Annual Report 2007 Notes - turn theNoteoversikt page

2 Overview: Notes to the accounts

Notes to the accounts - Group

Note 1 Accounting...... principles 68 Note 2 Implementation...... of IFRS in the company accounts 73 Note 3 Segment...... information 74 Note 4 Net...... interest income and credit commissions 76 Note 5 Interest...... on individual balance sheet items 76 Note 6 Net...... other operating income 77 Note 7 Salaries...... and general administration expenses 78 Note 8 Other...... operating expenses 80 Note 9 Taxes...... 80 Note 10 Fair...... value of fi nancial instruments 82 Note 11 Loans...... 84 Note 12 Loans...... to and receivables from credit institutions 89 Note 13 Shares...... 90 Note 14 Shares...... at fair value through profi t or loss 91 Note 15 Commercial...... paper and bonds at fair value through profi t or loss 92 Note 16 Shareholdings...... in subsidiaries and associated companies 92 Note 17 Intangible...... assets 93 Note 18 Fixed...... assets 94 Note 19 Financial...... assets and insurance commitments, risk for customer’s account 95 Note 20 Purchase...... of activities in Sogn & Fjordane 95 Note 21 Debt...... to credit institutions 96 Note 22 Deposits...... 97 Note 23 Securitised...... debt 98 Note 24 Pension...... commitments 99 Note 25 Other...... provisions for commitments 101 Note 26 Subordinated...... loan capital 101 Note 27 Capital...... adequacy 102 Note 28 Primary...... capital certifi cates 104 Note 29 Guarantees...... and mortgages 107 Note 30 Liquidity...... risk / residual maturity of balance sheet items 108 Note 31 Risk/period...... until interest rate regulation 110 Note 32 Sensitivity...... analysis/ Market risk 111 Note 33 Interest...... rate sensitivity 111 Note 34 Foreign...... exchange positions 111 Note 35 Transactions...... with associated companies 112 Note 36 Disputes...... 112

3 CHALLENGE: Bergen Mountain Hiking Assosiation brings lovers of the outdoor life together - people with an appreciation of the splendour of nature and a sense of adventure - In both summer and winter. Sparebanken Vest plays an important supporting role. This photo is from an outing to Skålatårnet in Loen.

Published by Sparebanken Vest, E-mail: [email protected] Design / layout: Photo: Oskar Andersen Tommy Næss Information Department www.spv.no Creato Media AS Per Ivar Birkeland Morten Wanvik, BA P.O. Box 7999, NO-5020 Bergen Anne Lise Urdal Jaro Hollan Tel: +47 55 21 74 42 Project management: Sparebanken Vest: Printing: Grafi sk Trykk AS Arne Stubhaug Scanpix Fax: +47 55 21 72 89 Jørn Lekve, Anne Lise Urdal, Liv Næss Marit Hommedal Fredrik Skeie, Bergen Turlag Astrid Merethe Nordhaug Helge Larsen, Bergen Turlag

4 Content

Content

Main features of 2007 4 Financial highlights 5 Facts about Sparebanken Vest 8 Managing director Stein Klakegg 10 Group Management 14 Corporate Governance 16 Retail Market 22 Corporate Market 24 Capital Market 28 Subsidiaries 30 Risk and capital management 34 Visjon Vest 42 Personnel and competence 44 Primary capital certificates 48 Board of Directors 50 Directors’ Report 52 Profit and loss account 63 Balance sheet 64 Statement of cash flows 66 Equity movements 67 Notes to the accounts 68 Auditor’s report 113 Control committee’s report 114 Key figures 5 years - Group 115 Key quarterly figures - Group 119 Regional map 124 Organisational structure 125 Elected officers, management and branch overview 126

Western Norway is unique and diverse. The long coastline and inlets bustle with The photos of the Board, the Group Management and the Managing commercial activity and industries of all kinds.On a per capital basis, value creation Director were taken at Bergen Science Centre (VILVITE - “Want to Know” in the region is the highest in Norway. In this environment Sparebanken Vest is both In Norwegian) and where Sparebanken Vest plays a supporting role. a participant and a promoter of activity, for both companies and Individuals. Sparebanken Vest has provided NOK 5 million to finance the “Weather Pavilion” exhibition. The funds will also be used to encourage children In this report we present the bank’s seven regions and take their pulse and young people to become aware of climate Issues by visiting the - especially from the perspective of the bank’s activities for the public benefit. Science Centre. Highlights

Highlights

2007:

• Sound profits of NOK 870m before tax, NOK 77m up on the previous year • Return on equity at 16.29% • Dividend of NOK 19 per PCC • Grants of NOK 150m for the public benefit, of which NOK 100m for distribution in 2008 and NOK 50m added to gift fund • Customer satisfaction at high level in both retail and corporate market • Establishment of Frende Forsikring • Acquisition and successful integration of Fokus Bank’s activities In Sogn & Fjordane • Establishment in Stryn and Sandnes • MiFID – Markets in Financial Instruments Directive, new securities trading legislation since 1 November

Plans for 2008:

• Geographical expansion in Western Norway • Operational improvments • Stronger focus on the corporate market • Development of capital market activities • Intensification of brand building • Sales of insurance Frende Forsikring • Establishment of new branch in Stavanger • Competence and performance culture through ambitious leadership • Strategic use of Visjon Vest • Make plans for a new finicial building in Jonsvolls quarter in the centre of Bergen Financial highlights

Financial highlights - Sparebanken Vest Group

(NOK million) 2007 2006 2005 2004 2003

Profit and Loss Account

Net interest income and credit commissions 1 126 1 042 972 960 903 Net other operating income 678 624 471 406 353 Total operating expenses 973 921 875 819 747

Profit before write-downs and tax 831 745 568 547 509 Loan write-downs and losses on guarantees (34) (48) (75) 60 114

Profit before tax 865 793 643 487 395

Balance Sheet

Total assets 75 048 60 232 54 680 47 475 40 351

Net lendings 64 683 53 451 46 672 41 469 36 559 Securities 6 876 4 418 4 383 3 732 2 347

Deposits 37 611 31 119 27 390 24 762 22 237 Subordinated loan capital 1 042 724 942 1 094 731 Equity 4 318 3 798 3 272 2 875 2 429

Key ratios (%)

Ratio of net interest income and credit commissions to total assets 1.69 1.85 1.93 2.19 2.33 Ratio of profit before tax to average total assets 1.30 1.41 1.28 1.11 1.02

Return on equity after tax 16.24 17.86 15.44 11.54 11.80

Loan loss ratio (0.06) (0.09) (0.16) 0.14 0.31

Change in net lendings 21.01 14.52 12.55 13.43 14.83 Change in deposits 20.86 13.61 10.61 11.35 0.20

Net capital base (NOK mill.) 4 624 4 048 3 909 3 477 2 901 Capital ratio 9.67 10.21 11.36 11.28 10.48 Core capital ratio 8.33 9.44 9.95 9.56 8.38

Dividend per primary capital certificate (PCC) (NOK) 19.00 18.25 17.10 12.60 12.60 PCC price at year-end (NOK) 190 213 206 187 162 Effective return per PCC (2.23) 11.70 16.59 23.52 59.13 PCC percentage of capital base 6.38 7.30 8.36 9.48 10.35

Further information appears in the summary of main figures and definitions on page115 - 123

5 BERGEN REGION

BERGEN IS THE PLACE AND BRANN IS THE TEAM: 44 year is an eternity for somebody from Bergen, but fi nally Brann won the league championship in 2007. Sparebanken Vest is the general sponsor of the football club that is cheered on by all of Bergen and most of the Western part of Norway.

6 Kaigaten Korskirkeallmenningen Xhibition Danmarksplass Sletten Åsane Arna Loddefjord Oasen Nesttun Lagunen

Bergen is the place - and we’re proud to be part of it

Bergen is the very heart of Sparebanken Vest, The elite clubs Tertnes and Fyllingen are among the and our heart was beating extra in 2007. top handball teams and the bank also contributes – Being a sponsor of Brann F.C. when the cup fi nally to TIF Viking, where Trond Nymark is one of the came “home” was one of those great moments. leading lights. - Although 2007 will be remembered It wasn’t just the team that was esctatic when the by many for its sports events, a great deal is also trophy was raised by the players - it was everybody’s happening in other areas where we provide grants or victory - the city’s, the people’s and the bank’s, sponsor funds. Bergen International Festival, the all sharing the moment , winning the league Children’ Festival, and the OiOi Festival are key championship for the fi rst time since 1963, says elements of the city’s cultural identity, and for many Frank Bjørndal, Regional Director of the Retail Market they are the highlight of the spring season, says in Bergen Region. With some pride he says that the Bjørndal. – Sparebanken Vest’s sponsor activity is bank’s logo on the red Brann jerseys has never been motivated by a wish to strengthen the bank’s logo. more in the public eye than it was last year. We hope that many of the boys and girls wearing a – It was especially pleasing that all of the teams football jersey with our logo will be customers of the involved in age-specifi c football who also play bank one day. wearing our logo were in a way able to share in Brann’s triumph. After all, far more active sports Competition in the bank market in Bergen is increas- BERGEN REGION enthusiasts wear the bank’s red and white logo than ing, partly because a number of smaller banks have the league champions. There are hundreds of teams opened branches in the city. – In this connection, our playing in age-specifi c groups which are supported focus on sponsor activities and grants for the public by the Sparebanken Vest. This is our way of promoting benefi t is being rewarded, in both the retail and the sport among the population at large and the same corporate market. This is clearly refl ected in the fact time ensuring that the next generation of Brann that we have succeeded in maintaining our strong players is able to carry on the club’s proud traditions. market position despite much more competition, On the female side, we are proud to be able to support says Audun Rebnor, Regional Director of the corporate Arna-Bjørnar in the top league for women. market in the Bergen region. Customer surveys in Bergen show that Sparebanken Vest is perceived Football is far from only sport to be sponsored as an attentive and accessible bank with local roots, by Sparebanken Vest . and our aim is to strengthen this perception.

7 Facts about Sparebanken Vest

The main bank in the region

After continuous banking operations for 184 years, Sparebanken Vest is well established as the main bank in the region. It all started in 1823 with the establishment of Bergens Sparebank and continued in 1982 with the formation of Sparebanken Vest as an amalgamation of several local savings banks in the county of Hordaland, along with Bergens Sparebank. The bank was subsequently joined by a number of local banks from Sogn & Fjordane. Sparebanken Vest is now reinforcing its position as a regional bank for all of Western Norway through the establishment of several branches in Rogaland and a broader presence in Sogn & Fjordane. In slightly longer term, the bank plans to establish a presence in Sunnmøre and thus cover all of the counties in the Western part of Norway.

Sparebanken Vest is first and foremost a retail bank with more the development of Western Norway by providing added value than 216 500 customers, accounting for 78% of the loans to those whose interests are linked to the bank. Visjon Vest - extended to this market. In the corporate market, the bank grants for the public benefit - is a supplement to business provides most banking and insurance services to more than operations.” 9 400 companies, most of them in the segment of small and medium-sized companies. Sparebanken Vest and society The vision underlines that through professional banking Broader market area operations the bank will be a driving force in development of Today, Sparebanken Vest is an independent, alliance-free the social and commercial life of Western Norway. Sparebanken and modern bank for the market area represented by Western Vest shall be an independent savings bank and be positioned as Norway. the leading and most preferred provider of financial services in Western Norway. Sparebanken Vest is Norway’s third-largest savings bank with total assets of NOK 75bn, 57 sales outlets and 780 employees. Sparebanken Vest strives to be a good and attractive work place The head office is in Bergen. where core values create a workforce that is customer-oriented, skilled at forging customer relationships, and highly competent. Vision and objectives The bank’s business concept is two-fold, with the emphasis As a self-owning institution, Sparebanken Vest believes it has on banking operations, but also taking account of the bank’s an important role to play in enriching society. The bank seeks social involvement. to support and promote all positive elements involved in the development of the region, and in so doing the allocation of ”Based on satisfactory profitability and acceptable risk, grants for the public benefit plays an important role. Sparebanken Vest shall cover its customers’ needs for The accounts for 2007 provide scope for gift allocations totalling financial services through sales and advisory services. NOK 150m. Of this, NOK 50m has been added to the gift fund, The bank’s commercial operations shall contribute to while NOK 100m will be distributed in 2008.

8 EXCEPTIONAL TALENT: Alexander Dale Oen from Øygarden outside Bergen challenged the world’s swimming elite and won. Gold medal and a European record show that anything is possible if you have enough will to win and the talent. Sparebanken Vest has supported Alexander Dale Oen for several years and will be following him all the way to the Olympic Games in Beijing.

9 Managing director Stein Klakegg

The leading financial services group in the Western Norway

Managing director Stein Klakegg is very clear: Through professional banking operations and interaction with the customers Sparebanken Vest will be the leading financial services group in Western Norway. Stein Klakegg says that Sparebanken Vest is built on foundations which combine renewal and expansion with sound banking expertise and good risk management.

- Is there anything you would draw particular barometer of business confidence. While some international attention to from 2007 which could form a basis pointers may indicate a negative trend, I am convinced that for further development of the bank in 2008? Sparebanken Vest will continue to be an important contributor - The positive feedback from many customers, and, of course, to the growth and development of both the social and the bank’s personnel. They have all impressed with their commercial life of Western Norway. enthusiasm, humour and very good results. I am very pleased with the progress that has been made and with the results that - What does that mean, in practical terms? have been achieved by the personnel in collaboration with our - It means that by having close contact with the customers customers. 2007 was an eventful year and the way ahead that and the community around us we are able to provide that we have plotted out remains unchanged. It is also gratifying little bit extra that other banks are unable to do. It means that in 2007 we started and implemented many of the strategic that we are taking advantage of the current good times to initiatives that were resolved in 2006, and I am pleased with the make improvements and ensure that we will continue to success of our expansion initiatives and the well implemented be just as competitive when times are not so good, integration of the activities acquired in both Sogn & Fjordane says Stein Klakegg. and Rogaland. We have also established a more visible position in the community, we have a positive presence in the media, and - How is Sparebanken Vest affected by the unrest our commitment to addressing climate challenges has brought in the financial markets? many positive responses. The bank’s senior management group - Naturally, developments are closely scrutinised, but interacts well and is guided by a wish to be opportunity-oriented, Sparebanken Vest has been well prepared, also for this market. to think in terms of overall interests, to have the strength to act, So far, thanks to our long-term funding strategy and good timing, and to be generous. we have been negatively affected to only a limited extent.

- How does Sparebanken Vest intend to achieve - What steps does the bank take to adapt cost levels? its goals in a year that so far has been characterised It is correct that we are constantly seeking to improve. I have by considerable financial turbulence? great expectations connected to our improvement programme - Financial unrest was a feature of the second half of 2007 which started at the turn of the year, and which has ambitious and the start of 2008, and of course this affects our operating goals. But, above all else, there is a general requirement that parameters. But the economic situation, both nationally and we must allocate more time and resources to our customers. in Western Norway, is characterised by a high level of activity. Through lasting improvements we shall be an even better bank There is a high level of employment and the companies in for our customers. Without them we would not exist, and in the region are optimistic about the future, - an attitude that everything we do our goal must be to provide the customers is underpinned by the most recent results from the bank’s with good solutions and competitive terms.

10 The leading financial services group in the Western Norway

COMMITMENT TO SUCCEED: While some international pointers may indicate a negative trend, I am convinced that Sparebanken Vest will continue to be an important contributor to the growth and development of both the social and commercial life of Western Norway.

- How does the bank believe that Frende will be able to - What does it mean to be an important compete with the large established insurance companies? pillar of society in Western Norway? - The interest that has been shown in the establishment - It means that Western Norway is an area of special of Frende Forsikring has been very gratifying. We have interest and concern to us, and this is reflected in the been met with nothing but goodwill from the authorities grants we give for the public benefit in many areas of and business partners. Along with 13 other independent society. In 2007, Sparebanken Vest distributed NOK savings banks, based on strength and great pride, we are 100m to worthy causes in the region. In 2008 this will introducing Frende Forsikring to a broad range of customers. be increased to NOK 150m, and of this NOK 50m will be We have great expectations, and so far the feedback from allocated to our gift fund, bringing it up to NOK 200m. pilot sales have been very promising. Through Visjon Vest the bank also contributes to It will mean a great deal to the savings banks which, research and development in the commercial sector, through their ownership of Frende Forsikring and thereby helping to promote further growth in the region. distri­bution of its products, wish to have an indepen- We also support sport, culture and other important dent ­position in their market areas. This gives an added activities in our market area, and our social involvement ­dimension to the importance which we attach to Frende. will be further strengthened in the period ahead. The bank has many development activities ahead of it and It will be reflected in our active commitment making the introduction of Frende will naturally be very high on Western Norway an even more attractive place to live our list of priorities. Our ultimate goal is to be the leading and work, says Stein Klakegg. financial services group in Western Norway, and we are well on our way to achieving this, says Stein Klakegg.

11 Dale Bjørkheim Norheimsund Strandebarm Eikelandsosen Odda Røldal

Much more than plums and cherries

From Modalen in the north to Odda in the south, place in the fi eld of art and culture. ”Kvammalokk” Hardanger and Midthordland represent one of is a project that has been started by the town- Sparebanken Vest’s most widespread regions. ship with the aim of attracting artists, from both The repercussions of the oil and gas industry Norway and abroad. Kvam has long traditions in are less noticeable here than along the coast, the craft industries, with companies engaged in the although many people in the area are also production of furniture and wooden boats, as well as employed in the North Sea. It has been a hard mechanical production. There is great demand for time for the energy-consuming industry in the the products and expertise found in the region, also region. Agriculture is one of the main pillars of in untraditional areas. This is well illustrated by the activity throughout the region, and the farmers fact that Djupevåg Båtbyggeri has supplied all the provide much more than plums and cherries. wall panelling, balcony fronts and chandeliers to the new Norwegian Opera House in Bjørvika. - Developments have been very positive in Fusa and Samnanger, says regional bank manager Lars Audun - The main development in Odda has been the large Torvik who is responsible for the corporate market number of holiday homes that have been built in in the region. Samnanger’s proximity to Bergen has Røldal and Seljestad. The outlook in Ålvik is also resulted in considerable immigration. Frank Mohn’s brighter than it has been for a long time, thanks activities in Fusa, with their 400 employees, act as to the positive signals from Elkem recently. a driving force for the region. Fusa can also boast of a number of vibrant industries based on timber, - The future of the region is wholly dependent on mechanical engineering and fi sh farming. At the communications, says regional bank manager very north is the rich power-based municipality of Tom Rasmussen who is responsible for the retail Modalen. This is the also where we fi nd Uni Micro market. - The travel time is still too long and the which is a success story in the fi eld of IT. Since its roads are totally inadequate in many places, start in 1986 the company has grown and currently and we hope that the Kvamskogs Tunnel and the has a workforce of 40 and is the largest supplier of Jondals Tunnel will soon be a reality. The Hardanger ERP systems in Norway. In Kvam, the main feature Bridge has been debated endlessly, - where it should of development has been Fjellstrand’s realisation be located and whether it should be built at all. of a new shipyard at Hansvågen between Oma We are glad that it has fi nally been approved. and Mundheim, but exciting things are also taking HARDANGER/MIDTHORDLAND REGION

EXPERTISE: Djupevåg Båtbyggerie AS in Norheimsund can do more than build beautiful boats. All the wall panelling, balcony fronts and chandeliers used in the Norwegian Opera House in Bjørvika have been provided from experts in Norheimsund. Sparebanken Vest is proud to count Djupevåg Båtebyggeri AS among its customers.

