Sparebanken OstOSL: SPOG

Quarterly report 2/2024

Aug 5, 2024 at 9:47 AM UTC · Issued by Sparebanken Ost

182th year

Quarterly report

Q2 2024

Interim financial statements - Q2 2024
Key figures - Group …………………………………………………………………………………	3
Quarterly report………………………………………………………………………………………… 4
Financial statements for the Sparebanken Øst Group
Income Statement ………………………………………………….……………………………..	12
Balance Sheet ………………………………	13
Changes in Equity	14
Cash Flow Statement ……………	15
Note K1	Basis for preparation of the financial statements	16
Note K2	Operating segments ………………………...................................................................................... 17
Note K3	Capital adequacy ………………………………................................................................................ 19
Note K4	Credit risk ……………………………………………………….………………………………………… 21
Note K5	Losses on loans, unused credit and guarantees	23
Note K6	Non-performing commitments, customers	26
Note K7	Net interest income ………………………………………………………………………………………… 27
Note K8	Net changes in value and gains/losses on financial instruments ……………………..………………	27
Note K9	Operating costs …………………………………………………………………………………………… 27
Note K10	Classification of financial instruments	28
Note K11	Financial instruments at fair value………………………………………………………………..	30
Note K12	Securities issued, senior subordinated bonds and subordinated loan capital………………………	32
Note K13	Equity certificates ………………………………………………………………………………………… 33
Note K14	Pledged assets and preferential rights…………………………………………………………………… 34
Additional Information - Sparebanken Øst Group
Changes in key figures …………………………………………………………………………………………………… 35
Definition of key figures and alternative performance indicators ……………………………………………………	36
Financial performance ………...………………………………………………………………………………………… 37
Balance sheet performance ……...……………………………………………………………………………………… 38
Financial Statements for Sparebanken Øst - Parent bank
Income Statement ………………………………………………….……………………………………………………	39
Balance Sheet ………………………………	40
Changes in Equity	41
Cash Flow Statement	42
Note M1	Basis for preparation of the financial statements	43
Note M2	Capital adequacy………………………………	44
Note M3	Losses on loans, unused credit and guarantees	46
Note M4	Financial instruments at fair value………………………………………………………………..	49
Note M5	Securities issued, senior subordinated bonds and subordinated loan capital………………………	51
Note M6	Transactions with group companies…………………………………………………………………….	52
Statement pursuant to Section 5-6 of the Securities Trading Act…………………………… 53

2	Sparebanken Øst \| Interim Report Q2 2024

Key figures - Group

Income Statement (Amounts in NOK millions)	Q2 2024	Q2 2023	01.01-30.06.202401.01-30.06.2023	Full year 2023
Net interest income	239,8	200,2	463,7	398,8	828,8
Net commission income	9,9	9,0	19,0	24,6	43,3
Net result from financial assets	3,4	7,2	52,2	8,8	42,7
Other operating income	0,4	0,6	0,8	1,1	2,0
Total net income	253,5	216,9	535,8	433,2	916,8
Total operating costs	77,2	75,1	174,1	164,2	345,9
Profit before losses	176,4	141,8	361,7	269,0	570,9
Losses on loans, unused credit and guarantees	2,2	-0,2	4,9	1,5	6,7
Profit/loss before tax	174,2	142,0	356,8	267,6	564,2
Income tax	40,7	31,8	74,7	59,4	123,7
Profit/loss after tax	133,5	110,2	282,0	208,2	440,6
Key figures	2. kvartal 2024	2. kvartal 2023	1.1.-30.6.2024	1.1.-30.6.2023	Året 2023
Profitability
Return on equity*	11,55	9,59	12,45	9,23	9,87
Net interest income as a % of average total assets	2,07	1,81	2,02	1,81	1,85
Profit/loss after income tax as a % of average total assets	1,15	0,99	1,23	0,95	0,98
Costs as a % of average total assets	0,67	0,68	0,76	0,75	0,77
Costs as a % of income (before losses on loans/guarantees)*	30,43	34,64	32,49	37,90	37,73
Costs as a % of income (excl. return on financial investments)*	30,85	35,83	35,99	38,69	39,57
Balance sheet figures
Net lending to customers	38.402,7	37.274,5	38.402,7	37.274,5	37.877,1
Lending growth (quarter/12 months)	-0,35	1,60	3,03	-1,04	2,93
Deposits	16.544,1	15.521,7	16.544,1	15.521,7	15.860,8
Deposit growth (quarter/12 months)	3,57	2,39	6,59	-11,16	0,63
Average equity	4.372,0	4.307,4	4.301,5	4.261,3	4.166,1
Average total assets	46.522,9	44.465,3	46.141,5	44.336,3	44.753,3
Loan loss provisions on impaired and non-performing commitments
Losses as a % of net lending to customers (OB)*	0,02	0,00	0,03	0,01	0,02
Loan loss provisions as a % of gross lending to customers*	0,29	0,29	0,29	0,29	0,29
Net payments over 90 days past due as a % of net lending*	0,24	0,23	0,24	0,23	0,23
Other net non-performing commitments (Stage 3) as a % of net lending*	0,25	0,16	0,25	0,16	0,28
Solvency
CET1 capital ratio (%)	18,55	19,52	18,55	19,52	18,67
Tier 1 capital ratio (%)	20,25	21,31	20,25	21,31	20,40
Capital adequacy ratio (%)	22,20	23,36	22,20	23,36	22,37
Risk-weighted volume (calculation basis)	20.544,2	19.530,4	20.544,2	19.530,4	20.278,7
Leverage ratio (%)	8,77	9,13	8,77	9,13	8,89
Liquidity
Deposit coverage ratio	43,08	41,64	43,08	41,64	41,87
LCR (%)	249,67	278,99	249,67	278,99	250,14
NSFR (%)	134,46	126,07	134,46	126,07	127,65
Branches and full-time equivalents
No. of branches	29	29	29	29	29
FTEs	186	192	186	192	193
Equity certificates
Ownership fraction (parent bank) (%)**	28,59	28,59	28,59	28,59	28,59
No. of equity certificates	20.731.183	20.731.183	20.731.183	20.731.183	20.731.183
Book equity per equity certificate*	61,15	60,10	61,15	60,10	62,88
Earnings per equity certificate*	1,73	1,42	3,67	2,69	5,67
Dividend per equity certificate	0,00	0,00	0,00	0,00	5,40
Turnover rate	19,04	13,84	20,37	18,52	14,26
Price	53,85	47,50	53,85	47,50	50,20

