Sparebank 1 Sor Norge Asa

Hello everyone, and welcome to this result presentation for Sør-Norge Bank for the presentation of the fourth quarter of 2024, which is the first full quarter in the history of the new bank. We have set aside a promising 2024. We have both planned and carried out the legal part of the merger between SR Bank and Sbarbank 1 Sør-Øst-Norge, which took place on the 1st of October. And we have done that in a spotless, technical way, and by preserving what we have spent a lot of time and energy on, namely to keep the customer in focus and preserve a strong growth in a period where Renault is necessarily busy with quite a few We have also made some exciting investments. We have bought two well-established single-use companies in Oslo and Bergen, and we have opened a new office in Sandvika. This means that the collected distribution power of the new bank has become even stronger. We have been awarded the best mobile bank in Norway, together with the other Sparbank 1 banks. Good morning everyone and welcome to this result presentation for Sparbank 1 Sør-Norge for the presentation of the fourth quarter of 2024 and the first full quarter in the history of the new bank. We have set out a promising 2024. We have both planned and carried out the legal part of the merger between SR Bank and Sørøst Norge, which happened the first We have done this in a technical way, keeping the customer in focus and maintaining a strong growth in a period. It is a year that is necessarily busy with quite a lot of things around the practical with infusion. In this regard, we have also made some exciting investments. We have bought two well-established unicorns in Oslo and Bergen, and we have opened a new office in Sandvika. This means that the collection of distribution power for the new bank has become even stronger. We have been awarded the best mobile bank in Norway, together with the other banks. We have also launched tapping in connection with VIPS. It is a hygiene factor that we are very happy to have in place. The legal part of the merger is completed, and that applies to Morbank, as we say. What we now have on the program in 2025 is a merger between two of our data companies, namely the business partner Regenskapshuset, which is scheduled to take place on April 1st, and the property brokerage company, which is expected to take place in early autumn 2025. September 2025 is also the starting point for the technical part of the fusion. Today, we are in many ways running two system portfolios, which we are now about to put together properly into one system for the new bank, and that will not only It means a lot for everything related to stability and good technical solutions, but it is also an important milestone in terms of being able to bring out further synergies in the fusion, because it is not enough to stick under a chair. To run two banks behind a legal structure that is now a bank also requires a lot of resources. We look forward to implementing this in 2025. We are an ambitious bank. We have a clear ambition to be at the top among Norwegian banks. That is why we have increased our return target to 14%, because we have an ambition to be among the best banks in the country. This is a demanding goal. We should not give up on that. And just as we are working on a fusion, it is also a phase in which additional costs occur, which takes extra energy in the organization. But out of this period, we will get a very effective and good platform, which we think is compatible with having a drop-off target of 14%. This should be supported by cost efficiency and a strong contribution from other income sources. We should have a profitable customer growth that we think will be on the market or a little above the market growth. We should be able to cope with the strong distribution we have. And of course we still have great benefit from the collaboration we have in the Sparbank 1 Alliance. The new bank is a very well-diversified bank between the personal market and the business market, between different industries and geographies. And all this, we think, is a very good foundation for the bank, together with the fact that we are solid. We will have a cost percentage of under 40% and aim for an exchange rate of about 50%. In connection with the fact that we became a bank on the 1st of October, we had a proper translation of capacity and capacity needs in the various parts of the organization. We had an impact when we only did the fusion of operating synergies of about 300 million. We have doubled that with the new transition, so now the task is that we over time will be able to take out 300 million in energy, and in this way support the increased level of ambition when it comes to our own capital. There was a change in the regulatory before Christmas. It was a negative news for us, as for the other IAB banks, that the risk values on housing loans increased. This has a consequence both on pure core capital coverage in itself, and it had a consequence that the expected capital synergies were lower and went down from about 2.5 billion to about 1.7 billion. That was the bad news, and it is not to be underestimated that we would like to be out of it. I think it is a general perception among all the big banks that this was a completely unnecessary increase in risk values. But our task, regardless of whether to play according to the rules established by the regulatory authorities, had a negative consequence in relation to the expected synergies on the capital side with the fusion. On the other hand, we have, with