Q4 2022 Interim report

KLP Banken Group

Interim financial statements 4/2022

Main features by quarter end:

Good growth in public sector lending
Limited growth in administrative expenses
Strong P&L development

The KLP Banken Group finances mortgages and other credit to retail customers as well as loans to municipalities, county municipalities and companies that perform public tasks. Additionally, the KLP Banken manages a lending portfolio on behalf of its parent company KLP (Kommunal Landspensjonskasse). The Group manages a lending total of NOK 121 (118) billion. The overall business of KLP Banken AS is nationwide and divided into the retail market and public sector loans business areas.

In the retail market KLP Banken offers products and services at competitive terms and thus contribute to enterprises having elected KLP as their pension scheme provider are perceived as attractive employers.

In the public sector market KLP Kommunekreditt AS, together with KLP, will contribute to market competition and thereby access to favorable long-term financing for the sector.

KLP Banken AS is wholly owned by KLP. KLP Banken AS has two wholly owned subsidiaries, KLP Kommunekreditt AS and KLP Boligkreditt AS. The main office is in Trondheim.

Income statement

The KLP Banken Group gained a pre-tax profit as at fourth quarter of NOK 180.5 (116.1) million. The change is mainly due to increased interest rate level and lending margins through the second half year. Increased charges and commissions, lending growth and reduced costs on financial instruments have also contributed positively. Distributed into the two business areas, the retail market segment generated a profit of NOK 107.7 (87.6) million and NOK 72.8 (28.5) million in the public sector market. Group total income after taxes and actuarial adjustments amounted to NOK 174.3 (121.0) million as at fourth quarter.

The Board’s opinion is that the Bank’s underlying operations are in good a development and is well satisfied with the 2022 result being the best so far in the bank’s history.

Net interest income in the KLP Banken Group at the end of the fourth quarter was NOK 368.7 (308.6) million. Lending margins in the fourth quarter have fluctuated because of the strongly increasing interest rates, but in average they ended higher than last year.

Net charges and commissions income was NOK 26.9 (19.5) million at the end of the quarter.

The bank group administers housing mortgages and public sector lending financed by its parent company (KLP). The management fee for this task amounted to NOK 58.0 (59.4) million at quarter end.

Operating expenses including depreciations amounted to NOK 246.7 (236.2) million.

At the end of the quarter, the income statement includes a net loss associated with securities amounting to NOK -26.3 (-32.9) million. This profit and loss effect is mainly due to market value changes in the liquidity investment portfolios and one-off expenses from buy-back of own bond issues in the daughter enterprises.

Realized losses and loan loss provisions amounted to NOK 0.3 (2.3) million in the retail market. This is mainly due to loss on credit card drawn credits. Increasing interest rates has so far not increased loan losses on mortgages, and total losses are reduced from last year. Increased inflation and lending rates may lead to reduced operability among the lending customers ahead. Nor in 2022 the public sector market had any realized loan losses.

Lending and credits

On 31 December 2022, the KLP Banken Group had a lending balance of NOK 42.4 (39.9) billion. The distribution between the retail market and public sector lending was NOK 23.3 (22.1) billion and NOK 19.1 (17.8) billion, respectively.

For the year, the annual growth rate on mortgages was NOK 1.1 (1.5) billion, KLP Banken experiences that the market growth in mortgages is falling, and this contributes to increased competition for new customers. The demand for new financing in KLP Banken was reduced compared to last year, but the proportion of early redemptions has been stable.

Mortgage loans amounting NOK 4.5 (6.0) billion are in 2022 sold from KLP Banken to the daughter company KLP Boligkreditt AS. Managed mortgages for KLP was reduced by NOK 0.2 (0.2) billion due to ordinary repayments and redemptions.

Outstanding credits drawn on credit cards was at a stable level through 2022. Unused credits, on the other hand, was reduced. This is due to a general reduction in the market for unsecured credits, as well as a lapse in inactive users. The number of active credit card customers shows a stable growth.

The KLP Banken lending volume in the public sector market increased through 2022 by NOK 1.3 (0.3) billion. Lending to public borrowers managed for KLP increased by NOK 1.7 (4.7) billion in the same period.

Liquid investments

Available liquidity is deposited in other banks and in interest bearing securities. Deposits in credit institutions was NOK 1.4 (1.5) billion. Book value of interest bearing securities, estimated at market value, was NOK 6.6 (6.0) billion in the KLP Banken Group as at quarter end.

Market value changes on interest bearing securities has by fourth quarter given a net profit and loss effects of NOK -18.7 (-12.5) million.

Borrowing

The KLP Banken Group's external financing comprise deposits and bonds. At the reporting date, deposits from individuals and companies amounted NOK 13.8 (12.9) billion and bonds issued amounted to NOK 33.5 (31.9) billion. Of the outstanding volume of bonds issued, covered bonds (OMF) issued by KLP Kommunekreditt AS and KLP Boligkreditt AS, amounted to NOK 19.8 (18.6) billion and NOK 12.6 (12.4) billion respectively. All covered bond issues have achieved AAA rating. Outstanding securities debt in KLP Banken AS amounted to NOK 1.1 (0.9) billion.

The profit and loss effect from realized and unrealized market value changes from buy-back of own bond issues as at fourth quarter was NOK -12.3 (-28.1) billion.

Risk and capital adequacy

The KLP Banken Group is exposed to various types of risks and the bank has established a framework for risk management aimed at ensuring risks are identified, analysed, and subject to management using policies, limits, routines and instructions.

The bank shall have a prudent risk profile and earnings are to be principally a result of borrowing and lending activities, as well as liquidity management. This means that the bank must operates with low market risk, and that interest risks arising within the borrowing and lending activities are reduced using derivatives.

The KLP Banken Group and its subsidiaries are to have sound long-term financing due to regulatory requirements, and limits have been established to ensure that that this objective is achieved.