Defined as alternate performance target
For ownership fraction as at 01.01.2024, see Note K13

For definisjon av nøkkeltall og omtale av alternative resultatmål, se side 36

3	Sparebanken Øst \| Kvartalsrapport 2. kvartal 2024

Quarterly report

The Bank can show significantly increased income compared to the same quarter last year and very good performance in the quarter. The Bank still has low risk in its lending portfolios, and a high CET1 capital ratio, calculated by the standard method, and a high leverage ratio make Sparebanken Øst one of Norway's most solid banks. The Board of Sparebanken Øst has decided to increase the Bank's long-term target return on equity from 9 per cent to 10 per cent. The Board has also adopted a new target for the Bank's leverage ratio, corresponding to a capital margin of at least 2.0 percentage points. The Board has decided to retain the current dividend policy.

Profit for the quarter amounted to NOK 133.5 million, which represents a return on equity of 11.55 per cent. The return on equity is higher than the new long-term return target of 10 per cent. The Bank is very happy with this performance in view of its financial strength and the fact that it uses the standard method for calculating capital weights.

The Bank's net interest income increased by NOK 39.6 million compared to Q2 2023.

In a market characterised by falling credit growth and stiff competition for lending customers, the lending volume in the quarter shows a marginal decrease of 0.35 per cent. Lending growth over the last 12 months is 3.03 per cent, and is on par with credit growth in society (K2) during the same period.

The Bank still has very low losses on lending and a low rate of non-performing commitments. The Bank is very solid, with a CET1 capital ratio of 18.55 per cent (without adding a share of the profit for the year to date).

Results for the quarter in brief

Profit in the quarter amounts to NOK 133.5 million, an increase of NOK 23.3 million from Q2 2023. The return on equity (ROE) ended at 11.55 per cent, compared to 9.59 per cent in Q2 2023. Earnings per equity certificate were NOK 1.73, up from NOK 1.42 in Q2 2023.

The CET1 capital ratio is 18.55 per cent, compared to

19.52 per cent in Q2 2023. The leverage ratio is 8.77 per cent, down from 9.13 per cent in Q2 2023.

Net interest income amounted to NOK 239.8 million, up NOK 39.6 million from Q2 2023. Measured as a percentage of average total assets, net interest income amounts to 2.07 per cent, an increase of 0.27 percentage points from Q2 2023.

Net other operating income amounted to NOK 13.7

million, down by NOK 3.0 million compared with Q2 2023. The profit/loss effect from the Bank's shareholding in Frende is plus

NOK 4.8 million, compared with NOK 11.4 million in Q2 2023. Changes in value from other ownership interests were minus NOK 7.2 million, compared to plus NOK 0.9 million in Q2 2023. The value of the liquidity portfolio rose by NOK 3.9 million, compared with a reduction of NOK 2.6 million in Q2 2023. Net commission income amounted to NOK 9.9 million, up NOK 0.9 million from Q2 2023.

Operating costs totalled NOK 77.2 million, up NOK 2.0 million from Q2 2023. Measured as a percentage of income, the Bank has a cost ratio of 30.43 per cent, against 34.64 per cent in Q2 2023.

Losses amount to NOK 2.2 million compared to income of NOK 0.2 million in Q2 2023.

More about the results for the quarter

NET INTEREST INCOME

Higher interest rates, with a key policy rate of 4.50 per cent, produce both increased interest income and higher interest costs for the Bank. Money market rates, based on 3-month NIBOR, have been stable through the quarter and have normalised in relation to the key policy rate. This has helped to stabilise the Bank's wholesale financing costs, and offset the effect of the time lag whereby loans to customers are repriced after a notice period.

