PARETO BANK Financial Results Third Quarter 2014 SIDE 1
SIDE 2 1 FINANCIAL STATEMENT 2 LENDING AND CREDIT RISK 3 FUNDING AND LIQUIDITY
THIRD QUARTER 2014 Profit after write-downs and tax MNOK 47.2 (MNOK 30.6) Return on equity after tax 18.8% (14.7%) Cost/income ratio 18.9% (24.4%) Common Equity Tier 1 ratio (standard method) 11.39% (11.54%)* * Includes 85% of the profit for the period SIDE 3
HISTORICAL DEVELOPMENT OF KEY FIGURES Post-tax operating profit (NOK million) Common Equity Tier 1 ratio 30.6 33.3 42.8 39.6 47.2 11.5% 11.5% 11.5% 11.4% 11.4% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Return on equity after tax Cost/income ratio 14.7% 14.8% 18.2% 16.3% 18.8% 24.4% 35.1% 20.6% 21.5% 18.9% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 SIDE 4
ADJUSTED EARNINGS AND RETURN ON EQUITY The financial statement does not include provisions for variable compensation for 2014. Such provisions may amount to up to NOK 18 million depending on the result in the fourth quarter of 2014 and the decision of the board. If the bank had accrued variable remuneration throughout the year, profit after tax in the third quarter would have been NOK 43.9 million and return on equity after tax 17.7% at most. 42.8 Post-tax operating profit (NOK million) 39.6 47.2 18.2% Return on equity after tax 16.3% 18.8% 39.5 36.3 43.9 16.8% 15.0% 17.7% Q1 2014 Q2 2014 Q3 2014 Q1 2014 Q2 2014 Q3 2014 Adjusted earnings Earnings Adjusted earnings Earnings SIDE 5
VARIABLE REMUNERATION Pareto Bank has a scheme for variable remuneration based on the results achieved and on return on equity after tax. The threshold for 2014 is a return on equity after tax of 12%, i.e. a profit after tax of approximately NOK 119 million. The scheme and its activation threshold is determined by the bank's board each year. Figures for distribution is limited to six months' salary or NOK 17.4 million. There is no provision for variable compensation in the financial statements as per 30.09.2014. Variable remuneration is dependent on the result in the fourth quarter of 2014 and the decision of the board. At most the statement in the fourth quarter could be charged with up to NOK 18 million in higher personnel costs and reduce net income in the fourth quarter by up to NOK 13.1 million. This may reduce the return on equity up to 4.9 percentage points in the fourth quarter and up to 1.3 percentage points in 2014. The scheme covers all employees in Pareto Bank. Variable remuneration of senior executives is paid in full in the form of shares. Ownership of shares is transferred over a period of three years if warranted by financial performance. For all other employees the payment of variable remuneration is in a combination of shares and cash. SIDE 6
KEY STOCK RATIOS (NOK) 1.1 30.09 2014 2013 2012 2011 2010 Earnings per share after tax 152.3 129.3 79.6 56.1 26.5 Dividend per share 30.0 30.0 30.0 25.0 Payout ratio 0.23 0.38 0.53 0.94 Dividend yield 3.1% 4.2% Book equity per share 1,206.5 1,081.1 985.1 935.5 904.5 P/E 5.9x 7.5x 8.9x P/BV 0.99x 0.90x 0.72x Share price 1,200 975 710 Number of shares 850,000 850,000 850,000 850,000 850,000 Earnings per share (NOK) Dividend 152.30 129.3 79.6 56.1 14.5 26.5 12 25 30 30 30 2009 2010 2011 2012 2013 1.1-30.09 The Pareto Bank shares were listed on NOTC 7 March 2014 SIDE 7