The credit risk associated with the bank’s assets is low, and lending is mainly limited to loans with local government risk and loans with lien on housing property. Management of the bank's liquidity is conducted through investments in other banks satisfying set credit quality requirements, and in securities in accordance with Board-approved credit lines.

At the end of the fourth quarter 2022, eligible Tier 1 and Tier 2 capital i.a.w. the capital adequacy rules were NOK 2 944 (2 498) million. Eligible Tier 1 and Tier 2 capital comprise core capital only. Lending is risk-weighted in accordance with the authorities' capital adequacy regulations. The KLP Banken Group had a capital adequacy ratio of 20.7 (18.7) percent at the reporting time. The minimum statutory requirement is 13.5 percent core capital adequacy and 17.0 percent capital adequacy. Leverage ratio was 5.7 (5.2) per cent. Here the requirement is 3.0 percent.

Income statementKLP Banken Group

NOTES	NOK THOUSANDS	Q4 2022	Q4 2021	01.01.2022 -31.12.2022	01.01.2021 -31.12.2021
	Interest income, effective interest method	398 051	164 783	1 079 475	621 624
	Other interest income	76 663	20 422	174 402	68 176
3	Total interest income	474 715	185 205	1 253 877	689 801
	Interest expense, effective interest method	-338 581	-89 448	-818 588	-290 728
	Other interest expense	-25 634	-19 939	-66 602	-90 463
3	Total interest costs	-364 215	-109 387	-885 190	-381 191
3	Net interest income	110 499	75 818	368 687	308 609
	Commision income and income from banking services	7 746	6 000	29 483	21 520
	Commision cost and cost from banking services	-652	-571	-2 566	-2 033
	Net charges and commission income	7 094	5 429	26 917	19 487
	Other fee income	15 172	14 850	58 105	59 400
16	Net gain/ (loss) financial instruments	16 565	-9 439	-26 252	-32 896
	Total other operating income	31 737	5 411	31 853	26 504
	Salaries and administrative costs	-25 510	-23 519	-87 701	-81 930
	Depreciation	-999	-1 431	-4 010	-6 409
	Other operating expenses	-39 424	-38 400	-154 945	-147 846
14	Net loan losses	-374	-958	-323	-2 299
	Total operating expenses	-66 306	-64 307	-246 979	-238 484
	Operating profit/loss before tax	83 024	22 351	180 478	116 117
	Tax ordinary income	-19 712	-5 242	-14 474	-423
	Profit/loss for the period	63 312	17 109	166 004	115 694
	Estimate difference, pension obligation and assets	7 814	18 688	11 094	7 136
	Tax on actuarial gains and losses	-1 954	-4 672	-2 774	-1 784
	Items that will not be reclassified to profit and loss	5 861	14 016	8 321	5 352
	Changes in the fair value through profit and loss	0	0	0	0
	Tax on changes in fair value of available for sale financial assets	0	0	0	0
	Items that may be reclassified to profit and loss	0	0	0	0
	Other comprehensive income for the period	5 861	14 016	8 321	5 352
	Comprehensive income for the period	69 173	31 125	174 324	121 046

Balance sheetKLP Banken Group

NOTES	NOK THOUSANDS	31.12.2022	31.12.2021
	ASSETS
5	Claims on central banks	72 960	67 244
5	Loans to credit institutions	1 320 087	1 398 501
4,5	Loans to customers	42 375 461	39 934 100
5,6,13	Fixed-income securities	6 564 627	6 001 099
5,6	Shareholdings	1 187	1 187
5,6,8	Financial derivatives	139 153	42 051
	Intangible assets	15 624	16 789
17	Right-of-use assets	16 365	18 236
	Fixed assets	436	436
10	Other assets	4 816	2 217
	Total assets	50 510 716	47 481 860
	LIABILITIES AND OWNERS EQUITY
	LIABILITIES
5,7	Debt securities issued	33 484 932	31 917 798
5	Deposits and borrowings from the public	13 778 881	12 901 004
5,6,8	Financial derivatives	25 939	9 990
	Deferred tax liabilities	40 343	23 343
17	Lease liabilities	16 761	18 323
11	Other liabilities	143 180	38 369
11	Provision for accrued costs and liabilities	54 215	52 249
	Total liabilities	47 544 250	44 961 078
	EQUITY
	Share capital	1 140 000	1 065 000
	Share premium	1 050 000	825 000
	Other owners' eqyity	776 466	630 782
	Total equity	2 966 466	2 520 782
	Total liabilities and equity	50 510 716	47 481 860

Statement of changes in equityKLP Banken Group

2022 NOK THOUSANDS	Share capital	Share premium	Other equity	Total owners’ equity
Equity 1 January 2022	1 065 000	825 000	630 782	2 520 782
Profit for the period	0	0	166 004	166 004
Other comprehensive income	0	0	8 321	8 321
Total comprehensive income for the period	0	0	174 324	174 324
Group contribution received during the period	0	0	89 292	89 292
Group contribution paid during the period	0	0	-117 932	-117 932
Owners' equity received during the period	75 000	225 000	0	300 000
Total transactions with the owners	75 000	225 000	-28 640	271 360
Equity 31 December 2022	1 140 000	1 050 000	776 466	2 966 466

2021 NOK THOUSANDS	Share capital	Share premium	Other equity	Total owners’ equity
Equity 1 January 2021	1 065 000	825 000	536 801	2 426 801
Income for the year	0	0	115 694	115 694
Other comprehensive income	0	0	5 352	5 352
Comprehensive income for the year	0	0	121 046	121 046
Group contribution received during the period	0	0	84 919	84 919
Group contribution paid during the period	0	0	-111 985	-111 985
Total transactions with the owners	0	0	-27 065	-27 065
Equity 31 December 2021	1 065 000	825 000	630 782	2 520 782