13 Group management Market and performance oriented

In 2006, Sparebanken Vest presented a new Group management team that was determined to establish the leading financial services group in Western Norway. Many milestones have been passed in the last two years, but there are also many challenges to be met in the years ahead.

If the bank is to achieve its goals, it must have a culture that is focused on possibilities, innovation and the ability to get things done. The first commandment for the Group management is to be market and performance oriented.

Here are the members of the Group management:

Stein Klakegg Jørn Lekve (b. 1957) (b. 1961) Managing director since 2006. Director - Corporate Communications since 1999. Joined the Graduate of the Norwegian School of Economics and Business bank as head of Information Services & PR in 1996. Graduate of Administration (NHH) (1982). Formerly with Rieber & Søn ASA NHH. Previously editor of Horda Tidend and business journalist and A/S Nevi, lastly as Group Director with Rieber & Søn ASA. with Bergens Tidende. He has also held various Board positions with Norwegian Holding of Sparebanken Vest PCCs: 200 and foreign companies. Holding of Sparebanken Vest PCCs: 1100 Arne Selle (b. 1953) Jan Erik Kjerpeseth Director - Business Support. Divisional Directors - Service from (b. 1971) 1994. Joined the bank in 1992. Graduate civil engineer from Deputy managing director since 2006. Joined the bank as Norwegian University of Science and Technology (NTH). market manager in 1999. Graduated in civil marketing at the Previously with Frank Mohn AS and Framo Engineering AS. Norwegian School of Marketing, MBA from Herriot Watt Holding of Sparebanken Vest PCCs: 300 University, and Executive MBA in brand management at NHH. Previously market manager with Sparebanken Sogn & Fjordane. Holding of Sparebanken Vest PCCs: 200

14 THE GROUP MANAGEMENT: Photo taken at the Bergen Science Centre, VILVITE. From left, Henning Nordgulen, Jørn Lekve, Benedicte Schilbred Fasmer, Pål Pedersen, Gro Hatleskog, Stein Klakegg, Arne Selle, Kate Henriksen and Jan Erik Kjerpeseth.

Pål Pedersen IMD in Lausanne. Broad experience from industry, shipping (b. 1954) and finance, including employment with Gearbulk and Rikett. Director - Legal. Legal Director since 1994. Joined the bank Holding of Sparebanken Vest PCCs: 100 in 1990. Law graduate from the University of Bergen. Formerly assistant judge and lawyer in private practice. Gro Hatleskog Holding of Sparebanken Vest PCCs: 100 (b. 1956) Director - Department for Human Resouces and Competence. Kate Henriksen Joined the bank in 2007. (b. 1960) Master of Philosophy in Economics from the University of Director - Retail Market. Joined the bank in 2003 as general Bergen. Previous positions director of personnel with Vesta and manager responsible for Retail Division. Graduate engineer organisation director with Nera ASA. She also has professional from Bergen College of Engineering and economic training experience from the public sector. from NHHK. Broad professional experience, also from DnB, Holding of Sparebanken Vest PCCs: 0 Statoil, Vesta and Ementor. Holding of Sparebanken Vest PCCs: 0 Benedicte Schilbred Fasmer (b. 1965) Henning Nordgulen Director - Capital Market. Joined the bank in 2007. (b. 1965) Graduate of the Norwegian School of Economics and Business Director - Corporate Market. Joined the bank in 2003 as Administration (NHH). Broad professional background from general manager responsible for Marine Shipping in the shipping, Citibank, Pareto Securities and, most recently, Corporate Division. Bachelor of Business Administration from Rieber & Søn ASA in Bergen. the Institute of Management, with additional training from Holding of Sparebanken Vest PCCs: 100

15 Corporate Governance Corporate Governance

Based on its vision, objects and cores

values - close by, friendly, competent Corporate Assembly External Auditor and committed - the bank has defined

its value base as follows: Nomination Committee Control Committee

“Sparebanken Vest shall display Board of Directors a genuine interest in its customers,

employees, society and investors Board Committees Internal Auditor through its attitudes, competence

and actions.” Managing Director

Sparebanken Vests policy for corporate governance shall ensure commercial and public sectors in Western Norway. The bank’s that the bank’s activities in this area are in line with generally activities shall provide satisfactory profitability at an acceptable accepted perceptions and standards and with laws and risk. regulations. The policy outlines the governing considerations and shall ensure that there is good interaction between the bank’s The Directors’ Report contains a description of the bank’s various interested parties, including the owners of primary capital objectives and strategies. The strategic base is assessed by the certificates, lenders, customers, employees, governing bodies, the Board and the management at least once a year and the bank’s management and society as a whole. The policy thus describes plans are adjusted and adapted on an ongoing basis. Through its how the bank is run and the controls that apply in order to create interim reports the market is kept updated on the bank’s strategic value for the bank and its interested parties. agenda.

The bank’s policy is specified in various control documents which Sparebanken Vest’s social responsibility is exercised largely govern the activities of Sparebanken Vest, including the bank’s through grants for the public benefit, by participating in and articles of association, strategies, board instructions, management promoting events where social and commercial issues are and control regulations, ethical guidelines and procedures for own debated, and by owning interests in companies whose purpose trading activities. The control documents are based, inter alia, is to create growth and development. on the Norwegian Recommendation on Corporate Governance dated autumm 2007 and the principles of corporate governance Sparebanken Vest has a customer-oriented organisation. adopted by the Committee of European Banking Supervisors. Its main business areas are the Retail Market, the Corporate The bank’s aim is to implement the recommendations contained Market and the Capital Market, supplemented by support and in the said documents in so far as they are appropriate. staff functions. The bank’s organisational structure is dynamic The policy for corporate governance can be accessed at the bank’s and is adapted to reflect changes in requirements and operating home page: www.spv.no. In line with clause 1of the Norwegian conditions. Recommendation, the following is an account of the bank’s compliance with the provisions of the Recommendation. Capital base and dividend Sparebanken Vest is largely a self-owned institution and external Activities equity is raised through the issue of primary capital certificates Under its articles of association, the object of Sparebanken Vest (PCCs). Capital raised from this source amounts to NOK 250m, is to provide financial services to the public at large and to the divided between 2.5m primary capital certificates.

16 EXCITEMENT: Interaction and excitement among the personnel outside the bank is a stimulus to further internal development. The photo was taken at a gathering of bank personnel where rafting was a popular activity.

The owners of primary capital certificates shall be assured of Frank Mohn AS which represents 4.60% of the PCC capital, predictability in terms of equality of treatment, rate of return and while the 10 largest owners represent 23.30%. influence on corporate governance. The stock exchange listing of the bank’s primary capital certificates ensures that the bank The Board instructions include provisions relating to ethics and accepts and complies with the market terms in force at any time impartiality. The bank’s ethical guidelines relate to elected repre- in the equity market for primary capital certificates, and that the sentatives and bank officers, and provide guidance on the treat- bank establishes a history which helps to ensure that the bank has ment of customers, benefits and grants, duty of confidentiality, a stock exchange market as a possible source of funding. participation in other commercial activity and transactions with closely related parties. As a general rule, transactions, including The bank’s capital situation is assessed by the Board at least the purchase and sale of services, shall not take place between once a year. The last time this was done was at year-end 2007. Sparebanken Vest, its employees and owners of its PCCs and The principles and basis of this assessment are described its elected representatives, or with closely related parties. in a separate article in the Annual Report (Risk and Capital Management). The Board instructions include provisions with underline the Board members’ duty exercise care in relation to ethical conduct, Sparebanken Vest’s aim is to achieve results which provide impartiality and integrity. Board members also have a duty to a satisfactory return on total equity. The return on PCC capital to inform the chairman of the Board if they feel that a situation shall reflect the bank’s accounting performance and be may arise that might put their impartiality in doubt. divided between the owners pf PCCs and the Sparebank fund proportionate to their relative shares of the bank’s equity. Free tradability Sparebanken Vest strives to pays a competitive cash dividend. Sparebanken Vest’s PCCs are listed on the Oslo Stock Exchange and may be traded freely. The Board has authorised the management to purchase the bank’s own PCCs for an aggregate nominal amount not exceed- Corporate Assembly ing NOK 75m and subject to the limits set pursuant to legisla- The Corporate Assembly exercises the highest authority in the tion and regulations. The authorisation is based on commercial bank and comprises owners of PCCs, depositors, employees and considerations and in order to increase the marketability of PCCs representatives of local and county authorities. The Corporate issued by the bank. The exposure at year-end 2007 was NOK 6m. Assembly shall ensure that the bank is run in accordance with its object and in accordance with the law, the articles of association Equal treatment of owners of PCCs and resolutions adopted by the Corporate Assembly. and transactions with closely related parties Sparebanken Vest has one class of PCCs and the owners The Corporate Assembly shall have 48 members and 24 deputy of PCCs are assured of equal treatment and the same members. Resolutions are adopted by an ordinary majority, while scope to exercise influence in Sparebanken Vest. amendments of the articles of association require the support of two thirds of those in attendance and at least 24 members must At year-end 2007 PCC capital accounted for approximately vote in favour of the motion. Proposals to amend the articles 6.40% of the parent bank’s total equity. The largest owner is of association must have been submitted to the Corporate

17 Corporate Governance

Assembly at an earlier meeting. Ordinary meetings of the Important criteria which are applied to the membership and Corporate Assembly are convened in accordance with the provi- composition of the Board of Directors are qualifications, gender, sions of the Savings Banks Act, and the notice of meeting shall capacity and independence. A majority of the Board members be sent out at least eight days before the date of the meeting. shall be independent of the bank management and main busi- The notice of meeting and minutes of meeting of the Corporate ness partners. The overall competence of the Board is assessed Assembly shall be sent to the Oslo Stock Exchange. regularly in the light of the challenges facing the bank and the result of this assessment is reported to the Nomination Committee. Under the articles of association an ordinary meeting of the Corporate Assembly shall be convened by the end of March Board work in order to consider the annual accounts, the annual report, The Board has 12-14 annual meetings each year, as well as the auditor’s report and the Control Committee’s report. gatherings related to strategy work. Theme days are also held in This meeting shall also consider the proposed dividend to owners order to develop Board competence in specific areas. Instructions of the bank’s PCCs. The Corporate Assembly shall also convene have been prepared and adopted for the Board with a related before the end of April each year in order to elect members of calendar for the annual roll-out of the strategy plan. The Board the Board of Directors and the Control Committee etc. Separate also considers whether the bank’s capital and overall exposure elections are held among employees, owners of the bank’s PCCs is at an acceptable level and within the limits set by law. and depositors to elect members of the Corporate Assembly. The managing director prepares matters for consideration by The Corporate Assembly has elected a Nomination Committee the Board , in consultation with the chairman of the Board. which proposes candidates for membership of the Corporate The Board draws up instructions for the work of the managing Assembly, the Board of Directors and the Control Committee. director. The chairman and deputy chairman of the Corporate Assembly are elected separately. The Control Committee is also elected The Board of Directors has overall responsibility for the manage- by the Corporate Assembly and exercises supervision of the ment of Sparebanken Vest and for supervising the bank’s activi- activities of the Board of Directors and management. ties and its day-to-day management. The Board’s management Under the articles of association, the Control Committee shall responsibility includes responsibility for ensuring that the bank is have four members and two deputy members. organised in an appropriate manner, responsibility for determin- ing the bank’s plans and budgets, and responsibility for keeping Meetings of the Corporate Assembly are also attended by the itself informed of the bank’s economic position and for ensuring Board of Directors, the managing director and some members that the bank’s activities, asset management and accounts are of the management and persons with special competence, subject to satisfactory controls. as required. The Board shall ensure that the bank is managed in line with its Nomination Committee object, as set out in the articles of association, and that the bank Under the articles of association, the Nomination Committee complies with guidelines and operating parameters as stipulated shall comprise nine members, with representatives from all by public authorities, the Financial Supervisory Authority of groups represented in the Corporate Assembly. The Nomina- Norway, the Corporate Assembly and the Control Committee. tion Committee shall state the reasons for its recommendations relevant information shall be provided about the candidates, The Board has set up a committee with a mandate to increase including their competence, capacity and independence. the proportion of women in managerial positions with the bank. The recommendation shall also outline the committee’s work. The committee will gather more detailed information about the The Nomination Committee participates at meetings of the actual situation and submit a proposed course of action. Corporate Assembly and submits its recommendations. Separate instructions have been drawn up for the Nomination Committee. Risk management and internal control The bank’s overriding goals are in line with the commercial basis The Nomination Committee proposes the remuneration to outlined in the strategy plan. The target return is normative the elected officers. No members of the Board of Directors for the bank’s activities and specification of activities in or representatives of the management sit on the Nomination support of the main target. The focus is on safeguarding Committee. the bank’s competitiveness in both short and the long term. Sparebanken Vest’s market and commercial targets must be Board, Board composition and independence balanced against its ability and willingness to take risk. The Board of Directors shall have nine members and four deputy Risk and capital assessments are an integrated part of the bank’s members who are elected for two and one year at a time, strategic and commercial processes. respectively. The chairman and deputy chairman are elected by the Corporate Assembly. At present, five of the Board members The interrelationships involved in financial control can be are women. illustrated as shown in the figure on the next page.

18 Governing principles Risk and capital assessments Budget/market targets Implementation and priorities

A further description of the bank’s risk and capital manage- The Board has set up a remuneration committee consist- ment appears in the Directors’ Report and in a separate ing of three Board members, including the chairman of the article in the Annual Report. Financial reporting for the Board. The committee reports to the Board of Directors and Sparebanken Vest Group takes place in the form of quarterly shall ensure that the bank has a competitive, but not leading, reports, in addition to the annual accounts. The annual salary policy which is perceived as motivating by the bank accounts are audited by an external auditor. management with a view to implementation of the adopted strategy and achievement of the bank’s targets. The internal audit section carries out internal audits in accordance with the audit plan drawn up by the Board Information and communication of Directors. The internal audit section risk assessments The Board of Sparebanken Vest has drawn up financial determine the scope of the audit. The work of the internal information guidelines designed to ensure that the financial audit section also covers the audit of the bank’s IRB system markets receive correct, relevant and timely information and risk and capital assessments (ICAAP). The audit reports about the bank’s development and performance. Informa- are sent to the head of the section in question for comments tion is channelled to the market through quarterly open and proposed initiatives. An overall audit report is prepared investor presentations, stock exchange announcements and each year for the Board of Directors, also incorporating press releases, the bank’s home page on the Internet, as well management comments. as accounting reports. There are also regular presentations for international business partners, lenders and investors, Sparebanken Vest’s activities are subject to the supervision and the bank is rated by two international rating agencies. of the Financial Supervisory Authority of Norway (Kredittilsynet). As well as carrying out onsite inspections, Company acquisitions FSA reviews the bank’s annual and interim reports and risk Sparebanken Vest is a self-owned institution which cannot be reports. The Board and the management seek to have an taken over by others through an acquisition. In the case of open and constructive dialogue with Kredittilsynet. acquisitions by the bank, Sparebanken Vest is concerned to ensure that satisfactory account is taken of the interests of Board remuneration all parties affected by company acquisitions. In this respect, Board remuneration is determined by the Corporate Assem- the provision of satisfactory information and the equal bly based on a recommendation from the Nomination treatment of shareholders/owners are key elements, as is the Committee. The remuneration is not performance- importance of ensuring that the ongoing operations of the dependent, and no options are issued to Board members. acquired entity are maintained. As a general rule, neither Board members nor companies with which they have links shall undertake to perform special Auditor functions for the bank beyond that of Board membership. Each year, the external auditor has a meeting with the Any additional fees shall be approved by the Corporate Board of Directors where a “letter to the management” Assembly. In urgent cases, decisions relating to additional is presented and commented on. The letter considers the fees may be taken jointly by the chairman of the Corporate bank’s internal control procedures and areas where internal Assembly and the chairman of the Nomination Committee. control should be improved. Each year the external auditor An overview of the remuneration to Board members and has a meeting with the Control Committee at which the senior management appears in a note to the annual accounts. auditor’s report is reviewed and the Directors’ Report, the annual accounts and the notes to the accounts are Remuneration to senior employees commented on. Remuneration to the managing director, the deputy manag- ing director and the internal auditor is determined by the The internal auditor reports directly to the Board and is Board of Directors, while remuneration to senior employees entitled to attend Board meetings. Each year a report is is determined by the managing director based on principles submitted to the Board concerning internal control, IRB adopted by the Board. The managing director may give regulations and the new Securities Trading Act. The Board additional remuneration to senior employees based on approves the internal audit section’s planned activities for results achieved and work performance. Such additional the year and its resource requirement. The internal audit remuneration shall also serve to maintain the bank’s section has a coordinating function in relation to the attractiveness in the labour market, while at the same time Control Committee. it does not increase risk. There are no options schemes for the managing director and senior employees. The auditor only meets the Board when the managing director is present, but both the external and the internal The guidelines for remuneration to senior employees auditor have quarterly meetings with the chairman of the are not submitted to the Corporate Assembly, but salaries Board. The minutes of these meetings are submitted to and benefits appear in notes to the accounts. the Board of Directors.

19 NORDHORDLAND REGION

WHITCH WITCH: An opera production in Seim in Nordhordland is crowned with success, with thousands applauding and solid support from Sparebanken Vest. 20 Scoring on social responsibility

Nordhordland is an area of great contrasts: In the its importance as a main road, and how to improve south, the communities of Lindås and Meland are the situation has long been a subject of discussion. experiencing the positive effects of the now debt-free But now, following good cooperation between Nordhordland Bridge, with migration at a high level various parties, also involving Sparebanken Vest, and a buoyant commercial climate. On the Fensfjord, the standard has been raised along some of the Mongstad oil refi nery ensures that there is a high the most affected stretches. level of activity. Pace is expected to increase in con- nection with the construction of a modern gas-fi red One of the reasons for the satisfaction experienced power station. Economic activity in the northern and by Sparebanken Vest’s customers is probably the inner parts of the region is more moderate, but the contribution made by the bank to a wide range of construction and sale of holiday homes is bringing worth causes. Nordhordland has an especially active considerable added value to this area too. cultural life which is supported by the bank. Among For Sparebanken Vest, the pace of growth in the other things, Sparebanken Vest provided funds for region means that competition from other banks is the production of the opera ”Which Witch” in Seim increasing, but our market position is not threatened. in 2007. This demanding production was a massive success, and if the media reports are anything to go - The good results shown by the survey of customer by, this will hardly be the last event of its kind in the satisfaction in 2006 were even better in 2007. It is region. Another of the social highlights of the year gratifying to know that the customers appreciate supported by the bank is the ”Knarvik Marathon”, the good service we provide, says a smiling Geir says Jan-Tore Thunestvedt, regional director of the Rasmussen, regional bank manager responsible for retail market. – In 2007 the marathon celebrated its the corporate market. 25th anniversary, and we are proud to support such a healthy and positive event. The bank’s logo is on In terms of communications, Nordhordland can the jerseys worn by the Brann players, and although boast of positive developments. As well as having a it is important to be associated by magnifi cent debt-free bridge, communications further north have performances at the highest level, it is even more also improved. Until now, the standard of highway important for us to support broadly based sports 57 between Knarvik and Mongstad has not matched activities, emphasises Thunestvedt.

Masfjorden Lindås Mastrevik Fedje Haus Manger Lonevåg Knarvik Frekhaug Valestrandsfossen

21 Retail Market

Further positive progress in the retail market

In 2007 Sparebanken Vest reinforced its position as the leading bank in the retail market in Hordaland and Sogn & Fjordane and laid the foundations for growth and expansion in Rogaland. – We cover the banking requirements of 216 500 retail customers and the number is steadily increasing, says Kate Henriksen, Director - Retail Market Division.

