Sparebanken Øst : Quarterly report 1/2022

180th year

Quarterly report

Q1 2022

Interim financial statements - Q1 2022

Key figures - Group……………………………………………………………………………………	3
Events in the quarter…………………………………………………………………………………	4
Board of Directors' Report…………………………………………………………………………	5
Financial statements for the Sparebanken Øst Group
Income Statement ………………………………………………….……………………………..	12
Balance Sheet ………………………………........................................................................................................	13
Changes in Equity ........................................................................................................................	14
Cash Flow Statement ……………......................................................................................................................	15
Note 1	Basis for preparation of the financial statements ..........................................................................	16
Note 2	Operating segments ………………………..................................................................................... 17
Note 3	Capital adequacy ………………………………...............................................................................	18
Note 4	Losses on loans, unused credit and guarantees ...........................................................................	20
Note 5	Non-performing commitments, customers ....................................................................................	23
Note 6	Deposits from customers by sector and industry ………………………………………………………	24
Note 7	Lending, guarantees and credit facilities by sector and industry………………………...……………	24
Note 8	Geographical distribution of lending, customers ………………………………………………………	24
Note 9	Credit risk ……………………………………………………….………………………………………… 25
Note 10	Classification of financial instruments ...........................................................................................	27
Note 11	Financial instruments at fair value ………………………………………………………………………	29
Note 12	Securities issued and subordinated loan capital ………………………………………………………	31
Note 13	Net interest income ……………………………………………………………………………………… 32
Note 14	Net changes in value and gains/losses on financial instruments ……………………..………………	32
Note 15	Operating costs …………………………………………………………………………………………… 32
Note 16	Pledged assets and preferential rights…………………………………………………………………	32
Note 17	Equity certificates ………………………………………………………………………………………… 33

Additional Information - Sparebanken Øst Group

Changes in key figures ………………………………………………………………………………………………… 34

Definition of key figures and alternative performance indicators …………………………………………………… 35

Financial performance ………...………………………………………………………………………………………… 36

Balance sheet performance ……...……………………………………………………………………………………… 37

Financial Statements for Sparebanken Øst - Parent bank
Income Statement ………………………………………………….…………………………………………………… 38
Balance Sheet ………………………………........................................................................................................	39
Changes in Equity .............................................................................................................................................	40
Cash Flow Statement ........................................................................................................................................	41
Note 1	Basis for preparation of the financial statements ..........................................................................	42
Note 2	Capital adequacy……………………………….............................................................................	43
Note 3	Losses on loans, unused credit and guarantees ...........................................................................	45
Note 4	Financial instruments at fair value………………………………………………………………..	48
Note 5	Securities issued and subordinated loan capital ………………………………………………………	50
Note 6	Transactions with group companies……………………………………………………………………. 51