Net interest income
Amounts in NOK million	Q2 24	Q1 24	Q2 23
Loans to & receivables from
financial institutions	5,8	3,3	3,6
Lending to customers	600,2	581,4	449,7
Certificates and bonds	79,9	74,1	59,0
Other interest income	1,0	0,8	0,0
Total interest income	686,9	659,6	512,3

Liabilities to financial institutions	1,8	2,0	2,5
Customer deposits	119,7	115,9	66,0
Securities issued	294,0	286,2	222,0
Senior subordinated bonds	21,2	21,2	12,0
Subordinated loan capital	7,1	7,1	5,6
Other interest costs	3,3	3,3	4,1
Total interest costs	447,1	435,6	312,2
Net interest income	239,8	224,0	200,2
Net interest income as a
percentage of average total assets	2,07	1,95	1,81

NET OTHER OPERATING INCOME

Net other operating income comprises commission income and expenses, dividends, net value changes and gains/losses on financial instruments, and other income.

Net other operating income amounted to NOK 13.7 million, down by NOK 3.0 million compared with Q2 2023.

Net commission income amounted to NOK 9.9 million, up NOK 0.9 million from Q2 2023

Dividends received total NOK 20.3 million. For comparison, dividends received amounted to NOK 45.7 million in Q2 2023. For both quarters, these mainly relate to dividends received from Frende.

Net value changes and gains/losses on financial instruments amounted to NOK -16.9 million, against NOK -38.5 million from Q2 2023. The value of the Bank's shareholding in Frende decreased by NOK 14.4 million in connection with dividends received. For comparison, the value of the shareholding in Frende fell by NOK 34.2 million in Q2 2023 on

Sparebanken Øst | Interim Report Q2 2024

the back of dividends received in Q2 2023. The fall in the value of the Bank's shares in Norwegian Block Exchange AS (NBX) amounted to NOK 2.5 million, against a fall of NOK 5.6 million in Q2 2023. The value of the Bank's shares in Kraft Bank fell by NOK 1.0 million, against a rise of NOK 1.7 million in Q2 2023. Negative value adjustments related to shares and equity rights in Visa Inc. totalled NOK 3.7 million, compared with an increase of NOK 4.8 million in Q2 2023. The value of the liquidity portfolio rose by NOK 3.9 million, compared with a reduction of NOK 2.6 million in Q2 2023. The positive profit/loss effects from foreign exchange, derivatives and fixed rate loans at fair value amounted to NOK 1.5 million. The corresponding profit/loss effects came to minus NOK 2.4 million in Q2 2023. The profit/loss effect from buying back debt issued by the Bank was plus NOK 0.6 million, compared to minus NOK 0.2 million in Q2 2023.

Net other operating income
Amounts in NOK million	Q2 24	Q1 24	Q2 23
Net commission income	9,9	9,1	9,0
Dividend	20,3	64,0	45,7
Net value change and gains/losses on
certificates and bonds*	3,9	-4,4	-14,9
Net value change and gains/losses on
shares	-21,6	-16,7	-33,2
Net value change and gains/losses on
fixed-interest loans	0,6	-2,0	-5,1
Net value change and gains/losses on
other financial instruments	0,2	7,8	14,8
Other operating income	0,4	0,4	0,6
Net other operating income	13,7	58,3	16,7

*excluding profit/loss effect of financial derivatives entered into for the purpose of financial interest rate hedging in the liquidity portfolia

OPERATING COSTS

Operating costs totalled NOK 77.2 million, up NOK 2.0 million from Q2 2023. Measured as a percentage of revenue, the cost ratio is 30.43 per cent, down from 34.64 per cent in Q2 2023.

Salaries and other personnel costs amount to NOK 38.3 million and are at the same level as in Q2 2023.

Other operating costs totalled NOK 32.1 million, up NOK

2.0 million from Q2 2023. The increase is mainly due to increased costs for legal services.

Operating costs

Amounts in NOK million	Q2 24	Q1 24	Q2 23
Salaries and other personnel costs	38,3	51,5	38,3
Depreciation/impairment of tangible
and intangible assets	6,8	6,9	7,3
Other operating costs	32,1	38,5	29,6
Total operating costs	77,2	96,9	75,1
Costs as a % of average total assets	30,4	34,3	34,6
Costs as a percentage of average
total assets	0,67	0,85	0,68

IMPAIRMENTS AND NON-PERFORMING COMMITMENTS Losses on loans, unused credits and guarantees amounted to NOK 2.2 million, of which changes in model-basedloan loss provisions produced income of NOK 0.3 million. For

comparison, losses amounted to income of NOK 0.2 million in Q2 2023, of which changes in model-based loan loss provisions gave rise to income to NOK 0.9 million.

Loss costs
Amounts in NOK million	Q2 24	Q1 24	Q2 23
Lending to retail customers of the
parent and mortgage credit company	0,0	0,7	-1,0
Lending to business customers	0,1	0,0	-0,5
Lending at AS Financiering	2,6	2,0	1,1
Unused credit and guarantees	-0,6	0,1	0,3
Total loss costs	2,2	2,8	-0,2
Losses as a percentage of net lending
to customers (OB)	0,02	0,03	0,00

Total loan loss provisions amount to NOK 111.7 million, equivalent to 0.29 per cent of gross lending to customers. For comparison, total loan loss provisions amounted to NOK 108.6 million at the end of Q2 2023, equivalent to 0.29 per cent of gross lending to customers. Individually assessed loan loss provisions amounted to NOK 84.8 million, compared with NOK

82.2 million at the end of Q2 2023. Most of the Bank's loan loss provisions are related to AS Financiering.