2007 was another year characterised by a high level of employ- bank’s online banking facilities totalled 112 000 at year-end, ment and sound growth in household incomes and consump- up 15 200 on the previous year. Our surveys of customer satis- tion. Deposits from Sparebanken Vest’s retail customers rose by faction show a picture of satisfied customers in all segments. 14.9%, compared with 15.5% in 2006, while net lendings to Last year there were 840 000 incoming calls to Customer Service, the retail market grew by 19.2%, against 16.6% in 2006. and the level of satisfaction with this service is particularly high. At year-end 2007 the bank’s lendings to retail customers Our ability to reply to customers’ questions and solve their totalled NOK 50.2bn, against NOK 42.1bn one year previously. problems is greatly appreciated, says Henriksen.

- In 2007 we strengthened our position in Sogn & Fjordane She underlines that steps taken to increase the level of profes- through the successful takeover of Fokus Bank’s retail sionalism and forge closer links with the customers are an impor- market portfolio and the establishment of a new branch in Stryn. tant factor in the good progress that has been made by the bank Sparebanken Vest is thus represented in all regions of the county. in the retail market. – When people decide to leave us it is often In Rogaland, following the opening of a branch in Stavanger in because they have not been contacted and informed about our May, we will be well represented in both the North Jæren area offers. If we are to achieve the goals we have set for ourselves and Haugalandet. In Hordaland we are intent on maintaining in terms of sales of general insurance and pension insurance, we our very strong position in all parts of the county. The customers must be even more proactive in our approach to the customers. will be able to find us at 60 separate locations in the three counties, making us an attractive choice for more customers, Losses remain marginal says Kate Henriksen. The bank’s losses on retail market commitments were again low in 2007. Net recoveries on losses written off previously Customer-friendly amounted to NOK 10.5m, against a net loss of NOK 3.3m in Sparebanken Vest’s retail market clientele increased by around 2006. The default rate among retail customers stood at 0.7% 10 000 in 2007, while the number of customers who use the in 2007, against 0.5% in 2006.

22 CULTURAL DIVERSITY: With funds from Visjon Vest, the Bergen International Festival can also entertain the public outside the concert hall. The Oi-Oi Festival and trumpeter Arve Henriksen attracted great attention at one of Bergen’s shopping centres.

- The figures indicate that our customers have a generally sound Competition economy and have adapted to the higher borrowing rates. A main feature of 2007 was the establishment of new The portfolio risk is considered to be very moderate. branches by savings banks, commercial banks and others involved in providing financial advice. Sparebanken Vest Change of generations believes that service it can provide in this area will be The Retail Market Division is Sparebanken Vest’s largest business distinguished by the close relationship it has with its customers unit. At year-end it had 453 employees, an increase of 24 on the and the high quality of its financial advice. With very satisfied previous year. In the next few years many of the employees will customers - as shown by surveys of customer satisfaction reach retirement age. - We are investing heavily in recruitment, - we are well placed to meet the future. We have a team of management development and enhancement of competence in enthusiastic and talented professionals who can provide expert order to maintain the continuity that is needed to reinforce and financial advice on everyday matters, and who are at the strengthen the position we wish to have in the retail market, disposal of the customers through whatever channels they says Henriksen. choose to use.

23 Corporate Market

A proactive partner for trade and industry in Western Norway

Sparebanken Vest has experienced sound growth in the corporate market in Hordaland, Sogn & Fjordane and Rogaland. - We have taken a proactive position in all three counties, says Henning Nordgulen, Director - Corporate Market Division.

The commercial sector in the three counties is characterised Growing customer base by strong growth and high utilization of capacity in most The number of corporate clients increased by more than 1 100 industries and regions. The main challenge facing many in 2007, which means that Sparebanken Vest now serves the companies is securing sufficiently well qualified manpower. banking requirements of approximately 9 500 companies in Sparebanken Vest’s activities in the corporate market reflect this the Western Norway. Growth was due to the bank’s acquisition positive development. Deposits from corporate clients increased of Fokus Bank’s activities in Sogn & Fjordane in 2007. by 33% compared to 30% in 2006, while net lendings to the – These activities have been successfully integrated corporate sector increased by 27.2% compared to 6.5% and we have achieved our goal to strengthen our foothold in in 2006. At year-end 2007 the bank’s credit commitments the commercial market in Sogn & Fjordane, says Nordgulen. to corporate clients totalled NOK 19.2bn, compared with NOK 15.4bn at the end of 2006. Sparebanken Vest was established in Haugesund in 2006 and last year branches were opened in Sandnes and Stryn. A branch - The figures show that Sparebanken Vest is a bank that is also due to open in Stavanger May 2008, giving the bank companies approach when it comes to financing of new a central location in the city. projects. We have strong links with the coastal industries and are completely conversant with the risks that confront – It is already apparent that it was correct to expand into business operating in this area. Sparebanken Vest will continue Rogaland, mainly because we have succeeded in recruiting to focus mainly on small and medium-sized companies, personnel with sound expertise and a thorough understanding but we have the expertise and financial strength required of the needs of the commercial sector in the respective segments. to undertake major commitments, for example in the We have been well received in Rogaland and the results so far maritime sector, says Nordgulen. are very promising, says Nordgulen.

24 BREAK: Employees from Stavanger Local Authority and Birken & Co enjoy a pizza to mark the completion of the ”Andetrappa” at the city’s fish market. A branch of Sparebanken Vest is also due to open in Stavanger on 8 May 2008.

Sparebanken Vest also recorded good growth in the corporate in relation to the financial needs of its business clients. market in Bergen and Hordaland in 2007. Competition in Bergen At the same time, we focus on communicating an awareness has intensified and the bank has initiated a project to reinforce of Sparebanken Vest as a complete financial services group, its position and strengthen the relation to both established with products and services that cover all requirements. In this and new customers. connection, the establishment of general and life insurance activities through Frende Forsikring will play a very important Marginal losses role, says Henning Nordgulen. 2007 was another year of low losses on corporate clients, with a net recovery of NOK 9m on losses previously written off, Underlining competence against NOK 38m in 2006. This was the result of continuous At the end of 2007 the Corporate Market Division had 104 monitoring of the portfolios and generally good results and employees, an increase of 13 in the course of the year. Increasing profitability for the bank’s clients. the level of corporate market activities in all areas where Sparebanken Vest is represented, is a priority. - The key to success Increasing customer satisfaction lies in developing our expertise in pace with increasing demands - We perform regular surveys of customer satisfaction, and in the market. This is why we are investing so heavily in man- the results for 2007 show an increasing level of satisfaction agement and staff training. Our human capital will be further with the bank among corporate clients. Sparebanken Vest has strengthened both by recruiting and a greater emphasis on established an unique position in this market as a bank for the bank’s trainee programme. We will strive to provide quality Western Norway, and this profile is being strengthened. We have solutions even faster. Demanding customers constantly drive an ongoing programme of initiatives aimed at increasing the us forward in the search of excellence, says the Director of the perception of Sparebanken Vest as bank which is proactive Corporate Market Division.

25 Stadlandet Selje Stryn Måløy Bryggja Davik Nordfjordeid Florø Førde Årdal Sogndal Høyanger

Bringing the young people back

The county of Sogn & Fjordane is the northernmost where a greater proportion number of jobs is taken part of Sparebanken Vest’s market area. In 2007, up by people who are currently leaving the county to a fi fth Fokus Bank branch was incorporated in fi nd employment elsewhere. Sparebanken Vest, and a branch was opened in Stryn. Sparebanken Vest is thus well represented - It is a paradox that simultaneously with the in every part of the county. good times most industries are experiencing, there is a net outfl ow of people from Sogn & Fjordane, says The oil and offshore industries are important in Sogn Olav Hjelle, regional bank manager with responsi- & Fjordane, but to a lesser extent than in Hordaland bility for the corporate market in Sogn & Fjordane. and Rogaland. The supply base Fjord Base in Florø – The public and private sectors have established and Luster Mekaniske Industri are two examples of a collaboration that has been very successful in this kind of industry in the county, and there is every ensuring that more young people come back to the reason to believe that future investments on the county when they have completed their education. Norwegian continental shelf will lead to increased So far, too many of our most capable people have value creation in this sector. found better jobs elsewhere, but we are getting to grips with the problem. 2007 was a good year for the county. As well as production running at full capacity, many companies The county football giant is, naturally enough, have a backlog of orders for several year ahead, Sogndal, and effective from 1 January 2008 while in Årdal – a community that goes against Sparebanken Vest took over as main sponsor of the the fl ow – is experiencing the start-up of two new white jerseys from the region known for its fruit juice factories which more than make up for the cutbacks production. – Sogndal is fairly unique in Norwegian at Norsk Hydro. Because of this, employment is at football since the team has climbed higher in the a high level, with 1200 more people employed than table than the dry facts would suggest, says Atle at the start of the year. There are still many jobs Stalheim, regional bank manager responsible for on offer, and the Næringsbarometer – prepared in the retail market. – It is quite a feat to come from collaboration with Sparebanken Vest – shows that a municipality with barely 7000 inhabitants and over the level of employment is expected to rise by 6%. a long period manage to assert oneself at the top of There is a high level of economic migration, but the Norwegian football. This refl ects the values and skills county’s declared aim is to work towards a situation that Sparebanken Vest wishes to be associated with.

26 LUSTER MEKANISKE INDUSTRIER – INVESTING IN THE FUTURE: Sparebanken Vest is an active contributor to the development of local trade and industry. This creates a belief in the future among young people who most of all want to establish a life for themselves in the community where they grew up.

SOGN & FJORDANE REGION

27 Capital Market

A complete range of financial services

- We are collecting a strong team of top professionals focusing on asset management and trading in various financial instruments based on existing competence and the recruitment of new personnel, says Benedicte Schilbred Fasmer, Director - Capital Market Division.

As part of the bank’s business strategy, activities in the capital section continuously monitors the bank’s funding and liquidity. market were concentrated in a single division in 2006 and The Financial Market section takes positions in foreign currency Benedicte Schilbred Fasmer took up her position as head of the and interest rates and is involved in developing the bank’s capital division in 2007. The Capital Market Division will continue to market products. attend to the bank’s own financing requirements and will be responsible for management of the bank’s portfolios of bonds The dealing section for customers advises on purchase and sale and equities. But the new organisational model means that the of foreign currency, interest-rate products and derivatives. Capital Market has changed from being an internal service area The Financial Products section is actively involved in develop- and is now a visible, customer-oriented business area with ing the bank’s savings products and provides sales support to a broad range of products in the area of foreign exchange, managers and personnel in the Retail and Corporate Markets interest-rate, derivative and securities trading, as well as with responsibility for giving advice on sales of combined savings documentary credits and international payment services. products. The International Payment Services section and the Documentary Credit section deal with international payment - The progress made in these areas will greatly depend on having transfers and settlements related to international trade. close sales cooperation with the Retail Market and the Corporate The Covered Bonds/Long-term Funding section is responsible Market divisions. Our activities have been organised in a way for ensuring that the bank at all times has sufficient funding designed to release new dynamism and energy within the division on the most favourable terms. As regards ”covered bonds”, and operating freely with the other customer divisions. The aim Sparebanken Vest has recently been given a concession is to ensure that Sparebanken Vest is and is perceived as being to establish a wholly owned Covered Bond Comapny. a bank that provides the whole range of financial products This will make it possible to achieve better funding terms and services that the customers need at any given time, for that part of the bank’s loan portfolio which has a says Benedicte Schilbred Fasmer. mortgage of at least 75% in real property. The Equities section manages the bank’s port­folio of listed and unlisted equities. Organisation Finally, the Capital Market has a Compliance section which At year-end the Capital market Division had a staff of 28 and is is responsible for control functions and ensuring that the in the process of recruiting a further six. The Liquidity/Funding regulations governing financial activities are duly observed.

28 A TASTE OF WESTERN NORWAY: Fish farming in Western Norway is a major industry. Flokenes Fish Farm in the municipality of Askvoll is among the companies which provide quality products to a world-wide market. Sparebanken Vest has been an active partner providing financing to the fish farming industry from the very start.

- Sparebanken Vest will also be establishing the position of senior companies based in Western Norway as well as investments in economist. This is being done in order to strengthen internal funds which are re-invested in research-related activities in an expertise related to analysis and processing of macro-economic early phase of development, but which are considered to have problems, as well as presentation of the bank’s view of market great potential. The bank’s shareholdings provided an over all developments. We are also planning to provide a broader return of NOK 119m in 2007. range of interest rate and foreign exchange products, as well as strengthening our securities trading activities, says Benedicte The Capital Market Division’s activities provided direct income Schilbred Fasmer. of NOK 176m in 2007.

Funding of NOK 11bn Sparebanken Vest proposes climate fund Sparebanken Vest has an ongoing need to finance its activities In 2007 Sparebanken Vest took the initiative to establish through external funding, and in 2007 funding of NOK 11bn was a climate fund based in Bergen, and NOK 100m has been raised from the commercial paper and bond market. The bank’s earmarked for this purpose. In 2009, the fund will be organised aggregate debt in the capital market totalled NOK 29bn at year- with its own management team and administration, and work is end, of which approximately one third was international debt. in hand to get other partners and investors to become involved. Historically, funding has been raised mainly in the Norwegian Our ambition is to build up a climate fund that is financially market, but considerable funding has also been arranged in the strong and with front-line expertise in climate technology and international markets in recent years. In view of the financial new forms of energy. The fund will invest in companies that turmoil in the international markets in the autumn, the bank can contribute to climate-friendly solutions. The focus will be on increased its funding in the domestic market. companies in an early phase of development where the priority is on the completion and market introduction of new climate A positive return and environmental initiatives. Sparebanken Vest’s portfolio of listed equities totalled NOK 211m at year-end, while other equities amounted to NOK 349m, based on fair market value through profit or loss. The unlisted portfolio consists mainly of holdings in mature

29 Subsidiaries

In the last half of 2007 the housing market Eiendomsmegler Vest’s assignments increased by 34%, experienced a slight decline in prices. while the increase in sales was only 9.1%. The difference was mainly due to a sharp decline in the number of new At the same time, statistics show that average houses built. Eiendomsmegler Vest sold properties worth house prices were 12% up on the average NOK 7.1bn, 31% up on 2006. for 2006. The company has a leading position in the overall market for the counties of Hordaland and Sogn & Fjordane. It is also the market leader in Nordhordland, Sotra, Askøy and Stord, and is among the top three in Bergen, Førde and Haugalandet. It has a strong position in all urban neighbourhoods and its distribution strategy aimed at profiling the company as a strong local participant, has been successful.

2007 was a positive year for Eiendomsmegler Vest AS, despite lower pace of growth in housing market

Further expansion In spring of 2008, Ottesen & Dreyer will be moving into new Through the acquisition of Ottesen & Dreyer Eiendomsmegler offices in the centre of Stavanger along with Sparebanken Vest. Vest AS expanded its market area in Rogaland with two new In doing so, Sparebanken Vest and Eiendomsmegler Vest branches in Sandnes and Stavanger. Along with Sparebanken are strengthening their focus on Rogaland. The bank’s Vest, Eiendomsmegler Vest opened a new branch in Sandnes expansion in Sogn & Fjordane provides a basis for further in May 2007. In September 2007 Kyte Næringsmegling moved growth of Eiendomsmegler Vest in this region. The company into new offices in the centre of Bergen, located in the same is focused on collaboration with the bank in order to extract premises as Eiendomsmegler Vest’s department for new houses. mutual synergies and create added value for the customer. In the autumn of 2007 Eiendomsmegler Vest expanded further with the opening of a new branch in the Lagunen Shopping Competence and customer satisfaction Centre in Fana. The office is located in the same premises as The high quality of the company’s services combined with Sparebanken Vest. customer satisfaction are decisive for further growth and success. In 2007 Eiendomsmegler Vest had 103 employees, Eiendomsmegler Vest’s estate agency activities shall be charac- 95 of whom were involved sales. Of the company’s 55 estate terised by broad distribution, and in 2008 it will be opening agents, 24 are state authorised. The company attaches great two new offices, one in Os and one in the centre of Bergen. importance to the highest standards of professionalism at all

30 VERY SATISFACTORY: Eiendomsmegler Vest is expanding, with several new branches in Western Norway. The company has the highest preference percentage in the market and scores top marks for customer satisfaction. Among the housing projects being sold by Eiendomsmegler Vest is the one at Solåsen, Øvsttun, outside Bergen city centre. levels, and during the year further training courses were held Filialbygg for the staff, in-house and externally. A/S Filialbygg is the group’s other subsidiary. It posesses all of the commercial properties and is responsible for Market surveys for 2007 show that the company has the highest managing alllease agreements of the Sparebanken Vest group. preference percentage and has a satisfactory score in terms The buildings comprise premises located in the bank’s area of customer satisfaction. of operations, which is Hordaland, Rogaland and Sogn & Fjordane. The company has a staff of 21. Price development The real estate market in 2007 was characterised by a more The pre-tax profit for the year was NOK 8.2m, against moderate turnover and a slight decline in house prices. NOK 19.5m in 2006. The difference in profits of NOK 11.3m In Bergen, prices increased by 11%, while the average was mainly due to the sales gains recorded in 2006 and higher turnover time was 22 days. In Hordaland, excluding Bergen, interest costs in 2007. the price increase was the same at 11%, while the average turnover time was 23 days. On a national basis, house prices In 2007 the company acquired the company and development are now 190% up on 1987 which was the last peak year. site Jonsvollskvartalet AS in the centre of Bergen. After adjusting for inflation, prices are 73% higher.

31 SUNNHORDLAND/ HAUGALANDET REGION

EFFECTIVE COMMUNICATIONS: Communications and transportation are catalysts to cooperation, business development and the building of society. The communications in Sunnhordland connecting the Island municipalities of Bømlo, Stord and Fitjar to the mainland have provided new opportunities for local initia- tives. Transport, communications and the climate are key issues for Sparebanken Vest and the savings bank industry.

32 SUNNHORDLAND/ Fitjar Husnes Sagvåg HAUGALANDET REGION Bremnes Mosterhamn Leirvik Sveio Haugesund Sæbøvik Skånevik Etne

The sun is shining and business is blooming

Sparebanken Vest has opened several branches in - As well as supporting F.C. Haugesund, Sparebanken Sunnhordland and Haugalandet in the last few years. Vest is an active supporter of handball. We are New staff has been recruited. Within a short period especially proud of being able to support the after opening its doors, in both Haugesund and handball festival in Stord that takes place each Etne, the bank was able to report a very encouraging Whitsun, says Arnt Sortland, regional bank development, measured by the number of new manager responsible for the retail market. customers and the level of active capital. The region is in a positive phase of development, with Stord, Another activity related to broadly based sport Bømlo and Sveio all reporting a steady stream is the allocation of grants for new sports grounds. of migrants and a thriving commercial sector. Sparebanken Vest has supported the laying of artifi cial grass pitches in most of the municipalities - The road project which opened in 2001 connect- in the region. Thereby, preparing the way to give ing the municipalities of Stord, Bømlo and Fitjar new generations of footballers the opportunity to to the mainland and bringing Sunnhordland closer develop and perhaps bring home the King’s Trophy to North Rogaland has done much to promote the in a few years. prosperity of the region. The opening of the Halsnøy Tunnel should stimulate value creation around the Sparebanken Vest also supports and collaborates Sunnhordland basin, also in areas that have been with parties in other sectors. Kulturhagen Fanari in bypassed by the good times, says Jan Arild Nesse, Stord is a collaboration project under the direction regional director responsible for the corporate market. of Collaboration Forum for Business Development (SNU). Kulturhagen is a joint meeting point for a As in other parts of the coast of Western Norway, variety of creative forces. The hope is that increased the oil and gas industry is a driving force in commer- collaboration on this front can lead to new and cial development, especially in preparing the way exciting opportunities in the region. for many service companies and subcontractors. The plant at Kårstø, the Aker businesses and Leirvik The level of customer satisfaction gives us motiva- Module Technology in Stord are examples of the tion and delight. Surveys show that we are currently rich fl ora of companies that are prospering. the bank with the most satisfi ed retail customers Other important companies are Wärtsilä in Stord in the region. We intend to work hard to maintain and Bømlo, South Norway Aluminium in Husnes, this position, says Sortland. Aibel in Haugesund and Hydro Aluminium Karmøy.

