SpareBank 1 - The Alliance – Status, Challenges and the Future

Kirsten Idebøen

Group Executive Vice President

SpareBank 1 Gruppen AS

14 June 2005

2

SpareBank 1 Alliance- established in 1996

Maintain local attachment

Secure each bank’s independence and regional attachment through competitive strength, profitability and solidity

Efficiency as competitors

Separate names and legal units

Separate Boards of Directors and Management

Utilize knowledge of local markets

Share development costs

Achieve scale advantages

Achieve critical competence

The primary target of the AllianceBackground for the co-operation

3

Co-operating savings banks:

SpareBank 1 Vestfold

SpareBank 1 Ringerike

SpareBank 1 Moss

SpareBank 1 Hallingdal

SpareBank 1 Gran

SpareBank 1 Gudbrandsdal

SpareBank 1 Jevnaker Lunner

SpareBank 1 Nordvest

SpareBank 1 Kongsberg

Halden SpareBank 1

GS-banken

Modum Sparebank

Sparebanken Grenland

Lom og Skjåk Sparebank

Nøtterø Sparebank

Other distributors

Sparebanken Vest

Sparebanken Pluss

Sparebanken Hedmark

Svalbard

SpareBank 1 Nord-Norge

SpareBank 1 Midt-Norge

SpareBank 1 SR-Bank

SpareBank 1 Oslo

• Total assets: NOK 250 billion• No. of branches: 290• No. of employees : 4500• No. of customers: approx. 1,6 mill.• (of whom 820,000 insurance clients – Trade Unions/LO)

• No. of Internet banking customers: 364,000

January 2005

SpareBank 1 Alliance

4

Size of financial institutions - Norway

Total assets as per 31/12/2004

913

539

265232

173141

10879 68 46 40 33 24 19 19

0

100

200

300

400

500

600

700

800

900

1000

DnB N

OR

Saving

s ban

ks e

xcl.

DnB NOR

Norde

a Nor

ge

Spare

Bank 1

Store

bran

dKLP

Terra-G

rupp

en

Fokus

Bank

Handels

bank

en

Spb. V

est

BNBank

Gjen

sidige

Spb. M

øre

Spb. S

ør

Sandn

es Spb.

Source: Accounting reports - total assets. DnB NOR: incl. Vital. 1) Source: The Norwegian Savings Banks Association, 2) excl. Helgeland Sparebank.

2)

1)

5

Norwegian Banking Industry – Key elements going forward

Expect increasing competition among the banks– In particular increased competition from the foreign banks. Fokus Bank and Handelsbanken seems to be

the most aggressive ones– The merger process in DnB NOR has so far been successful, and the bank has been surprisingly

customer oriented during the merger period and been able to keep the customer base and even keep good growth figures, in particular on the retail side

– We expect to see increased competition from niche players in most areas (i.e. mutual funds, credit card businesses and smaller banks)

Margins will continue to be under pressure– New BASEL II requirements will be favourable for the capital ratios for most of the banks– More use of economic capital in the pricing models will give lower margins for high quality lenders– Will particularly be the situation for residential loans on the retail side– Introduction of a new legislation for covered bonds will give further pressure on the interest margins

Increased focus for the banks to increase other operating income– To compensate for lower interest margins, we expect the banks to continue the work to increase other

operating income. Focus will be on cross sale of banking, savings and insurance products

Pressure for lower operating costs will continue

All in all we expect that the ROE within the banking industry will be reduced

6

SpareBank 1 Livsforsikring

(100 %)

SpareBank 1 Skadeforsikring

(100 %)

Bank 1 Oslo

(100 %)

SpareBank 1 Bilplan

(19.9 %)

ODIN Forvaltning

(100 %)

SpareBank 1 Gruppen AS

Eiendoms-Megler 1(Chain)

SpareBank 1 Fondsforsikring

(100 %)

First Securities (24.5 %)

Bank Co-operation Programme

• Centres of Excellence• IT operations and development• Internet and telephone banking• Risk Management• Credit Systems• Competence building• Payment - cards and services• Brand building• Industrial and structural matters

Nordic Co-operation Agreement with Swedbank National Co-operation Agreement with Norwegian Federation of Trade Unions

The SpareBank 1 Alliance and Group

SpareBank 1Nord-Norge

SpareBank 1 Midt-Norge

SpareBank 1 SR-Bank

Förenings-Sparbanken

LOSamarbeidende Sparebanker

17,63 % 17,63 % 17,63 % 17,63 % 19,5 % 10 %

7

The SpareBank 1 Alliance has been a success in essential areas

Strong brand – Co-ordinated marketing efforts have established focus on the

SpareBank 1 brand and reduced marketing costs

Development in the banks – Broad line of products, marketing, profitability

Through common efforts the Alliance has achieved– Considerably reduced IT costs

– Increased use of ”Best Practice”

