Q4 2024Unaudited

Sparebanken Sør Boligkreditt AS is a wholly owned subsidiary of Sparebanken Sør. The company is licensed by the Financial Supervisory Authority of Norway to operate as a mortgage company and issue covered bonds, and is a part of Sparebanken Sør’s long-term financial strategy. All shares are owned by Sparebanken Sør and the financial statements are consolidated into the financial statements of the Sparebanken Sør Group.

The cover pool consists of secured mortgages, substitute assets in interest-bearing securities and financial derivatives. The mortgages are granted by Sparebanken Sør and later taken on by Sparebanken Sør Boligkreditt AS. The secured mortgages meet the requirements established by the company for inclusion in the company’s cover pool. One important requirement is that any outstanding loan balance taken on by the company, must not exceed 80 percent of the mortgaged property’s market value at the date of acquisition.

At the end of Q4 2024, Sparebanken Sør Boligkreditt AS had taken on a mortgage loan portfolio totalling NOK 60 652 million, transferred from Sparebanken Sør, of which NOK 60 354 million was included in the qualified cover pool. Corresponding figures at the end of Q4 2023 were NOK 55 832 million and NOK 55 459 million respectively.

The portfolio of bonds and certificates totalled NOK 5 606 million at the end of Q4 2024, of which NOK 4 500 million was included in the cover pool. Corresponding figures at the end of Q4 2023 were NOK 2 158 million and NOK 990 million respectively.

Sparebanken Sør Boligkreditt AS had issued covered bonds totalling NOK 59 573 million, compared to NOK 49 732 million at the same time in 2023. The company had achieved diversified funding by issuing covered bonds outside the Norwegian bond market.

The financial statement of Sparebanken Sør Boligkreditt AS shows a profit after tax of NOK 362.3 million at the end of Q4 2024, compared to NOK 299.1 million in 2023.

The company had net interest income of NOK 615.2 million, compared to NOK 470.9 million in 2023.

Net income from financial instruments totalled minus NOK 28.3 million, compared to NOK 7.7 million in 2023. The negative effect on net income from financial instruments is related to buyback effects on own bonds, in addition to negative changes in value from certificates and bonds.

The company had issued covered bonds in Euros under the EMTCN (European Medium Term Covered Note) program. In order to control interest and currency exposure, the company had established swap arrangements (basis swaps), to convert foreign currency into NOK. The impact on earnings related to changes in the value of the basis swap, did not affect the income from financial instruments in 2024, but affected other comprehensive income by minus NOK 50.0 million at the end of Q4 2024. Assuming that the covered bonds in foreign currency are held to maturity, the total change in fair value is equal to zero. The accounting effects will therefore be reversed over time.

Operating expenses were NOK 116.8 million at the end of Q4 2024, compared to NOK 106.4 million in the same period in 2023.

Tax expenses were NOK 104.6 million at the end of Q4 2024. Corresponding figures at the end of Q4 2023 were NOK 75.3 million respectively.

Total assets as at 31.12.2024 were NOK 72 358 million, of which net loans to customers represented NOK 60 625 million. At the same time in 2023 total assets were NOK 60 057 million, of which net loans to customers were NOK 55 808 million. The loan portfolio has been financed through the issuance of bonds totalling NOK 59 573 million, and by equity and loans from Sparebanken Sør. At the end of Q4 2024, the company had a total paid-in capital of NOK 3 975 million, of which NOK 3 475 million was share capital and NOK 500 million was related to share premiums.

Sparebanken Sør Boligkreditt AS has an overdraft facility of NOK 6 000 million with Sparebanken Sør for operational purposes that, as at 31.12.2024, was drawn down by NOK 3 749 million.

Total profit after tax for 2024 is NOK 362.3 million. The Board of Directors proposes to the Annual General Meeting a dividend payment of NOK 310.0 million.

At the end of Q4 2024, the net subordinated capital in the company was NOK 5 757 million, compared to NOK 4 390 million at the same time in 2023. This corresponds to a common equity tier 1 capital ratio/tier 1 capital ratio/total capital ratio of 22.1 percent ( 19.0 percent in 2023), while regulatory minimums requirements constitute 14.0 percent, 15.5 percent and 17.5 percent respectively. The capital adequacy ratio was calculated based on the standard method in the Basel II - regulations.

The Board of Directors considers the company’s solidity and risk-bearing ability to be good. The company’s Leverage Ratio was 7.8 percent at the end of Q4 2024.

