Third quarter 2012 The Sparebanken Vest Group
24 October 2012 Stein Klakegg, Managing Director
1
Key developments in the third quarter
Sound third quarter – pre-tax profit of NOK 303 million (135) – Return on equity after tax of 12.5% (5.5%) for the quarter
Contribution to profits from product companies up NOK 60 million so far this year compared
with the same period last year
Increased net interest and credit commission for the quarter: NOK 458 million (416)
Tightening of credit spreads leads to considerable gain on the bond portfolio
High level of activity characterises cost developments – improvement programme on schedule
Improved financial strength – Core Tier 1 capital adequacy of 9.7%, compared with 9.5% in
the previous quarter – Driven by strong result and lower growth in lendings in the corporate market
2
Key figures
3
3Q 2012 3Q 20113Q 2012
Acc.3Q 2011
Acc. 2011
Operating profit / loss before write-downs and tax 329 mkr 167 mkr 812 mkr 604 mkr 858 mkr
Pre-tax profit 303 mkr 135 mkr 708 mkr 533 mkr 732 mkr
Net interest (annualised) 1,46 % 1,52 % 1,43 % 1,46 % 1,46 %
Cost ratio (annualised) 54,1 % 65,6 % 58,5 % 61,6 % 60,9 %
Deposits / Loans ratio 55,3 % 56,3 % 55,3 % 56,3 % 53,5 %
Liquidity indicator 106,6 % 103,8 % 106,6 % 103,8 % 102,6 %
Common equity 9,7 % 9,5 % 9,7 % 9,5 % 9,6 %
Total capital 11,6 % 11,5 % 11,6 % 11,5 % 11,6 %Common equity (Basel II) 13,3 % 12,5 % 13,3 % 12,5 % 12,9 %Total capital (Basel II) 16,0 % 15,2 % 16,0 % 15,2 % 15,6 %
Common equity / Total capital includes 50% of operating profit for the period, except for 2011
Key figures at the end of the third quarter, isolated and accumulated
Key figures – equity certificates
4
Return on equity after tax (%)
Profit per equity certificate (NOK)
Book equity per equity certificate (NOK)
Positive development in the most important source of income continues in the third quarter
Development in net interest and credit commission income
Comments
Positive effect of repricing in CM,
falling Nibor and tightening of credit spreads
Lending margins increase in both
RM and CM, but the deposit margins are still under pressure
Repricing of several commitments so far this year in order to achieve satisfactory pricing of risk
Continued improved net interest in order to meet new regulatory requirements
5
341
378357
377 372 376 386 382 378 385416 411 422
439458
1,53 %
1,69 %
1,52 %
1,58 %
1,54 %
1,51 %
1,47 %
1,44 %
1,42 %
1,44 %
1,52 %
1,43 %
1,39 %
1,44 %
1,46 %
0,00 %
0,50 %
1,00 %
1,50 %
2,00 %
2,50 %
3,00 %
3,50 %
0
50
100
150
200
250
300
350
400
450
500
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Per
cap
ital u
nit %
p.a
.
NO
Km
Net interest income and credit commisions (NOKm)
Net interest income and credit commisions per capital unit (% p.a.)
Continued profit improvement in associated companies Accumulated contribution at the end of the third quarter for SPV is NOK 34 million
Overall improvement in the bank's share of profit/loss as of 30 September of NOK 60 million
compared with same period last year
Positive development expected to continue
Frende: – Both the cost ratio and the loss ratio are
decreasing, helped by a good general insurance market in general
– Expecting continuing volume growth
Norne: – At the end of the third quarter, growth in
income of 21% compared with the same period last year despite a challenging market
– Adjustment of expenses has improved operations
Brage: – Good number of orders on its books – Expecting profitable growth in the time
ahead
6
TOTAL
Considerable gain on financial instruments during the quarter
7
Net gain on financial instruments in the third quarter (MNOK)
Comments
Tightening of credit spreads leads to
considerable gain on the bond portfolio
Fixed-interest portfolio also has positive effect on profit/loss because of lower interest rates
Major fluctuations – financial instruments up NOK 171 million compared with the same quarter last year
C
ertificates / bonds
Shares
Other fin.
instruments
Change in
credit spread FVO
port.