33 Risk and capital management

Risk and capital management and internal control

Banking activity entails risk in many areas. Sparebanken Vest applies sound risk and capital management principles as a key strategic tool for value creation and the Board’s objective is to ensure that Sparebanken Vest maintains a moderate risk profile. The bank’s ability to balance its ambitions against its ability and willingness to assume risk will have both quantitative and qualitative effects. A pronounced risk culture characterises an organisation with a strong focus on risk and profitability. The overall effect is to underpin the bank’s rating, and thus facilitate good access to the capital market. The level of risk-adjusted capital is applied as an expression of the bank’s risk measurement and risk tolerance.

Responsibility for risk management and controls is split between The Validation Committee is headed by the managing director the Board, the management and the operative units. and deals with model validation and related to areas of application. The bank applied the IRB method for the calculation The Board is responsible for ensuring that the level of equity of capital related to the credit risk. The validation process is is sufficient in relation to the bank’s exposure and activities. a cornerstone of IRB activities which ensures that the IRB It shall also ensure that the capital base meets statutory system is adapted to the portfolios to which is applies. requirements. The Board also sets the bank’s objectives and An annual validation report is prepared for the Board operating parameters in all risk areas, including guidelines for of Directors. risk management. The bank’s objectives and parameters are reported on a quarterly basis. The managing director has The Credit Committee, which is headed by the managing responsibility for the bank’s overall risk management, including director, is responsible for major commitments and matters of the development of effective models and parameters for a special nature. Large commitments and commitments which management and control purposes. All decisions related to risk are potential losses are reviewed by the Credit Committee on and risk management are normally taken by the managing a quarterly basis. All managers are responsible for risk manage- director in consultation with other members of the senior ment and good internal control within their designated areas, management, unless the matter is considered by the in line with the risk profile adopted by the bank. In order to Board of Directors. maintain good financial and administrative management, each manager shall have the required understanding of the Organisation and responsibility risks that are involved in his area of responsibility. Risk Management focuses on crucial functions linked to manage- ment, controls, reporting and analysis. Risk Management is also The role of the internal audit function is to monitor the bank’s responsible for the models used in each of the bank’s risk areas. overall risk management and internal controls on behalf of the The head of risk management reports to the managing director. Board of Directors.

34 SECURITY: Banking operations are associated with an element of risk, but risk can be controlled and managed through good security procedures. The climbers in this mountain wall, Nøtteveggen at Sotra, west of Bergen, also take some risks, but experience, knowledge and a focus on safety make climbing a safe hobby.

Develop Capital adequacy regulations New regulations governing supervision and capital adequacy, based on recommendations from the Bank of International Settlements (BIS), Basel II, were adopted by the Ministry of

Validate The life cycle Implement Finance at the end of 2006, with implementation effective from of the model 2007. To a greater extent than hitherto, the regulations will link actual risk to the level of tied-up capital.

Apply The new capital adequacy regulations rest on three pillars.

• Pillar 1 relates to minimum capital adequacy requirements, The credit model’s life cycles including regulations designed to bring the capital require ment more into line with the actual economic risk in each The internal audit function shall also test whether procedures situation. Capital adequacy requirements are also introduced and guidelines are being complied with, and consider whether for operational risk. the models used for risk and capital management give a correct • Pillar 2 relates to the public supervisory function and the picture of the bank’s overall risk and capital situation. Each year, banks’ own assessment of its capital position. the internal control section prepares an internal control report • Pillar 3 relates to market discipline which in the case of the which includes an assessment of the bank’s IRB systems and institutions means further external reporting requirements internal capital adequacy assessment processes (ICAAP). on risk and capital elements.

35 Risk and capital management

In the autumn of 2005 Sparebanken Vest applied to the The Board of Directors delegates authority to the managing Financial Supervisory Authority of Norway for permission to director within the risk areas. All authorisations established apply the basic IRB methods of calculating the capital require- within the organisation are personal. In relation to both the retail ment for credit risk, and the requested permission was received and the corporate market there are automatic decision-support by Sparebanken Vest at the start of 2007. The approval is an systems and portfolio management systems. important quality stamp for Sparebanken Vest’s risk and capital management, and over time it offers the possibility of capital Credit risk rationalisation. However, it is important for the Board that the The credit risk is managed using a number of key figures. bank’s capital base is at a satisfactory level, whether the business Key elements in this respect are the probability of defaults, climate is in a positive or negative phase of development. The expected losses, risk-adjusted capital and the risk-adjusted Internal Capital Adequacy Assessment Process (ICAAP) is carried return. Concentration limits have also been set for each industry, out at least once a year, and the bank’s capital strategy will be for individual commitments and the overall volume of major based on the real risk attached to operations, supplemented commitments. Sparebanken Vest’s risk models are developed by the effect of different stress scenarios. and tested on a continuous basis.

Risk management A key element in quantification of the bank’s risk profile is The bank’s risk management activities relate to four risk areas: calculation of the probability of defaults for each customer and portfolio. The customers are grouped in 10 risk classes based • The credit risk is the bank’s largest risk area. It is the risk on the probability of defaults. The intervals for the different risk of losses in the event that customers are unable to meet classes are shown in the following table.Fig. their obligations related to loans, credit facilities, guarantees and the like. 1: Risk classes based on probability of defaults • The market risk is defined as the risk of loss on “on-/off balance sheet positions” because of changes in market Likelihood of defaults (%) variables and/or market conditions within a specified time Risk class Lower limit Upper limit horizon. The market risk arises when the bank has open A 0.000 0.149 positions in different financial instruments. This includes the stock market, interest rate and foreign exchange risk, and B 0.150 0.299 it can arise with instruments which are either on or C 0.300 0.449 off-balance sheet. The risk may be of a linear or non-linear D 0.450 0.619 nature (options etc.). E 0.620 0.779 • The liquidity risk consists of two elements: the refinancing F 0.780 1.009 risk and the price risk. By the refinancing risk is meant the risk G 1.010 1.409 of the bank being unable to refinance its debt or to finance H 1.410 2.589 an increase in assets. By price risk is meant the risk of the I 2.590 4.479 bank being unable to refinance its obligations without J 4.480 99.99 incurring considerable costs in the form of exceptionally expensive funding or a decline in the value of assets that have to be realised. Sparebanken Vest also has a separate class (class K) • The operational risk means unexpected fluctuations in the for customers in default. P/L as a consequence of insufficiency or failure on the part of internal processes, personnel, internal systems or external In accordance with the requirements set out in the capital events. adequacy regulations and to ensure that the quality of the credit portfolio is at a satisfactor level, the bank carries out Sparebanken Vest has established its own risk strategies for each continuous qualitative and quantitative validation of the area, and specific control targets and parameters are set for portfolio. Quantitative validation includes the bank’s models each area of risk. These strategies are reassessed at least once for the probability of default , losses given defaults, and exposure a year in connection with the bank’s other review processes. on default. Validation is designed to ensure that the models Control targets and parameters laid down in the bank’s risk are sufficiently calibrated to take account of the actual strategies shall contribute to the bank’s profitability in both the development of the portfolio. Qualitative validation focuses short and the long term. The aim is avoid excessive concentra- on data quality, reporting and non-conformance management, tions of operational risk, concentrations that, given unfavourable as well as application of the bank’s parameter and model developments, could contribute to a weakening of the bank’s tools and is closely related to the bank’s credit control profitability and capital base. procedures.

36 JUNCTION POINT: Credit risk, market risk, liquidity risk and operational risk - important control tools for the safe and profitable development of Sparebanken Vest.

Market risk Liquidity risk As regards the market risk, the individual areas are managed Sparebanken Vest attaches importance to the maintenance within defined position parameters. The bank’s investments of a low liquidity risk. Customer deposits are the bank’s main shall be based on the requirements of banking activities and source of funding. While a high ratio of customer deposits in response to the objective of increasing the bank’s additional reduces the liquidity risk, it is also of significance for the bank’s income. However, the exposure shall be such that any negative commercial risk. As regards other funding sources, Sparebanken effect on results will not weaken the capital base to any appre- Vest seeks to have a high degree of diversification taking account ciable extent. The parameters and exposure to market risk are at of geography, lenders, periods and instruments etc. The bank an acceptable level, in relation to the bank’s overall operations, is rated by Moody’s and Fitch Ratings as part of the process and the activities involved are largely a direct result of the bank’s of securing funding at an acceptable price from the money ordinary business. The parameters for the interest rate risk are and capital market. based on a parallel shift in the interest rate curve, while nominal position parameters are set for the foreign exchange and At superior level, Sparebanken Vest monitors the liquidity risk the equity risk. Different concentration parameters are also based on liquidity indicators and funding ratio. The liquidity stipulated for the risk associated with equity. indicator measures the ratio of the bank’s stable funding to its non-liquid assets, while the funding ratio measures the ratio Effective from and including 2007 the bank will start Value- of total customer deposits to lendings. The target ratio for the at-Risk (VAR) reporting of positions with ongoing market to liquidity indicator is 100%, including unutilised committed credit market evaluation. The targets of market risk management facilities (6-month rolling average), while the target figure for the and parameters based on VAR reporting will be implemented funding ratio is set at 55%. A liquidity indicator ratio of 100% at a later date when further experience has been gained. means that a mismatch between lending growth and deposits is largely covered by long-term funding in the money and capital Management of the foreign exchange and interest rate risk market. is centralised with all positions covered as part of the bank’s financial control procedures.

37 Risk and capital management

As part of the process of meeting its overall objectives, and in Support Division. Business Support is also responsible for defining order to secure long-term international funding, Sparebanken the bank’s safety standard and for developing and improving the Vest has established an EMTN programme (EuroMedium- bank’s contingency and continuity plans. TermNote). This funding programme makes it possible to reach more potential lenders/investors and simplifies the processes Processes connected to risk identification are central to the related to each loan issue, while at the same time reducing the bank’s overall management and control of operational risk. work load. The programme is renewed each year and currently Expert assessments and management confirmations, and has a limit of EUR 2 billion. whether necessary control have been carried out in accordance with instructions, procedures etc, are used as a basis for identify- In monitoring the bank’s liquidity risk exposure parameters ing significant risks. An event database has been established are also set for the bank’s dependence on short-term funding as a supplement and helps to ensure that significant events are from the money and capital market. This ensures that there reported to the Board of Directors. In 2008, in line with public is an acceptable level of liquidity in periods with short-term requirements, the bank also started reporting significant IT fluctuations in the market due to general market conditions events to the Financial Supervisory Authority of Norway. The or specific matters pertaining to the bank. In 2007 the Board management of operational risk is seen in relation to the internal of Sparebanken Vest discussed the bank’s structural audit in accordance with the internal audit regulations. The basis liquidity risk (operations with no access to funding from the and content of risk management and ICT control follows from money market). In this connection, an escalation plan has been the Strategy for Operational Risk and the bank’s ICT policy as drawn up whereby, at the end of 2008, the bank should be able adopted by the Board. The bank’s contingency and continu- to maintain operations for 12 months with no access to funds ity plans are subject to ongoing development and improve- from the money and capital market. ment. Risk Management is responsible for functions related to normative control of operational risk on behalf of the managing Sparebanken Vest is in the process of establishing its own director. Covered Bond Company with the aim of expanding the bank’s scope for funding. The company will be subject to the The internal audit reports directly and independently to the Norwegian legislation governing covered bonds which took Board of Directors, and in its annual internal control report it effect in 2007. Through this company the funds provided by submits assessments of the bank’s management and controls investors/lenders will be directly secured against residential in the area of operational risk. The internal audit section makes property given as mortgage security for loans given by corresponding assessments for other risk areas. Sparebanken Vest. The issue of the first loan tranche is expected to take place in the second half of 2008. Capital management Although Sparebanken Vest’s prices take account of expected The bank draws up stress tests to assess its liquidity situation losses, the bank is required to have capital reserves sufficient to resulting from market disturbances and/or operational cover unforeseen losses. The amount of risk-adjusted capital is disturbances within the bank. These tests are submitted to calculated for all risk areas and shall be sufficient to conduct the the Board of Sparebanken Vest, and both the underlying activity in question. The risk-adjusted capital and the statutory assumptions and the results are discussed. Contingency plans minimum requirement are compared with the bank’s actual have been prepared which describe processes, responsibilities equity. and possible responses in connection with stress situations related to the bank’s liquidity management. The bank’s processes related to capital assessment are based on quantification of the capital requirement for each risk area. Operational risk Stress tests are run to simulate the effects of unexpected events, Sparebanken Vest’s management and control of operational risk but where such situations could entail major unexpected losses. can be described in three dimensions: At the same time, the quantitative analyses are supplemented by qualitative assessments. • Operative management and control. • Superior risk management and control. Sparebanken Vest uses internal systems to quantify working • Internal audit control. capital for credit risk purposes. The credit portfolio is split into 10 risk groups where the customers are classified by quality as The individual line managers have operative responsibility for the reflected in the probability of defaults. Using a time horizon of management and control of operational risk and thus also for one year, a default is typically a situation where an account has the quality of banking operations. This responsibility is contained been overdrawn or amounts due have not been paid for more in work instructions, various guidelines and routines. Responsi- than 90 days and/or specific circumstances have arisen affecting bility for the bank’s overall infrastructure rests with the Business the customer’s debt-servicing ability.

38 The expected loss given default is also calculated, which also The guidelines used by the bank for capital adequacy assess- includes lendings and committed credit facilities. Where defaults ment purposes were adjusted and adopted by the Board of arise, the loss is the proportion of this exposure that the bank Directors in the autumn of 2007. The internal process is further can expect to lose. In determining the amount of this loss, the described in the article on corporate governance in the level of loan security and the amount that can be realised in Annual Report. The description shows the connection between a default situation are key factors. Based on these three com- strategic and commercial processes and between risk and capital ponents, the expected loss given default is calculated, as well management. as the capital linked to unexpected losses. The bank’s capital base can consist of both core capital and As regards the market risk, ”Value at risk” models are used to subordinated loan capital. For statutory capital adequacy calculate the level of risk-adjusted capital related to the propor- assessment purposes, subordinated loan capital shall comply tion of exposure where current market prices are available. with criteria set out in legislation and regulations. Due account Where less liquid shareholdings are involved a simpler method is shall also be taken of the reduction factors which currently apply used for capital calculation purposes. The risk-adjusted capital to calculation of the statutory capital base. requirement for the market risk is calculated on the basis of full utilisation of the parameters adopted by the Board. The composition of the capital base shall take account of the following factors: The liquidity risk relates largely to the scope for refinancing debt when it matures. In this respect, the bank’s risk is determined by • Regulatory requirements. its objectives and funding structure. Risk-adjusted capital related • Result effects. to the liquidity risk is calculated using a model consisting of • Diversification of capital sources. four weighted variables. In respect of the operational risk, • Market contact. the statutory required level of capital is calculated based on the standard method for calculation of capital. Calculation Sparebanken Vest’s main objective is to cover its future capital of the strategic risk is based on a comparison with other requirement through the ongoing flow of capital from companies and applying some adjustment factors. operations (after allocations). In addition to this, the main sources of equity are raising new PCC capital and subordinated For capital adequacy assessment purposes, the bank applies the loan capital (perpetual and/or dated). level of economic capital, In so far as this exceeds the current statutory minimum capital requirement. Sparebanken Vest Distrubution of the bank’s economic capital requirement carried out two internal capital adequacy assessments (ICAAP) (excluding diversification) based on an analysis carried out in 2007 based on new capital adequacy regulations and the in the autumn of 2007 shows the following: requirements of the Financial Supervisory Authority of Norway. Both analyses were sent to the Financial Supervisory Authority of Norway and showed that the bank is sufficiently capitalised in relation to the risks attached to its activities and expectations 16 % in the period ahead. 3 % Credit risk 6 % Market risk Liquidity risk 6 % Operational risk 69 % Strategic risk

39 Rong Kleppestø Ågotnes Straume Skogsvåg Os Storebø Bekkjarvik

Impressive growth in the West

Sparebanken Vest’s Region Vest comprises the six Framo Engingeering at Horsøy will play an important municipalities Os, Austevoll, Fjell, Sund, Øygarden role in ensuring that the number of jobs is able to and Askøy, and it is the region of Hordaland with match the number of migrants. the strongest growth. – We cover one of the most exciting areas in Norway, - Right now, the greatest hindrance to commercial says Øystein Bredholt, acting regional bank manager development in Fjell, Øygarden and Sund is the responsible for the corporate market. bridge to Sotra. The terminals at Sture and Kollsnes and the CCB base at Ågotnes, as well as a wealth of On the industrial side, the major terminals at Sture related subcontractors, are completely dependent and Kollsnes play an especially important role as on this narrow and overloaded part of the road, economic locomotives, and with the prospect of says Bredholt. a stable and high level of oil and gas prices the outlook is bright. Innovation and the establishment The island community of Austevoll is a unique part of new companies are an important part of the of the region. The population of this fi shing and fi sh overall picture. At Ågotnes there is a unique subsea farming municipality has been stable, but in terms environment, refl ecting the fact that the main of Austevoll’s value creation, all the indicators point companies operating in this area have chosen to upwards. Having a presence in a municipality where base their activities here. Critical competence for the entrepreneurial spirit is so vibrant is important, the North Sea oil industry is likely to be one of the and we intend to contribute in both the corporate cornerstone industries in the region for many years and the retail market in the coming years, say the to come. two bank managers. In Os, the southernmost part of Region Vest, the level – There has been an enormous migration to Askøy of activity is lower. But although there may not be and Fjell in the last few years which has led to a the same intensity as further north, there are many corresponding upswing in building activity in the capable small companies which do very well and area, says Trygve Wåge, regional bank manager which have great potential. responsible for the retail market. – The greatest challenge is ensuring that the public sector manages The coastal culture has been an area of special to keep pace with this development and provides attention for the bank, and this is partly refl ected the required infrastructure, such as roads, schools in a grant from the bank to establish the Johannes and nurseries. In Askøy, the new plant being built by Kleppevik Memorial Fund.

40 VEST REGION

INDUSTRIAL SUCCESS STORY: The oil and gas activity in the North Sea is still the most important industrial success story, not only in Western Norway but in Norway as a whole. Some of Sparebanken Vest’s most important clients in the offshore sector are located at the CCB base at Ågotnes, west of Bergen.

41 Visjon Vest

Solid cooperation in Western Norway

Visjon Vest, the body which channels grants for the public benefit from Sparebanken Vest, distributed NOK 110m to worthy causes in 2007. The bank can distribute up to 25% of its profits after tax and dividends in the form of grants for the public benefit, and the funds channelled through Visjon Vest promote the bank’s vision which is to be a driving force in the development of society and trade and industry in Western Norway.

