance Norway's fourth largest savings bank with a broad and diversified customer base History from 1845 – known as Sparebanken Hedmark ("SBHE") until 1 April 2017. Norway's fourth largest savings bank* with total adjusted assets (incl. covered bonds) of NOK 159 billion. O
Slide 7: Diversified main activities
Diversified main activities Several sources of income - parent bank, subsidiaries and other ownership interests Operational divisions* Selected key subsidiaries Selected other ownership interests Retail EiendomsMegler 1 Totens Sparebank Hedmark Eiendom AS ~25% Segment 100% Savings bank ~ 370 employe
Slide 8: Part of the SpareBank 1 Alliance
Part of the SpareBank 1 Alliance Provides operational and financial economies of scale as well as diversified product offering Key comments Key joint ventures Key associated companies • Total number of branches: 301 «SpareBank 1 Alliance» = 14 cooperating independent savings banks • Total number of
Slide 9: Long history of profits
Long history of profits Net profit and profit pre-financials and loan losses (NOK million) 1400 1400 2016 Acquisition of Bank 1 Oslo 1200 1200 Akershus. 1000 2010 1000 Financial gains Low losses. 800 800 2007 Business cycle 1988-91 peak. 7 bps loss. 600 600 High loan losses in 1993 banking crisis, B
Slide 10: Long history of low loan losses
Long history of low loan losses Lower and more stable than peer average in Norway Loan loss provisions, (% of lending*) 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2002 2006 2010 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2003 2004 2005 2007 2008 2009 2011 2012 2013 2014 2015
Slide 11: Solid performance in several business areas
Solid performance in several business areas Second quarter 2018 • High activity levels in all business areas • Strong regional growth • High income and lending growth • Reduction in operating costs en route to meet target • Effective restructurings of subsidiaries EiendomsMegler 1 OA and SpareBank 1
Slide 12: Financial results for the second quarter of 2018
Financial results for the second quarter of 2018 (Last year's figures in brackets) Pre-tax profit in 2Q-18 isolated at NOK 416 million (NOK 274 million). Higher profitability Pre-tax profit in 1H-18 at NOK 730 million (NOK 548 million). ROE in 2Q-18 at 12.9% (9.0%). Good return on equity ROE in 1H-1
Slide 13: The financial targets are met in 1H-2018
The financial targets are met in 1H-2018 Financial targets 2018 and performance as of 1H-2018 Profitability Return on equity at least 10% 11.4% Dividends 50 % pay-out ratio after tax* 50% Solidity CET 1 at 16% 16.1% Costs 5% cost reduction** -3.1% 13 (*) Profit after tax before minority interests (*
Slide 14: Region, strategy and ambitions
Region, strategy and ambitions
Slide 15: Continuous development of the Bank
Continuous development of the Bank Recent merger and IPO basis for future growth 2014 2015 2016 2017 2017 2017-> Decision to Evaluation, Equity issue to Merger IPO Revised evaluate conversion, and B1OA* owners between B1OA strategy ** implementation and SH to Deliver on SpareBank 1 targets and Østla
Slide 16: Our market position gives ample opportunities to grow the bank
Our market position gives ample opportunities to grow the bank By the end of 2021 – our strategy pillars We are the third largest savings bank in Norway. We have one of the most attractive equity certificates on Oslo Stock Exchange. We have differentiated ourselves from the main competition and have
Slide 17: Solid position and growth opportunities
Solid position and growth opportunities Market leader in Hedmark, market challenger in other counties Hedmark Oslo Population 197,032 Population 676,462 Market share* RM 49% Market share RM 11% Market share CM 45% Market share CM 2% Position market leader Position challenger Unemployment 2.0% Unempl
Slide 18: A market area with long term growth potential
A market area with long term growth potential Considerable population growth in the Greater Capital Area Population projection 2018-2040 Population projection, municipalities 2018-2040 2,000,000 +19% (0.8% yearly) 1,750,000 Oppland Hedmark 1,500,000 1,250,000 1,000,000 Oslo 750,000 500,000 Akershus