2	Sparebanken Øst | Interim Report Q1 2022

Key figures - Group

Income Statement (Amounts in NOK millions)Q1 2022 Q1 2021 Full year 2021

Net interest income	161,9	151,2	631,3
Net commission income	11,2	7,5	33,3
Net result from financial assets	-13,2	2,2	89,8
Other operating income	0,7	3,8	6,4
Total net income	160,6	164,7	760,8
Total operating costs	81,1	78,9	305,7
Profit/loss before losses	79,5	85,8	455,2
Losses on loans, unused credit and guarantees	0,2	2,6	0,5
Profit/loss before income tax	79,3	83,2	454,7
Income tax	17,1	18,6	79,3
Profit/loss after tax	62,2	64,6	375,4
Key figures	Q1 2022	Q1 2021	Full year 2021
Profitability
Return on equity*	5,61	6,19	8,86
Net interest income as a % of average total assets	1,38	1,36	1,34
Profit/loss after income tax as a % of average total assets	0,53	0,58	0,79
Costs as a % of average total assets	0,69	0,71	0,65
Costs as a % of income (before losses on loans/guarantees)*	50,49	47,92	40,17
Costs as a % of income (excl. return on financial investments)*	46,66	48,57	45,55
Balance sheet figures
Net lending to customers	38.316,4	38.441,0	39.386,7
Lending growth (12 months)	-0,32	13,95	11,12
Deposits	17.099,6	15.748,6	17.578,9
Deposit growth (12 months)	8,58	10,02	18,42
Average equity	4.211,0	4.001,6	4.076,5
Average total assets	47.439,1	45.236,2	47.242,1
Loan loss provisions on impaired and non-performing commitments
Losses as a % of net lending to customers (OB)*	0,00	0,03	0,00
Loan loss provisions as a % of gross lending to customers*	0,33	0,33	0,32
Net payments over 90 days past due as a % of net lending*	0,30	0,26	0,20
Other net non-performing commitments (Stage 3) as a % of net lending*	0,13	0,06	0,31
Financial strength
CET1 capital ratio incl. 50% of retained earnings (%)	19,01	17,75	18,24
CET1 capital ratio (%)	18,87	17,61	18,24
Tier 1 capital ratio (%)	20,56	19,28	19,89
Capital adequacy ratio (%)	22,50	21,20	21,78
Risk-weighted volume (calculation basis)	20.664,1	20.879,4	21.190,0
Leverage ratio incl. 50% of retained earnings (%)	8,95	8,59	8,60
Tier 1 leverage ratio (%)	8,89	8,53	8,60
Liquidity
Deposit coverage ratio	44,63	40,97	44,63
LCR (%)	257,69	254,25	249,72
Branches and FTEs
No. of branches	29	29	29
FTEs	181	187	187
Equity certificates
Ownership fraction (parent bank) (%)**	28,59	29,59	29,59
No. of equity certificates	20.731.183	20.731.183	20.731.183
Book equity per equity certificate*	58,47	58,55	61,51
Earnings per equity certificate*	0,80	0,87	5,16
Dividend per equity certificate	0,00	0,00	3,85
Turnover rate	25,53	24,90	28,53
Price	58,40	51,00	57,20

• Defined as alternative performance target
• For ownership fraction as at 01.01.2022, see Note 17

For the definitions of key figures and a review of alternative performance targets, see page 35.

3	Sparebanken Øst | Interim Report Q1 2022

Board of Directors'

Report

The bank can point to higher net interest income and a stably low level of costs in Q1 compared with the same quarter last year. The bank has seen high deposit growth and a stable loan portfolio in the past 12 months.

Profit for the quarter amounted to NOK 62.2 million,

which corresponds to a return on equity of 5.61 per cent. Given the current market situation and fierce competition, the bank is satisfied with the development of net interest income and costs. Furthermore, losses on loans are very low and the bank is financially very strong with a CET1 capital ratio of 19.01 per cent (inclusive of 50 per cent of retained earnings). The results achieved in the quarter were negatively impacted by the NOK

1. million fall in the liquidity portfolio's market value, which was largely attributable to market turbulence in the wake of the war in Ukraine. Earnings per equity certificate were NOK
   With effect from February, interest rate increases were applied to large parts of the bank's loan portfolio, and further changes were decided in the Q1 that will take effect in mid-
   May. The bank's deposit margins increased in the quarter and are expected to increase going forward due to anticipated rises in money market rates.
   Sparebanken Øst calculates its capital adequacy using the standard method and therefore uses very high capital weights for its lending to retail and business customers when compared with banks that use IRB models. The differential treatment of equal risk shows that capital weights according to IRB models allow significantly higher lending volumes relative to equity levels, which makes a higher return on equity possible.

Results for the quarter in brief

Profit for the quarter amounted to NOK 62.2 million, down NOK

1. million compared with the same quarter last year. Compared with Q4 2021, profit was down by NOK 35.5 million.
   The return on equity (ROE) amounted to 5.61 per cent. The corresponding figures were 6.19 per cent for Q1 2021 and

1. per cent for Q4 2021.
   Earnings per equity certificate were NOK 0.80, down from NOK 0.87 in Q1 2021 and NOK 1.34 in Q4 2021.
   The CET1 capital ratio, inclusive of 50 per cent of retained earnings, was 19.01 per cent, up from 17.75 per cent in Q1 2021 and 18.24 per cent in Q4 2021.
   The leverage ratio, inclusive of 50 per cent of retained earnings, was 8.95 per cent, up from 8.59 per cent in Q1 2021 and 8.60per cent in Q4 2021.
   Net interest income amounted to NOK 161.9 million, up NOK 10.7 million from Q1 2021. Compared with Q4 2021, net interest income was stable with a reduction of NOK 0.9 million.
   Net other operating income amounted to NOK -1.3 million, down by NOK 14.8 million compared with Q1 2021.