Net gain
Dividend
High level of activity characterises cost developments
Change in operating expenses third quarter 2011 – third quarter 2012
Comments
Hardanger, provisions and non-recurring expenses
account for over 70% of the gross increase in expenses compared with the third quarter 2011
Effects of ongoing improvement programme with a reduction of 50 full-time equivalents by June 2013
– At the end of the third quarter, finalised and signed severance agreements amounted to 41 full-time equivalents
Employment of 15 full-time equivalents in IT replacing
advisers will lead to further savings of NOK 12 million in 2013
Further measures to counteract future increases in costs are under evaluation
8
Costs Q3 2012 388Costs Q3 2011 318Change 70
Details:
Personell expenses Hardanger* 7Other operating expenses Hardanger 5Total Hardanger Sparebank 12
Change in FTEs and salaries 1Provisions improvement program and bonus 39Pension expenses 6IT expenses 6Other expenses and Eiendomsmegler Vest 6Sum Sparebanken Vest 58
*) Including pension expenses
Reduced growth in lendings during the third quarter – in step with the goals for the year
9
Development in year-on-year organic* growth in gross lendings (%)
Comments
Organic* year-on-year growth in
lendings of 9.5% – down 0.8% on the previous quarter
– Including Hardanger, the year-on-year growth in lendings is 13.4% at the end of the third quarter
The decrease during the quarter is
due to reduced growth in lendings in CM
– Growth in lendings of -0.3% in CM in Q3 seen in isolation
Stable growth in lendings in RM compared with both the previous quarter and the same period last year
* Excluding growth in lendings as a result of the merger with Sparebanken Hardanger
10,3 %9,5 %
14,1 %
11,1 %
8,9 % 8,9 %
0 %
2 %
4 %
6 %
8 %
10 %
12 %
14 %
16 %
Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12
Total Corporate Market Retail market
10
Index present versus future end of September Outlook – Western Norway
Continued general optimism – 7 of 10 businesses
in Western Norway are optimistic about the future Fewer optimists in industry – strong Norwegian
krone making its mark Moderate investment level – fewer businesses
envisaging increased investments in the time ahead
Expectations of positive developments in
profitability unchanged since previous survey
The oil price is an important premise for the overall level of activity in the region
Strengthening of net interest into the fourth quarter – Maintaining the margins necessary to comply with new regulatory requirements
Strong position and sound portfolio in the retail market – equipped for future competition
Further measures to counteract the bank's increase in costs are under evaluation
– Effects of ongoing improvement programme are expected in 2013
Continuing positive profit development expected from associated companies
Limited growth in lendings pending clarification with respect to future regulatory regime – Goal of overall growth in lendings in CM of 5% for the year still applies
Good liquidity and financial strength – stable risk profile for the lending portfolio
11
Outlook for Sparebanken Vest
Third quarter 2012 The Sparebanken Vest Group : Accounting and finance
24 October 2012 Eivind Areklett Norebø, CFO
12
13
Profit/loss development third quarter 2011–2012
135
42 415
136
44 6
9 12
58
303
0
50
100
150
200
250
300
350
400
450
Q3 2011 R
eported
Net interest
Net banking services/other
income
Associated com
panies
Com
mercial papers and
bonds
Shares
Loan losses
Other financial instrum
ents
Operating expenses
Hardanger
Other operating expenses
Q3 2012 R
eported
NOKm
Change in net interest third quarter 2011 – third quarter 2012
14
416
19 27
61 5
40 25 4 458
-
100
200
300
400
500
600
Net interest incom
e Q3
2011
Lending volume
Deposit volum
e
Lending margin
Equity capital
Deposit m
argin
Com
mercial papers and
bonds
Shares
Net interest incom
e Q3
2012
15 * Parent bank and housing credit company
Product margins and interest margin* seen in relation to the bank's intra-group interest
Stable interest margin compared with the third quarter last year
0,85 %
1,05 %
1,25 %
1,05 %
2,10 % 2,10 %
0,00 %
0,50 %
1,00 %
1,50 %
2,00 %
2,50 %
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
% p
.a.