Slide 19: Øvre Romerike – national champion in job creation
Øvre Romerike – national champion in job creation Job creation in the region • Øvre Romerike has for a long www.konjunkturbarometer1.no time been the national champion in population growth. Index job creation • The region is now also the national champion in job creation. • In the period of 2015-201
Slide 20: The bank is strengthening its ESG focus
The bank is strengthening its ESG focus Obtaining a distinct ESG profile is a cornerstone of our business strategy SpareBank 1 Østlandet has • Ensures all 10 principles of sustainability are integrated in signed up for the United day-to-day operations Nations Global Compact • The bank is since 2017
Slide 21: Financial targets 2018
Financial targets 2018 Remaining solid and continuing focus on profitability Profitability Return on equity at least 10% Dividends 50% pay-out ratio Solidity CET1 at 16% Costs 5 % cost reduction* 21 (*) Nominal costs pro-forma parent bank compared with 2017
Slide 22: Asset quality, rating and funding plans
Asset quality, rating and funding plans 22
Slide 23: Loan book dominated by retail and SME lending
Loan book dominated by retail and SME lending Lending to customers per sector (per cent*) Commercial Primary industries services Other 3.8% 3.2% 3.3% Wholesale and retail trade 0.9% Corporate lending 26% Building and Real estate 10.2% construction 3.4% Retail lending Retail Transferred to 46.1% Næri
Slide 24: The typical mortgage is small or moderate in size
The typical mortgage is small or moderate in size Retail and corporate loans by size (% share)* Retail market Corporate market 23.0% 23.2% 39.5% 33.4% 19.0% 12.0% 11.6% 11.1% 13.2% 9.9% 4.0% <1 M 1-2.5 M 2.5-5 M 5-10 M >10 M <5 M 5-10 M 10-50 M 50-100 M 100-200 M > 200 M 24 (*) Including loans trans
Slide 25: Underwriting within the quotas of the mortgage regulation
Underwriting within the quotas of the mortgage regulation* Daily follow-up ensures optimal utilisation of the permitted quota Utilisation of flexibility quota in 2Q-2018: • The mortgage regulation constrains the lending and contributes to a low risk profile mortgage lending: • Debt servicing capacit
Slide 26: High quality credit process – falling LTV
High quality credit process – falling LTV Percentage of granted mortgages and average LTV per county Percentage of granted volume Average LTV at the time of grant 81% 78% 73% 74% 71% 72% 72% 70% 69% 70% 69% 66% 66% 66% 66% 67% 67% 62% 61% 61% 63% 60% 61% 61% 59% 33% 33% 32% 32% 31% 30% 29% 30% 30% 3
Slide 27: Predominantly low LTV in the residential mortgage lending
Predominantly low LTV in the residential mortgage lending Exposure per LTV bucket in the residential mortgage portfolio 100% 95.0% 80% 60% 40% 20% 4.0% 0.5% 0.5% 0% Below 70% LTV 70-85% LTV 85-100% LTV Over 100% LTV 27
Slide 28: Low and decreasing levels of problem loans
Low and decreasing levels of problem loans Non-performing and other doubtful commitments* 600 1.60% 1.37% 1.40% 500 1.12% 1.20% 209 400 254 218 • The proportion of problem 257 272 1.00% 0.98% loans decreases further 300 0.80% 0.61% 0.59% 0.80% 0.55% 0.60% 200 0.40% 100 0.42% 0.41% 0.39% 0.20% 339 23
Slide 29: Still very low losses on loans
Still very low losses on loans Losses on loans and guarantees (NOK million) in 2Q-2018 66 75 56 12 • Losses on loans and guarantees were NOK 7 • Equals an annualised loss rate of 0.03% of gross lending -20 2014 2015 2016 2017 1H-2018 14 7 5 5 -13 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 29
Slide 30: Continued strong lending growth
Continued strong lending growth Lending volume (Group, NOK billion) 160.0 132 135 127 129 140.0 124 120.0 38 39 39 39 • Total lending in the Group, including 37 100.0 loans transferred to covered bond 80.0 companies, increased by NOK 3.5 billion during the quarter. 60.0 96 87 89 90 93 40.0 • This is
Slide 31: Satisfactory deposit coverage