Statement of cash flowKLP Banken Group

NOK THOUSANDS	01.01.2022 -31.12.2022	01.01.2021 -31.12.2021
OPERATING ACTIVITIES
Payments received from customers – interest, commission and charges	984 166	638 105
Payments to customers – interest, commission and charges	-168 854	-89 196
Disbursements on loans to customers and credit institutions	-15 659 148	-16 640 961
Receipts on loans to customers	13 246 513	14 782 637
Net receipts on customer deposits banking	877 993	1 119 290
Disbursements on operations	-153 384	-148 301
Payments to staff, pension schemes, employer's social security contribution etc.	-80 949	-81 174
Interest investment accounts	31 284	9 617
Net receipts/disbursements from operating activities	156 254	64 335
Net cash flow from operating activities	-766 124	-345 647
INVESTMENT ACTIVITIES
Receipts on the sale of securities	4 783 697	9 763 759
Payments on the purchase of securities	-5 348 540	-9 551 367
Receipts of interest from securities	101 691	45 074
Payments on the purchase of tangible fixed assets	-974	-2 578
Net cash flow from investment activities	-464 127	254 889
FINANCING ACTIVITIES
Repayment and redemption from credit institutions	0	-2 500 000
Net payment of interest from credit institutions	0	-6 517
Receipts on loans	7 150 000	9 300 000
Repayments and redemption of securities debt	-5 808 000	-6 569 839
Change in securities debt, own funds	118 142	343 369
Net payment of interest on loans	-580 002	-238 607
Payment of lease liabilities	-1 867	-1 654
Group contributions paid	-28 640	-27 065
Change in owners' equity	300 000	0
Net cash flows from financing activities	1 149 633	299 685
Net cash flow during the period	-80 618	208 928
Cash and cash equivalents at the start of the period	1 420 995	1 212 067
Cash and cash equivalents at the end of the period	1 340 377	1 420 995
Net receipts/disbursements (-)	-80 618	208 928

Notes to the financial statementKLP Banken Group

Note 1 General information

KLP Banken AS was formed 25 February 2009. KLP Banken AS owns all the shares in KLP Kommunekreditt AS and KLP Boligkreditt AS. These companies together form the KLP Banken Group. KLP Banken Group provide or acquire loans to Norwegian municipalities and county authorities, as well as to companies with public sector guarantee. The lending activities are principally financed by issuance of covered bonds. The Group also offers standard banking products to private customers. KLP Banken AS is registered and domiciled in Norway. It's head office is at Beddingen 8 in Trondheim. The company has a branch office in Dronning Eufemiasgate 10, Oslo.

The company, KLP Banken AS, is a wholly owned subsidiary of Kommunal Landspensjonskasse (KLP). KLP is a mutual insurance company.

Note 2 Accounting principles

The interim report includes the interim Financial Statements of KLP Banken Group for the period 1 January 2022 – 31 December 2022, with a specification of the results in the fourth quarter. The interim Financial Statements has not been audited.

The interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting".

Other accounting principles and calculations are the same in the interim financial statement as in the annual report for 2021, please see the annual report for further information.

Note 3 Net interest income

NOK THOUSANDS	Q4 2022	Q4 2021	01.01.2022 -31.12.2022	01.01.2021 -31.12.2021
Interest income on loans to customers	383 474	162 516	1 048 171	617 688
Interest income on loans to credit institutions	14 577	2 266	31 304	3 937
Total interest income, effective interest method	398 051	164 783	1 079 475	621 624
Interest income on bonds and certificates	49 860	13 021	120 291	36 486
Other interest income	26 803	7 401	54 110	31 690
Total other interest income	76 663	20 422	174 402	68 176
Total interest income	474 715	185 205	1 253 877	689 801
Interest expenses on deposits to KLP Banken	-65 623	-18 482	-149 986	-70 216
Interest expenses on issued securities	-272 879	-70 879	-668 276	-220 403
Interest expense lease liabilities	-80	-87	-326	-109
Total interest expense, effective interest method	-338 581	-89 448	-818 588	-290 728
Other interest expenses	-21 382	-15 631	-49 595	-73 196
Interest expenses on deposits to customers	-4 252	-4 308	-17 007	-17 268
Total other interest expense	-25 634	-19 939	-66 602	-90 463
Total interest expense	-364 215	-109 387	-885 190	-381 191
Net interest income	110 499	75 818	368 687	308 609

Note 4 Loans to customers

NOK THOUSANDS	31.12.2022	31.12.2021
Principal on loans to customers	42 287 934	39 870 185
Credit portfolio	43 141	43 355
Overdraft current account	90	179
Write-downs step 1 and 2	-1 771	-1 075
Write-downs step 3	-933	-1 040
Loans to customers after write-downs	42 328 461	39 911 604
Accrued interest	145 049	53 852
Fair value hedging	-98 049	-31 356
Loans to customers	42 375 461	39 934 100

Note 5 Categories of financial instruments

NOK THOUSANDS	31.12.2022		31.12.2021
	Capitalized value	Fair value	Capitalized value	Fair value
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
Fixed-income securities	6 564 627	6 564 627	6 001 099	6 001 099
Financial derivatives	139 153	139 153	42 051	42 051
Shares and holdings	1 187	1 187	1 187	1 187
Total financial assets at fair value through profit and loss	6 704 966	6 704 966	6 044 337	6 044 337
FINANCIAL ASSETS FAIR VALUE HEDGING
Loans to and receivables from customers	1 702 745	1 706 638	2 012 822	2 056 718
Total financial assets fair value hedging	1 702 745	1 706 638	2 012 822	2 056 718
FINANCIAL ASSETS AT AMORTIZED COST
Loans to and receivables from credit institutions	72 960	72 960	67 244	67 244
Loans to and receivables from central banks	1 320 087	1 320 087	1 398 501	1 398 501
Loans to and receivables from customers	40 672 715	40 672 715	37 921 278	37 921 278
Total financial assets at amortized cost	42 065 762	42 065 762	39 387 023	39 387 023
Total financial assets	50 473 474	50 477 367	47 444 182	47 488 078
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS
Financial derivatives	25 939	25 939	9 990	9 990
Total financial liabilities at fair value through profit and loss	25 939	25 939	9 990	9 990
FINANCIAL LIABILITIES FAIR VALUE HEDGING
Liabilities created on issuance of securities	1 728 703	1 745 090	508 146	515 581
Total financial liabilities fair value hedging	1 728 703	1 745 090	508 146	515 581
FINANCIAL LIABILITIES AT AMORTIZED COST
Liabilities created on issuance of securities	31 756 229	31 711 938	31 409 652	31 474 825
Deposits from customers	13 778 881	13 778 881	12 901 004	12 901 004
Total financial liabilities at amortized cost	45 535 109	45 490 818	44 310 656	44 375 829
Total financial liabilities	47 289 751	47 261 847	44 828 792	44 901 401