Loans Deposits Interest margin
Increased lending margins seen in relation to average 3-month NIBOR* Deposit margins still under pressure
16 Definition: The quarter's average customer interest rate minus average 3-month NIBOR
Deposit margins down 12bp for CM and 5bp for RM compared with the previous quarter
Lending margins up 18bp for CM and 6bp for RM compared with the previous quarter
0,30
0,56 0,62 0,48
0,46
0,63 0,82
0,77
0,02
-0,17 -0,23
0,24
0,42 0,46
0,31 0,32
0,43 0,57
0,55
-0,05 -0,16
-0,28 -0,40
-0,20
-
0,20
0,40
0,60
0,80
1,00
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
1,68 1,42 1,38 1,50 1,41
1,22 1,09
1,09
1,73 1,89 1,95
2,41 2,37 2,39 2,41 2,28 2,18 2,23
2,20 2,69
2,69 2,87
-
0,50
1,00
1,50
2,00
2,50
3,00
3,50
Q1 20
10
Q2 20
10
Q3 20
10
Q4 20
10
Q1 20
11
Q2 20
11
Q3 20
11
Q4 20
11
Q1 20
12
Q2 20
12
Q3 20
12
Retail Market Corporate Market Corporate Market Retail Market
Stable deposits and deposits/loan ratio on a par with the second quarter
17
Growth in deposits in the last 12 months of 11.3% including Hardanger Excluding. Hardanger, the growth in deposits in the last 12 months is 6.9% – 2.5% for CM and 10.4% for RM
24,0
25,6
24,3
25,4
25,4
26,9
25,5
26,1
26,2
28,2
27,5
27,6
27,8
29,9
29,2
31,2
31,8
34,3
34,0
14,6
15,8
18,0
15,1
15,2
17,5
17,8
18,8
19,1
20,3
21,0
21,2
20,7
22,7
23,3
21,9
24,7
23,8
24,4
20 %
25 %
30 %
35 %
40 %
45 %
50 %
55 %
60 %
0
10
20
30
40
50
60
70
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
NO
Kbn
Retail market Corporate market Customer deposits to net customer lending
The RM portfolio – large proportion secured by mortgage Good security coverage with low LTV ratios
18 18
Ordinary instalment loans are normally furnished for up to 85% of a house's value pursuant to the new guidelines
Up to 100% LTV ratio permitted if additional security is furnished, or following a separate assessment of creditworthiness
93% of the total volume of housing loans are within 70% of the house's value provided that all loans are split
93,1 %
4,4 % 2,5 %0,0 %
10,0 %
20,0 %
30,0 %
40,0 %
50,0 %
60,0 %
70,0 %
80,0 %
90,0 %
100,0 %
LTV <= 70 % 70 - 85 % LTV > 85 %
95% of RM exposed to housing loans Good security coverage
95% of the RM portfolio consists of loans secured by mortgage*
33% of housing loans are flexible loans** (overdraft facilities), the remainder are ordinary instalment loans
*) Incl. housing credit company, group figures **) Can be furnished for up to 70% of the house's market value or by
furnishing additional security pursuant to the new guidelines.
5,2 %
67,1 %
32,9 %
94,8 %
Other Retail Mortgages Instalment loans Flexible loans
The RM portfolio constitutes 70% of the total lending portfolio Well-diversified CM portfolio
19
Breakdown of segments, total lending portfolio end of third quarter Comments
The RM portfolio dominates the
total lending portfolio
The CM portfolio is well-diversified Real estate constitutes the
biggest single segment, 11.1% of the total portfolio
No significant changes in the composition of segments in the quarter Slight decline in the real
estate and shipping segments compared with the second quarter
70,0 %
11,1 %
3,8 %
4,4 %
1,3 %1,9 %
1,2 % 1,5 %
0,8 % 1,1 %1,1 %
0,5 %0,7 %
0,4 %Retail market
Real estate
Shipping
Other
Primary industries
Building and construction
Shipyard
Wholesale and retail trade
Fish farming
Fisheries/seafood industry
Energy
Mainland transportation
Agriculture and forestry
Hotels and restaurants
Stable and low risk profile in the retail market dominates the overall risk profile
20
* From 2012, the bank uses a new loss calculation method that affects the classification. This means that the data are not directly comparable with previous periods.