– Co-ordinated projects in essential areas like credit processes and Basel II

– Mutual operations and administration of e.g. Internet banking

– Development of skills

8

SpareBank 1: Success in cross sales

means a high share of other income

43,7

36,7 36,4 35,6

29,927,7 27,5 26,9

25,2

18,417,5 17,1 16,7

14,1

1,7

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

45,0

50,0

DnB NOR

SB1MN

SB1SR

Bank

1 Osl

o

SB1NN

Spb Sør

Fokus

Bank

Spb Ves

t

Nordea

Norg

e

Spb Øst

Spb Møre

Spb Hed

mar

k

Store

brand B

ank

Sandnes

Spb

BNBank

Other revenue in per cent of total revenue, excl. gains/losses on shares as per 1Q05

Spb Øst: excl. gains from shares in BNbank

Source: Accounting reports – total assets

9

... and yet maintained to control the level of costs

31,6

49,751,7 52,3 53,8 54,0 55,1 55,2 55,3 55,5 55,8

61,1 61,8

67,772,0

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

BNBank

Spb Møre

SB1NN

SB1SR

DnB NOR

Spb Øst

SB1MN

Sandnes

Spb

Spb Sør

Spb Hed

mar

k

Nordea

Norg

e

Store

brand B

ank

Spb Ves

t

Bank

1 Osl

o

Fokus

Bank

%

Costs in per cent of total revenue, excl. gains/losses on shares as per 1Q05

Spb Øst: excl. gains from shares in BNbank

Source: Accounting reports – total assets

10

SpareBank 1: Positive profit development

20,1 % 20,0 %18,9 %

15,3 %14,6 % 14,3 %

13,1 % 13,0 % 13,0 %12,1 % 11,6 % 11,2 %

10,5 %9,4 %

8,3 %

0,0 %

5,0 %

10,0 %

15,0 %

20,0 %

25,0 %

SB1SR

SB1MN

SB1NN

DnB NOR

Spb Ves

t

Spb Øst

Spb Møre

Spb Sør

Nordea

Norg

e

Bank

1 Osl

o

BNBank

Sandnes

Spb

Store

brand B

ank

Fokus

Bank

Spb Hed

mar

k

Return on equity as per 1Q05

Spb Øst: excl. gains from shares in BNbank

Source: Accounting reports – total assets

11

SpareBank 1 has maintained its strong position in the bank market and has assumed a challenging position in new product areas

Development market shares 2000-1Q2005

0,0 %

2,0 %

4,0 %

6,0 %

8,0 %

10,0 %

12,0 %

14,0 %

16,0 %

18,0 %

20,0 %

2000 1Q05

2000 9,9 % 5,3 % 10,5 % 12,6 % 13,4 %

1Q05 18,8 % 10,7 % 9,9 % 12,7 % 14,0 %

Unit trusts Unit Link Non-life insurance Deposits Loans

1) Excl. Sparebanken Vest

2) Unit Link and traditional pension insurance

Source: Accounting reports – total assets, Norwegian Financial Services Association (FNH), Norwegian Mutual Fund Association, Norges Bank

12

The Parliament decided this spring both a reform in the state pension system and a mandatory occupational pension system

100 000 enterprises with 600 000 employees have to establish a scheme

– The scheme will be ”a minimum requirement” scheme yielding a minimum increase in annual premiums of NOK 3 bn. Large upside potential

40 % of all private enterprises have already a pension scheme

– Broad coverage in large enterprises

– Little coverage in small and medium sized companies i.e. the market in focus for SpareBank 1 Alliance

In addition approximately 170 000 self employed persons will be offered a scheme with tax incentives

1 to 4 5 to 19 20 to 99 100 +

Number of employees

With a scheme today

Without a scheme

Per

cen

t

13

2,3

3,2

4,8

7,4

1,6

2,1

3,2

4,6

7,2

1,4

2,3

3,2

4,6

7,1

1,3

2,1

3

4,1

5,9

1,4

0

1

2

3

4

5

6

7

8

9

1st Q 2004 2nd Q 2004 3rd Q 2004 4th Q 2004 1st Q 2005

pc

t.

SpareBank 1

Storebrand

Vital

Nordea

Very competitive returns in SpareBank 1 Livsforsikring

Source: Norwegian Financial Services Association (FNH), SpareBank 1

Value-adjusted return per quarter (excl. value change system)

14

0 %

1 %

2 %

3 %

4 %

5 %

6 %

7 %

8 %

9 %

10 %

4th Q03

4th Q04

1st Q05

4th Q03

4th Q04

1st Q05

4th Q03

4th Q04

1st Q05

4th Q03

4th Q04

pct

.