Satisfactory deposit coverage Deposit volume (Group, NOK billion) 71 67 65 66 66 • Deposit growth last 12 months 6.0% • Deposit growth - retail 8.1% • Deposit growth - corporates 3.2% • Deposit coverage ratio 73.6% • Deposit coverage ratio, including mortgages transferred to the covered bond compani
Slide 32: A1 Moody's Senior Unsecured rating
A1 Moody’s Senior Unsecured rating Based on Credit Opinion as of 14 June 2018 Main take aways ‒ “SpareBank 1 Østlandet's ratings are supported by its Very Strong Macro Profile” ‒ “Solid capital levels, which are the strongest among peers” ‒ “Asset risk metrics improve post acquisition, on the back o
Slide 33: The bank's ambitions for the funding strategy (1)
The bank’s ambitions for the funding strategy (1) Today’s funding mix and thoughts on funding going forward Subordinated • The Bank’s revised business strategy leads to Senior EUR higher funding activity going forward 5% 1% Equity • Deposits are and will continue to be the 9% Bank’s most important f
Slide 34: The bank's ambitions for the funding strategy (2)
The bank’s ambitions for the funding strategy (2) Funding profile as of August 2018 (NOK million) 9,000 8,000 • Well diversified funding profile 7,000 • Average time to maturity 4.0 years 6,000 5,000 • Total maturities of NOK 33.6 billion 4,000 • Mortgages of NOK 39.4 billion transferred 3,000 to SP
Slide 35: Minimum Requirement for Own Funds and Eligible Liabilities
Minimum Requirement for Own Funds and Eligible Liabilities MREL – The proposal from the Norwegian FSA 29 June 2018 35.0 % • Proposal ‒ Loss absorbing amount to be covered 30.0 % 7.5 % by Pillar 1 and Pillar 2 requirements 25.0 % ‒ Recapitalization amount to be covered 5.5 % by excess capital and cap
Slide 36: CET 1 above target
CET 1 above target Common equity tier 1 ratio (Group) • The Group’s common equity tier 1 ratio in 2Q-18 was 16.1% . • The target for CET 1 is 16.0%. • The reduction in CET 1 in Q2 was due to 17.2% strong lending growth in the period. 16.9% 16.8% 16.1% 14.8% • The leverage ratio was 7.3% 2Q. 2014 201
Slide 37: Norwegian and regional outlook
Norwegian and regional outlook
Slide 38: Norwegian economy at a glance
Norwegian economy at a glance Balanced growth and strong public finances Economic Indicators 2013 2014 2015 2016 2017 2018E 2019F (real growth or level in per. cent) GDP growth - mainland 2.3 2.2 1.4 1 1.8 2.1 2.5 Household consumption growth 2.7 1.9 2.6 1.5 2.3 2.5 2.8 Investment growth (mainland*)
Slide 39: Norway: Positive economic conditions and outlook
Norway: Positive economic conditions and outlook Turnaround in oil, growth on trend and falling unemployment Major improvement in GDP/capita – low global correlation NOK normally moves with oil – but divergence this time Low and falling unemployment PMI – Positive expectations 39 Source: Thompson Re
Slide 40: Strong Public sector finances
Strong Public sector finances The Sovereign Wealth Fund 10,000,000 350% • The sovereign wealth fund is almost 3 times GDP The Sovereign Wealth Fund • All petroleum related income – oil taxes and direct 9,000,000 Sovereign Wealth Fund/GDP (RHS) 300% revenue flows into the fund 8,000,000 • 3 % of the
Slide 41: High economic activity in our market area (1)
High economic activity in our market area (1) Increasing productivity and low unemployment Growth in production, q/q and forecast for 6 months (per cent) Registered unemployment rate, NAV (per cent) 5.0 5.0 4 4 4.5 4.5 3 3 4.0 4.0 2 2 3.5 3.5 1 1 3.0 3.0 2.5 2.5 0 0 2008 2002 2003 2004 2005 2006 200
Slide 42: High economic activity in our market area (2)
High economic activity in our market area (2) Investment leveling out on higher profitability Expected change in investments next 12 months (per cent) Change in profitability past 3 months compared to last year (per cent) 2.50 2.00 2.00 1.50 1.50 1.00 1.00 0.50 0.50 - - 2012 2013 2014 2015 2016 2017
Slide 43: Mortgage market: key characteristics
