Transcript www.sandnes-sparebank.no

Capital Markets Day
6 September 2010
Svein Ivar Førland, CEO
17.07.2015
Sandnes Sparebank
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17.07.2015
Sandnes Sparebank is an independent bank, headquartered at
Forus, mid way between Stavanger and Sandnes.
The Bank is among the biggest savings banks in Norway, and can
trace its ancestry back to 1876
The Bank's equity certificate (SADG) has been listed on the Oslo
Stock Exchange since 1995.
We have a strong position in the Stavanger region.
The Bank has 50,000 retail customers and 5,000 corporate
customers
The Bank has 210 employees
17.07.2015
SADG performance last 5
years
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Part 1
Financial position & strategy
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Income statement - highlights
Figures in thousand NOK
1Q10
Net interest earnings and similar
105.463
- Net commissions
16.963
-Other operating income
7.374
Total other operating revenues
24.337
Total other operation costs
74.342
Operating profit befor losses and tax 55.458
2Q10
92.211
17.571
5.420
22.991
106.739
8.463
2Q09
94.656
18.245
12.807
31.052
94.918
30.790
1H10
197.674
34.535
12.794
47.328
181.081
63.921
1H09
162.795
35.294
40.318
75.612
188.840
49.567
Losses on lending and guarantees
Operating profit before tax
11.908
43.550
110.176
-101.713
10.726
20.063
122.084
-58.163
14.317
35.249
Tax
Operating profit after tax
12.128
31.422
-28.915
-72.798
11.397
8.666
-16.788
-41.375
16.672
18.577
Earnings per primary capital certificate
2,3
Return on equity after tax
7,4 %
-5,7
-17,1 %
0,4
2,1 %
-3,5
-4,9 %
1,8
2,2 %
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17.07.2015
3.500
3.000
2.500
2.000
1.500
1.000
500
0
-500
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Primary capital
Other reserves
Misc. add. & deduct.
Total tier 1 capital
Saving bank's fund
Subord. tier 1 bonds
Subord. loan capital
Net subord. capital
15 %
NOKm
• The Tier-1 capital ratio is 11.5%
• The Board of Directors has set a
target of 10% Tier -1 capital ratio
• The capital adequacy ratio is
14.1%
• MNOK 450 injection from the
Norwegian State Finance Fund
will not be re-financed until it can
be replaced
The bank will reduce the capital
calculation base through:
• Reduction of large client credits
• Selling off properties booked on
the banks balance sheet
• Increase the degree of
diversification within corporate
segment
NOKm
Solvency
12 %
9%
6%
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Tier 1 capital ratio
Capital adequacy ratio
Financial position
Capacity to sustain losses
The Bank's capacity to sustain losses
MNOK
Total Individual write-downs
190
Total Group write-downs
67
Buffer to 10 % Tier-1 capital
250
Total loss buffer until breach of
internal requirement of minimum 10%
Tier-1 capital
507
Total doubtful loans
1,490
Of the Bank's doubtful loans of NOK 1,490
million, the majority is secured with
collateral in real estate
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Refinancing need
5.000
4.000
3.000
2.000
1.000
0
2010
2011
2013
2014
2015
2016
2017
F-loans
Subordinate loans
Liquidity
4.000
3.000
2.000
1.000
0
-1.000
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
-2.000
Strategic liquidity
Liquidity buffer
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2012
OMF exchange fascility
Syndicate
Bonds and certificates
NOKm
• Good liquidity situation for the
next 12 months
• A syndicated loan of EUR 300
million was refinanced and
replace by a new syndicated loan
of EUR 140 million. The deal was
signed in June 2010
• Currently, loans worth NOK
5.2 billion have been transferred
to SSB Boligkreditt, Of this
amount, NOK 2.5 billion has
been used in the exchange
scheme, and NOK 1 billion sold
in the market
• Net funding requirements will be
reduced through a reduction of
the major customer segment
NOKm
Liquidity situation
Not used cov. bonds portfolio
Financial targets by 2013
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Return on Equity
Cost to income
ratio
Deposit to loan
ratio
• Minimum 10% after
tax
• External analysts
predict a decline in
the return on equity
of banks, due to