LARGEST SHAREHOLDERS 30.09.2014 Name Holding Share Pareto AS 127,500 15.00% Geveran Trading Co Ltd. 68,200 8.02% Indigo Invest AS 66,560 7.83% Apolllo Asset limited 55,000 6.47% Pecunia Forvaltning AS 28,692 3.38% Perestroika AS 27,540 3.24% Tonsenhagen Forretningssentrum AS 22,942 2.70% Ojada AS 22,187 2.61% Tycoon Industrier AS 21,648 2.55% Larre Eiendom 2 AS 18,506 2.18% Tove Reistads Stiftelse 17,000 2.00% Eiendomsutvikling Kristiansand AS 16,020 1.88% Sphinx Investment Corp. 13,920 1.64% Artel Holding AS 13,680 1.61% Hodne Kapital AS 12,750 1.50% Profond AS 11,990 1.41% Castel AS 10,075 1.19% Kolberg Motors AS 8,650 1.02% Ola Rustad AS 8,500 1.00% Parra AS 7,000 0.82% Other 271,640 31.96% Total 850,000 100.00% A total of 326 shareholders. Top level managers in the Pareto group own 32,521 shares, or 3.83% of the bank shares. 850,000 shares with face value of NOK 600. In the third quarter of 2014, a total of 79,528 shares, or 9.4% of the shares were traded. Shares have been traded at prices from NOK 1,000 to NOK 1,340. SIDE 8
INCOME STATEMENT THIRD QUARTER 2014 (NOK 1,000) Q3 2014 Q3 2013 01.01 30.09 2014 01.01 30.09 2013 2013 Net interest income 72,215 56,623 200,703 156,318 217,842 Net other operating income 10,099 4,914 29,149 5,368 20,281 Total net income 82,313 61,537 229,853 161,686 238,123 Total operating expenses 15,523 15,009 46,566 48,138 74,973 Operating profit before impairment losses 66,791 46,528 183,287 113,548 163,150 Impairment losses on loans and guarantees 2,000 4,000 5,412 7,450 10,250 Operating profit before tax 64,791 42,528 129,493 29,707 152,900 Taxes 17,623 11,908 48,382 29,707 43,167 Profit for the period 47,168 30,620 129,493 76,391 109,733 SIDE 9
(NOK 1, 000) CHANGE IN NET INTEREST INCOME THIRD QUARTER Q3 2014 +13,496 +2,773 +1,440-599 - 1,385 72,215 Q3 2013 56,623 Lending & deposit margin Lending & deposit volume Amortization & commission income Invested surplus liquidity Long-term funding costs SIDE 10
HISTORICAL TREND NET INTEREST INCOME 72,215 17,319 20,116 24,614 25,860 34,432 32,945 32,251 33,484 35,756 33,237 35 066 +5.5% 45,076 46,240 53,426 56,623 61,524 62,892 65,596 14,671 (NOK 1,000) SIDE 11
REPRICING OF LOANS AND DEPOSITS IMPROVES NET INTEREST MARGINS 6.0% 4.0% 2.0% 0.0% -2.0% Q3 2014 Q3 2013 Lending margin Deposit margin Net margin Net margin between deposits and loans increased by 0.86 percentage point over the last 12 months: Repricing of real estate and securities loans Higher margins on new lending Repricing of deposits Lower credit spreads on renewals of fixed-rate deposits and on new fixed rate deposits Margin over 3M NIBOR (NOK million) 3rd quarter 2014 3rd quarter 2013 Change Average lending 7,400 6,965 435 Average deposits 6,927 5,990 937 Lending margin 5.15% 4.76% 0.39% Deposit margin -0.95% -1.42% 0.47% Net margin 4.20% 3.34% 0.86% SIDE 12
HISTORICAL TREND MARGINS Margins over 3M NIBOR 3.23% 2.50% 2.95% 2.87% 2.97% 2.14% 2.15% 2.23% 3.58% 2.61% 3.73% 3.97% 2.40% 2.48% 4.33% 4.25% 2.82% 2.82% 4.68% 4.71% 3.17% 3.31% 4.91% 4.98% 3.65% 3.85% 5.11% 5.15% 4.15% 4.20% Lending margin Net margin -0.74% -0.81% -0.72% -0.74% -0.97% -1.34% -1.50% -1.52% -1.43% -1.51% -1.40% -1.26% -1.13% -0.96% -0.95% Deposit margin SIDE 13