Core capital, exceeding etc. Interim profit Supplementary allocations Securities adjustment reserve

Satisfactory ability to carry risk in SpareBank 1 Livsforsikring

Definition buffer capital:

1) core capital above that which is required to fulfill valid capital coverage requirements and solvency margin requirements 2) interim profits which are not included in eligible primary capital3) total additional provisions 4) securities adjustment reserve

Source: Norwegian Financial Services Association (FNH), SpareBank 1

5.5% 5.2%

6.7%6.1%

SpareBank 1 Storebrand Vital Nordea

7.3% 7.5 %

5.8 % 5.2%

7.7%

Buffer capital in per cent of insurance provisions excl. supplementary allocations

7.7 %

5.9 %

NA

15

The SpareBank 1 Alliance is allocating large resources to be competitive the vast increase in the Pension Market

• Detailed plans have been made

• A large potential number of customers of the mandatory scheme among the banks’ present customers

– 13,400 enterprises with 160,000 employees

• Ambitious targets

– Offer to 95 pct of enterprises, sale to 50 pct before the end of 2006 (”95/50/06”)

• A large increase in dedicated resources From 10 to more than 100 man-years in the Alliance

– Pensions Specialists - Enterprise Relationship Managers - Saving Specialists

– A large joint recruiting and educational program between the Life Insurance Company and the banks

• An expected 10-fold increase in sales and portfolio NOK 400 mill / 7 500 enterprises in 2006

16

SpareBank 1 GruppenHighlights 1st quarter 2005

• SpareBank 1 Gruppen had a pre-tax profit of NOK 122.3 million, an improvement of NOK 92.7 million from 1st quarter last year

– IFRS-related consequences amounted to NOK 30.8 million before tax, of which NOK 25.1 million was due to the elimination of goodwill write-downs

• Return on equity (before amortization of goodwill and added value, but after tax) was 19.4 % p.a.

• Generally good cost control

– Operating costs in the holding company were reduced by 45 % to NOK 7.9 million (14.5)

• Income growth and increased total assets

• Capital adequacy ratio of 11.8 %

Very satisfactory profit development

17

SpareBank 1 GruppenHighlights 1st quarter 2005

• Stable net interest and positive loss development in Bank 1 Oslo

– Systematic use of credit score models and risk pricing reduce the risk in the loan portfolio and allows for careful growth

• Good sales and strong profit development in the life company

– Good risk control and attractive returns gives a good platform for pension sales

• Good profits in the non-life insurance company

– Allows for careful reduction of reassurance programs

• Strong improvement in profits in ODIN. Market share in unit trusts increased to 18.8 %

– Keep up the good work

Strong improvements in all operational areas a good platform for profitable growth in the years to come

18

SpareBank 1 GruppenProfit and loss 1st quarter 2005

*) The subsidiaries’ results are shown by NGAAP standards. The total result from subsidiaries is corrected for changes from IFRS standards. Other items are shown by IFRS standards.Results from 1st quarter 2004 and the year 2004 are shown by NGAAP standards.

YearFigures in MNOK 2005 2004 2004

Part of result from subsidiaries before tax - SpareBank 1 Livs- og Fondsforsikring 44,7 35,2 159,2 - SpareBank 1 Skadeforsikring 23,0 10,1 121,3 - Bank 1 Oslo 46,7 22,4 94,5 - ODIN Forvaltning 29,4 18,7 60,6 - Other companies 0,6 0,7 2,6 - correction subsidiaries - pro forma IFRS -5,1 0,0 0,0Net result before tax from subsidiaries 139,3 87,0 438,2Total operating costs and adjustments -7,9 -14,5 -53,4Net investment charges -8,6 -12,3 -53,5Result from investments in associated companies 8,6 6,2 26,5Net result before goodwill amortisation 131,5 66,5 357,8Goodwill amortisation -9,2 -36,8 -149,3Pre-tax result 122,3 29,7 208,5Taxes -30,9 -15,0 -60,7Net result for the period 91,5 14,6 147,8

1st Q

19

What does SpareBank 1 see as the most important challenges going forward?

• To continue to generate profitable growth in the banks and product companies

• To increase cross selling• To successfully implement the skills strategy. The skills in the

customer consultancy section of the organisation will be crucial• To further develop the benchmark systems• To improve and incorporate “best practice” in the banks and

product companies• To succeed with the heavy investment in the market for company

pensions for small and medium sized enterprises• To successfully implement and further develop IT projects such as

the Internet portal and credit process in the retail and commercial markets

• To increase sales of electronic BankID

20

The SpareBank 1 Alliance is well positioned for profitable growth

• The SpareBank 1 banks generate high ordinary operating incomes and still have considerable potential for cross-sales

• The SpareBank 1 Alliance will attain greater economies of scale, best practice and benchmarking

• SpareBank 1 will investment heavily in sales of company pensions to small and medium sized companies

• Access to loans and equity financing is good and competitive

SpareBank 1:

A future winner in the Norwegian financial market!