lower commission
income, increased
funding costs
related to Basel III
requirements and
higher capital
requirements
• Capital efficiency
• Under 50%
• Stability by quarter
• Profitability
program is
essential in order to
achieve this
• We have charted
measures that will
have short term
impact, but some
outcomes will
require more time
to realize
• Over 55% at Group
level
• Organic growth, not
large, fickle
deposits
• Positive effect of
scaling down Major
Customers due to
low deposit to loan
ratio
• Negative effect of
reduction of major
deposits
Portfolio Quality - Corporate
Corporate portfolio - as of 201007
Grouping : Combination of PD and LGD
%-vis fordeling av total
50 %
42,6 %
40 %
30,6 %
30 %
20 %
11,3 %
10,1 %
10 %
2,4 %
3,0 %
0%
Lowest
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Low
Middle
High
Highest Default /
write
downs
• As of today, the
distribution is not
satisfactory
distributed
• Class K is too high
(includes nonperforming and
doubtful loans)
• Non-performing loans
and realized losses
are at low levels
Portfolio quality - Retail
Retail portfolio (group) as of 201007
Grouping: Combination of PD og LGD
80,0 %
62,6 %
% of total
60,0 %
40,0 %
27,2 %
20,0 %
7,2 %
0,6 %
1,9 %
0,5 %
0,0 %
Lowest
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Low
Middle
High
Highest Default /
write
downs
• Very low risk profil in
retail portfolio.
• Approx. 90% are
classified in the two
lowest categories
• Very good servicing
capability in primary
market
• The high price growth
is being monitored
closely
Total loan portfolio
• Retail customers constitute
60.7%. This is an increase of
1.4% relative to Q1
• Increased demand and growth of
the retail segment throughout the
first half of the year
• Continued low credit demand
from the business community. In
addition, a scaling-down of the
share of major customers, has
been implemented
Primary sector
1,1 %
Distribution trade
1,4 %
Prod. av andre
verkst.prod.
1,5 %
Mining and oil
0,7 %
Public and private
services
0,7 %
Transport and storage
0,4 %
Hotels and
restaurants
0,1 %
Manufacturing
1,6 %
Finansielle tjenester
2,4 %
Building and
construction
3,0 %
Property management
25,2 %
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Other
0,6 %
Retail customers and
others
60,7 %
Summary numbers
• Major write-downs dominate 2Q 2010 earnings
• Costs are too high, but major parts are related to extraordinary
costs for the quarter
• Reassuring capital situation
• Good liquidity
• Net interest margin improving
• Expecting normalized earnings going forward
• Our funding cost makes it difficult to compete in the major customer
segment
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We have to rebuild our balance sheet
Changed competitive picture in the major customer segment
leaves the Bank 3 options
1. Cross subsidize relative to funding cost
2. Accept lower earnings
3. Scale down this business
Option 3 is best justified by considering:
 The effect on capital utilization
 Price of debt financing
 Increase in deposit to loan ratio
Earnings stability
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Measures going forward
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The Bank will continue to work actively towards the retail market
and the small and medium business segment
In close cooperation with major corporate customers, the Bank's
exposure in this segment will be reduced
A new profitability program with focus on increased income and
reduced operating cost, will be presented during Q3 2010
The Bank's Board of Directors will closely monitor industry trends
with respect to considering conversion to a savings bank with
limited liability
Our vision is also our promise to our
customers
As you like it, is our promise to our customers. A
promise to customers must create an expectation
in the market regarding what we are able to offer,
and internally it must help us maintain the right
course
Our business concept:
As an independent bank, Sandnes Sparebank
shall develop and market a complete range of
financial services to the corporate and retail
markets in the Sandnes and Stavanger region,
and to selected customer groups on a national
basis.