Fair value shall be a representative price based on what a corresponding asset or liability would have been traded for on normal market terms and conditions. A financial instrument is considered to be listed in an active market if the listed price is simply and regularly available from a stock market, dealer, broker, industry grouping, price setting service or regulatory authority, and these prices represent actual and regularly occurring transactions at arm’s length. If the market for the security is not active, or the security is not listed on a stock market or similar, valuation techniques are used to set fair value. These are based for example on information on recently completed transactions carried out on business terms and conditions, reference to trading in similar instruments and pricing using externally collected yield curves and yield spread curves. As far as possible the estimates are based on externally observable market data and rarely on company-specific information.

The different financial instruments are thus priced in the following way:

Fixed-income securities - government

Nordic Bond Pricing is used as a source for pricing Norwegian government bonds. The prices are compared with the prices from Bloomberg to reveal any errors.

Fixed-income securities - other than government

Norwegian fixed-income securities, except government are priced directly on prices from Nordic Bond Pricing. Those securities that are not included in Nordic Bond Pricing are priced theoretically. The theoretical price is based on the assumed present value on the sale of the position. A zero-coupon curve is used for discounting. The zero-coupon curve is adjusted upwards by means of a credit spread, which is to take account of the risk the bond entails. The credit spread is calculated on the basis of a spread curve taking account of the duration of the bond. Nordic Bond Pricing is the main source of spread curves. They provide company-specific curves for Norwegian savings banks, municipalities and energy. Savings banks have various spread curves based on total assets.

Financial derivatives

These transactions are valued based on the applicable swap curve at the time of valuation. Derivative contracts are to be used only to hedge balance amounts and to enable payments obligations to be met. Derivative contracts may be struck only with counterparties with high credit quality.

Shares (unlisted)

For liquid shares and units, the closing price on the balance sheet date is used as the basis for measurement at fair value. If the prices are not quoted, the last price traded is used. Illiquid shares are priced on the basis of the Oslo Stock Exchange’s index algorithm based on the last traded prices. If the price picture is out of date, a derived valuation is produced from relevant equity indices or other similar securities. If this is also considered unsatisfactory, a discretionary valuation is made in which the Company’s financial key figures, broker assessment etc. are used.

Fair value of loans to retail customers

The fair value through profit/loss is calculated by discounting contractual cash flows to present values. The discount rate is determined as the market rate, including a suitable risk margin. For loans measured at fair value through other comprehensive income, the fair value is calculated as the recognised principal minus estimated loss provisions on loans classified in Stage 2 and 3 (see note 14 Loan losses provision).

Fair value of loans to Norwegian local administrations

The fair value of these loans is considered to be virtually the same as the book value, as the contract terms are constantly adjusted in line with market interest rates. The fair value of fixed rate loans is calculated by discounting contractual cash flows by market interest rates including a suitable risk margin at the end of the reporting period. This is valued at Level 2 in the valuation hierarchy, cf. Note 6.

Fair value of deposits

The fair value of floating rate deposits is taken to be approximately equal to the deposit amount including accrued interest. The fair value of fixed rate deposits is calculated by discounting contractual cash flows by market interest rates including a suitable risk margin. Discounting contractual cash flows by market interest rates including a suitable risk margin.

Fair value of loans to and receivables from credit institutions

All receivables from credit institutions (bank deposits) are at variable interest rates. The fair value of these is considered to be virtually the same as the book value, as the contract terms are continuously changed in step with change in market interest rates. This is valued at Level 2 in the valuation hierarchy, cf. Note 6.

Liabilities created on issuance of securities

Fair value in this category is determined on the basis of internal valuation models based on external observable data. This is valued in Level 2 in the valuation hierarchy, cf. Note 6.

Note 6 Fair value hierarchy

31.12.2022 NOK THOUSANDS	Level 1	Level 2	Level 3	Total
ASSETS BOOKED AT FAIR VALUE
Fixed-income securities	804 841	5 759 785	0	6 564 627
Shareholdings	0	0	1 187	1 187
Financial derivatives	0	139 153	0	139 153
Total assets at fair value	804 841	5 898 938	1 187	6 704 966
LIABILITIES BOOKED AT FAIR VALUE
Financial derivatives (liabilities)	0	25 939	0	25 939
Total financial liabilities at fair value	0	25 939	0	25 939

31.12.2021 NOK THOUSANDS	Level 1	Level 2	Level 3	Total
ASSETS BOOKED AT FAIR VALUE
Fixed-income securities	595 610	5 405 489	0	6 001 099
Shareholdings	0	0	1 187	1 187
Financial derivatives	0	42 051	0	42 051
Total assets at fair value	595 610	5 447 540	1 187	6 044 337
LIABILITIES BOOKED AT FAIR VALUE
Financial derivatives (liabilities)	0	9 990	0	9 990
Total financial liabilities at fair value	0	9 990	0	9 990

NOK THOUSANDS	31.12.2022	31.12.2021
CHANGES IN LEVEL 3 UNLISTED SHARES
Opening balance	1 187	1 197
Additions/purchases of shares	0	77
Unrealized changes	0	-87
Closing balance	1 187	1 187
Realized gains/losses	0	0

Fair value shall be a representative price based on what a corresponding asset or liability would have been traded for at normal market terms and conditions. Highest quality in regard to fair value is based on listed prices in an active market. A financial instrument is considered as listed in an active market if listed prices are simply and regularly available from a stock market, dealer, broker, industry group, price-setting service or regulatory authority, and these prices represent actual and regularly occurring transactions at arm's length.