Mortgage market: key characteristics Mortgage Market • Total size approximately NOK 3,000 billion (USD 375 billion, €330 billion) • Private banks (incl. savings banks) are the dominant suppliers of Household credit growth mortgages with over 95% market share (12 months growth rate) • Scheduled repay
Slide 44: Moderate housing price growth and high construction activity
Moderate housing price growth and high construction activity House price developments for relevant areas compared with Norway Housing prices by area, 12-month growth (per cent) House prices, indexed** 30% AUGUST 2018 30% 150.00 150.00 • Nominal +0.8%/seasonally adjusted -0.1% 25% • Highest 25%growth
Slide 45: Contact details
Geir-Egil Bolstad CFO Phone: +47 918 82 071 geir-egil.bolstad@sb1ostlandet.no Contact Cathrine Mordal Head of Treasury Phone: +47 62 51 09 10 details cathrine.mordal@sb1ostlandet.no Runar Hauge Portfolio Manager/IR Phone: +47 482 95 659 runar.hauge@sb1ostlandet.no 45
Slide 46: Appendix
Appendix 72.75 SpareBank SpareBank 4 @STLANDET
Slide 47: Financial accounts 1H-2018
Financial accounts 1H-2018 ‘STLANDET
Slide 48: Income statement 1H-2018
Income statement 1H-2018 Group 1H 2018 1H-2017 2017 Net interest income 1,006 956 1,956 Net commission income 564 526 1,095 Other income 93 98 168 Total operating expenses 918 915 1,898 Result bank operation before losses 745 665 1,321 Impairment losses on loans and guarantees 12 -21 -20 Result bank
Slide 49: Special items 2Q-2018
Special items 2Q-2018 Description and effects • The merger of BankAxept, BankID and Vipps led to a write-up of book values. Vipps • Net gain of NOK 59 million. • The bank sold 50% of the shares in Torggata 22 AS in Hamar. Torggata 22 AS • Net gain of NOK 9 million. • Restructuring of the company wit
Slide 50: Key financials – quarterly
Key financials – quarterly (1) Net interest income and commission fees from Pre-tax profit (NOK million) covered bond companies (NOK million) 518 476 611 422 409 602 358 598 599 573 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Impairments on loans and guarantees (NOK million) Total op
Slide 51: Key financials – quarterly (2)
Key financials – quarterly (2) Return on equity CET 1 ratio 12.9% 12.0% 16.7% 16.9% 16.8% 16.2% 16.1% 10.4% 9.9% 9.0% Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Lending growth (including loans transferred to Deposit growth last 12 months covered bond companies) last 12 months 6.4% 8
Slide 52: Profit contributions from subsidiaries
Profit contributions from subsidiaries 1H-2018 (1H-2017) SpareBank 1 Finans Østlandet - Profit before tax NOK 96.9 million (NOK 87.8 million). - Good growth and increasing profitability. - Increased focus on innovation and business development. EiendomsMegler 1 Hedmark - Profit before tax NOK 9.9 mi
Slide 53: Contribution from joint ventures
Contribution from joint ventures 1H-2018 (1H-2017) SpareBank 1 Gruppen - Profit before tax NOK 773 million (NOK 904 million) - Ownership 12.4% SpareBank 1 Boligkreditt AS - Profit before tax NOK -6.9 million (NOK -259.9 million) - Ownership 21.1% SpareBank 1 Næringskreditt - Profit before tax NOK 35
Slide 54: Net interest income
Net interest income Net interest income incl. commissions from covered bond companies 1400 2.00% 1.84% 1.86% 1.86% 1.90% 1200 1.81% 1.78% 1.80% • Higher NII last quarter due to 1000 1.70% strong lending growth 1.60% 800 611 1.50% • Reduction in NII in per cent of 573 598 602 599 600 average assets m
Slide 55: Continued strong lending growth
Continued strong lending growth Lending volume (Group, NOK billion) 160.0 132 135 127 129 140.0 124 120.0 38 39 39 39 • Total lending in the Group, including 37 100.0 loans transferred to covered bond 80.0 companies, increased by NOK 3.5 billion during the quarter. 60.0 96 87 89 90 93 40.0 • This is
Slide 56: Lending margins
Lending margins Retail and corporate markets (parent bank) 2.76% 2.66% 2.68% • Decreasing retail lending margins 2.53% 2.49% last quarter, due mainly to the increase in Nibor, but also competitive pressure for low risk customers. • Increased corporate lending 1.92% 1.93% margins last quarter as a 1.
