Sparebanken Øst : Quarterly report 2/2021

179th year

QUARTERLY REPORT

Q2 2021

Sparebanken Øst Q2 2021

Interim financial statements, Q2 2021

Key Figures - Group……………………………………………………………………………………………………………………	3
Board of Directors' Report………………………………………………………………………………………………………	4
Financial statements for the Sparebanken Øst Group
Income Statement ………………………………………………….……………………………..	17
Balance Sheet ……………………………….....................................................................................................................	18
Changes in Equity ........................................................................................................................	19
Cash Flow Statement …………….............................................................................................................................	20
Note 1	Basis for preparation of the financial statements .........................................................................	21
Note 2	Operating segments ………………………..............................................................................................	22
Note 3	Capital adequacy ………………………………...........................................................................................	23
Note 4	Losses on loans, unused credit and guarantees ............................................................................	25
Note 5	Non-performing commitments, customers ...................................................................................	29
Note 6	Deposits from customers by sector and industry …………………………………………………………………………	30
Note 7	Loans to customers by sector and industry ………………………...………………………………………………………	30
Note 8	Geographical distribution of lending, customers …………………………………………………………………………	30
Note 9	Credit risk ……………………………………………………….……………………………………………………………………………	31
Note 10	Classification of financial instruments ...........................................................................................	33
Note 11	Financial instruments at fair value ………………………………………………………………………………………………	35
Note 12	Securities issued and subordinated loan capital …………………………………………………………………………	37
Note 13	Financial derivatives ......................................................................................................................	38
Note 14	Financial derivatives - offsetting ....................................................................................................	39
Note 15	Net interest income ……………………………………………………………………………………………………………………	40
Note 16	Net changes in value and gains/losses on financial instruments ……………………..……………………………	40
Note 17	Operating costs ……………………………………………………………………………………………………………………………	40
Note 18	Guarantee liability and other off-balance sheet items …………………………………………………………………	41
Note 19	Equity certificates ………………………………………………………………………………………………………………………	41
Financial Statements for Sparebanken Øst Parent Bank
Income Statement ………………………………………………….…………………………………………………………………………………………	43
Balance Sheet ……………………………….....................................................................................................................	44
Changes in Equity ................................................................................................................................................	45
Cash Flow Statement ..........................................................................................................................................	46
Statement pursuant to section 5-6 of the Securities Trading Act……………………………………………	47
Additional Information - Sparebanken Øst Group
Key figures …………………………………………………………………………………………………………………………………………………………	48
Definition of key figures and alternative performance indicators ………………………………………………………………………	49
Financial performance ………...……………………………………………………………………………………………………………………………	50
Balance sheet performance ……...………………………………………………………………………………………………………………………	51