Level 1:

Instruments at this level obtain fair value from listed prices in an active market for identical assets or liabilities to which the entity has access at the reporting date. Examples of instruments in Level 1 are stock market listed securities.

Level 2:

Instruments at this level obtain fair value from observable market data. This includes prices based on identical instruments, but where the instrument does not maintain a high enough trading frequency and is therefore not considered to be traded in an active market, as well as prices based on corresponding assets and price-leading indicators that can be confirmed from market information. Example instruments at Level 2 are fixed-income securities priced on the basis of interest rate paths.

Level 3:

Instruments at Level 3 contain non-observable market data or are traded in markets considered to be inactive. The price is based generally on discrete calculations where the actual fair value may deviate if the instrument were to be traded.

Note 5 discloses the fair value of financial assets and financial liabilities that are recognized at amortized cost and according to the rules on hedge accounting. Financial assets measured at amortized cost and hedge accounting comprise lending to and due to credit institutions, Norwegian municipalities and retail customers. The stated fair value of these assets is determined on terms qualifying for level 2. Financial liabilities recognized at amortized cost and hedge accounting consist of debt securities issued and deposits. The stated fair value of these liabilities is determined by methods qualifying for level 2.

There have been no transfers between level 1 and level 2.

Note 7 Debt securities issued - stock exchange listed covered bonds and certificates

NOK THOUSANDS	31.12.2022	31.12.2021
Bond debt, nominal amount	34 763 119	33 426 640
Adjustments	9 932	60 603
Accrued interest	143 881	38 554
Own holdings, nominal amount	-1 432 000	-1 608 000
Total debt securities issued	33 484 932	31 917 798
Interest rate on borrowings through the issuance of securities at the reporting date:	3.62 %	1.10 %
The interest rate is calculated as a weighted average of the act/360 basis. It includes interest rate effects and amortization costs.

NOK THOUSANDS	Balance sheet 31.12.2021	Issued	Matured/ redeemed	Other adjustements	Balance sheet 31.12.2022
Changes in debt securities issued - stock exchange listed covered bonds and cerftificates
Bond debt, nominal amount	33 426 640	7 150 000	-5 808 000	-5 521	34 763 119
Adjustments	60 603	0	0	-50 671	9 932
Accrued interest	38 554	0	0	105 327	143 881
Own holdings, nominal amount	-1 608 000	0	176 000	0	-1 432 000
Total debt securities issued	31 917 798	7 150 000	-5 632 000	49 135	33 484 932

Note 8 Financial assets and liabilities subject to net settlement

31.12.2022 NOK THOUSANDS				Related sums that are not presented net
	Gross financial assets/liabilites	Gross assets/ liabilities presented net	Book value	Financial instruments	Security in cash	Net recognised value
ASSETS
Financial derivatives	139 153	0	139 153	-25 939	0	113 214
Total	139 153	0	139 153	-25 939	0	113 214
LIABILITIES
Financial derivatives	25 939	0	25 939	-25 939	-1 724	0
Total	25 939	0	25 939	-25 939	-1 724	0

The purpose of the note is to show the potential effect of netting agreements at the KLP Banken Group . The note shows derivative positions in the financial position statement.
31.12.2021 NOK THOUSANDS				Related sums that are not presented net
	Gross financial assets/liabilites	Gross assets/ liabilities presented net	Book value	Financial instruments	Security in cash	Net recognised value
ASSETS
Financial derivatives	42 051	0	42 051	-9 200	0	32 851
Total	42 051	0	42 051	-9 200	0	32 851
LIABILITIES
Financial derivatives	9 990	0	9 990	-9 200	-3 628	0
Total	9 990	0	9 990	-9 200	-3 628	0

Note 9 Transactions with related parties

NOK THOUSANDS	01.01.2022 -31.12.2022	01.01.2021 -31.12.2021
KLP, fees lending management	57 951	59 400
KLP Skadeforsikring AS, fees	155	0
KLP Kapitalforvaltning AS, fees for services provided	-180	-171
KLP, rent	-2 755	-2 699
KLP Skipsbygget AS, rent	-1 867	-1 727
KLP Bassengtomten AS, rent parking	-90	-87
KLP Eiendomsdrift AS, cost office buildings	-532	-366
KLP, pension premium	-14 485	-13 140
KLP, staff services (at cost)	-71 410	-68 399
KLP Group companies, subsidised interest employee loans	14 120	11 825

NOK THOUSANDS	31.12.2022	31.12.2021
BALANCES
KLP, net internal accounts	-6	-1 667
KLP, loan settlement	-28 988	-1 333
KLP Group companies, net other internal accounts	1 252	1 046

Transactions with related parties are carried out at general market terms, with the exception of the company's share of common functions, which are allocated at cost. Allocation is based on actual use. All internal receivables are settled as they arise.