a new transition to operation, increased the impact on operation synergies from 150 to 300. Roar will talk a little more about that, but that is with three main components. It is load efficiency, it is of course to take out a lot of duplicated costs, and it is also synergies on the funding side, which we claim at a full run rate, will be now about 300 million a year. So that means that the foundation for The fusion is not just standing, but it is strengthened in relation to the fact that we now have full access to each other's numbers. We did not have that due to the competition law passed before October 1st, where we still had to operate as two banks, but now we are fully and completely one bank, and that means that we have had a much more accurate review and assessment of the synergies. We have become a very well diversified bank. We have a very good access to where large parts of the Norwegian population live. Strong position on the business market, strong position on the private market, and as you can see, with fine growth now in absolutely all market areas. This shows that this platform is very good to be able to operate as one of the most profitable banks. And now it is our job at Fusion to dimension this with capacity in the different business areas, so that we can take out the synergies that we have known. We suggest that about In Morbank, we are going down with about 100 years of work in the course of the next two years. This is the commitment we have per year, and we are working to make it as effective as possible, and of course in a way that costs as little as possible in relation to the entry costs. We run a bank in a very good market area. We are out three times a year and ask many of our business customers what they think about the future. Moreover, they see the expectation indicators. Optimism is the greatest in Rogaland. This is positive for us in relation to how much we still have the largest share of But compared to the expectation indicators at 50 and up, we see that there is an optimism in the business world. Employment is low for the country in total, and it is low in our market areas. We are very optimistic that this will be a very good environment to be able to run a profitable bank. with good prospects for both the land we operate in and the position of the corporation. As I said, we have increased the drop-off target to 14%. The figures we show in the presentation are the real figures for the new bank for the fourth quarter. But to be able to compare with previous quarters and year-on-year, the other figures are preformed, as if the merger had happened on January 1st, to be able to get comparable sizes. We then deliver 13.4% of our own capital for the year in total. We have come through this fusion period with a 12-month loan growth of 7.4%, which I am very pleased with. This also supports the fact that in the fourth quarter, we had a growth of 2%. There are some internal portfolio moves on leasing between Storkunde and BM Landbruk, which makes the numbers look a bit exaggerated, but in general, we have grown by 2% in the quarter. We have a solid position on pure core capital coverage, and as I said, there are capital synergies that will emerge when we get the necessary approvals from the financial support. We deliver a quarter with 90 million in deposits, which constitutes 11 basis points, which is also lower than what we consider to be normalized deposits per quarter. Together, we deliver a capital return of 10.9%, but there are some things that happen when we merge, among other things because of the significantly increasing exchange rate for SR Bank throughout the year. When the fusion happened on October 1, there was a post of about 3.5 billion in goodwill when he integrated the balance of Sør-Øst-Norge into the new bank. This results in about 0.8% of its own capital deductions, and there is also a one-time cost of this quarter. So if we look at the underlying, as if the fusion had not happened, then it is underlying, without the one-time effects, 12.3% of its own capital deductions. With a starting point in the income and capital position, it is proposed from the board to raise 8.50 kroner in spending per share to 1 kroner from last year, which will then be proposed to the General Assembly. Looking at the total key figures, we managed over 13% for the year, with 13.4%. We are well below the cost of income, with 37.4%. We are about 40 basis points per year above the target for the start of the year, with 18.0% pure core capital coverage. You can also see that the results per share have increased from 14.9 to 16.3 through the year. The exchange rate is 49.6% of the Proforma-resultate, which if it had been fused throughout the year, we think it is what is right in relation to the underlying. But you see, there is also a star mark on that, because the accounting rules are such that what in IFRS is the annual result for Sparbank 1 Sør-Norge, then it is the first nine months with Sabanc. and the last quarter as Southern Norway. So if we calculate the exchange rate at 8.50 euros, the exchange rate is 61.6%. But both the reality and the underlying in terms of solidity, I think it's fair to say it's in relation to the performance of the results, as if the fusion had happened in the first year. These were the above-ordered numbers. With me is Roar Snippen, CFO of Constituent, who will then take you further into more details about the clean-up. We will also answer questions together, and I will tell you a little about the outlook for tomorrow. So, here you go, Roar.