Loan loss provisions
Amounts in NOK million	Q2 24	Q1 24	Q2 23
Lending to retail customers of the
parent and mortgage credit company	15,2	15,1	17,0
Lending to business customers	6,2	6,5	4,2
Lending at AS Financiering	89,3	87,8	85,9
Unused credit and guarantees	1,1	1,7	1,5
Total loan loss provisions	111,7	111,1	108,6
Loan loss provisions as a percentage
of gross lending to customers	0,29	0,29	0,29

Net non-performing commitments are low, at NOK 191.6 million or 0.50 per cent of net lending to customers. For comparison, net non-performing commitments amounted to NOK 146.7 million, corresponding to 0.39 per cent of net lending to customers at the end of Q2 2023.

Non-performing commitments
Amounts in NOK million	Q2 24	Q1 24	Q2 23
Lending to retail customers of the parent
and mortgage credit company	83,3	84,2	46,4
Business customers	18,8	25,1	16,3
AS Financiering	175,9	168,6	168,0
Total gross non-performing
commitments	278,0	277,8	230,6
Loan loss provisions for non-performing
commitments.	86,4	85,5	83,9
Net non-performing commitments	191,6	192,4	146,7
Net non-performing commitments as a
percentage of net lending	0,50	0,50	0,39

Sparebanken Øst | Interim Report Q2 2024

INCOME TAX

Income tax stands at NOK 40.7 million, equal to 23.4 per cent of the profit before tax. For comparison, income tax totalled NOK 31.8 million, or 22.4 per cent of pre-tax profit, in Q2 2023.

Profit for the first half-year

Profit for the first half-year was NOK 282.0 million, an increase of NOK 73.8 million from the first half of 2023. The return on equity was 12.45 per cent compared with 9.23 per cent for the first half of 2023. Earnings per equity certificate were NOK 3.67, up from NOK 2.69 in the first half of 2023.

NET INTEREST INCOME

Net interest income amounted to NOK 463.7 million, up NOK

65.0 million from the first half of 2023. Net interest income as a percentage of average total assets is 2.02 per cent, an increase of by 0.21 percentage points compared to the first half of 2023.

Net interest income
	YtD.	Ytd.
Amounts in NOK million	Q2 24	Q2 23
Loans to & receivables from financial
institutions	9,1	7,1
Lending to customers	1.181,6	873,8
Certificates and bonds	154,0	117,1
Other interest income	1,7	0,0
	1.346,
Total interest income	5	998,0

Liabilities to financial institutions	3,8	5,2
Customer deposits	235,6	125,6
Securities issued	580,2	427,7
Senior subordinated bonds	42,4	21,6
Subordinated loan capital	14,1	11,0
Other interest costs	6,6	8,1
Total interest costs	882,7	599,2
Net interest income	463,7	398,8
Net interest income as a percentage of
average total assets	2,02	1,81

NET OTHER OPERATING INCOME

Net commission income amounted to NOK 19.0 million, down NOK 5.5 million from the first half of 2023. The reduction is mainly due to a reduction in the profitability bonus from Frende.

Dividends received amounted to NOK 84.3 million, of which NOK 64.0 million related to dividends received from Eksportfinans. Dividends can be broken down into NOK 15.5 million in ordinary dividends for 2023 and NOK 48.5 million from an extraordinary distribution of retained earnings from previous years. Dividends from Frende total NOK 19.2 million. In the same period in of 2023, dividends received amounted to NOK 45.7 million, of which dividends from Frende accounted for NOK 45.6 million.

Net value changes and gains/losses on financial instruments amounted to NOK -32.1 million, against NOK -36.9 million in the first half of 2023. The value of the liquidity portfolio rose by NOK 6.9 million, compared with a reduction of NOK 11.5 million in the first half of 2023. The rise in value of the Bank's shares in Norwegian Block Exchange AS (NBX) amounted to NOK 0.4 million. For comparison, the value of the shareholding in NBX fell by NOK 5.0 million in the first half of 2023. The value of the Bank's shares in Kraft Bank fell by NOK

million, against a fall of NOK 1.7 million in the first half of 2023. Positive value changes related to shares and options in Visa Inc. amounted to NOK 4.2 million compared with an increase of NOK 10.7 million in the first half of 2023. The fall in the value of the Bank's shareholding in Frende amounts to NOK 9.6 million, and must be viewed in conjunction with dividends received for 2023. For comparison, there was a decrease of NOK 22.8 million in the first half of 2023, and the change has to be seen in the context of dividends received for 2022. The value of the Bank's shareholding in Eksportfinans fell by NOK 32.9 million. The value adjustment has been implemented by way of an extraordinary dividend distribution. The negative profit/loss effects from foreign exchange, derivatives and fixed rate loans at fair value amounted to NOK

million. Similar profit/loss effects were negative, at NOK -

million in the first half of 2023. The cost of buying back the Bank's own issued debt amounted to NOK 0.4 million, compared with NOK 2.0 million in the first half of 2023.
Other operating income amounted to NOK 0.8 million, down NOK 0.3 million from the first half of 2023.