Note 10 Other assets

NOK THOUSANDS	31.12.2022	31.12.2021
Intercompany receivables	2 569	2 196
Miscellaneous receivables	2	0
Prepaid expenses	2 245	21
Total other assets	4 816	2 217

Note 11 Other liabilities and provision for accrued costs

NOK THOUSANDS	31.12.2022	31.12.2021
Creditors	1 742	2 867
Intercompany payables	30 311	4 150
Other liabilities	111 126	31 352
Total other liabilities	143 180	38 369
Withholding tax	2 886	2 813
Social security contributions	2 425	2 265
Capital activity tax	869	820
Holiday pay	6 708	6 273
Pension obligations	32 092	36 693
VAT	28	211
Provisioned costs	9 206	3 176
Total accrued costs and liabilities	54 215	52 249

Note 12 Capital adequacy

NOK THOUSANDS	31.12.2022	31.12.2021
Share capital and share premium fund	2 190 000	1 890 000
Other owners' equity	776 466	630 782
Total owners' equity	2 966 466	2 520 782
Adjustments due to requirements for proper valuation	-6 565	-6 001
Deduction goodwill and other intangible assets	-15 624	-16 789
Core capital/Tier 1 capital	2 944 277	2 497 992
Supplementary capital/Tier 2 capital	0	0
Supplementary capital/Tier 2 capital	0	0
Total eligible own funds (Tier 1 and Tier 2 capital)	2 944 277	2 497 992
Capital requirement	1 138 790	1 070 801
Surplus of own funds (Tier 1 and Tier 2 capital)	1 805 487	1 427 191
Estimate basis credit risk:
Institutions	298 953	286 512
Retail	501 314	302 739
Local and regional authorities (incl. municipalities/county administations)	3 963 118	3 628 147
Investments with mortgage security in real estate	8 168 815	7 824 605
Investments fallen due	46 208	36 584
Covered bonds	502 740	498 905
Other holdings	24 731	131 535
Calculation basis credit risk	13 505 877	12 709 027
Credit risk	1 080 470	1 016 722
Operating risk	58 035	53 416
Credit valuation adjustments (CVA)	284	663
Total capital requirement assets	1 138 790	1 070 801
Core capital adequacy ratio	20.7 %	18.7 %
Supplementary capital ratio	0.0 %	0.0 %
Capital adequacy ratio	20.7 %	18.7 %
Leverage ratio	5.7 %	5.2 %

CAPITAL REQUIREMENT PER 31.12.2022	Core capital/Tier 1 capital	Supplementary capital/Tier 2 capital	Own funds
Minimum requirement excl. buffers	4.5 %	3.5 %	8.0 %
Protective buffer	2.5 %	0.0 %	2.5 %
Systemic risk buffer	3.0 %	0.0 %	3.0 %
Counter-cyclical capital buffer	2.0 %	0.0 %	2.0 %
Pilar 2-requirement	1.5 %	0.0 %	1.5 %
Current capital requirement incl. buffers	13.5 %	3.5 %	17.0 %
Capital requirement leverage ratio	3.0 %	0.0 %	3.0 %

Note 13 Fixed-income securities

NOK THOUSANDS	31.12.2022		31.12.2021
	Acquisition cost	Market value	Acquisition cost	Market value
Certificates	693 949	697 059	567 264	567 443
Bonds	5 865 698	5 867 567	5 437 376	5 433 656
Total fixed-income securities	6 559 647	6 564 627	6 004 640	6 001 099
Fixed income securities are brought to account at market value, including accrued but not due interests.

Note 14 Loan loss provision

In the fourth quarter of 2022 the copmpanies has changed on of the rules for moving a loan from stage 1 to stage 2. The relative change in 12 months PD should be more than 1.5 before the change is significant, previously 2.5. The level for the expected loss will despite of the change be at the same level as previous quarter.

Refer to Note 10 and Note 2 in the annual report for more details of the model.

Expected credit loss (ECL) loans to customers - all segments

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Opening balance ECL 01.01.2022	4 346	282	1 753	6 382
Transfer to stage 1	92	-66	-26	0
Transfer to stage 2	-57	64	-7	0
Transfer to stage 3	-9	-24	33	0
Net changes	111	-25	-898	-812
New losses	356	299	46	702
Write-offs	-529	-108	-349	-985
Change in risk model	-1 920	1 667	445	192
Closing balance ECL 31.12.2022	2 390	2 090	998	5 478
Changes (01.01.2022 - 31.12.2022)	-1 956	1 808	-755	-903

Expected credit loss (ECL) loans to customers – mortgage

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Opening balance ECL 01.01.2022	159	121	1 497	1 776
Transfer to stage 1	5	-5	0	0
Transfer to stage 2	-6	6	0	0
Transfer to stage 3	0	-11	11	0
Net changes	-126	-10	-932	-1 068
New losses	119	103	0	222
Write-offs	-7	0	-154	-161
Change in risk model	0	4	0	4
Closing balance ECL 31.12.2022	144	207	421	772
Changes (01.01.2022 - 31.12.2022)	-15	87	-1 075	-1 004

Expected credit loss (ECL) - public lending

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Opening balance ECL 01.01.2022	176	0	0	176
Transfer to stage 1	0	0	0	0
Transfer to stage 2	0	0	0	0
Transfer to stage 3	0	0	0	0
Net changes	-11	0	0	-11
New losses	36	0	0	36
Write-offs	-16	0	0	-16
Closing balance ECL 31.12.2022	184	0	0	184
Changes (01.01.2022 - 31.12.2022)	8	0	0	8

Expected credit loss (ECL) - credit card

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Opening balance ECL 01.01.2022	3 987	161	67	4 215
Transfer to stage 1	87	-60	-26	0
Transfer to stage 2	-51	58	-7	0
Transfer to stage 3	-9	-13	22	0
Net changes	-290	-122	-16	-428
New losses	199	196	21	416
Change in risk model	-1 883	1 663	456	236
Closing balance ECL 31.12.2022	2 040	1 883	516	4 440
Changes (01.01.2022 - 31.12.2022)	-1 947	1 722	450	224

Expected credit loss (ECL) loans to customers - senior loans

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Opening balance ECL 01.01.2022	19	0	0	19
Transfer to stage 1	0	0	0	0
Transfer to stage 2	0	0	0	0
Transfer to stage 3	0	0	0	0
Net changes	-3	0	0	-3
New losses	3	0	0	3
Change in risk model	3	0	0	3
Closing balance ECL 31.12.2022	22	0	0	22
Changes (01.01.2022 - 31.12.2022)	3	0	0	3