Thank you, Inge. I thought it would be nice to start by saying that If you look back in 2024, we have put together two large organizations and created Norway's largest savings bank per day. Nevertheless, we deliver stronger and stronger growth throughout 2024. We also have very good cooperation between the data services, and there is a strong effect, as you can see, for the accounts in the fourth quarter, both for the business parties, the accounting house, and the property management. So we are very pleased with the results of 2024. We have a top-line growth of about 13%, and a bottom-line growth of about 10%. The net profit margin has increased by 7%. We have grown in all areas through 2024 in light of Norway's largest shareholding in savings banks, which we are very pleased with. So we have an extremely good starting point to succeed in the goals of 14% that Inge took up. The equation is somewhat influenced in the fourth quarter by changes in the basis swaps and valuables. In short, we have a funding strategy by collecting most of our money in euros, and then we have a change in the basis swaps that hits negatively in the quarter. But we have a funding strategy that over time will make sure that the lower the funding we have for basis swaps, over time will yield better income through lower funding costs over time. Otherwise, we have about 60 billion in funding per euro, i.e. 60 billion kroner in an LCR portfolio, which is based on zero-weights and OMFs, which has a duration of two and a half years. And by changing the credit spreads, we also have a negative market-to-market effect, which again has the same effect as the stock market, which is a pull-to-pair. So we see that we have an underlying good income in the fourth quarter, but it is a negative financial line that we will get back over time. We will be very clear on how to work with and increase profitability in the company and on the cost side. You can also see a little back in the presentation material in relation to the cost changes in the fourth quarter. Some of the results in the fourth quarter. is also influenced by the fact that we functioned on the 1st of October, but the books in Northern Norway were closed a little earlier, so there are some costs in the 4th quarter that may have belonged to the 3rd quarter. The top line of the bank is 15 million kroner lower compared to the third quarter. This is due to some higher income costs through a responsible loan, which we get full effect of in the fourth quarter. And there is tougher competition on PM, especially in terms of income margins. There has been more evidence of moving the account from zero interest rates to other savings, so there was something negative. Otherwise, the margin is flat in all areas out there. Debt in the quarter was 90 million kroner against 166 million kroner in the previous quarter. This is an improvement and reflects the strength and improvement of the risk in the portfolio of Sør-Norge in the entire area of ​​PM and Storkunde. Of the 90 million kroner, only 40 million is due to model-technical considerations around LGD estimates. This is an improvement in quality, a reduction in revenues in the quarter, and about 11 basis points of the total portfolio against a long-term scenario of 15 basis points. As you can see here, the market share is 7.4% and 8% in the fourth quarter. We believe that the growth in the future will go down a little. I also believe that it reflects our ambition to raise the balance sheet to the bank from 13% to 14% and then further increase the focus on profitable growth, so that the growth is inward in relation to the balance sheet. This will be demanding, but there is full focus on this in all business areas of the bank, that we will strive for increased profitability with an acceptable risk in light of this. We also see in all areas of the bank that we have lower risk in relation to GHI classes, reduction, strong reduction. If we adjust the investment volumes, we get about 4 billion kroner on an investment portfolio on Treasury. If we remove that, we have 4% annual growth on investment. We are satisfied with the starting point. We have an ambition to have a full focus on investment as a cheap financing source in relation to our expenses. We have a full focus on balanced growth in this area. When it comes to margins, we are pleased that the net margin is quite stable in a situation with strong growth. Big customers have stable growth, the same goes for the European market, but if there is some weaker growth in the S&B market, there is a particularly strong competitive situation. Here you can see the personal market. We had a very low risk-weight portfolio. The high focus was below 20% risk-weight, but the floor was raised to 25%, so it looked negative, as Inge mentioned. On the other hand, there is a full focus on having low risk in that segment. When it comes to the outlook for PM, it is also in full swing in 2025. We are very pleased with a lot of financial evidence for that. It gives us a good opportunity, a good risk selection for the expenses we will grow on in 2025. When it comes to outlooks, we see that there is increased savings within the personal customer market, which says something about the solitude, I think, of households out there in an uncertain world. Good demand, increased savings in households, and with lower risk. There will also be full focus in the personal customer market on the ambitions we have, and have growth with profitable growth in relation to our goals over time of 14%. We guide Vestland Nordlund on fairly stable margins on the personal customer market. Maybe a margin of one point in a few years, perhaps, if there is competition. Storkunde has had a very strong growth throughout the year, especially towards the end of the year. Very good cooperation with Sparbank and Markets, with the syndication of loans and the compensation of financing for large customers. And only in the fourth quarter, there was an increase in the third quarter of 17 million kroner for Storkunde. It will be very important for us in the future to develop this area. in order to grow the capital of these products within Storkundet with a collaboration with Markets and Swedbank. There, too, there is a full focus on keeping margins and taking down risk. The risk has dropped by over 11% in the highest risk groups throughout the year. This also gives an expression for reduced loss costs. In relation to the engagement, where