5

Compared with Q4 2021, net other operating income decreased by NOK 32.9 million. The reduction compared with Q1 2021 is largely attributable to the NOK 17.2 million reduction in the value of the liquidity portfolio. In Q4 2021, positive result effects from ownership interests amounted to NOK 35.8 million and the value of the liquidity portfolio decreased by NOK 16.6 million.

Operating costs amounted to NOK 81.1 million and were stable with an increase of NOK 2.2 million from Q1 2021. Total operating costs as a percentage of average total assets have decreased to 0.69 per cent compared with 0.71 per cent in Q1 2021. Compared with Q4 2021, operating costs increased by NOK 2.2 million.

Losses amounted to NOK 0.2 million, down by NOK 2.4 million from Q1 2021. By comparison, receipts on losses amounted to income of NOK 1.0 million in Q4 2021.

More about the results for the quarter

NET INTEREST INCOME

Net interest income amounted to NOK 161.9 million, up NOK

10.7 million from Q1 2021, and down NOK 0.9 million compared with Q4 2021. Higher interest rates generally result in increased interest income and higher interest costs for the bank. The increase in net interest income compared with Q1 2021 was mainly due to increased deposit margins and a higher volume of deposits, although rising money market rates are also resulting in higher interest costs for the bank's market funding.

The marginal reduction in net interest income compared with Q4 2021 was mainly attributable to a slightly lower lending volume and the fact that interest rate changes for loans were implemented with a significant time lag compared with interest costs for the bank's market funding.

Netto renteinntekter
Beløp i NOK mill.	Q1 22	Q4 21	Q1 21
Utlån til & fordringer på kredittinstitusjoner	0,6	0,3	0,0
Utlån til kunder	250,2	238,9	217,3
Sertifikater og obligasjoner	25,9	19,4	13,9
Sum renteinntekter	276,6	258,5	231,2
Gjeld til kredittinstitusjoner	1,7	1,5	1,8
Innskudd fra kunder	25,1	24,3	18,9
Verdipapirgjeld	81,8	64,5	53,7
Ansvarlig lånekapital	2,3	2,0	1,9
Sikringsfondsavgift	3,8	3,3	3,8
Sum rentekostnader	114,8	95,7	80,0
Netto renteinntekter	161,9	162,8	151,2
Rentenetto i % av GFK	1,38	1,33	1,36

NET OTHER OPERATING INCOME

Net other operating income comprises commission income and costs, dividends, net value changes and gains/losses on financial instruments and other income. Net other operating income amounted to NOK -1.3 million, down by NOK 14.8

Sparebanken Øst | Interim Report Q1 2022

million compared with Q1 2021. Compared with Q4 2021, net other operating income decreased by NOK 32.9 million.

Net commission income amounted to NOK 11.2 million, up NOK 3.7 million from Q1 2021. The increase is mainly due to increased commission income from insurance intermediation.

No dividend income was recognised in the quarter. In Q1 2021, dividends recognised as income amounted to NOK 2.2 million and mainly comprised dividends from Eksportfinans ASA.

Net value changes and gains/losses on financial instruments amounted to NOK -13.2 million, down NOK 13.2 million from Q1 2021. The value of the liquidity portfolio fell by NOK 17.2 million, compared with an increase of NOK 0.8 million in Q1 2021. Market turbulence in connection with the war in Ukraine has resulted in higher credit premiums for bonds in the bank's liquidity portfolio and is resulting in significant negative changes in market values. The positive result effect on the bank's shareholding in Frende AS amounts to NOK 4.8 million. This related to the pro-rata sale of shares in Frende AS to Lokalbank-alliansen, where the bank's stake in Frende was reduced from 13.75 per cent to 12.92 per cent. The value of the shares and options in Visa Inc. increased by NOK 0.5 million compared with a decrease of NOK 1.5 million in Q1 2021. The value of the bank's shares in Kraft Bank ASA increased by NOK

1. million. The positive profit effects from foreign exchange, derivatives and fixed rate loans at fair value amounted to NOK

1. million. The corresponding profit effects were positive and amounted to NOK 0.7 million in Q1 2021. The cost of buying back debt issued by the bank amounted to NOK 2.1 million. The bank had no corresponding buy-back costs in Q1 2021.

