SpareBank 1 Nord Norge : Forward-looking bank collaboration in the Helgeland region

SpareBank 1 Nord-Norge and Helgeland Sparebank are to establish a strategic, future-oriented collaboration. SpareBank 1 Nord-Norge will become a long-term owner of Helgeland Sparebank with a stake of 19.99% of that bank's equity certificates. Helgeland Sparebank will acquire SpareBank 1 Nord-Norge's banking business linked to the branches in Helgeland. Helgeland Sparebank will concurrently join the SpareBank 1 Alliance by becoming part of SamSpar.

In the short term the highest priority for both banks is to stand by their customers' side in this trying period resulting from the Covid-19 outbreak. The above transaction, due to go ahead in the first half of 2021, will not detract from that priority. Over time the transaction will strengthen the banks' ability to stand up for their customers, owners and employees.

The steps taken by SpareBank 1 Nord-Norge ("SNN") and Helgeland Sparebank ("HSB") are aimed at securing continued growth and development in the Helgeland region. An agreement has been entered into whereby HSB is to acquire SNN's banking business in the Helgeland region, apart from large group customers, and 15% of the shares of the subsidiary EiendomsMegler 1 Nord-Norge AS, with the intention to purchase shares in SpareBank 1 Finans Nord-Norge AS and SpareBank 1 Regnskapshuset Nord-Norge AS.

Upon the completion of the above transactions, SNN will be a long-term owner of HSB, and the two banks will develop a business collaboration in which SNN delivers a number of services, in particular in the capital market sphere, to HSB.

HSB will join the SpareBank 1 Alliance, which will provide a strengthened income base through an improved and broader product and service offering, along with a more efficient platform for banking operations.

Background

HSB is a strong local bank in the Helgeland region. SNN is the market leader in North Norway, but the bank's portfolio in Helgeland has not produced the desired return on invested capital. The transaction provides both banks with a basis for increased profitability, while at the same time enhancing the banking offering available to customers in Helgeland.

The transfer of business entails the transfer by SNN of its banking operations in Brønnøysund, Mo i Rana, Mosjøen and Sandnessjøen to HSB. Bank branches will be retained in all four locations. At the same time the banks will join forces to develop their offering in the Helgeland region in, among other areas, accounting, leasing and other financing services, real estate agency services and financial services from SNN Markets.

"Uniting our efforts in a good strategic collaboration will strengthen both HSB and SNN, and by realising synergies, both parties will achieve increased profitability. From being the third largest player in the Helgeland region, we are now acquiring a profitable ownership stake in a strong local bank in the region. This will ensure all customers a better and broader offering," says Acting Group CEO at SNN, Liv B. Ulriksen.

As part of the transaction, SNN will become a long-term owner of 19.99% of the equity certificates of HSB by way of a public offering. SNN will have substantial capital employed in the Helgeland region, both directly through large corporate exposures, but also through its future stake in HSB. SNN will also develop and deliver services to HSB and their clients in areas such as settlements, international payments, fixed income, forex and other capital market products. Through the SpareBank 1 Alliance, HSB will set the stage for additional services such as saving and investment, insurance and pensions for individuals and businesses. Customers will altogether be offered a better and more complete financial offering.

"This is a strategically important transaction for HSB. It gives the bank the muscles we need to meet the future, it sharpens our competitiveness with international and national players and it ensures the presence of two strong savings banks in North Norway. This provides the banks' owners with a basis for increased profitability, our customers with even better solutions and our staff with new opportunities," says Managing Director of HSB, Hanne Nordgaard.

HSB will, in connection with the transaction, have a need for further capital which will be raised through a public offering to existing owners of HSB as at the date of the resolution, as well as SNN. The public offering has been pre-subscribed by SNN and underwritten by Sparebankstiftelsen Helgeland.

"Sparebankstiftelsen Helgeland's mission is to exercise long-term, stable ownership of the bank and, through its ownership, to ensure a good savings bank offering with a strong footing in the Helgeland region. This transaction supports the development of Helgeland Sparebank and improves the basis for continued good, profitable operations," says Brynjar Forbergskog, board chair of Sparebankstiftelsen Helgeland.

HSB will also be a part of the SpareBank 1 Alliance through its purchase of 3% of Samarbeidende Sparebanker AS and Samarbeidende Sparebanker Utvikling DA (together known as "SamSpar"). Through the SpareBank 1 Alliance, HSB will inter alia gain ownership of, and distribution rights in respect of, products from the insurance company Fremtind AS. Thus, HSB will take over the management rights and obligations related to SNN's non-life and life insurance portfolio in the Helgeland region. The banking book to be transferred from SNN has a higher relative share of commission income from insurance than HSB's existing banking book. At the same time, HSB will terminate its ownership interests in Frende Holding AS and in the companies Balder Betaling AS, Brage Finans AS, Norne Securities AS and Rede Eiendomsmegling AS.

Transactions, synergies and financial factors

In connection with the transactions, HSB will take over the banking operations of SNN's branches in Brønnøysund, Mo i Rana, Mosjøen and Sandnessjøen. The loan portfolio to be transferred consisted of about NOK 8.9 billion in loans to the personal market, and NOK 1.2 billion in loans to the corporate market as of 31 December 2019. Deposits in SNN's Helgeland portfolio at the same point in time were about NOK 3.5 billion.