80,1 %
80,7 %
80,5 %
79,9 %
78,8 %
78,9 %
81,0 %
82,8 %
83,2 %
14,2 % 12,9 % 14,1 % 14,1 % 14,7 % 14,3 % 10,6 % 10,2 % 9,4 %
5,7 % 6,4 % 5,5 % 6,0 % 6,6 % 6,8 % 8,4 % 7,0 % 7,5 %
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012
< 0,2 % 0,2 % > < 0,75 % > 0,75 %
Debt-servicing ability + security coverage (PD/LGD)* improved during the quarter Comments
High RM share makes positive
contribution to the overall low risk profile
Large proportion secured by mortgage and low LTV ratio
> 83% of the overall portfolio has low risk
Stable / strengthened development during the quarter
Both the percentage provided for and default of payment on a par with the previous quarter
21
Total percentage provided for of 0.67% Default of payment for more than 90
days for both RM and CM on a par with the second quarter
243
261
273
275
276
281
287
301
335
336
338
283
288
291
291
290
298
312
330
343
367
377
0,62 %
0,63 %
0,64 %
0,64 %
0,63 %
0,63 %
0,64 %
0,63 %
0,66 %
0,67 %
0,67 %
0
100
200
300
400
500
600
700
800
0,50 %
0,52 %
0,54 %
0,56 %
0,58 %
0,60 %
0,62 %
0,64 %
0,66 %
0,68 %
0,70 %
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Cap
ital
ised
wri
te-d
owns
NO
K m
Pro
visi
on
s in
% o
f lo
ans
Individual write-downs Group write-downs Percentage provided for
0,00 %
0,20 %
0,40 %
0,60 %
0,80 %
1,00 %
1,20 %
1,40 %
1,60 %
Default rate 90 days, Retail Default rate 90 days, Corporate
Default rate 90 days, Total
Low losses in the third quarter
22
-11
-21
-57
-115
-59-53
-93
-65
-16
-35-29
-47
-11
-28-32
-55-50
-28 -26
-120
-100
-80
-60
-40
-20
0
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Losses on loans in the third quarter of NOK 26 million Comments
• Loss cost in the third quarter
of NOK 26 million, down NOK 6 million compared with the same period last year
• This corresponds to 0.10% (0.14%) per annum of average gross lendings
• Accumulated for the third quarter, it is 0.13% (0.10%)
Good liquidity – within control parameters
23
Composition of liquidity portfolio 3Q 2012 Structural liquidity of 18 months Half of the liquidity portfolio consists of covered bonds
-
5
10
15
20
25
30
-4.000
-2.000
-
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
3 kv. 2010
4 kv. 2010
1 kv. 2011
2 kv. 2011
3 kv. 2011
4 kv. 2011
1 kv. 2012
2 kv. 2012
3 kv. 2012
mnd
State Local and county authorities
Banks Others
Covered bonds Equities
Interbank "Used as collateral in NB"
Strukturell likviditet
Mill
.
Kommuner og fylkeskommuner
21 %
Banks20 %
Others2 %
Covered bonds52 %
Equities5 %
Interbank 1 %
Capital adequacy transitional arrangement and Basel II Core Tier 1 capital strengthened under both regimes
24 * The figures for the quarter include 50% of the accumulated profit after tax.
Pursuant to the transitional arrangement* Pursuant to Basel II*
2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3Total Capital 11,5 % 11,6 % 12,3 % 11,4 % 11,6 %Additional Capital 0,8 % 0,8 % 1,2 % 0,3 % 0,3 %Hybrid Capital (Tier 1) 1,3 % 1,2 % 1,6 % 1,6 % 1,6 %Common Equity 9,4 % 9,6 % 9,5 % 9,5 % 9,7 %
9,4 % 9,6 % 9,5 % 9,5 % 9,7 %
1,3 % 1,2 % 1,6 % 1,6 % 1,6 %0,8 % 0,8 %
1,2 %0,3 % 0,3 %
11,5 % 11,6 %12,3 %
11,4 % 11,6 %
0,0 %
2,0 %
4,0 %
6,0 %
8,0 %
10,0 %
12,0 %
14,0 %
16,0 %
18,0 %
2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3Total Capital 15,2 % 15,6 % 16,6 % 15,6 % 16,0 %Additional Capital 1,1 % 1,0 % 1,6 % 0,4 % 0,5 %Hybrid Capital (Tier 1) 1,7 % 1,7 % 2,2 % 2,3 % 2,2 %Common Equity 12,4 % 12,9 % 12,8 % 12,9 % 13,3 %
12,4 % 12,9 % 12,8 % 12,9 % 13,3 %
1,7 %1,7 % 2,2 % 2,3 % 2,2 %1,1 %1,0 %
1,6 % 0,4 % 0,5 %15,2 %15,6 %
16,6 %15,6 % 16,0 %
0,0 %
2,0 %
4,0 %
6,0 %
8,0 %
10,0 %
12,0 %
14,0 %
16,0 %
18,0 %
Questions?