Expected credit loss (ECL) loans to customers - overdrafts deposit accounts

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Opening balance ECL 01.01.2022	5	0	190	195
Transfer to stage 1	0	0	0	0
Transfer to stage 2	0	0	0	0
Transfer to stage 3	0	0	0	0
Net changes	34	0	-144	-110
New losses	0	0	25	25
Change in risk model	-40	0	-11	-50
Closing balance ECL 31.12.2022	0	0	60	60
Changes (01.01.2022 - 31.12.2022)	-5	0	-130	-135

Book value of loans and receivables from customers - all segments

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Lending 01.01.2022	39 404 432	527 587	35 954	39 967 973
Transfer to stage 1	201 375	-200 410	-966	0
Transfer to stage 2	-275 371	275 645	-274	0
Transfer to stage 3	-8 472	-7 573	16 044	0
Net changes	-1 282 406	-9 187	152	-1 291 441
New losses	12 578 853	61 335	777	12 640 965
Write-offs	-8 675 215	-158 118	-8 034	-8 841 367
Lending 31.12.2022	41 943 196	489 280	43 654	42 476 129

Book value of loans and receivables from customers - mortgages

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Lending 01.01.2022	19 782 618	524 203	33 565	20 340 386
Transfer to stage 1	199 427	-199 285	-142	0
Transfer to stage 2	-273 904	273 939	-35	0
Transfer to stage 3	-7 901	-7 137	15 038	0
Net change	-4 310 641	-106 570	-7 059	-4 424 269
New lending	8 576 358	60 936	667	8 637 961
Write-offs	-3 059 291	-60 191	-58	-3 119 539
Lending 31.12.2022	20 906 667	485 896	41 976	21 434 538

Book value of loans and receivables from customers - public lending

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Lending 01.01.2022	17 875 934	0	0	17 875 934
Transfer to stage 1	0	0	0	0
Transfer to stage 2	0	0	0	0
Transfer to stage 3	0	0	0	0
Net change	-762 931	0	0	-762 931
New lending	3 724 592	0	0	3 724 592
Write-offs	-1 622 264	0	0	-1 622 264
Lending 31.12.2022	19 215 331	0	0	19 215 331

Book value of loans and receivables from customers - credit card

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Lending 01.01.2022	38 284	3 383	2 202	43 869
Transfer to stage 1	1 948	-1 124	-824	0
Transfer to stage 2	-1 467	1 706	-239	0
Transfer to stage 3	-564	-436	1 000	0
Net change	-3 525	-545	-619	-4 689
New lending	3 878	400	75	4 352
Lending 31.12.2022	38 554	3 384	1 594	43 532

Book value of loans to receivables from customers - senior loans

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Lending 01.01.2022	1 707 532	0	0	1 707 532
Transfer to stage 1	0	0	0	0
Transfer to stage 2	0	0	0	0
Transfer to stage 3	0	0	0	0
Net change	-199 106	0	0	-199 106
New lending	273 981	0	0	273 981
Lending 31.12.2022	1 782 407	0	0	1 782 407

Book value of loans to receivables from customers - overdraft deposit accounts

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Lending 01.01.2022	65	0	188	252
Transfer to stage 1	0	0	0	0
Transfer to stage 2	0	0	0	0
Transfer to stage 3	-7	0	7	0
Net change	137	0	-145	-8
New lending	44	0	35	78
Lending 31.12.2022	239	0	84	322

Exposure - unused credit

NOK THOUSANDS	12 months ECL	Lifetime ECL (not credit impaired)	Lifetime ECL (credit impaired)
	stage 1	stage 2	stage 3	Total stage 1-3
Lending 01.01.2022	1 158 308	62 601	153	1 221 062
Transfer to stage 1	35 327	-35 249	-78	0
Transfer to stage 2	-25 409	25 413	-3	0
Transfer to stage 3	-166	-14	181	0
Net change	41 151	1 522	33	42 706
New lending	223 534	3 092	0	226 627
Write-offs	-92 965	-2 438	-54	-95 456
Lending 31.12.2022	1 339 781	54 926	231	1 394 938

Losses recognised in the profit and loss account consist of:

NOK THOUSANDS	01.01.2022 -31.12.2022	01.01.2021 -31.12.2021
Change in loss provisions in stage 1, 2 and 3	-276	-2 509
Established losses	-815	-356
Recovery for previously established losses	768	566
Total losses in the income statement	-323	-2 299

Note 15 Contingent liabilites

NOK THOUSANDS	31.12.2022	31.12.2021
Credit facilities for lending not utilized	885 395	949 244
Credit facilities issued credit card	259 010	271 818
Loan promise	1 170 419	1 458 520
Total contingent liabilities	2 314 823	2 679 581

Credit facilities for lending not utilized: The ‘Fleksilån’ product is included here; this is a credit facility which allows the customer to borrow up to a specified credit limit.

Credit facilities issued credit card: Customers’ credit card limits are a contingent liability for the Bank, where the customer can choose to utilise the credit up to the allocated credit limit.

Loan commitment: The Bank issues funding certificates that customers can use in bidding procedures for home purchases. This also includes other loans that have been granted but not disbursed.