Netto andre driftsinntekter
Beløp i NOK mill.	Q1 22	Q4 21	Q1 21
Netto provisjoner ved banktjenester	11,2	12,0	7,5
Utbytte	0,0	0,0	2,2
Nto. verdiendr. og gev./tap på sert. og obl.	-21,2	-18,3	-3,3
Nto. verdiendr. og gev./tap på aksjer	5,6	35,7	-1,5
Nto. verdiendr. og gev./tap på fastrenteutlån	-5,8	-1,5	-3,2
Nto. verdiendr. og gev./tap på på andre fin. inst	8,2	3,1	8,0
Andre driftsinntekter	0,7	0,5	3,8
Netto andre driftsinntekter	-1,3	31,6	13,5

OPERATING COSTS

Operating costs amounted to NOK 81.1 million and were stable with an increase of NOK 2.2 million from Q1 2021. Total operating costs as a percentage of average total assets have decreased to 0.69 per cent compared with 0.71 per cent in Q1 2021. Compared with Q4 2021, operating costs increased by NOK 2.2 million.

Personnel costs amounted to NOK 46.8 million, down by NOK 0.2 million compared with Q1 2021.

Administration costs amounted to NOK 15.8 million, up NOK 1.5 million compared with Q1 2021. The increase was mainly attributable to marketing and IT costs.

Other operating costs amounted to NOK 11.9 million, up NOK 1.2 million compared with Q1 2021. The increase was

mainly attributable to operations costs for owned and leased premises.

Driftskostnader
Beløp i NOK mill.	Q1 22	Q4 21	Q1 21
Lønn mv	46,8	46,0	47,0
Andre administrasjonskostnader	15,8	16,8	14,3
Avskrivning/nedskr./verdiendr. Ikke-fin. eiend.	6,6	6,8	6,9
Andre driftskostnader	11,9	9,5	10,8
Sum driftskostnader	81,1	79,0	78,9
Kostnader i % av GFK	0,69	0,65	0,71

IMPAIRMENT AND NON-PERFORMING COMMITMENTS Losses on loans, unused credits and guarantees amounted to NOK 0.2 million, of which changes in model-basedloan loss provisions amounted to income of NOK 1.5 million.

By comparison, losses amounted to NOK 2.6 million in Q1 2021, of which changes in model-based loan loss provisions amounted to income to NOK 6.4 million.

Tapskostnad
Beløp i NOK mill.	Q1 22	Q4 21	Q1 21
Utlån til personkunder i mor og boligkredittsel.	0,5	2,8	1,2
Utlån til næringskunder	-1,2	-5,6	-1,2
Utlån i AS Financiering	1,2	1,5	2,6
Ubenyttede kreditter og garantier	-0,2	0,3	0,0
Sum tapskostnad	0,2	-1,0	2,6
Tap i % av netto utlån til kunder (IB)	0,00	-0,01	0,00

Total loan loss provisions amount to NOK 126.5 million, equivalent to 0.33 per cent of gross lending to customers. By comparison, total loan loss provisions amounted to NOK 128.1 million at the end of Q1 2021, equivalent to 0.33 per cent of gross lending to customers. Individually assessed loan loss provisions amounted to NOK 98.3 million, compared with NOK 91.9 million at the end of Q1 2021.

Most of the bank's loan loss provisions are related to AS Financiering. Compared with the end of Q1 2021, the level of loan loss provisions in AS Financiering decreased measured as a percentage of gross lending in AS Financiering.

From and including Q4 2021, model-based expected credit loss is based on a customer-specific probability of default (PD) from the scoring model and changes to it. This is a change from the probability of default per risk class used earlier (based on the customer's risk class). This change largely explains the changes in loan loss provisions for lending to retail customers in the parent bank and the mortgage credit company and for lending to business customers, measured against the end of Q1 2021.

6	Sparebanken Øst | Interim Report Q1 2022