In connection with the transfer of business the following will take place:

· HSB will acquire 15% of the shares of SNN's wholly-owned subsidiary EiendomsMegler 1 Nord-Norge AS for NOK 20 million with the intention of purchasing shares of SpareBank 1 Regnskapshuset Nord-Norge AS and SpareBank 1 Finans Nord-Norge AS.
· HSB will join SamSpar and the SpareBank 1 Alliance by acquiring 3% of the shares and units of SamSpar for a cash consideration of NOK 150 million.
· HSB will take over SNN's contractual relationships with SpareBank 1 Boligkreditt AS in respect of customers in the Helgeland region that have been serviced by SNN, and will purchase a proportionate share of the bank's shares in SpareBank 1 Boligkreditt AS. As of 31.13.2019, the volume transferred to SpareBank 1 Boligkreditt AS from SNN's Helgeland portfolio came to about NOK 3.2 billion. This will increase in the run-up to the carrying through of the transaction.

The completion of the transactions is calculated to strengthen HSB's annual earnings by about NOK 80-120 million in the period 2022 - 2024. The increased earnings consist of cost synergies combined with more and greater income opportunities for the bank. HSB's one-time integration costs related to the transactions are calculated at NOK 90-110 million. The transactions will entail accounting write-downs of IT systems. The effect on earnings per equity certificate is expected to be approximately earnings neutral in 2022, and will thereafter gradually turn positive with full effect from 2024 onwards. However, book equity per equity certificate at HSB is expected to fall somewhat as a result of the capital raising process. The transactions are however expected to have a significant impact on the business, earnings and profitability of HSB, and the bank will therefore consider raising the annual return-on-equity target from 10% to 11% from 2023.

SNN will for its part see the freeing up of a large amount of equity capital, calculated at just over NOK 300 million, that is currently employed in the banking business in the Helgeland region. The transactions are calculated to strengthen SNN's annual earnings by about NOK 25-35 million in the period 2022-2024 as a result inter alia of its ownership of HSB, reduced joint costs at SNN and sales of services directly or through subsidiaries of HSB. The parties have agreed that, against the background of the transfer of business, a cash consideration of NOK 100 million will be transferred from HSB to SNN, corresponding to excess of purchase price over net assets acquired (including a share of synergies). A value adjustment mechanism exists which is triggered should the portfolio diverge significantly from the portfolio as at the date of the agreement. The portfolio to be transferred is without exposures subject to individual provisions. The overall accounting gain for SNN corresponds to about NOK 50 million.

HSB will carry out a public offering of up to NOK 800 million to secure sufficient financing and the targeted capital strength. The offering may be adjusted down as a result of less need for capital in connection with the transactions. No downward adjustments of the estimated capital need have been made as a result of the reduction of the countercyclical buffer from 2.5 to 1 per cent announced by the Ministry of Finance on the 13 March 2020. The offering is subscribed and underwritten by SNN and Sparebankstiftelsen Helgeland respectively. That part of the issue which is underwritten by Sparebankstiftelsen Helgeland, an amount up to NOK 220 million, will be offered to the bank's owners based on their ownership interest in the bank prior to the carrying out of the transaction. The offering will be carried through at a price corresponding to 0.75x of the book value of owners' capital as at the end of the latest completed quarter prior to the transfer.

· SNN will be invited to subscribe, and has undertaken to subscribe, equity certificates ensuring that that SNN will after the offering own 19.99% of the equity certificates of HSB.
· An adjustment will be made to HSB's book equity for any allocations by the bank to equity capital as a result of the forthcoming integration as at the end of the latest completed quarter prior to the transfer.

In order for the transfer of business to go ahead, the following conditions must be met:

i. HSB's supervisory board has approved the transfer of business and the necessary resolutions for the offerings have been adopted
ii. Necessary consents have been obtained from the contracting parties and other third parties
iii. The banks have received necessary approvals from government authorities
iv. HSB has joined SamSpar
v. Both banks meet regulatory requirements for the business

No changes will be made to the management team or board composition of the two banks as a result of the transactions. HSB will be represented on the board of EiendomsMegler 1 Nord-Norge AS. The banks will otherwise engage in business collaboration related to SpareBank 1 Regnskapshuset Nord-Norge AS and SpareBank 1 Finans Nord-Norge AS.

Further details of the business to be transferred

As described above, the business to be transferred consists of the banking business of SNN's branches in Brønnøysund, Mo i Rana, Mosjøen and Sandnessjøen. HSB's overall outstanding loans at the end of 2019 totalled NOK 27.3 billion, and would with the addition of SNN's banking business in the Helgeland region have amounted to NOK 37.4 billion. Similarly, overall deposits would have risen from NOK 19.0 billion to NOK 22.4 billion.

There are 38 employees attached to the business to be transferred from SpareBank 1 Nord-Norge. After the business transfer, HSB expects to have about 30 redundant staff. A process has been initiated together with union representatives to ensure that the interests of all employees are attended to in the best possible manner. Staff reductions will be sought through voluntary resignations and natural wastage.

 

Contact persons at SpareBank 1 Nord-Norge:

· Acting Group CEO Liv B. Ulriksen on [phone]
· Executive Director, Finance, Bengt Olsen on [phone]
· Communications Director, Stein Vidar Loftås on [phone]

Contact persons at Helgeland SpareBank:

· Managing Director Hanne Nordgaard on [phone]
· Finance Director Sverre Klausen on [phone]

This information is disclosable under the Securities Trading Act section 5-12.

Arctic Securities AS, Pareto Securities AS, SpareBank 1 Markets, Ernst & Young AS and Advokatfirmaet Selmer AS have acted as advisers in connection with the transfer of business and the transactions.

 

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