Note 16 Net gain/(loss) on financial instruments

NOK THOUSANDS	Q4 2022	Q4 2021	01.01.2022 -31.12.2022	01.01.2021 -31.12.2021
Net gain/(loss) on fixed-income securities	15 932	-10 365	-18 704	-12 528
Net gain/(loss) financial derivatives and realized amortization linked to lending	-67	-750	270	-750
Net gain/(loss) financial derivatives and realized repurchase of own debt	-401	493	-12 335	-28 146
Net value change lending and borrowing, hedge accounting	0	0	0	336
Net accrual of over/under rates borrowings and securities	1 380	1 395	5 521	9 133
Other financial income and expenses	-280	-212	-1 004	-942
Total net gain/(loss) on financial instruments	16 565	-9 439	-26 252	-32 896

Note 17 Leases

NOK THOUSANDS	31.12.2022	31.12.2021
	Property
RIGHT-OF-USE ASSETS
Opening balance 01.01.	18 236	1 948
Depreciation	-1 870	-1 636
Deduction	0	-779
Addition	0	18 703
Closing balance	16 365	18 236
LEASE LIABILITIES
Opening balance 01.01.	18 323	2 023
Repayments	-1 563	-1 582
Deduction	0	-821
Addition	0	18 703
Closing balance	16 761	18 323

NOK THOUSANDS	Q4 2022	Q4 2021	01.01.2022 -31.12.2022	01.01.2021 -31.12.2021
	Property
Interest expense lease liabilities	80	87	326	109
Interest expense lease liabilities	80	87	326	109
In the fourth quarter of 2021, a new 10-year lease has been capitalized. It is an intercompany lease for the rental of office premises with KLP Eiendom.

Note 18 Pension obligations - own employees

NOK THOUSANDS	31.12.2022	31.12.2021
Capitalized net liability	36 693	41 550
Pension costs taken to profit/loss	14 307	12 983
Finance costs taken to profit/loss	1 004	942
Actuarial gains and losses incl. social security contributions	-11 094	-7 136
Premiums/supplement paid-in including admin	-8 818	-11 646
Capitalized net liability	32 092	36 693

ASSUMPTIONS	31.12.2022	31.12.2021
Discount rate	3.00%	1.90 %
Salary growth	3.50%	2.75 %
The National Insurance basic amount (G)	3.25%	2.50 %
Pension increases	2.40%	1.75 %
Social security contribution	14.10%	14.10 %
Capital activity tax	5.00%	5.00 %
The effect of changes in the assumptions is a reduction of the obligation by NOK 11.1 million as of 31.12.2022. The change is recognized in comprehensive income.

Quarterly earnings trend

NOK MILLIONS	Q4 2022	Q3 2022	Q2 2022	Q1 2022	Q4 2021
Interest income	474.7	320.2	252.5	206.4	185.2
Interest expense	-364.2	-221.0	-165.6	-134.3	-109.4
Net interest income	110.5	99.2	86.9	72.1	75.8
Commision income and income from banking services	7.7	8.1	7.9	5.7	6.0
Commision cost and cost from banking services	-0.7	-0.7	-0.6	-0.5	-0.6
Net charges and commission income	7.1	7.4	7.2	5.2	5.4
Other fee income	15.2	12.7	15.1	15.1	14.9
Net gain/(loss) financial instruments	16.6	-6.9	-25.8	-10.1	-9.4
Total other operating income	31.7	5.8	-10.7	5.0	5.4
Salaries and administrative costs	-25.5	-18.1	-22.3	-21.8	-23.5
Depreciation	-1.0	-1.0	-1.0	-1.0	-1.4
Other operating expenses	-39.4	-38.1	-36.2	-41.2	-38.4
Net loan losses	-0.4	-0.2	0.2	0.1	-1.0
Total operating expenses	-66.3	-57.4	-59.3	-64.0	-64.3
Operating profit/loss before tax	83.0	55.0	24.2	18.3	22.4
Tax ordinary income	-19.7	-13.1	-6.0	24.3	-5.2
Profit/loss for the period	63.3	41.9	18.2	42.6	17.1
Other comprehensive income	7.8	0.5	-15.3	18.1	18.7
Tax on other comprehensive income	-2.0	-0.1	3.8	-4.5	-4.7
Other comprehensive income for the period	5.9	0.3	-11.5	13.6	14.0
Comprehensive income for the period	69.2	42.2	6.7	56.2	31.1

Key figures – accumulated

NOK MILLIONS	Q4 2022	Q3 2022	Q2 2022	Q1 2022	Q4 2021
Pre-tax income	180.5	97.5	42.5	18.3	116.1
Net interest income	368.7	258.2	159.0	72.1	308.6
Other operating income	85.0	62.8	42.7	20.3	78.9
Other operating cost and depreciation	-247.0	-180.7	-123.3	-64.0	-238.5
Net gain/(loss) financial instruments	-26.3	-42.8	-35.9	-10.1	-32.9
Deposits	13 778.9	13 606.8	13 464.9	13 372.2	12 901.0
Lending customers	23 258.4	23 368.6	23 041.8	22 635.4	22 089.7
Lending with public sector guarantee	19 117.1	18 717.6	18 321.1	17 974.4	17 844.4
Non-performing loans	43.7	42.8	46.4	45.6	36.0
Total liabilities created on issuance of securities	33 484.9	32 613.2	32 443.5	31 862.2	31 917.8
Other borrowing	0.0	0.0	0.0	0.0	0.0
Total assets	50 510.7	49 369.5	48 703.7	47 954.0	47 481.9
Average total assets	48 996.3	48 425.7	48 092.8	47 717.9	45 084.9
Equity	2 966.5	2 897.3	2 555.1	2 548.3	2 520.8
Interest net	0.75 %	0.53 %	0.33 %	0.15 %	0.68 %
Profit/loss from ordinary operation before taxes	0.37 %	0.20 %	0.09 %	0.04 %	0.26 %
Return on equity	7.16 %	5.15 %	3.37 %	2.91 %	4.78 %
Capital adequacy ratio	20.7 %	19.7 %	17.7 %	18.1 %	18.7 %
Liquidity coverage ratio (LCR)	567 %	472 %	425 %	242 %	495 %

Contact information

KLP BANKEN

Beddingen 8
7042 Trondheim

Org. number: 993 821 837

Visitors adress, Trondheim:
Beddingen 8

Visitors adress, Oslo:
Dronning Eufemias gate 10

Klpbanken.no

Phone: +47 55 54 85 00

klpbanken@klp.no

Q4 2022 Interim reportKLP Banken Group