Net other operating income
	YtD.	Ytd.
Amounts in NOK million	Q2 24	Q2 23
Net commission income	19,0	24,6
Dividend	84,3	45,7
Net value change and gains/losses on certificates
and bonds*	-0,4	-21,3
Net value change and gains/losses on shares	-38,3	-18,8
Net value change and gains/losses on fixed-
interest loans	-1,4	-4,8
Net value change and gains/losses on other
financial instruments	8,0	8,1
Other operating income	0,8	1,1
Net other operating income	72,0	34,4

*excluding profit/loss effect of financial derivatives entered into for the purpose of financial interest rate hedging in the liquidity portfolio

OPERATING COSTS

Other operating costs amounted to NOK 174.1 million, up NOK

9.9 million compared with the first half of 2023. Measured as a percentage of income, costs were reduced to 32.5 per cent, compared with 37.9 per cent in the first half of 2023.

Salaries and personnel costs amounted to NOK 89.8 million, up by NOK 2.6 million compared with the first half of 2023.

Other operating costs amount to NOK 70.6 million, an increase of NOK 7.9 million. The increase can be mainly

Sparebanken Øst | Interim Report Q2 2024

attributed to increased IT costs, as well as increased costs for legal services.

Operating costs
	YtD.	Ytd.
Amounts in NOK million	Q2 24	Q2 23
Salaries and other personnel costs	89,8	87,2
Depreciation/impairment of tangible and
intangible assets	13,7	14,3
Other operating costs	70,6	62,7
Total operating costs	174,1	164,2
Costs as a % of average total assets	32,5	37,9
Costs as a percentage of average total assets	0,76	0,75

IMPAIRMENTS AND NON-PERFORMING COMMITMENTS Losses on loans, unused credits and guarantees amounted to NOK 4.9 million, of which changes in model-basedlosses amounted to NOK 0.7 million. By comparison, losses amounted to NOK 1.5 million in the first half of 2023, of which changes in model-basedloan loss provisions gave rise to a cost of NOK 1.0 million.

Loss costs
	YtD.	Ytd.
Amounts in NOK million	Q2 24	Q2 23
Lending to retail customers of the parent and
mortgage credit company	0,7	-1,3
Lending to business customers	0,1	-0,1
Lending at AS Financiering	4,6	2,7
Unused credit and guarantees	-0,5	0,2
Total loss costs	4,9	1,5
Losses as a percentage of net lending to
customers (OB)	0,03	0,01

INCOME TAX

Income tax stands at NOK 74.7 million, equal to 21.0 per cent of the profit before tax.

Main items on the balance sheet

Total assets amounted to NOK 46.2 billion at the end of the quarter.

LENDING TO CUSTOMERS

Net lending to customers totalled NOK 38.4 billion, down NOK

billion or 0.3 per cent in the quarter. There was an increase of NOK 1.1 billion, or 3.03 per cent, in the past 12 months. Loans to retail customers amounted to NOK 34.5 billion, down

per cent in the quarter but up 3.0 per cent in the last 12 months. Loans to business customers amounted to NOK 3.9 billion, down 1.0 per cent in the quarter but up 3.3 per cent in the last 12 months.

DEPOSITS FROM CUSTOMERS

Deposits from customers totalled NOK 16.5 billion, up NOK 0.6 billion, or 3.6 per cent, in the quarter. There was an increase of

NOK 1.0 billion, or 6.6 per cent, in the past 12 months. The deposit-to-loan ratio is 43.1 per cent. Deposits from retail customers amount to NOK 10.4 billion and deposits from business customers amount to NOK 6.1 billion.

LIQUIDITY AND FINANCING

The bank takes a conservative approach to liquidity risk and exercises proper liquidity management so that the Group has sufficient liquid assets to cover its obligations upon maturity at all times. The Bank must be able to run normal operations for a period of at least 12 months without access to external financing. The Bank takes on credit risk through the management of liquidity reserves and excess liquidity. The Bank intends to retain interest-bearing securities with low credit risk for liquidity purposes (reserve for disposal when needed) and as a deposit basis for borrowing facilities at the central bank. The Bank's liquidity risk is monitored continuously, and updated overviews of the Bank's total counterparty risk are available.

Holdings of certificates and bonds totalled NOK 6.1 billion, an increase of NOK 0.6 billion in the past 12 months.

The short-term liquidity target measured by LCR is above the Bank's agreed limit of 102 per cent and amounts to 249.7 per cent, against 279.0 per cent at the end of Q2 2023. The composition of the Bank's balance sheet, and its liquidity strategy, entail a high proportion of securities that count towards the LCR calculation, and in periods when little wholesale funding falls due, the Group will have a high reported LCR.