Slide 57: Satisfactory deposit coverage
Satisfactory deposit coverage Deposit volume (Group, NOK billion) 71 67 65 66 66 • Deposit growth last 12 months 6.0% • Deposit growth - retail 8.1% • Deposit growth - corporates 3.2% • Deposit coverage ratio 73.6% • Deposit coverage ratio, including mortgages transferred to the covered bond compani
Slide 58: Deposit margins
Deposit margins Retail and corporate markets (parent bank) 0.30% • Increasing deposits margins in parent bank last quarter. 0.23% 0.22% • The higher margins are mainly explained by the increased Nibor. 0.13% 0.08% 0.06% 0.11% 0.09% -0.04% -0.05% Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Deposit margin
Slide 59: Increased income in subsidiaries
Increased income in subsidiaries 300 Commissions and other operating income (NOK million) 246 250 233 225 217 12 • Commissions and other operating 10 18 15 17 207 income increased with 14% from 0 9 Other income 16 15 16 200 last quarter, and 6% from last year. 45 Commission income from credit 41 29
Slide 60: Group operating costs
Group operating costs Operating costs per quarter (NOK millions) 700 600 550 Other operating expenses • The operating costs are down 1.9% 478 88 449 469 500 compared to last year. 433 Depreciation 80 22 55 27 47 21 20 23 32 400 Admin. and other operating • Personnel expenses have increased 132 costs
Slide 61: Increased staffing in subsidiaries
Increased staffing in subsidiaries Headcount (FTE) 1,114 1,137 1,102 1,109 1,111 • Stable level of staffing in the Parent Bank after the merger downsizing has been completed 400 397 404 418 444 • Increased staffing in the subsidiaries due to higher ambitions and activity levels in real estate broker
Slide 62: Expenses Parent Bank (adjusted)
Expenses Parent Bank (adjusted*) Operating costs per quarter (NOK million) • The operating costs in the first half year of 2018 were NOK 21 million lower than in the same period in 2017. • This is equivalent to a -3.1% cost reduction in the pro-forma parent bank compared with last year. 411 • The am
Slide 63: The contribution from financial items has increased
The contribution from financial items has increased Net result from financial assets and liabilities (NOK million) • Issued debt securities were in 1H-2017 generally assessed at fair value (IAS 39) and showed, mainly due to lower credit -15 spreads, a loss of NOK 83 million. 2 • Issued debt securiti
Slide 64: Low losses and reduced net exposure in stage 3
Low losses and reduced net exposure in stage 3 Specification of impairment losses and net exposure per stage (NOK million) Maximum exposure (on and off-balance sheet items), Impairment losses per segment net of accumulated impairment 2Q-18 1Q-18 Net exposure Stage 1 Stage 2 Stage 3 Total 1Q-18 87,35
Slide 65: Disclaimer
• This presentation contains forward-looking statements that reflect management’s current views with respect to certain future events and potential financial performance. • Although SpareBank 1 Østlandet believes that the expectations reflected in such forward-looking statements are reasonable, no a
Slide 66: End
mare SpareBank a @STLANDET
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