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Part 2
Market conditions and
opportunities
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Regional development - Oil
Investments
Source: Statistics Norway
30
NOK billions
120
100
80
60
40
25
20
15
10
20
5
0
0
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
NOK billions
140
35
Source: Statistics Norway
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
160
Exploration costs
Statistics Norway has increased the initial estimate for 2011
• Investments in existing fields has increased by NOK 6.6 billion
• Exploration investments has increased by NOK 1.7 billion
• 2010 estimates are unchanged
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Regional development Commercial property
Rent price per m2 (NOK)
1.800
1.600
1.400
1.200
1.000
800
600
400
200
0
Central Stavanger
2010
2009
2008
2007
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
Source: OPAC / DN
Stavanger oil rel.
• No new information regarding lease levels since Q1 2010
• Based on information from Newsec, there has been a decline in the transaction volume from Q1 to Q2
• Generally, the market is somewhat more nervous due to the financial unrest in Southern Europe
• The prime yield in the Stavanger city center is estimated to be 6 - 6.25%
• For Forus, the estimated yield on 10 year contracts is approximately 7% based on market rents
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Regional development Housing
Price pr. m2 all houses
Housing construction started
35.000
30.000
25.000
20.000
15.000
10.000
5.000
0
35.000
Source: Statistics Norway
30.000
25.000
20.000
15.000
10.000
Norway
Stavanger
Rogaland ex. S & S
Rogaland
Sandnes
Norway - average
Unemployment in %
Sales time houses
Days
Source: NBBF housing survey 07-08, NEF
70
3,5
60
3,0
50
2,5
40
2,0
30
1,5
20
1,0
10
Source: NEF
0,5
Source: NAV
0
0,0
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Rogaland ex. Stav.
Stavanger
Norway
Rogaland
Norway
Business opportunities
”Opptur” (journey up) – the Bank's profit
improvement program
Phase 1:
Facts
Where are we?
Phase 4:
Evaluate/measure
Phase 2:
Objective
On the right course?
Where do we want to go?
Short and long term
Establish measurements
Phase 3:
Measure
How?
Short and long term
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Business opportunities
Short and long term measures through ”Opptur”
Short term measures
• Sharpen the business units
• Consider pricing of products and portfolio
• Implement lean project
• Focus on effective processes
• Tight cost focus and prioritizing
•Focus on cost drivers:
• Payroll, administration, IT, use of
external consultants, building
• Contract reviews/tender rounds in major
areas
• Attitude change and frequent
measurements of impact in each area
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Long term measures
• Improve net interest margin through
better pricing of risk
• Capital and liquidity must be tailored to
the portfolio
• Enduring shift in cost curve
• Effective working processes
• Automatic purchasing processes
• Rationalization of IT systems
• Ready to invest time and resources in
improved profitability
Business opportunities
Rebuilding of the balance sheet
Previously, the Bank has:
• Sold the corporate finance business (SSB Securities)
• Scaled down the business related to the sale of savings and
investment products (Finanshuset)
• Stopped lending growth in Corporate (major customers)
• Implemented measures to turn lending decline into lending
growth in Retail
We are confident that the combination of previously implemented
measures, and the the measures now being initiated, will give us
sensible earnings through ”basic banking”
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Prospects
• The media reported uncertainty regarding our loan portfolio, we now
consider reduced
• The profitability program will improve underlying operations
• The rebuilding of the balance sheet will provide a basis for profitable
growth
• More efficient use of capital will reduce the need for external funding
• Good liquidity
• Good capital situation
• The next few quarters will be important
Our market area is growing and we intend to take our share
With a very competent organization and excellent age distribution,
we are well equipped for balanced growth
We are experiencing a fantastic influx of qualified people who want
to be part of the team, Sandnes Sparebank.
17.07.2015