Securities issued totalled NOK 21.7 billion, an increase of NOK 0.3 billion in the past 12 months. The Bank also has senior non-preferred debt (SNP) with a nominal value of NOK 1.5 billion, an increase of NOK 0.3 billion over the past 12 months. The Bank considers its access to wholesale financing to be good.

The degree of stable and long‐term financing measured by NSFR is 134.5 per cent, compared with 126.1 per cent at the end of Q2 2023. The average term to maturity for wholesale financing was 3.3 years, unchanged from the end of Q2 2023. Short‐term borrowing (defined as borrowing with a remaining term to maturity of less than 1 year) amounted to NOK 3.0 billion at the end of the quarter.

FRENDE FORSIKRING

The Bank owns 13.25 per cent of Frende Holding AS (Frende), which itself owns Frende Skade AS and Frende Liv AS (Frende Forsikring). As the Bank's stake in Frende is below 20 per cent, the shareholding is measured at fair value with changes of value and dividends received recognised through profit or loss. To show the added value to the Bank from Frende through the year, the shareholding is revalued each quarter. The Bank received dividend income from Frende of NOK 19.2 million in the second quarter and has therefore posted a reduction of NOK 14.4 million, so the net profit/loss effect is plus NOK 4.8 million in the second quarter. The Bank's shareholding in Frende was valued at NOK 454.4 million at the end of the quarter, corresponding to NOK 507.3 per share.

Sparebanken Øst | Interim Report Q2 2024

MISC. OWNERSHIP INTERESTS IN OTHER COMPANIES The Bank owns 4.85 per cent of the shares in Eksportfinans ASA, and the shareholding is valued at NOK 162.1 million.

The Bank's stake in Vipps Holding AS is 0.72 per cent, and the shareholding is valued at NOK 64.4 million. Vipps Holding AS owns 72.22 per cent of the shares in Vipps Mobilepay AS and 100 per cent of the shares in BankID BankAxept AS.

The Bank owns 'C' shares in Visa Inc. The shareholding is valued at NOK 54.2 million. The Bank also has rights to shares in Visa Inc. owned via VN Norge Forvaltning AS and VN Norge AS. The rights are valued at NOK 11.1 million.

The Bank owns 6.85 per cent of the shares in Kraft Bank ASA. Kraft Bank is listed on Euronext Growth Oslo and the Bank's shareholding is valued at NOK 23.7 million.

The Bank owns 4.99 per cent of the shares in Norwegian Block Exchange AS (NBX). NBX is listed on Euronext Growth Oslo and the Bank's shareholding is valued at NOK 4.8 million.

Capital adequacy

The CET1 capital ratio amounted to 18.55 per cent (excl. share of profits for the year to date) at the end of the quarter, a decrease from 19.52 per cent at the end of Q2 2023.

The current Pillar 2 requirement for Sparebanken Øst is

1.1 per cent, of which at least 56.25 per cent has to be covered by CET1 capital and at least 75 per cent by Tier 1 capital. This requirement took effect on 30 September 2023. The requirement for a systemic risk buffer for banks using the standard method is 4.5 per cent. Given the current capital requirements, this entails a total CET1 capital requirement of at least 14.62 per cent at the end of the quarter. If we add the Financial Supervisory Authority of Norway's expectation of a solvency capital margin of at least 1.0 per cent, there is a total regulatory requirement of at least 15.62 per cent.

The capital target for Sparebanken Øst is expressed as follows: The Sparebanken Øst Group should have capital adequacy at least equal to the regulatory requirement plus a capital margin of 1.0 percentage point. Based on current regulatory requirements at the end of the quarter, the capital adequacy target is a minimum of 19.60 per cent. The minimum CET1 capital ratio is then 15.62 per cent.

Net subordinated loan capital at the end of the quarter amounted to NOK 4.6 billion, of which the Group's Tier 1 capital accounted for NOK 4.2 billion. With a calculation basis of NOK 20.5 million, this corresponds to a capital adequacy ratio of 22.20 per cent, of which 20.25 per cent constitutes the Tier 1 capital ratio. The leverage ratio was 8.77 per cent at the end of the quarter, a decrease from 9.13 per cent at the end of Q2 2023. The current official leverage ratio requirement is 3.0 per cent. The target leverage ratio adopted by the Bank can be expressed as follows: To maintain its leverage ratio, Sparebanken Øst has to have a capital margin of at least 2.0 percentage points.

Capital level	Q2 24	Q1 24	Q2 23
CET1 capital ratio	18,55	18,35	19,52
Tier 1 capital ratio	20,25	20,04	21,31
Capital adequacy	22,20	21,98	23,36
Leverage ratio	8,77	8,62	9,13

* Reported capital level excl. share of interim profit

MREL

Sparebanken Øst is one of the Norwegian banks designated by the Financial Supervisory Authority for support in financial crises, with the aim of ensuring financial stability. Section 20- 9(1) of the Financial Institutions Act states that such institutions "shall at all times meet a minimum requirement on the sum of own funds and eligible liabilities" (MREL). For Sparebanken Øst, the FSA has defined an MREL requirement, effective from 1 January 2024, whereby effective MREL is set at

34.7 per cent of an adjusted basis for calculation, with a further requirement that 27.7 per cent of the adjusted basis for calculation should consist of subordinated debt. At the end of the quarter, Sparebanken Øst's actual MREL was 49.5 per cent, while the proportion of subordinated debt was 33.8 per cent.