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Sparebanken Øst Q2 2021

Key figures - Group

Income Statement (Amounts in NOK millions)	Q2 2021	Q2 2020	01.01-30.06.202101.01-30.06.2020	Full year 2020
Net interest income	151,8	137,3	303,0	301,9	632,1
Net commission income	7,1	7,7	14,6	18,3	35,1
Net result from financial assets	71,1	178,6	73,3	150,1	148,1
Other operating income	1,9	1,6	5,7	24,1	29,3
Total net income	231,9	325,1	396,6	494,3	844,7
Total operating costs	68,2	61,6	147,1	142,0	296,0
Profit/loss before losses	163,8	263,5	249,6	352,3	548,7
Losses on loans, unused credit and guarantees	0,6	1,8	3,2	9,4	15,1
Profit/loss before tax costs	163,2	261,7	246,4	342,9	533,6
Tax costs	21,8	25,4	40,3	37,7	80,4
Profit/loss after tax	141,4	236,3	206,0	305,2	453,1
Key figures	Q2 2021	Q2 2020	01.01-30.06.202101.01-30.06.2020	Full year 2020
Profitability
Return on equity*	13,49	24,34	9,86	15,67	11,47
Net interest income as a percentage of average total assets	1,28	1,26	1,32	1,40	1,46
Profit after tax as a percentage of average total assets	1,19	2,18	0,89	1,42	1,05
Costs as a percentage of average total assets	0,57	0,57	0,64	0,66	0,68
Costs as a % of income (before losses on loans/guarantees)*	29,39	18,96	37,08	28,73	35,04
Costs as a % of income (excl. return on financial investments)*	42,38	42,05	45,49	41,26	42,50
Balance sheet figures
Net lending to customers	40.425,6	32.013,4	40.425,6	32.013,4	35.443,8
Lending growth (quarter/12 months)	5,16	-5,10	26,28	-8,01	3,56
Deposits	17.318,3	14.851,5	17.318,3	14.851,5	14.845,1
Deposit growth (quarter/12 months)	9,97	3,76	16,61	-1,09	0,36
Average equity	4.101,1	3.835,0	4.070,5	3.802,9	3.812,9
Average total assets	47.659,8	43.650,1	46.463,1	43.228,7	43.299,0
Loss provisions on impaired and non-performing commitments
Losses as a % of net lending to customers (OB)*	0,01	0,02	0,02	0,06	0,04
Loan loss provisions as a percentage of gross lending to customers*	0,32	0,38	0,32	0,38	0,35
Net payments over 90 days past due as a percentage of net lending*	0,21	0,33	0,21	0,33	0,29
Other net non-performing commitments (Stage 3) as a percentage of net lending*	0,18	0,04	0,18	0,04	0,02
Financial strength
CET1 capital ratio incl. 50% of retained earnings (%)	17,26	17,89	17,26	17,89	17,96
CET1 capital ratio (%)	16,79	17,11	16,79	17,11	17,96
Tier 1 capital ratio (%)	18,41	18,95	18,41	18,95	19,67
Capital adequacy ratio (%)	20,27	20,75	20,27	20,75	21,34
Risk-weighted volume (calculation basis)	21.606,6	19.076,4	21.606,6	19.076,4	20.471,4
Tier 1 leverage ratio incl. 50% of retained earnings (%)	8,20	8,57	8,20	8,57	9,03
Tier 1 leverage ratio (%)	8,00	8,23	8,00	8,23	9,03
Liquidity
Deposit coverage ratio	42,84	46,39	42,84	46,39	41,88
LCR (%)	214,34	371,91	214,34	371,91	266,93
Branches and FTEs
No. of branches	29	29	29	29	29
FTEs	183	187	183	187	184
Equity certificates
Ownership fraction (parent bank) (%)**	29,59	31,40	29,59	31,40	31,40
No. of equity certificates	20.731.183	20.731.183	20.731.183	20.731.183	20.731.183
Book equity per equity certificate*	60,52	63,43	60,52	63,43	61,18
Earnings per equity certificate*	1,97	3,51	2,84	4,49	6,62
Dividend per equity certificate***	0,00	0,00	0,00	0,00	4,50
Turnover rate	22,27	19,23	23,62	23,03	20,64
Price	52,00	47,10	52,00	47,10	51,40

• Defined as alternate performance target
• For ownership fraction at 01.01.2021, see Note 19
• The dividend per certificate is up to NOK 4.50 for 2020, where NOK 3.50 is payable based on the Board of Trustees decision on 25 March 2021 and the Board of Trustees has given the Board of Directors special authorisation to make a decision on paying a dividend of up to NOK 1.00 no earlier than 1 October 2021 and no later than the annual meeting of the Board of Trustees in 2022. For definition of key figures and a review of alternative performance targets, see p. 49.

Side 3 av 52

Sparebanken Øst, Q2 2021

Board of Directors' Report

Sparebanken Øst has had a large customer influx, resulting in high growth in lending and deposits in the quarter and last 12 months. Lending growth rates were 5.16 per cent and

26.28 per cent, respectively. The deposit growth rates for the same periods were 9.97 per cent and 16.61 per cent.

Sparebanken Øst achieved a very good profit after tax of NOK 141.4 million in Q2 2021, which represents a return on equity of 13.49 per cent. Earnings per equity certificate in the quarter were NOK 1.97. Net interest income amounted to NOK 151.8 million and increased by NOK 14.5 million compared with the same period last year. The profit effect from equity investments amounts to NOK 76.5 million and is down by NOK 81.7 million compared to the same quarter last year. The value of the liquidity portfolio is minus NOK 5.3 million, down by NOK 24.3 million compared with the same quarter last year. Costs are stable as a percentage of average total assets, although operating costs increased by NOK 6.5 million compared to the same period last year and amount to NOK 68.2 million in the quarter. Losses on loans were very low and amounted to NOK 0.6 million, compared with NOK 1.8 million in the same quarter last year.