there is a lot happening, there is energy, there is a lack of new buildings, but there is ownership, and there is shipping and fishing in particular, which is high activity. On BML, adjusted for the 4 billion kroner in the leasing portfolio that came from Storkunde to BML, there is some weaker growth in the SEB market. But we have clearly achieved a clear ambition in 2025, and have grown especially on the financing of good SMB customers from Drammen towards the Oslo area. And in the investment as a fusion with Sør-Øst-Norge with Drammen Kontor, and the establishment of new companies here in Oslo, we have seen very positive results on that. Land use has grown a lot over the years, and we are also increasing our investment in land use in a strong region, all the way from Ruggaland up to Telmark and Vestfold. Stable margins are the goal here, with a focus on increasing profitability in relation to the demands we have on all areas. The portfolio I showed you last time, there is a lot of information here, but what we can say is that we have a 65% share in PM, which has been increased compared to 2023. We have a diversified portfolio when Dysted takes out a business unit, which of course makes a large share of a Svarbank business market portfolio. Otherwise it is quite stable. There you can see the development of the provision revenue, at the top of the tax revenue. This is a strong increase in the fourth quarter. This is also due to a bonus payment, a financial visa, through the year. Insurance is quite flat, but savings placements have increased by 8 million, and through the investment in private banking in the companies, we have the ambition to increase it further, to get capital after revenue in the companies in the future, to meet our financial goals. As I can see, we have 70 million kroner, a very important partnership with Storkundet and Sparbank N. Markets to help our customers with financing. It is good to see that there has been strong activity both at Megelærn and Renskapshuset in the last quarter. Buying wool wool wool has had an income effect of about 13 million kroner in the last quarter. But there is a very strong increase in the sales part of Renskapshuset due to the advice that there are higher margins in the future. We are very positive about this, together with Meglingen. There has been a lot of activity. I spoke recently with a leader of Egna's Meglinger, and we say that it is also starting to increase. If Oslo has been very hot, it is also spreading to Asker, Sandvika, Drammen and Sandø Vestfond, in relation to Rogaland and Bergen. We are very positive about this, because of the activity that is taking place there, and it will give us a top and bottom-down effect. I was briefly talking about the financial investments, which this quarter have also been negative. That explains why. That is the change in basic swaps, a significant sum. And then there is a credit outflow on private property shares that is negative, with about 180 million kroner. Or there is something weaker from other equity interests. Again, perhaps across the board, about 10 million kroner, some lower income from joint venture companies compared to the third quarter. I would like to give a message that this is something we have a focus on, something we typically can handle, and that is operating costs. If at the top we see from last quarter an increase of about 5% compared to last quarter, some of the administrative costs of 25 million kroner is also linked into the third quarter, which should have been there in relation to that we had to close the book in Sør-Øst-Norge before the legal version on the 1st of October. And there is also some of that that can be linked to the cost of funding alone. We see that the cost of funding for us is about 90 million kroner per quarter, and about 200 million kroner for the whole of 2024. We guarantee about 135 million kroner again in terms of the cost of funding in the future. This will be, if we look at year-on-year, in the quarter-to-quarter, there is approximately a decrease of minus 2.6% due to a decrease in the personal costs. This is what we have to work with in the future, to make the organization more efficient on the entire value chain, on the cost side. But we can't reach that goal alone. We have done it through costs. We also have to look at revenue, pricing and risk, and capital binding in different areas in the corporation. Funding costs. It is expensive to fund large banks. These funding costs are significantly higher than what I have been involved in previously. I have funded three or four banks. This is a very technical and complex fusion between two large organizations, a lot of products that have been different before, and all of this is going to happen in one week. In the costs that remain at 20-25, at about 105.3 million kroner, most of it, i.e. 95%, is IT-related costs. This includes technical fusion, smart market development, and T2 every. So, at the bottom of 400 million kroner, we expect the total of the fusion costs, but it remains at about 105.3 million kroner. This is nothing that is activated, it is implemented directly. I will jump to the end here. These are some of the effects of CR3 and the lifting of the floor from 2020 to 2025. This is not for Sør-Øst-Norge, this is for the entire Sør-Norge group. There is a positive effect of CR3 on the portfolio, especially because the housing values in Sør-Øst-Norge fall down for the first time to 29.8%. from over 35%, which gives a net and good effect on 7 million, 40 points improvement on a pure core. Then we also get the North-East Norway portfolio, over about 8 billion kroner, over on IRB methodology. We do not get the full effect of that, because then the value will be 25% and not 20% as previously identified. This is one of the effects of the strategies that Inge took up. This gives a net improvement of 1.3 billion kroner, but what has come as a surprise for J-Bank is that our floor is raised from 20 to 25, and on a large wallet portfolio in Tidress, it draws a negative 0.5 billion kroner down in effect. So the improvement of Storøs-Norge into the IRB methodology was positive, but then there is an increase in the floor, which in effect is the net effect of 0% of the effect on Renkjerne. We believe that the two green ones will hopefully come in the first half of 2025, while the other will come in the second half of 2025. That was actually what I was going to go through, Inge.