Through our broad cooperation with enthusiasts in Western We are funding a new professorship in climate research at the Norway we often get feedback indicating how important the Norwegian School of Economics and Business Administration bank’s support is for voluntary work in the region. Naturally, (NHH), and have allocated NOK 5m for the establishment of our financial contribution is a key element of the various projects, a weather pavilion at Bergen Science Center. We are strongly but we believe that Visjon Vest can also play a very valuable role involved in arranging an international conference on the climate in addition to providing economic assistance. The funds we in Bergen in the spring of 2008. provide in the form of grants for the public benefit act as seed grain funding for voluntary activities. We constantly see evidence We already have a understanding of how global warming that the presence of Visjon Vest gives an additional impetus to can have fatal consequences, also for Western Norway. projects because we enter the arena in the vulnerable, initial phase. Our approach to the major climatic challenges facing us is to Our partici-pation often motivates others to support the project, contribute with resources for research and the dissemination as if an extra gear kicks in when Sparebanken Vest is on the team. of information. Much research remains to be done, also in the development of tools that can provide us with reliable, local We believe that teamwork, cooperation and sharing competence meteorological forecasts to prepare us for periods of extreme are the key to further growth in our region. This is why it is weather in Western Norway. At the same time, we are aware important to us that the projects which Visjon Vest itself of the importance of making research results as broadly initiates should encourage cooperation and network available as possible. Global warming is the greatest threat building between those involved. Visjon Vest been involved facing us, and many people feel helpless in this context. in several key areas in the last few years: It is difficult to know what contributions can be made at an individual level to improve the climate, and this is why the The climate is a main focus of attention and in the last dissemination of information is so important. Knowledge and two years we have allocated more than NOK 16m to various involvement are effective tools to prevent powerlessness from climatic initiatives in Western Norway. As well as investing gaining the upper hand. Climate issues will thus continue to be considerable amounts to projects aimed at slowing down the a crucial part of our activities in the area of research, education process of global warming, Sparebanken Vest has been among and innovation in the coming years. the first to exercise responsibility and take positive steps in this important area. We have extensive cooperation with the A positive environment for the young recognised climate research environment in Bergen. Through its focus on children and young people Visjon Vest has

42 Visjon Vest: ”A Big Kick for Small Players” - a project involving close collaboration with Hordaland Football Association and the sports clubs Brann, Arna-Bjørnar and Sandviken is only one of many different worthy causes supported by Sparebanken Vest. Through Visjon Vest the bank makes important contributions in support of large and small initiatives for the benefit of the local community. been involved in the realisation of a number of projects aimed Culture at helping to establish a good environment for the development Culture and experience, education and research, as well as of young people in Western Norway. Work in this area is an innovation and creativity, are all categories which constantly investment in the future. Our region is entirely dependent on overlap in our activity. But as categories, they have one thing the creative ability and competence of future generations. in common: They are all about projects which aim to make the We know how important the early years are for young people future as bright as possible for Western Norway. In line with the in equipping them with the ability to make the most of their values which the savings banks have traditionally represented, lives, and in Western Norway there are many teams and our attention is focused on activities which will provide growth organisations which make an enormous contribution in this and development in the longer term. area. For many years Sparebanken Vest has played an important supporting role in this work. With the award of the artistic grants called ”The West of Norway in Words, Sound and Images” Sparebanken Vest wishes ”A Big Kick for Small Players” is a project which has been started to encourage further growth in the area of art and culture in and developed by Visjon Vest in close collaboration with the region. During the ceremony in Stavanger on 22 November Hordaland Football Association, and the sports club Brann, 2007 15 grants were awarded, each worth NOK 50,000. Arna-Bjørnar and Sandviken Idrettslag. ”A Big Kick for Small Players” is intended to raise the level of competence in voluntary Humanitarian and Health work targeted at the youngest footballers in Western Norway. The last category, called Humanitarian and Health, is to a large Visjon Vest hopes that the project will bring the focus to bear on extent related to projects which lie outside the bank’s primary the main function of broadly based sports activities: Ensuring market area. We live in Norway’s richest region, in one of the that as many children as possible have the chance to realise richest countries in the world. This imposes a clear responsibility their potential and develop, and experience the thrill and to cast our eyes on far less privileged parts of the world. In the recognition of being on the team. In other words, ”A Big Kick humanitarian field we have given priority to collaboration with for Small Players” is a project which deals with enhancing parties which have links with Western Norway, including the competence, communication and social interaction as much Rafto Foundation and the micro-finance environment at the as it relates to football. Norwegian School of Economics and Business Administration.

43 Personnel and competence

Long-term organisational development

Well qualified and motivated employees who enjoy their work are needed if Sparebanken Vest is to realise it’s aim of being the leading and most preferred provider of financial services in Western Norway.

Sparebanken Vest is intent on developing its corporate The trainees are linked to different divisions and take part in culture to make the bank even more market and an inter-disciplinary training and development programme performance oriented. The focus on the customers shall in order to acquire an overall understanding of the bank be intensified at all levels. In order to achieve this, it was and it’s activities. There were many applications to join the decided in 2007 to start a long-term development programme and the feedback has been good. A new trainee programme that would gradually involve the entire programme is planned for 2008. There was otherwise organisation. The programme targets mainly on effective a high level of activity related to recruitment in 2007. processes, measurement / management systems and Sparebanken Vest is also affected by the tight labour behaviour. Initially, it will be run as a pilot project which market, but thanks to our good reputation we have been will be evaluated and then rolled out throughout the bank. able to avoid the most damaging effects of the shortage The bank’s leadership development programme is part of manpower. Our local roots and ownership, an ability to of a long-term initiative which will target on leaders take decisions quickly and a high level of ambition, also at all levels. illustrated by the bank’s expansion in Rogaland and Sogn & Fjordane, as well as the establishment of Frende Forsikring, An attractive employer - all this helps to strengthen the bank’s position as an With the fight to secure talented and productive manpower employer. Sparebanken Vest ‘s social involvement through greater than ever, it is even more important for the bank to Visjon Vest is also of great importance in this context. develop and have the ability to attract and retain qualified personnel. It is especially important that younger employees New premises perceive the bank as an attractive workplace. Thereby, The new building that is planned for Jonsvollskvartalet in the ensuring that no shortage of critical competence arises centre of Bergen will play an important role in strengthening due to age distribution, and also to create greater the bank’s reputation and enhancing it’s attractiveness. dynamism and diversity within the organisation. The process of designing a building to meet the needs In this respect, the bank’s trainee programme plays of the future has already started and it will be of major an important role, and 12 trainees were recruited to importance in the bank’s organisational development the programme in 2007. and brand building in the period ahead.

44 TRAINEES: Sparebanken Vest’s new trainees in 2007. First row, from left: Camilla Nygård, Maren T. Tveiten and Thor Yngve Thorseth. Second row, from left: Ine Vatland, Kristina Håvås Tjønn, Inger Cecilie Borsheim and Jørgen Aasen. Third row, from left: Vidar Slettehaug, Morten Erdal, Silje Sterner, Maria Bland and Therese Næss.

Long-term development of competence and related systems. Training in sales and sales methods was Competence is important to gain a competitive edge, and intensified and maintained in 2007. 2007 saw a continuation of the bank’s focus on the long- term develop­ment of competence, through broadly based In 2007, in order to underline the importance of performance- professional­ and sales training and management development. awareness and the ability to implement change, it was decided The process of developing an overall, targeted competence to develop a new organisational survey adapted to the bank’s strategy started In 2007, with Implementation due in 2008. challenges and strategy. The survey is action-oriented and A number of training initiatives and programmes have been focuses on areas that are of special importance for the achieve- completed, using both in-house personnel and external ment of the bank’s results. The pilot survey carried out among resources. The focus is still on meeting the requirements that customer and staff units in 2007 provided good experience, have been set for financial advisers. There has also been facilitating the implementation of targeted measures to follow con­siderable training activity related to MiFID regulations which up the results. The survey has now been accomplished through- took effect from 1 November 2007. The establishment­ of new out the bank. Follow-up action will be taken as part of the overall, insurance companies in the area of general and life insurance long-term organisational development of Sparebanken Vest has also entailed extensive training in new insurance products aimed at strengthening the bank’s position and competitive ability.

45 ROGALAND REGION

A KEEN TASTE FOR MORE: Sparebanken Vest is steadily strengthening its position in Rogaland. The Good Food Festival is a major event in Stavanger, the City of Culture. 46 Advancing in a new region

Stavanger has long been regarded as the oil and gas established a good service culture, which is capital of Norway, and this has affected the entire a matter of some pride to us. region. It has resulted in an environment which has Those who think that the economy of Rogaland long been able to offer both Norwegian and based solely on oil activities must rethink again. international expertise in this sector. In addition – The ability to join forces, cooperate and get things to the oil companies, the supply industry has been done goes a long way to explaining how it has been a major contributor to value creation. As the oil price possible to achieve such a high level of value creation is expected to remain high, their are no signs of in the region, says Njål Skår. pessimism. In many ways, this is the pantry of Southern Norway, Rogaland is the newest branch, in terms of with a great breadth of food production. Sparebanken Vest’s regions. In May Sparebanken The favourable climate means that the farmers Vest opened a branch in Sandnes, thereby entering in Rogaland are able to harvest their crops earlier one of the most competitive banking areas in than anywhere else in Norway. Agriculture makes Norway. The initiative has been a success and the a considerable contribution to value creation, opening of a new branch in Stavanger in May 2008 and this in turn has positive effects that extend has established the foundation for further growth, say far beyond the agricultural sector. The positive Bjørn Tjensvold and Njål Skår, the respective regional economic climate is being refl ected related areas directors for the retail and the corporate market. of activity such as slaughterhouses, logistics, food processing, feed production and competence - We have been very fortunate in having talented environments. Fjordland, Norconserv, the Hotel staff, which is refl ected in the results for the fi rst School and GladMat are only some examples of the year of operations, says Bjørn Tjensvold. – There is value creation that the food county of Rogaland a strong entrepreneurial spirit. In the course of one represents. The Figgjo porcelain factory is one of year Sparebanken Vest has attracted 600 new total several trend-setting industries in the region that are customers in the retail market and active capital thriving independent of the oil and offshore economy. of NOK 600m. The synergies arising from our close links with real estate activities as well as banking In the corporate market in Region Rogaland and insurance services is an important explanation Sparebanken Vest has already attracted many of our success. We also score high marks on customers and active capital of around NOK 700m. customer satisfaction, and we have already This is just the start, says Njål Skår.

ROGALAND REGION

Stavanger (spring 2008) Sandnes

A KEEN TASTE FOR MORE: Sparebanken Vest is steadily strengthening its position in Rogaland. The Good Food Festival is a major event in Stavanger, the City of Culture. 47 Primary Capital Certificates

SVEG – 2007 outperforming the PCC index

The PCC Index fell by 4.6% in 2007 and failed to match the general development on the Oslo Stock Exchange which rose by 11.5%. The return provided by Sparebanken Vest’s PCC was also negative in 2007, showing 2.2% after starting the year at NOK 213 and ending at NOK 190. The dividend of NOK 18.75 paid in 2007 was additional to this. The return on equity in 2007 was very satisfactory at 16.39%, enabling the bank to pay a dividend of NOK 19 per PCC for financial year 2007.

The Board has decided to ask the Corporate Assembly to of PCCs, andPCC over price a developmentlong period (GFBX) objections on the Oslohave Stock been Exchange raised to

approve an offer to the holders of the bank’s PCCs to reinvest their investment 8 % in PCCs - the savings banks’ equity instrument SVEG GFBX dividend receivable for 2007 in new PCCs at a favourable price. - on this 6 %basis. In view of this, the Ministry of Finance has had an

In this way, their holdings of PCCs will not be diluted to the same amendment 4 % of the law and related regulations drawn, extent that would otherwise have resulted from payment of a cash 2 % dividend. In April, holders of the bank’s PCCs as at 13 March 2008 0 % will receive the offer to subscribe for new PCCs as described above. jan fe b mar apr may jun jul sep octnov dec -2 %

-4 % Sparebanken Vest received a stock exchange listing in 1995 with -6 % PCC capital of NOK 250m. At that time, PCCs accounted for including dividend since year-end, Return approximately 24% of the bank’s total core capital. In the course -8 % of the following years this was diluted and at the start of 2007 -10 % the figure was 7.3%. This is a consequence of the accumulation retained earnings, while the holders of PCCs have received their share of profits in the form of a cash dividend. and the proposed legislation has been circulated as a consultaton document. The new legislation, if approved, will entail Amendment of the regulations is being considered considerable changes, Including a lower dilution effect on the The market has long regarded the dilution effect as a weakness PCC proportion of results and capital.

48 AT THE TOP: The Sunnmøre alps challenge your will, strength and endurance. Bergen Mountain Hiking Assosiation and Sparebanken Vest are on their way to the top together.

Employee ownership of SVEG 01. jan 2007 0,76 Annual risk In the autumn of 2007 each of the bank’s employees received amount SVEG 01. jan 2006 0,76 the offer of purchasing 100 PCCs at a discount. The offer was accepted by 568 of the bank’s 800 or so employees, and a total 01. jan 2005 0.00 of 56 570 PCCs were purchased at a price of NOK 150. 01. jan 2004 0.00 The price per PCC was the market price at the date of purchase 01. jan 2003 0.00 less NOK 40. The employees’ co-ownership strengthens their knowledge of both the banks and PCCs, while at the same time 01. jan 2002 0.00 providing an Incentive to contribute to satisfactory overall 01. jan 2001 0.00 profitability. The PCCs which were purchased served to reduce 01. jan 2000 89.09 the bank’s holdings of its own PCCs. 01. jan 1999 45.81 Ownership of own PCCs 01. jan 1998 69.12 At year-end 2007 the bank owned 33 450 of its own PCCs, an 01. jan 1997 71.27 increase of 8 450 in the course of the year. The bank wishes to 01. jan 1996 32.56 stimulate the turnover of its PCCs and purchased 65 200 of its own PCCs during the year, mainly to cover the aforementioned 01. jan 1995 34.65 sale of PCCs to the employees.

49 Board of Directors

The Board of Directors of Sparebanken Vest

2007 was a year characterised by positive results, progress and a high level of Board activity. Many of the bank’s goals were realised and the Board is satisfied with developments and the bank’s strengthened market position and the growing number of new customers. Changes in the market and the regulatory environment are placing increasing demands on capacity and the competence of the bank’s elected officers. A number of initiatives were started in 2007, and many days were spent on specialised areas of study for the Board members. The Board made an assessment of its own activities which was reported to the Nomination Committee.

The composition of the Board of Directors in 2007 was as follows:

Pål W. Lorentzen Gerd Kjellaug Berge Chairman of the Board. Partner with the law firm Director of Selje Hotel since 1976. Graduate of the Thommessen. Chairman and member of the Board since Norwegian Hotel School. Member of the Board since 2000. Graduated in law at the University of Oslo. Legal May 2007. Previous experience as flight attendant/instructor practice since 1971. Barrister since 1976. Currently with SAS. Currently member of the Board of NHO chairman of the Bergen International Festival and the Sogn & Fjordane, chairman of NHO’s steering group Kavli Foundation. Previously chairman of the main board for IA and a member of the Board of Entra Eiendom AS. of the Norwegian Bar Association and the Norwegian Holding of Sparebanken Vest PCCs: 0 Bar Association’s Constitutional Rights Committee. Also chairman of a number of companies in shipping, Øyvind A. Langedal offshore and fisheries sectors. Previously a member of the Deputy Managing Director of Coast Center Base AS, Ågotnes. Corporate Assembly of Den norske Bank and Bergensbanken. Member of the Board since May 2007. Graduate of the Holding of Sparebanken Vest PCCs: 0 Bank Academy and studies in economics and management from NHHK. Head of management accounting/deputy managing director of Coast Center Base AS since 1998. Anne Kverneland Bogsnes Previous experience with Økonomipartner Bergen AS, Rieber Deputy Chairman of the Board. Managing director/senior Skinn AS and Jebsens Rederi AS. Current positions of trust: adviser at Engasjert AS. Deputy Chairman and member member of the Board of Kirkenes Agency AS and Maritime of the Board since May 2007. Previously member Waste Management AS, member of the Board of Sambygg and chairman of the bank’s Control Committee. AS, Kirkenesbase AS and Helgelandsbase AS. Graduate of the Norwegian School of Management Holding of Sparebanken Vest PCCs: 0 followed by further relevant management training. Previously managing director of Helse Bergen HF, Jan O. Yttredal Haukeland University Hospital 2002-2006. Managing Director of Sør-Norge Aluminium. Also experience as managing director of Rolls-Royce Board member since 1998. Graduate engineer (NTH) Marine AS, Foundry – Bergen, where she was head and previously director of Norsk Hydro. of management accounting and production manager. Holding of Sparebanken Vest PCCs: 0 Current positions of trust: member of the Board of the Harmonien Foundation, member of the Board of Den Anne Gine Hestetun Nationale Scene, deputy chairman of Oceanteam ASA, Managing Director of Stor-Bergen Boligbyggelag since deputy chairman of the National Institute of Technology 1 April 1998. Member of the Board since 1998. and member of the Board of Mantena AS. Qualified engineer, regional college graduate. Previously Previous positions of trust include: experience as municipal counsellor and commissioner in member of the Board of Statnett SF, chairman of the Bergen Local Authority, line director with Fjordline, director Board of Helse Vest RHF, member of the Board of the of Bergensbanen, Norwegian State Railways, and as senior Labour Inspectorate and member of the executive project management consultant, Lillehammer Olympic Boards of the Confederation of Norwegian Business Games. Currently member of the Board of Bergen and Industry (NHO) and the Association of Norwegian International Festival, BKK and the Kanvas Foundation, Employers (NAVO). as well as chairman of ABO Arkitekter AS. Holding of Sparebanken Vest PCCs: 0 Holding of Sparebanken Vest PCCs: 0

50 BOARD OF DIRECTORS: The Bank’s Board of Directors assembled at Bergen Science Centre. Front, from left: Gerd Kjellaug Berge, Anne Kverneland Bogsnes and Anne Gine Hestetun. Rear, from left: Jan O. Yttredal, Tone Mattsson, Pål W. Lorentzen, Inger Karin Larsen, Øyvind A. Langdal and Arve Havnerås.

Inger Karin Larsen Arve Havnerås Director of own company Employee representative. Board member since 2003. - Inger Karin Larsen - with coaching as main activity. Corporate Market Adviser - ass. manager. Bachelor of Board member since 2004. Regional college graduate, Business Administration. Joined Sparebanken Vest in 1983. Bachelor of Business Administration, and trained as coach. Holding of Sparebanken Vest PCCs: 250 Experience from Aker Stord, commercial director Bømlo Local Authority, man. dir. Olympia Utvikling Troll Park, parliamentary Tone Mattsson secretary at Ministry of Trade and Industry. Board member, Main elected representative, the Finance Sector Union of Sunnhordland Lufthavn AS and Sunde Transport AS. Formerly Norway. Board member since 2003 - employee representative. held board positions with Hordaland & Bergen Trade & Tourism Bachelor of Business Administration (Banking and Finance). Board, Haugesunds Avis, Telenor, Siva and Stord/Haugesund Joined Sparebanken Vest in 1986. University College. Holding of Sparebanken Vest PCCs: 100 Holding of Sparebanken Vest PCCs: 0

51 Directors’ report

Directors’ report

2007 was a period of sound growth for Norway and Western Norway. It was also a positive and active year for Sparebanken Vest and a number of steps were taken to pave the way for future development.

The Board is satisfied with the results for 2007 and is pleased to report that the bank has strengthened its market position and increased the customer base. Sparebanken Vest has expanded in the counties of Rogaland and Sogn & Fjordane and is also actively involved in the establishment of the insurance company Frende Forsikring, based in Bergen.