NON-PERFORMING AND IMPAIRED COMMITMENTS (NOK 1,000) 30.09.2014 30.09.2013 31.12.2013 Gross non-performing commitments 34,347 19,331 19,211 Individual write-downs 0 1,800 800 Net non-performing commitments 34,347 17,531 18,411 Write-down degree 0.00% 9.31% 4.16% Non-performing commitments as % of total lending 0.47% 0.25% 0.27% The bank had per quarter-end three loans in default of payment, none of which are considered impaired No otherwise impaired commitments No individual writedowns SIDE 14
WRITE-DOWNS ON LENDING Losses in the period (NOK 1,000) 30.09.2014 30.09.2013 31.12.2013 Change in individual write-downs -800-21,550-22,550 Change in group write-downs 6,000 8,000 12,800 Actual losses against previous write-downs 212 20,000 20,000 Changes in specific provisions on guarantees 0 1,000 0 Write-downs and write-offs on loans and guarantees 5,412 7,450 10,250 Group write-downs increased by MNOK 2.0 in third quarter Aggregate volume of write-downs at quarter-end amounted to MNOK 24.7 corresponding to 0.34% of gross loans Individual write-downs (NOK 1,000) 30.09.2014 30.09.2013 31.12.2013 Individual write-downs 01.01 800 23,350 23,350 - Write-offs from previous write-downs -212-20,000-20,000 - Recovery from previous write-downs -588-1,550-2,550 Indiviual write-downs 0 1,800 800 Group write-downs (NOK 1,000) 30.09.2014 30.09.2013 31.12.2013 Group write-downs 01.01 18,700 5,900 5,900 + Change in group write-downs 6,000 8,000 12,800 Group write-downs 24,700 13,900 18,700 Provisions on guarantees (NOK 1,000) 30.09.2014 30.09.2013 31.12.2013 Provisions on guarantees 01.01 0 0 0 + Change in provisions on guarantees 0 1,000 0 Provisions on guarantees 0 1,000 0 SIDE 15
HISTORICAL TREND LOSSES AND WRITE-DOWNS Group write-downs (NOKM) Annual impairment Accumulated impairment % of gross loans 2008 0.0 0.0 0.00% 2009 0.0 0.0 0.00% 2010 0.0 0.0 0.00% 2011 0.0 0.0 0.00% 2012 5.9 5.9 0.09% 2013 12.8 18.7 0.26% 30.09.2014 6.0 24.7 0.34% Sum 24.7 Individual write-downs (NOKM) Annual losses and impairment % of gross loans 2008 0.0 0.00% 2009 0.0 0.00% 2010 0.0 0.00% 2011 13.6 0.25% 2012 9.8 0.15% 2013-2.6-0.04% 30.09.2014-0.6-0.01% Sum 20.2 Average annual individual losses and impairment have been at 0.04% of gross loans in the period 2008 to 30.09.2014. SIDE 16
QUARTERLY PROFIT TRENDS (NOK 1,000) 3rd quarter 2014 2nd quarter 2014 1st quarter 2014 4th quarter 2013 3rd quarter 2013 Net interest income 72,215 65,596 62,892 61,524 56,623 Net other operating income 10,099 6,157 12,893 14,913 4,914 Total net income 82,313 71,754 75,786 76,437 61,537 Total operating expenses 15,523 15,426 15,617 26,835 15,009 Profit before losses on loans and guarantees 66,791 56,327 60,169 49,602 46,528 Losses on loans and guarantees 2,000 2,000 1,412 2,800 4,000 Pre-tax profit 64,791 54,327 58,756 46,802 42,528 Taxes 17,623 14,777 15,982 13,460 11,908 Profit for the period 47,168 39,550 42,775 33,342 30,620 SIDE 17
HISTORICAL TREND LOANS AND DEPOSITS 5,234 5,473 5,505 6,734 7,347 7,171 7,162 7,246 6,867 6,308 6,110 6,242 6,902 7,039 3,435 4,460 4,506 4,942 5,589 5,371 2,348 2,421 3,511 3,843 Loans Deposits SIDE 18