Reduced differentiation in the treatment of banks

Sparebanken Øst uses the standard method to calculate its capital requirements, which according to the current regulations means that loans with the same risk are subject to far higher risk weights when compared to banks that use risk weights based on IRB models. The result of this is that, with its capital requirements, Sparebanken Øst holds far more equity for its lending than banks that are able to use IRB models for all or parts of their lending portfolios. The end of the Basel 1 floor for Norwegian IRB banks from 31 December 2019 altered the competitive situation in the Norwegian market to a significant degree and has also left its mark on profit performance.

Sparebanken Øst uses risk weights of 35 per cent on residential mortgages with an LTV ratio of 80 per cent or less, while banks that deploy IRB models have risk weights of around 21 per cent. In the case of loans for commercial properties, the Bank uses risk weights from 100 per cent, while banks that use IRB models have risk weights of around 40 per cent.

A new and more risk-sensitive standard method for calculating capital requirements for credit risk (Basel 4) was adopted by the European Parliament on 24 April 2024. The Regulation (CRR3) will enter into force in the EU on 1 January 2025, while the implementation deadline for the Directive (CRD6) is 18 months after publication in the Official Journal. On 5 June 2024, the Ministry of Finance submitted a consultation note from the Financial Supervisory Authority on proposed amendments to the Capital Requirements Regulation (CRR3). The consultation deadline is set for 4 September 2024. The Ministry's intention is that the new standard method and the

Sparebanken Øst | Interim Report Q2 2024

other amendments to CRR3 should take effect in Norway at the same time as in the EU, i.e. from 1 January 2025.

Based on preliminary assessments, the Bank expects the new and more risk-sensitive standard method (Basel 4) to provide it with improved competitive conditions with lower capital needs in Pillar 1. It is expected that the current differential treatment of banks using the standard method, compared to banks that can use IRB models for all or part of their loan portfolios, will be reduced. However, banks like Sparebanken Øst are expected to remain at a competitive disadvantage as a result of differential treatment. Sparebanken Øst is working to ensure that the framework conditions for Norwegian banks are better aligned so the banks can compete on level terms.

Subsidiaries

All subsidiaries are 100 per cent owned by Sparebanken Øst and are included in the bank's consolidated financial statements.

Sparebanken Øst Boligkreditt ASis licensed as a credit institution with the right to issue covered bonds. Through this market, the mortgage credit company is a very important participant in securing favourable wholesale financing for the Group. At the end of Q2, the company had total assets of NOK

billion, consisting mainly of first priority mortgages on homes financed through covered bonds and drawing rights from the parent bank. The company has a low LTV ratio in the cover pool. The LTV ratio at the end of the first half-year was

per cent. By way of comparison, the LTV ratio was 46.9 per cent at the end of the first half of 2023. The company posted a profit of NOK 59.4 million for the first half-year compared with NOK 43.3 million for the first half of 2023. The company has no employees, but sources services from Sparebanken Øst.
AS Financiering's main product is secured loan financing for used cars. At the end of the first half-year, the company had total assets of NOK 2.8 billion. The company posted a profit of NOK 28.4 million for the first half-year compared with NOK 22.5 million for the first half of 2023. The company has 16 employees, corresponding to 16 FTEs.
Sparebanken Øst Eiendom ASmanages properties belonging to the Bank. The company's operating income amounted to NOK 3.2 million for the first half-year compared with NOK 3.1 million for the first half of 2023. The company posted a profit of NOK 1.3 million for the first half-year compared with NOK 0.9 million for the first half of 2023. The company has 1.2 employees, corresponding to 1.2 FTEs.
Øst Prosjekt AS's main purpose is to take over projects and to undertake industrial and commercial activities to hedge and realise exposed positions in the parent bank. The company posted a deficit of NOK 0.2 million for the first half-year, compared with a deficit of NOK 0.4 million for the first half of 2023.

Accounting policies

The interim financial statements are prepared in accordance with IFRS Accounting Standards as approved by the EU (including IAS 34 Interim Financial Reporting). The interim financial statements have not been audited. Please see Note 1 for more details.

Dividend policy

The Board has reviewed the Bank's dividend policy in light of its financial strength and risk tolerance. New rules for calculating capital for standard method banks from 1 January 2025 have been taken into account, and the Board has decided that a continuation of the current dividend policies is reasonable.

Sparebanken Øst's financial targets for our operations are to achieve results that provide a good and stable return on the Bank's equity and create value for equity certificate holders with competitive returns in the form of dividends and equity certificate appreciation. We will strive to ensure that our dividend policy results in a stable ownership fraction over time.

The profit for the year will be divided between equity certificate holders and social capital in accordance with their respective shares of the Bank's equity.

We will aim to ensure that up to 100 per cent of the profits allocated to equity certificate holders are paid as dividends over the next few years, while retaining up to 50 per cent of the profits allocated to equity certificate holders to be paid as dividends in the longer term.