We are available to answer any questions. I will just comment on the views I have already commented on. We believe that we will be driving a bank in a good market area. It looks good in macro, despite the fact that we are all concerned about the geopolitical landscape outside Norway's borders, with views of 12 hundred But so far, the Norwegian economy has done well. We have a strong position within this. We see that industries such as industry, IT, oil and energy in general are the most positive. That is the business, where we have both competence and a large presence. We see that the business market will also become an increasingly important source of contribution to our profitability. We expect, with a strong and tight working market, that this will also be positive for our personal market. We see, as Roar was saying, increased activity in terms of financing, and a strong position for the workers, a lot for the corporation in general, so we are well positioned to continue to work with efficiency and make this work and thus reach our target of 14%, which is the long-term goal. That was what I had from the presentation, so it is open for questions. Øivind is ready with the microphone for those who are in the room, and any questions that come up on the webinar, Øivind.

Yes, there have not been any questions yet from those who are following along, but they can just send them if they want, but we can start here in the room if there are any questions here, so it's fine if you just present yourself and the question.

Yes. Jad Marcus Karolisen from Sparmarket Markets. Congratulations on the well-experienced version. I have a question related to the new goal. You say that you have adjusted for Goodwill and extraordinary effects, so you delivered 13.5% in 2024. Then there will be some increased goodwill. The marine costs will potentially go down a bit. And then on the other hand, you might get some help with maybe half a percent of the operating synergies and claims today. I'm just wondering how to bridge the gap to the new cost goals?

That is of course a very good question. The goal of 14% is ambitious, as the market is today. I am not guilty of that. But we should take out at least what we have said in the energy sector. As Roa said, with our entire balance. Where do we bind capital? How do we ensure the issuance of all the capital bindings we have? Of course, we have to work with risk pricing. We have a good IRB system, but it is not to be underestimated that Some of the customer relations should, in relation to underlying risks, have an even higher pricing, so that we have to work with all the lines in the forecast. And of course, other revenues are an important point of contribution and good credit quality, where we are able to manage this with low losses. So to get to 14%, we have to, in short, improve all the lines, and we have many measures, and we will work out even more, so that in everything we do now and in the future, we control the countermeasures at 14%.

We will work both with the counter, i.e. revenue, cost and quality, but we must not forget the capital binding, because it gives a very big effect in optimizing the use of capital in the calculation of this. And through the IRB methodology and going deep into how the capital binds, we will be able to look at different possibilities to optimize it in the future. And we have already started that work.

Thank you. I'll take one more. Yes, please. A bit more high-level questions. You have a PM ratio of around 65%, and have said that it gives a lot of room to grow in the business market. If you could tell us about the future of Sør-Norge, how does that business market ratio look like? Where do you want it to go?

Yes, we came from a situation where SR Bank had a 60% personal market and a 40% business market. We have had a self-imposed limit of 40% and that is also called volatility if we get new growth in the macro. It's just to realize that those who have The biggest challenge for Volta is the business market. The 20% of the business market has shifted from 60% to 65%. to grow both in the personal market and the business market, but it is clear that the investment we have in the business market and together with the Sparbank 1 market also gives increasing revenue on the type of financing that the other smaller banks can copy. It's not about the size of the bonds, but above all it's about competence and the system value that we have as a bank alone, together with Sbarbank 1 Markets, and in relation to the strategic cooperation agreement that we have with Swedbank, which also gives us additional bond capacity. In the 14% plan, there is also a steadily stronger contribution from the business market area, which is part of that plan.

Thank you. Any other questions from the audience? This is a question from Fredrik Støhle. What kind of interest rate is in the 14% calm goal?

We take the starting point in what we call market expectations. In that there is a lower interest rate and then we all know on the bank side that it is even more demanding on the margin side in large. So there is also clearly a ... We see the interest rate and know that 14% is ambitious, but that's where we lay the list.

We thought it would be strange to come up with five proposals and conditions for the goal. We say that this is our ambition, given the market conditions we now have. So we must regardless try to strive for it. We must regardless work with the value chain of the bank, completely independent of that. So it's not based on any assumptions, it's a goal of 14%.

Good, then I think that's it for the questions.

Thank you. Then I would like to thank you for attending, to those of you who are physically in the room, and those of you who have followed us on the web, and I wish you all a good day. Thank you. Thank you.