ASSETS (NOK 1,000) 30.09.2014 30.06.2014 31.03.2014 31.12.2013 30.09.2013 Cash and deposits with central banks 50,366 200,097 67 100,082 85 Lending to and deposits with credit institutions 617,748 185,905 896,896 451,439 398,194 Net lending to customers 7,346,889 7,245,771 6,866,858 7,161,938 7,046,044 Commercial paper and bonds 2,650,149 2,119,878 1,721,290 1,100,050 1,066,397 Shares and other securities 309,283 305,953 0 0 0 Financial derivatives 19,027 13,232 40,598 31,260 39,578 Intangible assets 24,048 22,678 23,272 23,774 24,395 Fixed assets 323 372 450 529 588 Other assets 1,565 4,597 4,079 20,600 46,498 Prepaid costs and retained earnings 1,037 1,529 2,323 132 3,137 Total assets 11,020,435 10,100,013 9,555,832 8,889,804 8,624,916 Net loans to customers increased by MNOK 101 in the third quarter of 2014. High turnover rate of credits: Approximately 30% of the loan portfolio matures within a year SIDE 19
LIABILITIES AND EQUITY (NOK 1,000) 30.09.2014 30.06.2014 31.03.2014 31.12.2013 30.09.2013 Deposits from credit institutions 153 89 26,646 13,146 19,811 Deposits from customers 7,038,601 6,902,028 6,241,989 6,110,121 5,894,413 Senior securities issued 2,412,371 1,856,752 1,974,196 1,513,436 1,492,415 Financial derivatives 72,943 37,658 18,984 26,806 24,801 Other liabilities 150,926 80,642 84,497 57,197 61,526 Accrued costs and prepaid income 11,147 10,273 11,151 16,658 10,156 Subordinated loan capital 308,764 234,209 234,059 233,825 233,600 Total liabilities 9,994,906 9,121,651 8,591,521 7,971,189 7,736,721 Share capital 735,469 735,469 735,469 732,546 735,469 Share premium reserve 290,061 242,893 228,843 186,068 152,726 Total equity 1,025,529 978,362 964,312 918,614 888,195 Total liabilities and equity 11,020,435 10,100,013 9,555,832 8,889,804 8,624,916 Increase in customer deposits of MNOK 137 in the third quarter of 2014. Adjustment of deposit terms to improve the deposit margin and meet new liquidity requirements. SIDE 20
SUBORDINATED DEBT In the spring of 2011, Pareto Bank issued a subordinated bond with face value of NOK 126 million. Following the implementation of the new Capital Requirement Directive, CRD IV, the bond no longer fully counts as tier 1 capital. In the third quarter, after a buy-back initiative, the bank chose to exercise the call option and redeem the bond at par value. The 2011 bond issue was replaced with a combination of 3,0 new % hybrid capital and a subordinated loan with a total face value of NOK 200 million. The new regulatory capital composition has increased capital adequacy and provided a capital structure that better allows for optimal use of the different types of capital instruments. 2,5 % 4,5 % SIDE 21
CAPITAL ADEQUACY REQUIREMENTS Pareto Bank operates at target levels ranging from 0,5 to 1.0 percentage points above the current regulatory requirements for Common Equity Tier 1 (CET1) and Total Capital ratios 15.0% 3.6% 13.5% 15.5% 3.5% 14.5% 3.5 % By the end of 2014, target operating levels for the CET1 ratio range from 11.5% to 12.0%, whereas the target levels for the Total Capital ratio range from 15.0% to 15.5% 3.5 % The bank has a high percentage of short maturing credits that facilitates a relatively quick adjustment to the new capital requirements by reducing risk-weighted assets 11.4% 10.0% 12.0% 11.0% The calculation base for credit risk is based on the standard method and not the IRB approach Capital ratio 30.09.2014 Regulatory requirements 30.09.2014 Target levels 31.12.2014 Regulatory requirements 01.07.2015 Core capital Hybrid capital (Tier 1) SIDE 22