Good operating results make is possible to pay a competitive dividend to the owner’s of the bank’s PCCs and to allocate considerable amounts to positive initiatives in the social and commercial sectors in Western Norway.

The improved performance in 2007 is attributable to growth, sound operations and financial earnings, and positive macro-economic conditions.

Profits after tax totalled NOK 650m (603m) and the return ”Through professional banking operations Sparebanken Vest on equity for the year was 16.24% (17.86%). The parent shall be a driving force in the social and commercial bank’s profits for the year corresponded to earnings development of Western Norway.” of NOK 19.19 (20.47) per PCC, also on a diluted basis. The Board proposes a dividend of NOK 19 (18.25) per PCC, Following a review of strategy in 2006, the overriding goal in line with the bank’s dividend policy. for the next three years is for Sparebanken Vest to achieve a position as the leading and most preferred provider of The Board will ask the Corporate Assembly to approve financial services in Western Norway. Sparebanken Vest a dividend issue at a meeting to be held in March. engages in active development work aimed at strengthening The Board also proposes that NOK 150m (125) of the the bank’s competitive position in both short and long term. profit for 2007 be allocated to grants for the public benefit, The development of the bank’s staff, products and control of which NOK 100m (75m) will be distributed in 2008 systems is part of this process. and NOK 50m (50m) will be credited to the gift fund, bringing it up to NOK 200m. Sparebanken Vest has chosen to be independent in a banking market characterised by increasing centralisation Business operations and greater distance from the customers as a result of Sparebanken Vest is an independent listed banking and resource-consuming amalgamations, alliances and financial services group with branches in the counties of acquisitions. Thanks to its independence, Sparebanken Vest Rogaland, Hordaland and Sogn & Fjordane. Based in Bergen, is dynamic and able to maintain proximity to the market the bank has 60 sales outlets in the region. and allow decisions to be taken at local level. The Group is also engaged in estate agency activities through Eiendomsmegler Vest AS, and property manage- Sparebanken Vest will help its customers to succeed by ment through AS Filialbygg, both of which companies maintaining an active presence and by demonstrating its are wholly owned by the parent bank. ability to find innovative solutions. Sparebanken Vest will be targeted yet obliging, and exhibit a genuine interest Strategic direction in its customers’ requirements, wishes, ideas and local The bank’s vision is as follows: environment.

52 GOOD YEAR: 2007 was a positive year for Bergen, Western Norway and Sparebanken Vest.

Corporate governance At the end of 2007 the Board carried out an assessment The Board has adjusted the bank’s policy on corporate gover- of its own competence, and its report has been given to the nance in line with amendments to the Norwegian Recommenda- Nomination Committee. The Nomination Committee, which has tion of 4 December 2007. In its approach to and implementa- nine members, recommends candidates for membership of the tion of corporate governance, Sparebanken Vest seeks to ensure Corporate Assembly, the Nomination Committee, the Control that the bank’s interested parties receive timely information. Committee and the Board of Directors, as well as proposing their remuneration. The Board attaches importance to ensuring that there is compliance with the provisions of the Recommendation, in so Annual accounts far as they are appropriate. It is the view of the Board that the The annual accounts are submitted on the assumption that bank’s corporate governance is satisfactory and in accordance the bank will continue as a going concern. This based on with the Norwegian Recommendation on Corporate Governance. operational forecasts for 2008 and projections with a time horizon extending for a further three years. The Board has set up a Compensation Committee consisting Sparebanken Vest’s consolidated accounts for 2007 are of three members as well as a group with a mandate to focus presented in accordance with IFRS regulations as well as on the development of women in management positions with the including the regulations for annual accounts and the Sparebanken Vest. accounting treatment of loans and guarantees, both as laid down by the Financial Supervisory Authority of Norway Changes in both the market and the regulatory environment (Kredittilsynet). The company accounts have been prepared mean that the bank’s elected representatives are required to on the basis of the scope given to apply simplified IFRS. meet increasingly stricter requirements, in terms of the resources As a consequence of this, the profits returned by subsidiaries and competence they represent, and this was an area of further are included in the basis used by the parent bank for the Board attention in 2007. In this connection, a number of days determination of dividends in the same year they arose. are set aside during the year to update the Board on various areas of professional interest. The Board has been particularly In the view of the Board, the annual accounts prepared focused on competence and the consequences of the introd in accordance with the principles described above give uction of new capital adequacy regulations. a correct picture of the financial position of the Group.

53 Directors’ report

Profit before tax Development of net interest income

900 2.0 % 1.100 3.0 % 800 1.000 900 2.5 % 700 1.5 % 800 2.0 % 600 700 500 600 1.0 % 1.5 % 400 500 400 300 1.0 % NOKm NOKm 0.5 % 300 200 200 0.5 % 100 100 0 0.0 % 0 0.0 % 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Profit 395 487 643 793 865 Profit 903 960 972 1.042 1.126 % of PCC cap. 1.02 % 1.11 % 1.28 % 1.41 % 1.30 % % of PCC cap. 2.33 % 2.19 % 1.93 % 1.85 % 1.69 %

Revenue items income totalled NOK 678m (624m) in 2007. Sales of the bank’s Net interest income and credit commissions own production of banking services and commissions from the Net interest income in 2007 totalled NOK 1 126m (972m), sale of third-party products accounted for NOK 26m (32m) of corresponding to 1.69% (1.85%) of average total assets. the overall increase of NOK 54m (153m), while NOK 21m (85m) was attributable to financial instruments. NOK 7m (36m) was Norwegian interest rates increased in 2007, with Norges Bank’s other operating income which was entirely due to higher estate rising seven times in the course of the year, from 3.5% at the agency commissions from Eiendomsmegler Vest AS. start of the year to 5.25% at year-end. The increased income was due to a high level of activity within The frequent increases in interest rates affected the develop- the bank, with progress in most product areas. ment of net interest income because of the time lag between the dates of Norges bank’s interest rate changes and repricing The bank’s two subsidiaries - Eiendomsmegler Vest AS and AS of the bank’s products. As the lending volume is considerable Filialbygg – recorded profits of NOK 14.2m (13.8m) and NOK more than the volume of deposits, the negative effects on the 5.8m (14.1m) respectively. Together, these two companies made lend side considerably outweighed the positive effect from a group contribution of NOK 18.7m to the parent bank in 2007. the deposit side. Sparebanken Vest owns 49.99% of Frende Holding AS and the bank’s share of the loss in the start-up phase has been Turbulence in the financial markets in the second half-year incorporated in the accounts and reflects a reduction in meant that money market rates increased by more than what income of NOK 4.5m. was warranted by the increase in key rate. The effect that the increased credit had on profits was limited in 2007 and this Operating expenses should be considered in the light of the bank’s funding strategy Group operating expenses for the year were 5.6% (4.1%) higher where good liquidity and long-term funding are key require- at NOK 973m (921m). The increase reflects a high level of ments. activity within the Group and must also be considered in the light of the increase in income. The costs also relate to the Net interest income was also affected by intense competition expansion and renewal which will provide the basis for future and changes in the structure of the bank’s loan portfolio. volume and income growth. This includes the purchase of the activities of Focus Bank in the county of Sogn & Fjordane. The best-secured loan products (flexi-loans and home mortgage loans linked to a benefits programme) made up 49% (61%) The accounts include a performance-related bonus totalling of the NOK 11.2bn (6.7bn) increase in Group lendings in 2007. NOK 47.4m (30m) for 2007 which has been charged against At year-end, these two loan products corresponded to 56.3% profits, and which includes social security costs. (57.9%) of the lending volume, while home mortgage loans represented 63% (67.3%) of aggregate lendings. As a result of changes made to the bank’s pension scheme in 2007, pension costs for the year are roughly NOK 40m lower Net interest income accounted for 62.4% (62.6) of total than in 2006. operating income in 2007. The difference between the Group’s costs and the costs The accounts show that the Group’s net (other) operating of the parent bank relate mainly to Eiendomsmegler Vest AS.

54 Development of operating expenses Development of return on equity

1000 2.5 % 900 800 2.0 % 17.9 % 18.0 % 700 16.3 % 16.0 % 15.4 % 600 1.5 % 14.0 % 500 400 1.0 % 12.0 % 11.8 % 11.5 %

NOKm 10.0 %

300 NOKm 200 0.5 % 8.0 % 100 6.0 % 0 0.0 % 4.0 % 2003 2004 2005 2006 2007 Operating coasts 747 819 875 921 973 2.0 % % of PCC cap. 1.92 % 1.87 % 1.73 % 1.64 % 1.46 % 0.0 % 2003 2004 2005 2006 2007

In line with IFRS, tax on capital assets have been booked The funding ratio stands at 58.2% (58.2%), while the as an operating expense, since it is defined as a charge. liquidity indicator based on Norges Bank’s norm stands at 98.9% (102.7%), including committed credit facilities. Losses, write-downs and defaults The figure for losses on loans and guarantees shows a net At year-end, Group equity totalled NOK 4 318m (3 798m), recovery of NOK 34m (48m), with a reduction in write-downs on while the qualifying capital base for capital adequacy loan groups accounting for NOK 28.5m (26.5m). Write-downs purposes amounted to NOK 4 597m (4 048m), with core on loan groups at year-end amounted to NOK 104m (132.5m), capital accounting for NOK 3 963m (3 743m). Core capital corresponding to 0.16% (0.25%) of gross lendings. includes subordinated loan capital totalling NOK 326m (377m). The capital ratio is 9.67 (10.21%), of which core capital Write-downs to take account of the decline in value of represents 8.33 (9.44) percentage points. . individually assessed loans total NOK 39m (74m). Of this, NOK 6m (22m) relates to defaulted commitments while perform- The Board has asked the Corporate Assembly to approve ing loans make up NOK 33m (52m). In the view of the Board, a dividend issue in the form of a private placing with the owners the write-downs are sufficient in relation to the assessed credit of the bank’s primary capital certificates (PCCs) in order to risk attached to the commitments. counteract the dilution effect of the proportion of capital represented by PCCs. In so doing, the dividend will be retained Assets, liabilities and equity within the business, thus ensuring value growth and reduced At year-end, the Group had total assets of NOK 75bn (60.2bn), dilution effects for the owners of PCCs. representing 12-month growth of 24.7%. Of this, the purchase of banking activities in the county of Sogn & Fjordane accounted A higher proportion of capital in the form of PCCs will contribute for roughly NOK 2.1bn, or 3.5 percentage points. better tradability of the bank’s PCCs. The amount of the issue is up to NOK 47.5m, which corresponds to the provision for At year-end, customer deposits totalled NOK 37.6bn (31.1bn), dividends. The subscription price will be set before the start corresponding to growth of 20.9%, with the retail market of the subscription period. accounting for NOK 23.3bn (20.4bn) and the corporate market NOK 14.3bn (10.7bn). Over the last 12 months deposits have At 31 December 2007 the bank owned 33 450 of its own PCCs. increased by 14.9% (15.5%) in the retail market and by 33% In November, the bank’s personnel were given the opportunity (30%) in the corporate market. At the same time, net loans to to purchase PCCs at a discount, and 568 employees bought a customers amounted to NOK 64.7bn (53.5bn), reflecting annual total of 56 750 PCCs. growth of 21% (14.5%). Of this, NOK 50.2bn (42.1bn) relates to the retail market while loans to corporate market amount Summary to NOK 14.5bn (11.4bn). The growth rate in the retail and The bank’s performance in 2007 was ahead of the expectations corporate segments was 19.2% (16.6%) and 27.2% (6.5%), expressed in the annual report for 2006. This was due to another respectively. year of sound operations and the fact that financial earnings were higher and losses lower than had been expected. The bank’s liquidity strategy is aimed at securing a high level of long-term funding. In relation to stipulated targets this means Competition in the marketplace remains intense and margins that the bank is very liquid from time to time. continue to be under pressure.

55 Directors’ report

Development of capital ratio Development of lendings

13.0 % 70 25.0 %

11.0 % 60 20.0 % 9.0 % 50 15.0 % 7.0 % 40

5.0 % 30 10.0 %

3.0 % 20 5.0 % 1.0 % 10

-1.0 % 0 0.0 % 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Net lendings 8.38% 9.56 % 9.95 % 9.44 % 8.33 % Deposits 36.6 41.5 46.7 53.5 64.7 % of change 10.48% 11.28 % 11.36 % 10.21 % 9.67 % % of change 14.8 % 13.4 % 12.5 % 14.5 % 21.0 %

Rising interest rates affect the bank’s lending and deposit margins The credit risk is managed taking account of the risk profile, due to time differences between the date of Norges Bank’s key defaults and losses, growth and the concentration of exposure. rate changes and the date of repricing of Sparebanken Vest’s In the view of the Board, the overall credit risk is acceptable. products. Turmoil in the international financial markets in the Volume growth in the retail market fell slightly in 2007, but the second half of the year increased the credit spread, but the pace of growth in the corporate market is increasing. This is in effects on the bank’s net interest income in 2007 was limited. line with the bank’s strategic ambitions and targets. Although the external operating conditions were slightly uncertain as 2007 The accounts show good volume growth and an increase came to a close, the risk attached to the bank’s loan portfolio is in other income. Costs are under control and have been low, defaults are at an acceptable level, and losses are marginal. affected by the bank’s expansion and renewal processes. In February 2007 the Financial Supervisory Authority of Norway approved Sparebanken Vest’s application to apply the basic IRB A buoyant economic climate and the enhanced quality method in the calculation of capital related to credit risk. The IRB of the loan portfolio have resulted in low level of defaults method takes greater account of the risk attached to the loan and a favourable trend in losses. portfolio, and the quality of the portfolio, and offers greater scope to utilise the bank’s equity. Risk and capital management Risk and capital management procedures, as well as control Instability in the financial markets in the second half of 2007 methods, are a key focus of Board attention. Through quarterly underlined the importance of having a liquidity strategy which reports the bank’s risk situation is assessed in relation to the ensures access to long-term funding and diversified sources of adopted control parameters, and the Board believes that the funding. Over time the Board has been focused on a strategy areas of exposure are moderate and in line with the risk profile which reduces the bank’s vulnerability in the event that the parameters set for the bank. It is the view of the Board that markets do not function properly, or the bank gets into a situ- the bank’s risk and capital management system is satisfactory. ation where it enjoys less confidence in the market. The bank’s liquidity strategy was further tightened in the autumn of 2007. Sparebanken Vest’s risk management is concerned with the bank’s exposure related to strategy, financial activities and The bank’s liquidity risk is managed on the basis of the operations. The strategic risk reflects whether the adopted liquidity indicator, the funding ratio and parameters for strategy is properly geared to the market and market develop- unutilised, committed credit facilities and the bank’s borrowing ments. The financial risk embraces credit risk, market risk facility with Norges Bank. The liquidity indicator (including credit (interest and foreign exchange rates and share prices) and the facilities) and the funding ratio should be more than 100% liquidity risk, while the operational risk relates to unforeseen and 55%, respectively, and throughout 2007 the bank was well fluctuations in performance due to the inadequacy or failure within these parameters, despite the considerable turbulence of internal processes, systems or external events. in the capital markets. Sparebanken Vest has no direct exposure to the subprime market in the USA. A key element of Sparebanken Vest’s strategy is the role it plays as an independent and unattached bank in Western Norway. Interest rate exposure relates to the bank’s holdings of interest- The strategy is evaluated and broadened each year, reflecting earning securities, fixed-rate lendings and fixed-rate deposits. the fact that the bank is in an implementation phase and that Throughout 2007 the level of exposure was very moderate. there is a strong focus on strategic initiatives. Norges Bank’s foreign exchange regulations determine the

56 Development of deposits Long-term liquidity indicator Quarterly figures

40 16.0 %

35 14.0 %

30 12.0 % 106.0 % 104.7 % 105.0 % 104.1 % 104.3 25 10.0 % 104.0 % 104.0 % 104.0 % 20 8.0 % 103.0 % 103.0 % 102.7 % 103.4 % 15 6.0 % 102.0 % 101.9 % 10 4.0 % 101.0 % 101.7 % 100.0 % 5 2.0 % 99.3 % 99.0 % 98.9 % 0 0.0 % 2003 2004 2005 2006 2007 98.0 % Deposite 22.2 24.8 27.4 31.1 37.6 97.0 % % of change 0.2 % 11.4 % 10.6 % 13.6 % 20.9% 96.0 % 1q 05 2q 05 3q 05 4q 05 1q 06 2q 06 3q 06 4q 06 1q 07 2q 07 3q 07 4q 07

maximum permitted foreign exchange risk. The bank’s Retail market aggregate foreign exchange exposure is moderate and The number of retail customers continued to grow in 2007, corresponded to NOK 130m at year-end 2007. confirming that Sparebanken Vest is still the largest retail bank in the region. The net inflow of new customers during the year At year-end 2007 the bank’s share portfolio had a market value totalled 10,000 and the level of customer satisfaction was at a of around NOK 650m. The parameters and exposure are defined high levels, as reflected in the stable and high marks scored in on the basis of commercial considerations and taking account customer surveys. In the spring of 2007 the activities of Fokus of the bank’s wish to be an active contributor to social and Bank in the county of Sogn & Fjordane were purchased by commercial development in Western Norway. In relation to Sparebanken Vest, and the process of integrating both the the bank’s other activities, the Board regards the risk attached portfolio and the staff was carried out satisfactorily. to the share portfolio as balanced. The year also saw a continuation of the capital growth that The bank’s internal control procedures based on relevant was a feature of 2006. Deposits increased by 14.9% and loans Regulations have been established as an integrated part of by 19.2 in 2007. strategic management. Through its work on risk strategies and ongoing monitoring and controls the bank ensures that the Interest in saving and investment alternatives was again at regulatory requirements relating to overall risk assessment and a high level in 2007, and the number of customers with confirmations are implemented. The identification of operational alternative saving (incl. funds) increased by 7.4%. risk is based on expert opinions and management confirmations, as well as events recorded in the bank’s event database. Major The flexi-loan is a very popular product. In 2006 loans of this events are reported to the Board of Directors. The bank’s actual kind accounted for 10% of the loan portfolio and in 2007 this operational losses in 2007 were small. rose to 17.5%, corresponding to loan capital of NOK 11.4bn (4.3bn). There was also an increase in the number of credit cards The bank’s capital position was considered twice by the Board which gives access to consumer credit. The increase in 2007 in 2007. The first time was at the end of April, in line with stood at 32%. regulatory requirements. The matter was considered by the Financial Supervisory Authority of Norway which subsequently The bank’s benefits programmes are continuing to enjoy advised the bank that its analyses and processes were popularity in the market, with the number of customers satisfactory. Further analysis of the bank’s capital position participating in benefits programmes rising by 12 000 (12%) will take place on a continuous basis. in 2007. The VestaVinn adult programme also remains popular with 13.1% growth. The bank’s exposure and capital position, as well as proposed risk parameters for 2008, were considered by the Board in the The number of online banking customers increases to grow. autumn of 2007. The Group’s risk-adjusted tied up capital at In 2007, Sparebanken Vest attracted 15 200 new online retail year-end was estimated at NOK 3.3bn. At the same time, customers, reflecting growth of 15.7%, and bringing the total to its actual capital base was around NOK 5bn, indicating that 112 000. Feedback through this channel has been very positive, Sparebanken Vest is very well capitalised in relation to the risk with a very high level of customer satisfaction. This is also the case attached to its activities. The bank’s equity is also well above with Customer Service which has contributed positively to the the regulatory requirement. good overall score which the bank has received from its customers.

