Good underlying operations in Q4 and 2022

09 Feb 2023 07:00 CET

SpareBank 1 Sørøst-Norge posted a profit after tax of NOK 343 million for the
fourth quarter, compared with NOK 261 million for the fourth quarter of 2021
(pro forma for SpareBank 1 BV, Sparebanken Telemark and SpareBank 1 Modum). The
return on equity for the fourth quarter was 10.9% (9.0%)*.

The profit after tax for 2022 was NOK 1 067 million, compared with NOK 1 152
million pro forma for 2021. The return on equity for 2022 was 8.8% (10.4%), or
9.6% (10.1%) adjusted for one-off effects related to the mergers in 2021 and
2022.

The Board of Directors is proposing dividends/gifts totalling NOK 600 million,
corresponding to NOK 2.60 (NOK 2.50) per equity certificate (NOK 364 million in
total) and NOK 236 million in gift funds for community capital. Based on the
Group’s extremely good financial strength, even after the ordinary dividend for
equity certificate holders and gift funds for community capital, the Board of
Directors will propose to the Supervisory Board that the Board of Directors be
authorised to pay an additional dividend to the Bank’s equity certificate
holders and for gifts to good causes if the financial situation so permits. An
additional dividend of up to NOK 1.50 per equity certificate is proposed, which
corresponds to NOK 210 million in dividends and NOK 136 million in gifts via
community capital. The Board will consider whether there is a basis for
paying out a possible additional dividend/gifts during the third quarter of
2023.

Despite the fact that 2022 was a year of mergers for SpareBank 1 Sørøst-Norge,
the Group has delivered good results with good growth in net interest and
commission income. The results were affected by merger-related costs, SpareBank
1 Gruppen’s weak results and negative returns on the securities portfolio due to
turbulent financial markets, despite an improvement in the fourth quarter.

Net interest income including commission income from mortgage credit
institutions grew by (pro forma) 10% in the fourth quarter and 14% in the past
12 months. The policy rate was increased six times in 2022. The increases in
lending and deposit rates resulting from this strengthened the Bank’s net
interest income. The most recent change in rates in December 2022 did not take
effect for the retail market until the end of January 2023, while they took full
effect for corporate market customers at the start of January 2023.

Negative deposit and loan growth during the fourth quarter, but moderate growth
for the year. Lending growth in the quarter of -0.6% compared with 0.9% in the
same period the year before. Lending growth for 2022 was 2.5%, compared with
6.4% for 2021. Lending growth in the retail market for 2022 was 1.9%, while the
corporate market saw growth of 4.4%.

Other commission income grew by (pro forma) 16% in the past 12 months due to
good growth in payment services and sales of life and non-life insurance
products.

The parent bank and the Group maintain a strong focus on cost management. The
Group has introduced a cost-income ratio target as a means of measuring
profitability on the path to a return on equity of 11%. The cost-income ratio
has been set at less than 40% for the Group. The cost-income ratio for 2022,
excluding one-off costs, was 45% (44%). A programme will be implemented to
increase profitability and reduce costs in the Group in 2023.

The quality of the loan portfolio is good, which is confirmed by the low losses
on loans and guarantees. At the end of the year, the loss cost was NOK 40
million (0.05% of gross loans on the balance sheet), NOK 10 million of which was
linked to accounting effects (IFRS 9) when recognising losses in Stage 1 in
connection with the merger with SpareBank 1 Modum and NOK 12 million due to
increased scenario weights in the corporate market, linked to greater
uncertainty about macroeconomic developments.

The Bank adjusted its lending and deposit rates following Norges Bank’s interest
rate decisions in November and December. The first change took full effect from
the end of December, while the second change did not take full effect until the
end of January 2023. A general rise in market rates is expected to improve the
Group’s interest rate margin and earnings. Higher interest rates going forward
may lead to lower credit growth and greater competition, especially in the
residential mortgage segment, which has already been seen to some extent in the
fourth quarter.

At the end of the year, the proportionally consolidated Common Equity Tier 1
capital ratio was 19.5% (18.6% pro forma) and the leverage ratio was 8.5% (8.5%
pro forma). Capital adequacy calculations take account of the expected dividend,
both the ordinary pay out and the possible additional pay out. See comments
above.

Highlights for Q4 2022 (figures in brackets relate to pro forma for Q4 2021)
• Ordinary profit after tax of NOK 343 million (NOK 261 million)
• Return on equity of 10.9% (9.0%)
• Net interest income, inclusive of mortgage credit institutions, of NOK 501
million (NOK 413 million)
• Improved financial result of NOK 129 (65) million
• Moderate growth in operating expenses, excluding one-off merger costs, of NOK
354 million (NOK 347 million) One-off merger costs of NOK 15 million (NOK 5
million)
• Losses on loans and guarantees, exclusive of merger effects, of NOK 29 million
(NOK -2 million)
• Lending and deposit growth in the past quarter was -0.6% (0.9%) and -1.3%
(-1.0%), respectively


Highlights for 2022 (figures in brackets relate to pro forma for 2021)
• Ordinary profit after tax of NOK 1 067 million (NOK 1 152 million)
• Return on equity 8.8% (10.4%), adjusted for one-time effects 9.6% (10.1%)
• The Board is proposing a cash dividend for equity certificate holders of NOK
2.60 (2.50) per equity certificate, totalling NOK 364 (297) million, and gift
funds for community capital amounting to NOK 236 (196) million.
• The Board is also proposing an additional dividend of NOK 1.50 per equity
certificate, totalling NOK 210 million, and additional gift funds for community
capital amounting to NOK 136 million.
• Net interest income, inclusive of mortgage credit institutions, of NOK 1 795
million (NOK 1 568 million)
• The weak result from SpareBank 1 Gruppen and turbulent financial markets in
2022 affected the financial result, which was NOK 177 (304) million, excluding
income recognition of negative goodwill in 2021 of NOK 151 million
• Operating expenses, excluding one-off merger costs, of NOK 1 216 million (NOK
1 187 million) One-off merger costs of NOK 114 million (NOK 68 million)
• Losses on loans and guarantees, exclusive of merger effects, of NOK 30 million
(NOK -1 million)
• Lending and deposit growth in the past 12 months of 2.5% (6.4%) and 1.2%
(7.4%), respectively
• Very good financial strength with Common Equity Tier 1 capital of 19.5%
(18.6%) in the Group


The full quarterly report can be downloaded from the Bank’s website
sparebank1sorost.no
*) Figures in brackets indicate the amount for the corresponding period in 2021
pro forma for SpareBank 1 Sørøst-Norge.


Sandefjord, 09.02.2023

For further information:

Per Halvorsen, CEO, Tel. +47 934 07 441
Roar Snippen, CFO/IR, Tel. +47 976 10 360

This information must be disclosed pursuant to section 5-12 of the Securities
Trading Act.

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