NEW REQUIREMENTS FOR COMMON EQUITY 14.0% 12.0% 10.0% 11.5% 11.4% 12.0% 11.0% 1.0% Countercyclical buffer Improved net margin and flat operating costs 8.0% 3.0% Systemic risk buffer Moderate dividend payment 6.0% 4.0% 2.5% Conservation buffer Moderate lending growth 2.0% 0.0% Financial statement 30.09.2013 Financial statement 30.09.2014 Target levels 31.12.2014 4.5% Capital requirements 01.07.2015 Minimum requirements for common equity Total lending NOK 7.5 billion at year-end 2014 SIDE 23
SIDE 24 1 FINANCIAL STATEMENT 2 LENDING AND CREDIT RISK 3 FUNDING AND LIQUIDITY
A NICHE PLAYER WITH FOCUS ON REAL ESTATE FINANCING, SECURITIES FINANCING, AND SHIPPING AND OFFSHORE FINANCING Total credit exposure MNOK 9,287 1. Real estate financing focused on residential property construction in the Oslo region 2. A full scale provider of securities financing including investment services 3. Gradually building a diversified shipping and offshore portfolio 16.9% 3.6% 11.7% 5.0% 59.8% Bonds Stocks and shares Property Mortgages/credit Shipping & offshore Other SIDE 25
A STRONG MARKET POSITION WITHIN RESIDENTIAL PROPERTY CONSTRUCTION IN THE OSLO REGION Primarily financing of regulated lots with a potential for property development Property credit exposure MNOK 5,550 Financing of residential and commercial property construction Financing of projects for renovation and conversion of commercial property to residential units A typical project is composed of lot financing and a building construction facility in the range of MNOK 10-50 for the construction of 4-8 homes in the greater Oslo area 46.9% 19.2% 6.4% 10.0% 9.4% Offices Combination buildings Commercial Residential property Lots 8.0% Other SIDE 26
TERMS OF REAL ESTATE FINANCING FINANCING OF RESIDENTIAL DEVELOPMENT The bank requires on average 20% to 40% equity to finance a property lot purchase. Primarily financing of regulated lots purchased for development with a clear exit strategy. The developer must demonstrate the ability to successfully complete projects and have experience with residential development. Projects stress tested: if the price of unsold units falls by 50% compared to pre-sold units, the sales amount must still be sufficient to cover the bank credit. Primarily financing of projects in the Oslo region and other well-functioning and liquid markets. FINANCING OF COMMERCIAL PROPERTY The bank requires equity of 20% to 40%. Long leases with financially sound tenants. Primarily financing of properties in the Oslo region and other well-functioning and liquid markets. SIDE 27
A FULL SCALE PROVIDER OF SECURITIES FINANCING STANDARD PRODUCTS Financing of stocks on Oslo Stock Exchange with a LTV/leverage of 0% to 80% Financing of short trades on Oslo Stock Exchange Financing of high yield bonds mainly arranged by Pareto Securities with a LTV/leverage of around 50% Financing of funds (stocks, bonds etc.) OTHER MORE SPECIALIZED PRODUCTS: Forwards Total return swaps Guarantees in favor of Oslo Stock Exchange for companies in a mandatory offer position INCREASED FOCUS ON FINANCING CORPORATE PROJECTS IN COOPERATION WITH PARETO SECURITIES: Bridge financing to customers in the process of issuing market debt Bridge and long term financing to private equity firms Bridge financing to investors taking part in an equity issue SIDE 28