As a licensed mortgage company, Sparebanken Sør Boligkreditt AS is under the regulation of The Act on the Supervision of Financial Institutions and is subject to a number of regulations, recommendations and regulatory provisions. The objective of the company is to finance lending activities through the issuance of covered bonds with a high rating. This means that Sparebanken Sør Boligkreditt AS strives to maintain risk at a low level. The company emphasizes identifying, measuring and controlling risk elements in such a way that the market has high confidence in the company, and that bonds issued by the company have a high rating.

The company’s credit strategy and policy constitute a framework, which includes lending regulations and loan-to-value requirements for any loan taken on by the company. The Board of Directors considers the overall quality of the lending portfolio to be very good and the credit risk is considered low.

The company’s mortgage lending to customers is in Norwegian kroner (NOK) at both floating and fixed interest rates. Financing is based on both floating and fixed interest rate bonds in NOK and EUR. Foreign currency debt is swapped into NOK and liabilities established at fixed rates are swapped into floating rates. Accounting for foreign currency debt and debt at fixed interest rates, complies with the rules for hedge accounting. The Board of Directors considers the overall market risk to be low.

The company issues covered bonds with the opportunity to extend the maturities by up to 12 months, given an approval by the FSA. In addition, financing needs are met by using equity and credit facilities with Sparebanken Sør. The Board of Directors considers the company’s liquidity risk to be low.

As at 31.12.2024 the company had a liquidity portfolio in addition to substitute assets, and was compliant with the liquidity requirements imposed on financial institutions, with a LCR total ratio of 287.3 percent and LCR EUR ratio above the requirement of 100 percent. As at 31.12.2024 the mortgages in the cover pool had an average loan-to-value of 53.5 percent. Long term financing was well diversified and the NSFR ratio was reported at 120.8 percent. Over-collateralization was 15.1 percent, and given a stress test on assets prices of 30 percent, the OC was above the legislative OC level of 5 percent. The Board of Directors considers the company`s liquidity risk to be low.

A Loan Service Agreement and Management Service Agreement are in place with Sparebanken Sør encompassing the supply of all services necessary for operating the company, and the Board of Directors considers the company’s operational risk to be low.

Sparebanken Sør Group has a Green and Sustainability Bond Framework in place, under which Sparebanken Sør Boligkreditt AS has issued green covered bonds. The proceeds are allocated to a mortgage portfolio, financing energy-efficient residential buildings in Norway. The bond framework, which is aligned with ICMA Green Bond Principles, was last updated and approved by the Green Bond Committee in October 2024.

Covered bonds issued by Sparebanken Sør Boligkreditt AS in NOK and EUR, have been given an Aaa rating by Moody’s. Sparebanken Sør Boligkreditt AS has as of June 2023 been assigned an A1/Prime-1 issuer rating by Moody`s, in line with ratings assigned on the parent bank.

Growth in the Norwegian economy picked up in 2024 and is back to a normal pace. Economic activity was driven by high public demand and petroleum investment.

Unemployment is low and has shown little change but with a somewhat negative trend in recent months. As a consequence of an expected higher activity in the construction market in 2025, the development in the labour market is expected to be positive going forward.

Growth in household consumption and housing investments was negatively affected by the high interest rates. In 2025 consumer behaviour might change as a consequence of lower interest rates and a positive real wage growth. This will underpin a strong development in house prices, especially in the larger cities.

Inflation has fallen markedly since the peak, and stood at 2.2 percent at year’s end. This is close to the targeted inflation level of the Norwegian Central Bank, at 2 percent, but was to a large extent driven by lower energy prices in December compared to previous year. International inflation has declined and moved closer to inflation targets. As a consequence, several central banks have reduced the key policy rates. Markets participants expect further rate cuts going forward, but the expectations are somewhat dampened compared to the situation earlier in 2024.

The Norwegian Central Bank’s assessment of the outlook as at December, is that the key policy rate will probably be reduced by 25 basis points from 4.5 percent as of March. A further easing of the monetary policy with one additional cut is expected to take place during the pace of 2025.

Sparebanken Sør Boligkreditt AS has ample access to wholesale funding both from the domestic as well as from the bond market abroad. The Board of Directors anticipates the company’s business to continue to be satisfactory going forward. Sparebanken Sør Boligkreditt AS is well-positioned to further acquire loans from Sparebanken Sør, and issue covered bonds towards investors in Norway and abroad.

Negative events of major significance to the accounts have not occurred after the balance sheet date.