SpareBank 1 - The Alliance

1
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
The primary target of the Alliance
Background for the co-operation
Separate names and legal units
Maintain local attachment
Separate Boards of Directors and Management
Secure each banks independence and regional
attachment through competitive strength,
profitability and solidity
Utilize knowledge of local markets
Share development costs
Efficiency as competitors
Achieve scale advantages
Achieve critical competence
3
SpareBank 1 Alliance
Svalbard
SpareBank 1 Nord-NorgeSpareBank 1
Midt-NorgeSpareBank 1 SR-BankSpareBank 1 Oslo
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

• 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

4
Size of financial institutions - Norway
1)
2)
Source Accounting reports - total assets. DnB
NOR incl. Vital. 1) Source The Norwegian
Savings Banks Association, 2) excl. Helgeland
Sparebank.
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

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The SpareBank 1 Alliance and Group
SpareBank 1 Nord-Norge
SpareBank 1 Midt-Norge
SpareBank 1 SR-Bank
Förenings-Sparbanken
Samarbeidende Sparebanker
LO
17,63 17,63
17,63 17,63
19,5
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SpareBank 1 Gruppen AS
SpareBank 1 Livsforsikring (100 )
SpareBank 1 Skadeforsikring (100 )
Bank 1 Oslo (100 )

• 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

ODIN Forvaltning (100 )
Eiendoms-Megler 1 (Chain)
SpareBank 1 Fondsforsikring (100 )
SpareBank 1 Bilplan (19.9 )
First Securities (24.5 )
Nordic Co-operation Agreement with Swedbank
National Co-operation Agreement with Norwegian
Federation of Trade Unions
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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
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
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
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

• Excl. Sparebanken Vest
• 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

Per cent

• 1 to 4 5 to 19 20 to 99 100
• Number of employees
• With a scheme today
• Without a scheme

13
Very competitive returns in SpareBank 1
Livsforsikring
Value-adjusted return per quarter (excl. value
change system)
Source Norwegian Financial Services Association
(FNH), SpareBank 1
14
Satisfactory ability to carry risk in SpareBank 1
Livsforsikring
Buffer capital in per cent of insurance
provisions excl. supplementary allocations
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
7.7
7.7
7.5
7.3
6.7
5.9
6.1
5.8
5.2
5.5
5.2
NA
SpareBank 1 Storebrand
Vital Nordea
Source Norwegian Financial Services Association
(FNH), SpareBank 1
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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

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SpareBank 1 GruppenHighlights 1st quarter 2005
Very satisfactory profit development

• 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

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SpareBank 1 GruppenHighlights 1st quarter 2005
Strong improvements in all operational areas a
good platform for profitable growth in the years
to come

• 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

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.
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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

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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!