The profit after tax for the first half of 2021 amounted to NOK 206.0 million, which represents a return on equity of 9.86 per cent. Earnings per equity certificate are NOK 2.84 to date this year. Net interest income amounted to NOK 303.0 million and increased slightly compared to the first half of last year. The profit/loss effect from equity investments amounted to NOK 77.2 million, down NOK 89.7 million compared with the same period last year. Costs have decreased as a percentage of average total assets, although operating costs increased by NOK 5.1 million compared to the first half of last year and amount to NOK

1. million in the first half of 2021. Losses on loans were very low and amounted to NOK
2. million, compared with NOK 9.4 million in the same period last year.

Sparebanken Øst calculates its capital adequacy using the standard method and therefore uses very high capital weights for its lending to retail customers and business customers compared with the IRB banks that the Bank competes against. The Bank is very sound with a leverage ratio of 8.20 per cent and a CET1 capital ratio of 17.26 per cent, both of which include 50 per cent of the equity certificate holders' and primary capital's shares of the profit for the year to date.

Quarterly profit

Sparebanken Øst achieved a profit after tax of NOK 141.4 million for Q2 2021. The corresponding profit after tax for Q2 2020 was NOK 236.3 million. The profit effect from the equity investment in Frende Holding AS amounts to NOK 69.0 million in Q2 2021 and relates to dividend income received from the company in the quarter. In the same quarter last year, a positive change in the value of the

equity investment in Frende Holding AS had a profit/loss effect of NOK 154.0 million. The value of the liquidity portfolio dropped by NOK 5.3 million in the quarter, compared to a gain of NOK 19.1 million in Q2 2020.

The return on equity for the quarter was 13.49 per cent, compared with 24.34 per cent for the same quarter in 2020.

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Sparebanken Øst, Q2 2021

The table below presents the return on equity over the past five quarters.

28%

24%

20%

16%

12%

8%

4%

0%

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Net interest income

Net interest income increased by NOK 14.5 million to NOK 151.8 million in Q2 2021, compared to NOK 137.3 million in the same quarter of 2020. Net interest income amounted to 1.28 per cent of average total assets in the quarter. Developments in net interest income are marked by high lending growth in a market characterised by strong competition for the best customers, continued low deposit margins as a result of the low interest rates, and the fact that the fall in money market rates from March this year will not have its full effect on the Bank's borrowing costs until mid-June. The corresponding quarter last year was characterised by rapid implementation of interest rate reductions on loans, where the effect of lower money market rates did not hit borrowing costs until Q3 2020.

The figure below shows net interest income in per cent and NOK in the past eight quarters.

200							2,00%
150							1,75%
						1,50%
100							1,25%
						1,00%
50							0,75%
						0,50%
0							0,25%
						0,00%
Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
2019	2019	2020	2020	2020	2020	2021	2021
	Mill. kroner			Prosent GFK

Net other operating income

Net operating income comprises commission income and costs, dividends, net changes in value and gains/losses on financial instruments and other operating income. Net other operating income amounted to NOK

1. million in Q2 2021, compared with NOK

1. million in the same quarter of 2020.

• Net commission income amounted to NOK
• 1. million, a decrease of NOK 0.7 million compared with the same quarter last year.
• The recognised dividend amounted to NOK 69.0 million in the quarter and is made up of dividends received from Frende Holding AS. In comparison, no income was recognised as a result of dividend payments in the same quarter last year. The Bank did not receive any dividends from Frende Holding AS in 2020.
• Net value changes and gains/losses from financial instruments amounted to a gain of NOK 2.1 million during Q2 2021, a decrease of NOK 176.4 million compared with the same quarter last year. In Q2 2020, value adjustment of shares in Frende Holding AS brought a gain of NOK
• 1. million. The value of the liquidity portfolio fell by NOK 5.3 million during the quarter. In comparison, the change in value was positive by NOK 19.1 million in the same quarter last year, as a result of the credit premiums having normalised following the significant increase as a result of the Covid-19 outbreak and the fall in oil prices in Q1 2020. The positive change in value linked to shares and share rights in Visa Inc. amounted to NOK 5.4 million compared with a positive change in value of NOK 4.2 million in the same quarter last year. The positive change in the value of the Bank's shares in Kraft Bank ASA amounted to NOK 2.0 million in the quarter. The net financial impact of currency, derivatives and fixed-rate lending at fair value was NOK 0.0 million in the quarter, compared with a positive impact of NOK 2.7 million in the same quarter last year. The cost of buying back the bank's own issued debt amounted to NOK 0.2 million during the quarter, compared with NOK 1.4 million in the same quarter last year.
• Other operating income increased by NOK
• 1. million compared to the same quarter

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