Sbanken : FY 2021 EN

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sbanken.no

Annual Report 2021

Content

Letter from the CEO 4

Important events 6

Key figures (group) 8

Sbanken's history 10

Sbanken's values 12

Sbanken's business 15

Satisfied customers for 20 years 16

Best in Norway on digital innovation 18

Corporate social responsibility and sustainability 20

- Sbanken's owners 23

- Sbanken's customers 26

- Human resources 32

- Sbanken and society 37

- UN SDGs in Sbanken's work on ESG 41

Macroeconomic development in Norway in 2021 46

The stock market 47

Financial targets 2021-2023 49

Corporate governance 50

The management of Sbanken 58

Board of Directors 60

Board of Directors' report 62

Annual accounts and notes 71

Alternative perfomance measures 172

Statement 175

Auditor's report 176

Climate risk reporting based on the recommendations of the

Task Force on Climate Related Financial Disclosure (TCFD) 181

Stakeholder engagement for Sbanken 2021 185

GRI Index 187

Letter from the CEO

Letter from the CEO

Emerging stronger from a challenging year

Sbanken can look back on an unusual year. We entered 2021 with a strong focus on realising our new strategy. Then, on 15 April, came the bid from DNB. The rest of the year became an exercise in safeguarding the interests of our customers and employees, running the bank as normal and delivering on our strategy, while at the same time dealing with the uncertainty and attention associated with a prolonged acqui-sition process. It has been challenging, it has impacted our operations, but we have emerged stronger from the experience. Our organisation has demonstrated a remarkable ability to put the customer first, no matter what is going on around us. Our customers are more satisfied than ever, and we will now do our utmost to create even better customer experiences in the future.

We had clear ambitions for 2021. Two focus areas had been defined: becoming Norwegian customers' preferred savings partner, and delivering the most automated, scalable banking products in the market. The task was challenging, but we knew what we needed to deliver on to make it happen: Loan preapproval letters in seconds. Mortgages in minutes. A more fine-grained price model. We wanted to make it simple and attractive for customers to save more in funds. Another important ambition was to reduce the cost ratio to be able to run a more cost-effective operation to the benefit of our customers and owners.

A surprising acquisition process

The first quarter was dedicated to delivering on our strategy. By the end of the quarter, there was something else to think about, as we learnt that DNB was looking to buy Sbanken. The news was surprising, and it attracted much interest both inter-nally and externally, especially among our customers, when the bid was announced on 15 April. The high level of engagement among our customers demonstrated the strength of our brand in a way we had never seen before, but it also created uncertainty about the bank's future as a standalone company. It became important to reassure customers and employees, toattend to our day-to-day operations and, not least, to protect shareholder value. The acquisition process has obviously affected our profit performance and our ability to deliver on our objectives and plans. In addition, the coronavirus pandemic continued to impact society and the economy in 2021 and gave rise to challenges for us.

Poorer profit performance

The year ended with a pre-tax profit of NOK 956 million, down NOK 51 million on the year before. The decrease was due to lower income and higher expenses, largely as a direct or indirect consequence of the acquisition process.

Clearer sustainability goals

In the sustainability area, we have established clearer objec-tives and deliveries that are material to our business model. We have set emission targets for our own operations and monitor the climate risk in our portfolio. Sbanken's greatest opportunity to exert influence lies in our social responsibility. We want to make banking simple and accessible for everyone without discriminating between people. We will continue to promote openness and transparency, with no hidden fees or prices and with an unwavering focus on customers. Customers can rest assured that we will give them advice that enables them to make smart financial choices. That way, we will create lasting value for all the bank's stakeholders.

Impressive employees and satisfied customers

Whatever the outcome, I'm proud of what Sbanken achieved during this challenging period. Our employees have put in an extraordinary effort. They have been there for each other. They have focused on their day-to-day tasks and put the customer first. That yields results. Recent surveys show higher customer satisfaction and loyalty than ever before. We made it into the top three in the Customer Service Index for 2021, our mobile banking solution was rated best in the country and we won the 2021 Innovation Award awarded by NHH.

Growth in savings and mortgages

We have also delivered on several of our strategic ambitions. We have continue to grow in the savings area. In June, we became the first bank in the world to have an authorised financial robo-adviser. We issue loan preapprovals in seconds and the actual mortgage in minutes, everything according to plan. The growth in mortgages is also back on track after a short period of stagnation at the start of the acquisition process.

Sound capital situation

Sbanken is robust as we head into the new year. Our capital situation is sound, with a CET1 ratio of 15.0 per cent. In February 2022, the Board decided to propose a dividend of NOK 6.60 per share for 2021.

Final conclusion to a long acquisition process

Many people have long awaited a conclusion of the acquisition process. When DNB announced the bid in April 2021, we chose to focus on the opportunities it represented. We had fruitful discussions with DNB about our shared ambitions and were prepared for a future together. The Norwegian Competition Authority considered the potential acquisition over a protracted period before the decision to intervene against the acquisition was announced in November. DNB appealed the decision, and, pending the Norwegian Competition Tribunal's decision, we agreed that we would focus on our separate plans for the future. On 16 March 2022, the Competition Tribunal announced that it would overturn the decision and allow DNB to acquire Sbanken.

As a new phase begins, it raises many questions about what's in store for us. So far, we don't have many answers. We will take some time to get to know each other, and together we must find out how to use the best of both worlds to create even better customer experiences going forward. It's an exciting opportunity that we will definitely seize.

We are excited and curious about what the future holds, and we hope our customers feel the same way. Our core focus has always been to put the customer first and to enable them to make smart financial choices. Doing what is in the customer's best interest is in our DNA, and that will never change.