BUILDING A WELL-DIVERSIFIED PORTFOLIO IN SHIPPING AND OFFSHORE The project should as a rule have Norwegian ownership A high quality charterer with transparent books and a diversified cash flow Objects built in renowned shipyards, with liquid second-hand markets and well-proven designs Equity requirement 60% to 30% Individual commitment size MUSD 5 to MUSD 20 Shipping & offshore credit exposure MNOK 1,083 15.4% Offshore 9.4% Rig Ro-ro 25.8% Container 15.1% Product Bulk 8.2% Tank 12.9% 6.6% 5.3% Gas Other SIDE 29
COMMITMENTS BY RISK CLASSIFICATION Credit exposure (NOK million) 30.09.2014 30.09.2013 31.12.2013 None/very low risk 4,685 3,835 4,256 Low risk 3,303 3,899 3,572 Moderate risk 923 1,093 895 Some risk 305 199 186 High risk 48 0 0 Very high risk 23 0 0 Non-performing loans 0 3 1 Accrued interest and amortisation 1 16 6 Total exposure 9,287 9,045 8,916 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 None/very low risk Low risk Moderate risk Some risk High risk Very high risk Non-performing loans Very high risk 0.3% High risk 0.5% None/very low risk 50.4% Some risk 3.3% Low risk 35.6% Moderate risk 9.9% SIDE 30
COMMITMENTS BY SIZE Credit exposure (NOK million) 30.09.2014 30.09.2013 31.12.2013 > 50 3,916 4,298 4,185 >20 <50 3,046 2,399 2,284 >10 <20 1,006 1,117 1,196 >5 <10 760 667 685 >2 <5 407 404 412 >1 <2 114 106 111 <1 38 36 36 Accrued interest and amortisation 1 16 6 Total exposure 9,287 9,045 8,916-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 > 50 > 20 < 50 > 10 < 20 > 5 < 10 > 2 < 5 > 1 < 2 < 1 SIDE 31
INTEREST MARGIN BY SEGMENT 30.09.2014 Segment (NOK 1,000) No. of clients Lending Allocation / guarantee amount Unused guarantees Interest contribution Interest margin Real estate financing long-term 337 714,157 1,671, 260 957,103 24,782 3.46% Real estate project financing 24 440,751 465,934 25,185 20,146 4.57% Securities financing 211 4,695,545 5,509,046 813,501 189,994 4.04% Shipping & Offshore financing 21 1,083, 563 1,083,563 0 42,409 3.91% Corporate financing 80 412,874 557,508 144,634 8,655 2.10% Sum 673 7,346,891 9,287,322 1,940,419 285,986 3.89% Interest contributions and interest margin per segment exclusive front-end fees. Average cost of funds of 2.69%. SIDE 32
TOTAL CREDIT EXPOSURE (NOK million) Lending Guarantees Undrawn credit lines Total credit exposure 30.09.2014 30.09.2013 Real estate financing long-term 2,044.6 20.8 78.7 2,144.2 2,142.0 Real estate project financing 2,650.9 249.3 464.6 3,364.9 3,703.6 Securities financing 714.2 0.0 957.1 1,671.3 1,609.2 Shipping & Offshore financing 1,083.6 0.0 0.0 1,083.6 643.2 Corporate financing 440.8 2.3 22.8 465.9 390.7 Retail financing 412.9 21.3 123.4 557.5 540.1 Total exposure 7,346.9 293.8 1,646.6 9,287.3 9,044.6 SIDE 33
OUR MARKETS REAL ESTATE: WE FOCUS ON PROJECT FINANCING Growing competition, increased appetite for risk and margin pressure in real estate financing. Higher optimism in the market for new and existing homes provides good access to projects. A high natural repayment rate and internal capital allocation means virtually unchanged net exposure in 2014. SECURITIES: TURNING TOWARD CORPORATE-FINANCING Unchanged activity within the standard products equity credit and bond credit. Great potential in "corporate affairs" e.g. bridging financing and owner financing. SHIPPING & OFFSHORE: GRADUALLY BUILDING THE PORTFOLIO A large number of loan requests and good activity. As a result of weaker economic outlook, falling oil prices and lower investment rates among oil companies, the goal is to have a moderate growth over the next few years where we are building a solid and diversified portfolio. Room for growth in a market where there is still limited competition. Good opportunities to fund projects with high equity ratio and high profitability. SIDE 34