57 Directors’ report

Corporate market The new financial enterprise is expected to issue its first bond The bank’s corporate market segment recorded an inflow of loan in the course of 2008, initially as a wholly owned subsidiary 1100 new corporate customers in 2007, while net lendings of Sparebanken Vest. within the same segment increased by NOK 3.1bn, or 27.2%. The growth in deposits was very positive throughout the year One of the Division’s main activities is covering the bank’s and ended up at no less than 33%. The trend in customer satis­ funding requirements. The bank has total assets of around faction was also positive, with a higher score also recorded in 2007. NOK 75 billion, and of this approximately 40% is funded in the national and the international money and capital markets. The bank has increased its focus on trade and industry, in The bank has a conservative funding strategy. particular clients in the segment represented by small and middle-sized companies where Sparebanken Vest experienced a The bank’s bond portfolio has been invested mainly in govern- positive development in 2007. Steps are therefore being taken to ment and government-guaranteed bond loans with limited strengthen distribution and manpower in the corporate segment, interest-rate risk. The bank has no exposure to the American not least in Bergen and the surrounding district. At the same sub-prime market or other exposed sectors, and has avoided time, the credit approval regulations have been adjusted to portfolio losses for other reasons than those due arising out enable swifter decisions to be taken closer to the customer. of the increased credit spread in the bond market.

Corporate clients are increasingly inclined to use the bank’s In the equities market the bank is exposed through its overall electronic solutions for banking services. This is economically portfolio worth around NOK 650m, excluding subsidiaries and beneficial for the customers, while at the same time contribut- associated companies. Several of the largest holdings relate ing to lower administration costs for the bank. This led to a 7% to investments in leading companies in Western Norway who reduction in over-the-counter transactions in 2007, despite an support the bank’s strategy which is to be a driving force in the increasing number of total payment transfer transactions. The development of the region. The bank’s investment in Bergens bank offers an increasingly broader range of electronic services, Tidende was halved, from 9.6% to 4.8% through the sale of including Bank Id and Internet Shop which are among the new 75 000 shares for a total of NOK 90m. The remaining holding products that are expected to be increasingly in demand in 2008. is thus within the parameters large individual investments within the portfolio. The bank has also invested in raising competence standards in various areas, and the continuous process of developing In 2007 the return provided by the equities portfolio was better competence for the bank’s corporate clients will continue in 2008. than the general performance on the stock exchange and made a good contribution to the overall result. Capital market The Capital Marked Division was defined as a customer division Social responsibility in 2006 and in March 2007 Benedicte Schilbred Fasmer became In the last few years, there has been an increasing awareness in head of the division. the commercial sector that companies have a social responsibil- ity which extends beyond performing profitably. Both in Norway The main objectives in 2007 were to take the Capital Marked and internationally there is a trend for companies to develop and instead of it being an internal service area develop it into their own strategies for corporate social responsibility (CSR). a visible customer division with a broad range of products Sparebanken Vest’s social responsibility finds expression in its in the area of foreign exchange, interest rates, derivatives vision which seeks to make the bank a driving force in the social and securities trading, and international payment services. and commercial development of Western Norway. At the same time, the division will continue to cover the bank’s Sparebanken Vest strives to show social responsibility in all its own requirements in the area of financing and management activities. The following sections explain how this is reflected of the bank’s bond and share portfolios. in equity investments and grants for the public benefit.

Extensive analyses and assessments have been made with Equity investments the aim of preparing the way for the establishment of a more Sparebanken Vest wishes to contribute to growth and development customer-oriented business in the course of 2008. The Division in its market area. Investments of this kind call for considerable has adapted to new regulations in accordance with the new insight, a willingness to take risk and patience on the part of the securities trading legislation and MiFID regulations. investors before a return can be expected. The long-term aim is to provide the bank with a return on capital employed. In the Similarly, work is in hand to establish a Home Mortgage period from the establishment of the scheme until the end of 2007 Company to provide reasonably priced financing of especially the funds invested, especially in the area of energy, marine activities well-secured loans for the bank’s home loan customers. and biotechnology, have provided the bank with a good return.

58 Grants for the public benefit Board of Directors and Group Management In 2007, Sparebanken Vest allocated NOK 125m to grants At the elections in 2007 three new members were elected to the for the public benefit. Of this, NOK 100m was earmarked Board of Directors. The new members were Anne Kverneland for distribution to projects, while NOK 25m was allocated Bogsnes, Øyvind A. Langedal and Gerd Kjellaug Berge who were to strengthen the gift fund. elected for a period of two years. Tone Mattsson (employee representative) was re-elected for a period of two years. Anne Under section 28 of the Savings Banks Act, and provided that Kverneland Bogsnes was also elected to be deputy chairman. the capital base is satisfactory, savings banks may allocate up The following members left the Board at the 2007 elections: to 25% of the profit for the year, after tax and dividends, Erik Bøckmann, Geir Navarsete and Erling Mjelde. to grants for the public benefit. Sparebanken Vest wishes to employ these funds strategically in order to strengthen the The Group Management consists of managing director Stein region. The bank’s activities in this area carried out under the Klakegg, deputy managing director Jan Erik Kjerpeseth, Henning name “Visjon Vest”. The funds are allocated partly to projects Nordgulen - director Corporate Market, Kate Henriksen - initiated by the bank, and partly to activities based on director Retail Market, Gro Hatleskog - director Human Recources applications. and Competence, Benedicte Schilbred Fasmer - director Capital Market, Pål Pedersen - director Legal Functions, Arne Selle In 2007, the main focus of attention was on projects related - director Business Support, and Jørn Lekve - director Corporate to man-made climate change. Among the allocations made Communications. were funds providing for a gift professorship at the Norwegian School of Economics and Business Administration to study Working environment socio-economic aspects of climate change as well as innovation The bank has continuous focus on the working environment. in this area. Visjon Vest is also involved in the development of This is important for the achievement of good results and in climate projects in close collaboration with the Bjerknes Centre order to be an attractive and competitive place of work in a for Climate Research in Bergen. This is the largest scientific tight labour market. In 2007 the bank decided to revise its survey climate research centre in the Nordic region. It is internationally of employee satisfaction. The new survey is part of steps being renowned and contributes to the UN Intergovernmental Panel taken by the bank to strengthen competence and a perfor- on Climate Change (IPCC) which was awarded the Nobel Peace mance-oriented culture along with ambitious management. Prize along with Al Gore in 2007. A pilot project was carried out in 2007 involving the separate management development programme. The evaluation of this In making its allocations, the bank places a special emphasis programme was so positive that a full scale version of the man- on children and young people. In 2007, this was reflected agement development programme will be implemented in 2008. in allocations to raise the level of competence among those In his annual report for 2007 the senior safety representatives involved in the voluntary work of nurturing our youngest says that ”The climate of cooperation is felt to be good. It is footballers. noticeable throughout the organisation and generally speaking it has been a good year for both the bank and the employees.” Other areas of attention for Visjon Vest are culture and cultural events, education and research, innovation and creativity, Ethics as well as humanitarian work and health. In 2007 the funds The bank constantly underlines the importance of ethics and rules provided previously to finance the History of Western Norway of conduct. This is done through the introduction programme for were followed by allocations to channel this knowledge to pupils new employees and in the talk on objectives and development in upper secondary schools. Funds were also provided for the which the bank has with each employee every year. No establishment of a Business Foundation to encourage the estab- infringements of the bank’s ethical rules were reported in 2007. lishment of new enterprises in the county of Sogn & Fjordane. The perception is that the bank has a high ethical standard In the humanitarian field, the bank supports the work done by internally and in its contacts with the customers. The bank’s new the Rafto Foundation. survey of employee satisfaction contains separate questions about ethics which will be used to chart the bank’s ethical standard. Employees At year-end 2007 the Group provided the equivalent of 803 HES – sick leave full-time positions, which was 53 more than the previous Sparebanken Vest is a signatory to the Inclusive Working year-end figure. The increase was partly due to the purchase of Environ­ment Agreement. The level of sick leave within the bank Fokus Bank’s activities in Sogn & Fjordane and the appointment has developed positively and is now well within the target limits of 12 trainees. At the same time, the subsidiary Eiendomsmegler set when the agreement was signed. One of the bank’s strategic Vest had increased its manpower through acquisition by the objectives has been to bring the overall level of sick leave below equivalent of nine full-time positions. the average for the industry, and this objective is now being met.

59 Directors’ report

The incidence of sick leave in 2007 stood at 4.7% (4.5%). Developments in the so-called “emerging markets” also In 2007 there were no injuries or accidents related to the bank’s contributed to the upswing, led by China, India and Russia. activities. The average growth in GNP in these countries is expected to be around 9% for 2007. Equality The Board of Directors comprises 9 elected members. The uncertainty increased as the year progressed, with the price Five of the elected members are women (55%). Women make of oil rising from around USD 60 per barrel at the start of the up 21 (44%) of the members of the Corporate Assembly year to around USD 100 per barrel at year-end. and men 27 (56%), while the Control Committee consists of 2 women and 2 men. The downturn in the American housing market was a recurring Women make up 57% of the bank’s total workforce and men theme in the second half of 2007. The uncertainty as to how it 43%. The Group Management consists of 3 women and 6 men. would affect the global economy has resulted in a credit squeeze At other levels within the organisation men continue to be in the financial markets. Central banks around the world have over-represented in managerial positions. The Board will tried to limit its scope by increasing the supply of liquidity, but continue to aim for a more equal gender distribution and the long-term consequences are still uncertain. The American a separate committee has been set up to increase the number central bank has reduced its key rate greatly, while the expected of women in managerial positions within the bank. upswing in European interest rates has come to a halt.

External environment The Norwegian economy Sparebanken Vest has no resources or production methods are GNP grew by around 5.5% in 2007, which was twice as much used which directly pollute the external environment. The bank as experts had predicted a year earlier. Much of this was due encourages environmental awareness in relation to the use of to the increased influx of foreign labour and the high price of oil. paper, the management of waste and recycling. Unemployment was at a historic low rate. The high level of consumer spending therefore continued, and developments The bank has a broadly differentiated commercial portfolio and were also affected by the low but rising level of interest rates a number of companies with loans from the bank are engaged and good growth in income levels. These and other factors such in activities that affect the external environment. Thus, through as strong international growth and increased investment in the its business processes related to the assessment of creditworthi- petroleum sector contributed to the strength of the Norwegian ness, Sparebanken Vest is indirectly able to influence the external economy. Norges Bank increased its key rate seven times in environment, and it is an important factor in the bank’s 2007. Although there is much to indicate that interest rates have assessment of creditworthiness. peaked, price and wage inflation may lead to a further rise in the key rate in the course of the spring. The last months of 2007 In 2007 there were a number of gatherings and initiatives aimed saw some decline in the escalating price of houses, possibly at increasing the level of awareness within the bank of what is indicating that Norges Bank’s key rate increases have had the meant by sustainable development and how Sparebanken Vest desired effect in the housing market. can contribute to counteracting the negative effects of climate changes. The stock market was characterised by great volatility in 2007, while turbulence in the international credit market, the weak US In the autumn of 2007 Sparebanken Vest decided to allocate dollar and high oil prices reduced the prospect of further growth start capital of NOK 100 m to a climate fund. In addition to this, in the USA. In Norway, the Oslo Stock Exchange Main Index around NOK 16m was given in the form of grants for the public ended the year 11.5% higher, while the Morgan Stanley Global benefit in the climate sector. Index was 7.1% up and in the USA the Dow Jones Index rose by 6%.

Macro-economy and operating conditions As the year ended, the likely course of economic development was uncertain, and indications of a recession in the USA could The international economy also result in uncertainty in Norway. Expectations of some While the first half of 2007 was characterised by great optimism, decline in interest rates in the Eurozone in the first half of 2008 the prevailing sentiments in the second half of the year were could lead to a gradual strengthening of the Norwegian krone, uncertainty and less optimism due to financial turbulence in the and this in turn could help to keep the Retail Price Index below international financial markets. Substantial banking losses in the the target rate of inflation. USA due to the falling value of subprime housing loans resulted in rising credit premiums internationally. But, despite this, most Economic developments in Western Norway other industrialised countries experienced strong growth. Japan Economic growth in the region continued unabated in 2007 and the Eurozone, in particular, recorded substantial growth. and the level of optimism remains high.

60 The economic climate is buoyant, with rising earnings in most The bank expects that the proportion of home mortgage loans industries and strong demand for labour throughout the region will remain high, and this will also affect net interest income. in most sectors. Manpower is being increasingly recruited abroad, reflecting the continuing tight labour market. In 2007 The bank’s accounting practice is based on the IFRS regulations. the number of people in employment increased by 22 000 in the IFRS is largely based on the application of market prices and the counties of Rogaland, Hordaland and Sogn & Fjordane. The pace assessment of market conditions at the times when the accounts of growth is likely to be just as high in 2008. Factors which are presented. Increased uncertainty means the risk of more contributed to the growth were good influx of orders in the oil volatile market parameters, and this may entail fluctuations in and shipping industry, record low unemployment and a high the bank’s interim results. The bank’s losses may be expected to level of investment. As many as 70% of the companies in the be somewhat higher in 2008, compared with recent years. three counties mentioned expect a higher turnover in 2008. In 2008 the bank will participate in the launch of Frende Forsikring. The establishment of Frende has been well received in the market. The municipalities in Western Norway have also benefited With 14 independent savings banks, which together have almost from the high level of activity. Municipal economies are 660 000 customers and 170 sales outlets as a distribution improving and the number of municipalities which are in network, Frende is well placed to be a commercial success. economic imbalance has fallen sharply. Both the municipal sector and the commercial sector are likely to face the same The bank has decided to establish a credit company for challenges in 2008 in terms of rising costs and recruitment. ”especially well secured home loans” in order to utilise the scope for financing that companies of this kind can profit from. Prospects In 2008, the bank will introduce benefits programmes designed On the transition to 2008, the Norwegian economy was to secure its future earnings and competitiveness. While this will characterised by strong growth and a high level of employment. entail an increased consumption of resources, over time it will However, the uncertainty attached to economic developments be recouped through higher business volumes and increased is greater than it was only a relatively short time ago. income. Along with sound banking operations, expansion and The commercial sector in Western Norway is enjoying a high renewal are again expected to contribute to a satisfactory level of activity and is well placed for further development, and return on equity in 2008. the bank’s portfolio is well diversified. Vote of thanks to customers, business associates, Interest rates are expected to stabilise in 2008. In itself, elected representatives management and employees this will strengthen the banks’ net interest income since it will 2007 was an active year for the bank, calling for flexibility and eliminate the time-lag attached to repricing. On the other hand, great efforts throughout the organisation. The Board wishes to the future level of the credit spread is a matter of uncertainty. thank all customers, business associates, elected representatives, It is also likely that there will still be intense competition to management and employees for their strong spirit of attract customer deposits and cover their loan requirements. cooperation and good results.

Bergen, 31 December 2007/27 February 2008 The Board of Directors of Sparebanken Vest

Pål W. Lorentzen Anne Kverneland Bogsnes Anne Gine Hestetun Chairman Deputy Chairman

Jan O. Yttredal Inger Karin Larsen Øyvind A. Langedal

Gerd Kjellaug Berge Arve Havnerås Tone Mattsson

61 SKIING SUCCESS: Vestavinn, with skiing days at Eikedalen, Kvamskogen. A successful initiative arranged by Sparebanken Vest during the school winter holidays for boys and girls in the age group 13 -17.

62 Profit and Loss Account

Parent Bank Group

NGAAP 2005 2006 2007 Note 2007 2006 2005

1 859 2 365 3 654 Interest income etc. 3 642 2 359 1 883 884 1 319 2 521 Interest expenses etc. 2 516 1 317 911

975 1 046 1 133 Net interest income and credit commissions 4 1 126 1 042 972 368 399 422 Commissions receivable and income from banking services 422 399 368 79 78 75 Commissions payable and cost of banking services 75 78 79 100 224 233 Net gain on financial instruments 208 187 102 1 3 2 Other operating income 123 116 80 390 548 582 Net other operating income 6 678 624 471

1 365 1 594 1 715 Net operating income 1 804 1 666 1 443 652 656 677 Salaries and general administration expenses 7 767 739 708 47 49 56 Depreciation 17/18 68 63 59 123 133 144 Other operating expenses 8 138 119 115 822 838 877 Total operating expenses 973 921 882

543 756 838 Profit before write-downs and tax 831 745 561 (75) (48) (34) Write-downs and losses on loans and guarantees 11 (34) (48) (75)

618 804 872 Profit before tax 865 793 636 163 192 215 Taxes 9 215 190 161

455 612 657 Profit after tax 650 603 475 Minority interests 1

Profit for the year 649

Allocation of profit (43) (46) (48) Dividend on primary capital certificates (3) Transferred to reserve for valuation variances (2) 3 Transfered to/from revaluation reserve 309 (439) (462) Transferred to Sparebanken capital fund (100) (125) (150) Transferred to gift fund and/or gifts for the public benefit (455) (612) (657) Total allocations

17.25 20.47 19.19 Profit per PCC (based on the PCC proportion of capital base) 28 18.95 20.16 18.01

63 Balance Sheet

Parent Bank Group 1 January 31 December 31 December

2007 2007 2007 2006

Assets

563 1 810 Cash and deposits with central banks 1 810 563 226 555 Loans to and deposits with credit institutions 12 558 1 227 53 585 64 946 Net lendings 11 64 683 53 451 530 560 Shares at fair value over profit or loss 13/14 560 530 2 812 5 109 Commercial paper and bonds 15 5 109 2 812 67 67 Shares available for sale 13 67 67 1 009 1 140 Financial derivatives 1 140 1 009 8 22 Shareholdings in group companies 16 156 Shareholdings in associated companies 16 151 126 92 Deferred tax assets 9 81 112 24 247 Other intangible assets 17 263 37 109 113 Fixed assets 18 461 318 69 56 Prepaid expenses 11 47 33 Customer funds - contribution-based pension agreements 33 39 99 Other assets 121 59 60 167 75 005 Total assets 75 048 60 232

Liabilities and equity

1 219 2 781 Debt to credit institutions 21 2 781 1 219 31 162 37 656 Deposits 22 37 611 31 119 21 060 27 142 Securitised debt 23 27 142 21 060 1 361 1 419 Financial derivatives 1 419 1 361 153 141 Accrued expenses and prepaid income 141 147 228 189 Provisions and pension commitments 24 196 232 263 187 Tax provision 9 189 264 724 1 042 Subordinated loan capital 26 1 042 724 370 316 Other liabilities 209 308 56 540 70 873 Total liabilities 70 730 56 434

250 250 Primary capital certificates 28 250 250 (3) (3) Holdings of own primary capital certificates (3) (3) 2 2 PCC premium reserve 4 4 249 249 Total paid-up equity 251 251

107 104 Reserve for valuation variances 60 60 150 200 Gift fund 200 150 6 6 Equalisation reserve 6 6 3 115 3 573 Other equity 3 800 3 331 Minority interests 1 3 378 3 883 Total retained earnings 4 067 3 547

3 627 4 132 Total equity 4 318 3 798

60 167 75 005 Total liabilities and equity 75 048 60 232

64 Balance Sheet

Bergen, 31 December 2007/27 February 2008 The Board of Directors of Sparebanken Vest

Pål W. Lorentzen Anne Kverneland Bogsnes Anne Gine Hestetun Chairman Deputy Chairman