We also aim to distribute dividends on the Bank's primary capital in the form of gifts to charity, the donations fund and/or charitable foundations, up to 100 per cent of the profits allocated to primary capital over the next few years, while retaining up to 50 per cent of the profits allocated to primary capital to be distributed as dividends on the Bank's primary capital in the form of gifts to charity, the donations fund and/or charitable foundations in the longer term.

When the dividend is set, due consideration will be taken of the Bank's financial performance, market situation, dividend stability and need for Tier 1 capital.

Target for return on equity (ROE)

The Board of Sparebanken Øst has adopted a new return target from 2024 onwards. The return target has increased from 9 per cent to 10 per cent over time.

Given the expected changes in the regulatory framework for standard method banks, the Board believes that a return of 10 per cent for the next few years represents a realistic target for Sparebanken Øst.

9	Sparebanken Øst \| Interim Report Q2 2024

The macro situation

The macroeconomic situation in Norway has been relatively unchanged since Q1 2024 and growth in the economy has been modest since mid-2022. High inflation and multiple interest rate hikes from Norges Bank have led to reduced demand in the Norwegian economy. Inflation has decreased significantly and the consumer price index was 3 per cent (CPI) in the period May 2023 to May 2024. Core inflation (CPI-ATE) was 4.1 per cent during the same period. This is a 50% drop from the peak in 2022. The Norwegian krone strengthened slightly in Q2 2024, but is still around 5 per cent down against the US dollar since the beginning of the year. Norges Bank has kept the key policy rate unchanged at 4.5 per cent so far in 2024. The money markets have been very stable in 2024.

Unemployment is continuing to rise in 2024, and is now close to the average for the 2010s. Statistics Norway's workforce survey for May shows an unemployment rate of 4.1 per cent, which is an increase of 0.3 percentage points since the start of the year. This is low compared to e.g. the EU at about 6% and Sweden at over 8%. A relatively tight labour market, weak growth in productivity and a weak krone compared to our main trading partners are factors that may make it harder to bring inflation down to the target of 2 per cent. This could result in interest rates being kept higher for a longer period of time.

Economic growth in Norway's trading partners is relatively weak, but with signs of a cautious upturn within the EU and in the US in the future. The conflicts in the Middle East and the war in Ukraine have not so far spread to neighbouring countries and oil prices are relatively stable. This is good for the Norwegian and the international economy.

Housing investments in Norway fell by 21 per cent in 2023 and have fallen further in 2024, to be almost 30 per cent down from two years ago. House prices increased in the first half of 2024 by 8 per cent, with all regions recording increases of over 5 per cent. Statistics Norway expects house prices to be around 14 per cent higher in 2027 than they were in 2023. Reduced housing investments also reduce the demand for mortgages. Household credit growth was 3.1 percent in May 2024. Before the pandemic, this growth was close to 6 per cent.

Future prospects

Sparebanken Øst has an overall financial target for its return on equity of 10 per cent over time. Several factors affect this target figure.

New capital requirement rules (Basel 4) give small and medium-sized banks (standard method banks) increased competitiveness and improved capital efficiency compared to banks that use the IRB method. The Ministry of Finance has launched a consultation on the new rules, with a deadline of 4 September 2024.

Significant attention to profitable and sustainable growth in lending to customers. Such growth may vary over time with changes in e.g. market conditions and demand.
Efficient banking operations with a strong emphasis on innovation and cost control are crucial.
A strong culture of risk management and internal control has been established.

There are a number of risks and uncertainties related to banking. However, the Bank has a very solid capital base with significant loss-absorbing capacity and a robust business model.

Loans to private individuals secured against residential property account for close to 90 per cent of total lending in the Bank. Negative developments in the Norwegian economy can impact on the ability of households to service these loans. However, relatively low loan-to-value ratios have a significant risk-reducing effect.
Loans to companies are made within the Bank's primary market area with the main focus on loans secured against real property. A conservative attitude towards return requirements (yield) and a strong emphasis on long-term repayment capacity contribute to the robustness of the portfolio.
Macroeconomic conditions may lead to changes in financial prices (spread), which will in turn affect the market value of the bank's liquidity portfolio. Market conditions can affect the value of the Bank's holdings of financial instruments and strategic shareholdings.
Persistently high general price and wage growth and increased costs to cover operations, investment in technology and regulatory requirements could adversely affect the Bank's costs over time.
Regulatory uncertainty related to the capital structure in the savings bank sector is under review by the Sparebank Committee established by the Ministry of Finance. The Committee is expected to submit its findings in the autumn of 2024. The capital situation and dividend capacity of the banks may be affected by the Committee's conclusions.

The Board assumes that Sparebanken Øst will continue to operate as an autonomous and independent savings bank going forward. The Board considers that the Bank's location in the eastern part of southern Norway provides unique access to a large and growing market in the short and long term, as well as broad access to the necessary expertise to operate and develop the Bank in the future. The Board recognises that geopolitical conditions are creating increased uncertainty around future economic developments in Norway and around the world than we saw before the pandemic. Sparebanken Øst

Sparebanken Øst | Interim Report Q2 2024

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