SIDE 35 1 FINANCIAL STATEMENT 2 LENDING AND CREDIT RISK 3 FUNDING AND LIQUIDITY
FUNDING SOURCES Deposits 7,039 Fixed rate deposits 42% Corporate deposits 65% Senior dept 2,412 Deposit-to-loan ratio 96% Other dept 234 Subordinated dept 309 Core capital 1,026 Long term liquidity ratio Liquidity coverage ratio* 113% *LCR is calculated without the use of covered bonds in Level 1 assets pending further instructions from the FSA. 139% SIDE 36
CUSTOMER DEPOSITS Deposit allocation Fixed rate deposits time to maturity Depositors 3,468 1,886 NOK million 2,464 4,519 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% >25 mths. 15-25 mths. 8-14 mths. 5-7 mths. 3-4 mths. Retail Corporate 500 1,000 1,500 NOK million Deposits by size Average deposit per customer (NOK) >25 mths. 15-25 mths. 8-14 mths. 5-7 mths. 3-4 mths. Total Commercial Retail 1.3 mill. 2.4 mill. 0.7 mill. 1,000 2,000 3,000 Floating rate deps. Fixed rate deps. NOK million SIDE 37
MARKET FUNDING 600 570 180 500 500 500 500 160 140 400 120 300 200 180 310 NOK SEK 100 80 60 PARB 5Y PARB 3Y Bank 5 3Y 100 40 20-2014 2015 2016 2017 2018 >2018 0 des. 13 feb. 14 apr. 14 jun. 14 aug. 14 Market funding maturity profile (NOK million) Pareto Bank has as per 30.09.2014 issued seven senior unsecured bonds, a subordinated loan and two subordinated bonds. The bonds are listed on the Nordic ABM and the Oslo Stock Exchange. Lower credit margins The bank pays an increasingly lower credit spread over NIBOR on its market funding. More transparent pricing and more interest from the market allows the bank to better utilize securities financing. SIDE 38
INCREASED SHARE OF SECURITIES FINANCING 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 14% 14% 17% 22% 40% 27% 29% 37% Q3 2013 Q3 2014 Equity and subt. dept. Market funding Fixed rate deposits Floating rate deposits Overview of funding sources The bank obtains cheaper funding and a more diversified funding base by increasing the share of market funding and correspondingly decreasing the share of fixed rate deposits. SIDE 39
SURPLUS LIQUIDITY 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 Drawing rights Invest. pf. Liquidity portfolio Cash Surplus liquidity after hair cuts Drawdown on credits Buffer for loss of deposits Liquidity requirement: Buffer for losses of deposits and drawdowns on credit lines Industrials Snr. fin. & covered Level 2 assets Cash and level 1 assets LCR: Assets sorted by LCR-classification (Covered bonds are level 2 assets). A large volume of deposits provides high surplus liquidity. Better margins will reduce surplus liquidity and at the same time retain high liquidity assets Underwriting of new issues 1% Investment portfolio 11% Government & PSEs 18% Industry 5% Covered bonds 40% Bank/finance 26% The bond portfolio consists of a liquidity portfolio of mainly AAA securities, an investment portfolio (maximum limit NOK 420 million) and a portfolio of contingent drawings (maximum limit of NOK 100 million) SIDE 40
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