The attack on Ukraine

At the time of writing of the 2021 annual report, Russia has attacked Ukraine, bringing about a tragic humanitarian situation. This situation will affect us all in one way or another. However, it is difficult for us to predict the specific consequences for us here in Norway, including for Sbanken, at the present time.

Thank you!

Finally, I would like to express my sincere thanks to our customers, employees, owners and partners for their efforts, commitment and support through the most challenging year in the bank's history.

Øyvind Thomassen

CEO, Sbanken ASA

Q1 First quarter

Important events 2021

Important events

• • Sbanken is ranked top in the industry on the Norwegian School of Economics' (NHH) Innovation Index for 2020. Sbanken also comes out top overall on digital innovation, which means that customers consider the bank to be among Norway's best performers in terms of innovation and development.

• • Sbanken's mobile banking solution is named the best in Norway in a big Cicero test. The test includes 16 mobile banking solutions, and Sbanken's solution is praised for its user-friendliness, good design and useful functions for both simple and more advanced use.

• • The Board of Sbanken decides to use its mandate to pay NOK 3.15 per share in dividend for the 2019 fiscal year. The dividend distribution was postponed on the Financial Supervisory Authority's recommendation in light of the increased uncertainty associated with the coronavirus outbreak. For the 2020 fiscal year, it is proposed to grant the Board a mandate to pay a dividend of NOK 4.40 per share.

Q2 Second quarter

• • DNB makes a recommended voluntary bid to acquire all outstanding shares in Sbanken ASA at a price of NOK 103.85 per share. In June, the bid is raised to NOK 108.85, corresponding to a total price of NOK 11.6 billion, and achieves an acceptance rate of 91.2 per cent (combined with DNB's own holding). The offer is contingent on regulatory approval from the Ministry of Finance and the Norwegian Competition Authority.

• • Sbanken is the first bank in Norway to launch an interest rate guarantee with a duration until year-end 2021 for all its mortgage customers.

• • For the 20th year in a row, the Norwegian Customer Satis-faction Barometer (NKB) finds that Sbanken has the most satisfied and loyal customers among Norwegian banks.

• • Sbanken's savings robot becomes the world's first financial robo-adviser to be authorised under the Finance Industry's Authorisation schemes (FinAut).

Q3 Third quarter

• • The Competition Authority announces that it is considering intervening against DNB's planned acquisition of Sbanken. The statement is based on the Authority's concerns that the acquisition may weaken competition in the market for mutual funds.

• • Norges Bank raises the key policy rate to 0.25 per cent, the first interest rate increase after the policy rate was cut to a record-low zero per cent following the coronavirus outbreak in the first half-year of 2020.

• • Sbanken is awarded a B+ rating in the ESG 100 report ('Bærekraft på børs') for 2021, prepared by The Governance Group. Special mention is given to the bank's clear improvement in sustainability reporting.

Q4 Fourth quarter

• • The Competition Authority decides to intervene against DNB's planned acquisition of Sbanken. DNB subsequently appeals the decision to the Norwegian Competition Tribunal, which will make its decision by 16 March 2022.

• • The Board of Sbanken decides to use its mandate to pay a dividend of NOK 4.40 per share for the 2020 fiscal year.

• • Norges Bank raises the key policy rate to 0.50 per cent.

• • Sbanken is named the company with the most satisfied customers in EPSI's first survey of the private savings and investment market in Norway.

Key figures

Key figures (group)

2020

1 644 137

184 310

22 050

1 850 497

-710 371

1 140 126

-133 482

1 006 643

-223 601

783 042

References

• 1) Return to shareholders after tax (annualised) as a percentage of average shareholder equity in the period.

• 2) Net interest income (annualised) as a percentage of average total capital

• 3) Operating expenses before loss as a percentage of total income

• 4) Average deposits from customers as a percentage of average loan volume

• 5) Average total assets in the period

• 6) Loan losses as a percentage of average loan volume in the period

  11,4% 1,66% 38,4%

  7,00

  83 438

  58 644

  68,4%

  2,4%

  98 939

  100 726

  64,72

  0,16%

  15,5% 17,3% 19,6% 6,3%

  334

  25%

  3,70

  82,00

  80,80

• 7) Year-end 2021 is adjusted with proposed dividend of NOK 6.60 per share.

Year-end 2020 includes 37.2 per cent of retained earnings for 2020 and 50.4 per cent of the profit for 2019.

Profit performance in NOK million

1800

1600

1400

1200

1000

800

600

400

200

0

12% 10% 8% 6%

Net interest income

Profit before tax

2017

2018

2019

Loans to customers (NOK billion) and lending growth (per cent)

90

85

80

65

70

75

0

2017

2018

Total loan volumeLending growth (r.a.)

Net interest margin

Net profit

2020

2021

20%

83,4

84,7

15%

10%

5%

0%

2019

2020

2021

2,50%

0,50%

0,00%

Key figures

Return on equity

14%

13,1%

12,9%

4%

2%

0%

2017

2018

2019

Loan losses in NOK million and per cent

2020

2021

200

150

100

50

-50

153

-1 2017

2018

2019

Net loan lossesLoan loss ratio (r.a.)

Cost/Income (C/I) ratio in per cent

50%

45%

40%

2020

-3 2021

43,8%

0,40%

0,30%

0,20%

0,10%

0,00%

-0,10%

35%

30%

25%

2017

2018

2019

2020

Net interest margin3m Nibor (annual average)

20%

2021

2017

2018

2019

2020

C/I ratio

C/I ratio adjusted for one-offs

2021