Jan O. Yttredal Inger Karin Larsen Øyvind A. Langedal

Gerd Kjellaug Berge Arve Havnerås Tone Mattsson

65 Statement of cash flows

Parent Bank Group 1 January - 31 December 1 January - 31 December

2006 2007 2007 2006 Cash flows from operations 2 582 3 743 Interest, commission and fee income 3 884 2 563 676 1 422 Interest, commissions and fees paid 1 434 683 16 17 Receivables from commitments previously written off 17 16 (2 481) (3 486) Net increase/decrease in instalment loans (3 354) (2 435) (4 270) (7 832) Change in utilised overdraft facilities (7 832) (4 270) 3 789 6 469 Net increase/decrease in customer deposits 6 456 3 800 287 375 Payments for goods and services 417 177 412 477 Payments to employees, pension schemes, national insurance, tax deductions etc. 581 468 220 273 Payment of taxes and public dues 273 229 (1 959) (3 636) Net cash flow from operations (3 534) (1 883)

Cash flow from investment activities 85 151 Sale of shareholdings and investments in other companies 151 85 117 10 Purchase of shareholdings and investments in other companies 10 80 4 974 8 331 Purchase of other short-term securities 8 331 4 974 4 918 6 108 Revenues from other short-term securities 6 108 4 940 16 25 Revenues from sale of securities, real estate etc. 25 12 10 199 Purchase of securities, real estate etc. 292 6 1 Revenues from sale of fixed assets etc. 1 2 54 202 Purchase of fixed assets etc. 209 46 (136) (2 457) Net cash flow from investment activities (2 557) (67)

Cash flow from financing activities 1 657 744 Net payments/revenues on loans to and receivables from other financial institutions 744 1 655 89 1 490 Net revenues/payments on deposits from Norges Bank and other financial institutions 1 490 88 319 305 Income from sale of securities for short-term trading purposes 305 118 242 305 Payments on purchase of securities for short-term trading purposes 305 171 2 700 Subordinated loan capital received 700 1 204 338 Payments related to subordinated loan capital 338 203 3 934 10 856 Income related to bond debt 10 854 3 934 3 163 6 019 Payments related to bond debt 6 019 3 163 72 108 Dividends paid / Gifts for the public benefit 108 74 10 15 Group contribution received 15 2 330 7 340 Net cash flow from financing activities 7 338 2 185

235 1 247 Net cash flow in period 1 247 235

235 1 247 Net change in cash and cash equivalents 1 247 235 328 563 Liquid assets at 1 January 563 328 563 1 810 Liquid assets at 31 December 1 810 563

66 Equity movements

Group PCC premium reserve PCC premium valuation for Reserve variances Gift fund Equalisation reserve Minority interests Other equity Total PCC capital Own holdings of PCCs

Equity at 1 January 2006 250 (7) 4 58 100 6 2 861 3 272

Sale of own PCCs 7 8 15 Purchase of own PCCs (3) (2) (5) Payment of dividends and gifts (88) (88) Allocation of profit for the year 2 50 552 604 Equity at 31 December 2006 250 (3) 4 60 150 6 0 3 331 3 798

Sale of own PCCs 6 3 9 Purchase of own PCCs (6) (7) (13) Payment of dividends and gifts (121) (121) Acquisitions (10) (10) Minority’s share of profit for the year 1 1 Intra-group dividends 3 3 Balance sheet correction IFRS 2 2 Allocation of profit for the year 50 599 649 Equity at 31 December 2007 250 (3) 4 60 200 6 1 3 800 4 318

Parent Bank 1) PCC premium reserve PCC premium Gift fund Equalisation reserve Reserve for valuation valuation for Reserve variances Other equity Total PCC capital Own holdings of PCCs

Equity at 1 January 2006 250 (7) 2 105 100 6 2 669 3 125

Sale of own PCCs 7 8 15 Purchase of own PCCs (3) (2) (5) Allocation of profit for the year 2 50 440 492 Equity at 31 December 2006 250 (3) 2 107 150 6 3 115 3 627

Sale of own PCCs 6 3 9 Purchase of own PCCs (6) (7) (13) Allocation of profit for the year (3) 50 462 509 Equity at 31 December 2007 250 (3) 2 104 200 6 3 573 4 132

1) Of this, unrealised gains on shares available for sale not posted in accounts amounted to NOK 60m at 31/12-07.

67 Notes

Note 1 ACCOUNTING PRINCIPLES

General The Sparebanken Vest Group comprises Sparebanken Vest and the subsidiary groups Eiendomsmegler Vest AS and Filialbygg AS. Sparebanken Vest was established in 1823 as Bergens Sparebank. With founding capital in the form of tradable primary capital certificates, the bank has been listed on the Oslo Stock Exchange since 4 January 1995. The bank is located in the counties of Hordaland, Sogn & Fjordane and Rogaland, and the head office is in Bergen. The head office address is: Kaigaten 4, NO-5016 Bergen. The consolidated accounts for 2007 are considered and adopted by the Corporate Assembly on 13 March 2008.

All amounts are stated in NOK million, unless stated otherwise. The individual notes refer to both the parent bank and the Group, unless stated otherwise.

ACCOUNTING PRINCIPLES • IFRIC 10, ‘Interim Financial Reporting and Impairment’. with International Financial Reporting Standards (IFRS) The standard does not permit the subsequent year-end adopted by the EU and published by the International reversal of value impairment affecting goodwill, equity Accounting Standards Board (IASB), and which were instruments or financial instruments which are stated at cost compulsory at 31 December 2007. With effect from and and are incorporated in the interim accounts. The standard including 2007 the company accounts have been prepared does not affect the Group’s consolidated accounts. in accordance with simplified IFRS, except for the posting of dividends, group contributions and other allocations related Standards, interpretations and amendments which took to the accounting result for the year. The company accounts effect in 2007 and which are not relevant for the Group the proposed dividend and gifts for allocation are posted in • IFRS 4, ‘Insurance contracts’ they year which provides the basis for the allocation. • IFRIC 7, ‘Applying the restatement approach under IAS With the implementation of IFRS, the bank has applied 29, ‘Financial reporting in hyper-inflationary economies’ assumptions which affect estimates of assets, liabilities, • IFRIC 9, ‘Re-assessment of embedded derivatives’ income, costs and information related to contingent liabilities. Future events may lead to changes in these RECORDING OF INCOME assumptions. The effect of these changes will be reflected Interest is included in the profit and loss account when in the accounts when the new estimates can be determined earned. Fees that are direct payment for services rendered with sufficient certainty. are taken to income when paid. Loan establishment fees which exceed the direct external cost of establishing the loan Changes to published standards effective in 2007 are amortised over the expected lifetime of the loan. • IFRS 7 ‘Financial instruments: Disclosures and related amendments in IAS 1 (Amendments), ‘Presentation of CONSOLIDATION financial statements – Capital disclosures’ introduced The consolidated accounts comprise the parent bank and new additional information related to financial subsidiaries where the parent bank is able to control the instruments. The standard does not affect the company’s operations. This normally the case where the classification or valuation of the Group’s financial parent bank directly or indirectly owns more than 50% of instruments, or supplementary information related the shares. The consolidated accounts are prepared applying to taxation or other liabilities. uniform accounting principles. Subsidiaries are incorporated • IFRIC 8, ‘Scope of IFRS 2’. Under IFRIC 8, based on IFRS and all internal transactions and intercom- transactions related to the issue of equity instruments, pany accounts payable and receivable are eliminated. where the consideration is lower than the fair value of equity instrument issued, shall be valued considering On the acquisition of subsidiaries the cost price of the whether they are covered by IFRS 2. The standard does shareholding in the parent company is eliminated against not affect the Group’s consolidated accounts. the equity of the subsidiary at the date of acquisition.

68 Note continues on next page Notes

Note 1 ACCOUNTING PRINCIPLES continued

The difference between the cost price and the net book Financial assets available for sale value is added to the assets to which the surplus value Financial assets available for sale are assets purchased relates. Any part of the cost price that cannot be added for a purpose other than profit- taking. to identifiable assets and liabilities represents goodwill. Investments in subsidiaries are recorded in the Financial assets which are available for sale and financial company accounts applying the cost method. assets stated at fair value through profit or loss are initially stated at fair value after the first-time entry in the balance ASSOCIATED COMPANIES sheet. The fair value of listed investments is based on the An associated company is a unit in the Group has market price at year-end. In the case of unlisted securities considerable influence, but not control. A considerable where there is no active market, the Group applies influence is deemed to exist in relation to investments when assessment techniques to determine fair value. the Group owns between 20% and 50% of the voting These techniques are based on the last issue price, traded capital. For accounting purposes, investments in associated prices known to us and discounted cash flows. In the case companies are recorded in the consolidated accounts of securities where there is no turnover, the value is based applying the equity method and in the company accounts on available accounting information, mainly in order to applying the cost method. At the date of purchase the assess the need to write down the item or write up its investment is posted at acquisition cost. value because of any obvious value appreciation.

SEGMENT INFORMATION Financial assets are removed from the balance sheet The Group’s activities are divided into two primary when the right to receive cash flows from the investment segments: banking activities in the Retail Market (RM) terminates or is transferred on realisation. and the Corporate Market (CM), as well as estate agency activities and other activities within the Group. Realised gains/losses and changes in assessed values of The secondary segment is defined as the geographical financial assets stated at fair value through profit or loss, location at county level. Note 3 provides information including dividends, are posted in the accounts under “Net about the distribution of income and expenses with gain/loss(-) on financial instruments” in the period when they related assets and liabilities for both the primary and arise. Changes in the value of equity instruments classified the secondary segments. The bank’s investments and as available for sale are posted directly against equity. related depreciation charges are not divided by segment When securities classified as available for sale are sold or but are part of the figure described as ”Unallocated written down, the aggregate value regulation that has been by segment”. posted against equity is posted in the profit and loss account as a profit or loss on investments in securities. Dividends from FINANCIAL ASSETS shares classified as available for sale are posted in the profit Financial assets are valued in accordance with IAS 39, and loss account when the Group’s right to the dividend has and the presentation is in accordance with IFRS 7. been established. Value changes in the period are posted in the profit and loss account, except for value changes related to Loans and accounts receivable financial assets that are available for sale which are posted Loans and accounts receivable are non-derivative financial against the reserve for valuation variances (equity). assets involving stipulated payments and which are not The date of the agreement has been chosen as the traded in an active market. Loans and receivables in the accounting date. balance sheet comprise floating-rate loans and loans with a built-in derivative. Financial assets stated at fair value through profit or loss This category has two subcategories: financial assets held Floating rate loans for trading purposes and financial assets initially classified Loans and losses are initially assessed at nominal value, plus at fair value through profit or loss. This is where we have direct transaction costs. In periods after the first assessment, classified shares and interest rate securities purchased lendings are assessed at amortised cost based on the effec- for profit-taking, or of such a nature that a sale would be tive interest rate method, as an expression of the fair value considered if a good offer was received. Financial assets of the loan. If there is objective evidence of a decline in the which are stated at fair value through profit or loss are value of an individual loan or groups of loans, the loans are posted at fair value on acquisition and the transaction written down. The amount of the write-down is calculated costs are charge against profits. as the difference between the balance sheet value and the Note continues on next page continues Note

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Note 1 ACCOUNTING PRINCIPLES continued

present value of future cash flows, based on the expected Group properties are initially stated at historical cost less lifetime of the loan. Write-downs are classified as depreciation over their expected lifetime. Different components a chargeable cost. with different lifetimes are required to be separated and depreciated individually. We have used the fair value option Interest income is taken to income on the basis of the effec- as the new cost price on implementation of IAS 16. tive interest rate method. In respect of commitments with As a result, new prices for separated items such as lifts, individually determined write-downs, the effective interest rate equipment and ventilation plant have been used along with is locked in case where a) the loan is not in default or b) the external valuations of the buildings. Surplus values on the changed rate is regardless of the fact that the loan is in default aforementioned basis are included in the acquisition cost. and interest rate change affects the expected cash flow. Where there has been a decline in the market value, the item in question is required to be written down and the effect is Fixed rate loans and loans with a built-in derivative posted in the profit and loss account. Fixed assets are stated Fixed rate loans and loans with a built-in derivative are at acquisition cost less accumulated ordinary depreciation. stated at fair value (FVO). Fair value is calculated by discounting the loan cash flow using the required rate Ordinary depreciation is based on the cost price and depreci- of return derived from the zero coupon curve. ation is on a straight line basis over the lifetime of the asset. The depreciation period and method is assessed each year Derivatives to ensure that the method and the period used are in line A derivative is a financial instrument with all of the following with the economic reality pertaining to the asset in question. characteristics: The ordinary depreciation charge for the year is included • The value of the instrument changes as a result in operating expenses for the year. of a change in the interest rate, the exchange rate or the price of the underlying object INTANGIBLE ASSETS • The instrument requires no or little initial investment Developed software • The profit or loss on the instrument is determined Software that has been developed is posted in the balance at a future date. sheet under intangible assets when the amounts involved are deemed to be material and the items are expected to have Derivatives are stated in the balance sheet at nominal value lasting value. In the development of software, costs related when the contract is made, and thereafter on a fair value to use of own resources, pre-planning, implementation and basis. Derivatives in the balance sheet include forward foreign training are charged in the profit and loss account. Software exchange transactions, forward rate agreements, interest that has been developed by the bank and posted in the rate swaps, foreign currency interest rate swaps, interest rate balance sheet is depreciated over the expected lifetime of options and share options (linked to bank deposits with a the item in question. There is continuous assessment of the stock exchange return). Realised gains/profits on changes in need for write-downs where the expected economic benefits the assessed value of derivatives are posted under “Net gain are less than the balance sheet value. on financial instruments” in the period when they arise. Goodwill FOREIGN EXCHANGE Goodwill is the difference between the cost price of an Receivables and accounts payable denominated in foreign acquisition and the fair value of the Group’s share of net currency are translated at the middle rate on the Oslo Stock identifiable assets of the business on the date of acquisi- Exchange at year-end. Income and expenses denominated tion. Goodwill posted in the balance sheet relates to estate in foreign currency are translated into Norwegian kroner at agency activities. Each year goodwill is tested for a possible the rates prevailing on the date of the transaction. Foreign decline in value and is posted in the balance sheet at exchange items are mainly hedged by matching them acquisition cost less write-downs. against corresponding items on the other side of the balance sheet, or through off-balance sheet hedging items. Customer portfolio The value of the customer portfolio is part of the cost price FIXED ASSETS of acquisitions. The value is set as the future cash flow and All of the Group’s properties are considered to be operating disregarding the customer’s right to renewal. The customer assets for own use and the accounting treatment is in portfolio is depreciated on a straight -line basis over the accordance with IAS 16. expected remaining contract period.

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FINANCIAL LIABILITIES and to the statement on accounting principles and the Financial liabilities at a floating rate are stated at amortised description of techniques used. cost. Amortised cost is defined as the initial amount of the instrument less repayments of principal, with an addition or Write-down on loans deduction for accumulated amortisation of all differences Write-downs will be made if objective evidence of between the initial amount and the nominal amount, less all impairment can be identified. If the there is objective write-downs. Amortisation is based on the effective interest evidence of a decrease in value of a loan or groups of loans, rate method. the loans are written down. The amount of the write-down is calculated as the difference between the balance sheet value Financial liabilities at a fixed rate of interest are stated at and the present value of future cash flows taking account fair value (FVO). This applies to bond debt and perpetual of the effective rate of interest and the expected lifetime of subordinated loans. In the case of indexed bonds and the loan. Reference is made to the statement of accounting deposits, the derivative is separated from the main contracts principles and the notes on loans. and posted separately. Bonds and deposits are stated at fair value (FVO) and the option is classified and posted in the Pension commitments balance sheet among other derivatives. The net present value of pension commitments depends on current economic and actuarial assumptions. Fair value is calculated by discounting the loan cash flow Any change made to these assumptions affects the pension using the required rate of return derived from the zero commitment amount recorded in the balance sheet and coupon curve. The credit spread on interest-earning the pension expense. securities is changed on the basis of an overall assessment which takes account of observed turnover in the market, The calculation is based on guidelines on assumptions credit margin reports from various brokers, and internal issued by the Norwegian Accounting Foundation. evaluations. A change in the credit spread will affect the Reference is made to note 24 Pension Commitments. required rate of return as the supplement attached to the zero coupon curve will be changed. TAXATION Deferred tax and deferred tax assets are stated in the Buy-backs of the bank’s own bonds for debt reduction balance sheet in accordance with IAS 12 Deferred Tax. purposes are posted net against bond debt. The tax charge in the profit and loss account includes both the tax payable for the period and the change in deferred IMPORTANT ASSESSMENTS MADE IN RELATION TO tax. Deferred tax/deferred tax assets are calculated at a tax THE GROUP’S ACCOUNTING PRINCIPLES rate of 28% on the basis of timing differences between In applying accounting principles related to certain IFRS values for accounting and taxation purposes at year-end. accounting standards, the Group makes evaluations based Taxable and tax-deductible timing differences which are on its own judgement. reversed or can be reversed within the same time interval are netted against each other and entered net. Estimates and assumptions represent a considerable risk of major changes in the balance sheet value of assets and Deferred tax assets are posted in the balance sheet on the liabilities, the most important of which are discussed below. basis of expectations of taxable income through earnings in future years. Impairment of goodwill The Group tests annually whether goodwill gas suffered any Tax payable in the balance sheet relates to the tax on the impairment, as referred to in the accounting principles and profit for the year, tax payable on capital assets, and tax in the note on intangible assets. Tests of impairment are linked to the group contribution received. carried out by measuring the development of business activity in the region in the light of other activities. PENSION COMMITMENTS Pension commitments are calculated in accordance with IAS 19. Fair value of financial instruments, including derivatives Economic assumptions used to calculate the pension The fair value of financial instruments that are not commitments are updated at year-end, including the traded in an active market is determined by using discount rate which is based on year-end market rates. various valuation techniques. Reference is made to IAS 19 permits the effect of divergence between estimated the note on financial assets and commitments, and actual assumptions to be entered in a “corridor”. Note continues on next page continues Note

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Note 1 ACCOUNTING PRINCIPLES continued

Deviations from estimates and assumptions are STATEMENT OF CASH FLOWS measured against the larger of gross pension commitments The statement of cash flows is prepared on the basis of gross and total pension fund assets. If the deviations exceed 10% cash flows from operations, investment and financing activities. of the basis of measurement, the difference is amortised over the average remaining period of service. Cash flows from operations are defined as ongoing interest related to customer borrowings and deposits, net receipts/ The bank’s net pension commitments are calculated payments related to lending and deposit activities, and posted as a long-term liability in the accounts. and payments related to the cost of ordinary operations. Net pension commitments are the difference between gross pension commitments (the present value of expected future Investment activities are defined as cash flows from pensions) and the balance on pension funds assets in the securities transactions apart from the trading portfolio, insurance fund and the pension premium fund. The figure as well as purchases of fixed assets and real estate. for net pension commitments corrected for deviations from estimates and changes in pension assumptions, including Cash flows from other securities transactions, the issue and employer’s nation insurance contributions, appears in the repayment of subordinated loans, bond debt and equity balance sheet. are defined as financing activities.

The pension charge for the year is stated net in the profit EQUITY and loss account under «Salaries and general administration Equity consists of paid up PCC capital, the PCC premium expenses». reserve, own holdings of PCCs, the equalisation reserve, the Sparebanken capital fund, the gift fund and the reserve COMMITMENTS / PROVISIONS for valuation variances. A provision for restructuring has been made in accordance with IAS 37. The provision meets the requirement that a When the bank purchases its own PCCs, the purchase price, commitment exists as a result of a previous event, and there including direct costs, is posted as a reduction of equity. is a high probability that the commitment will have to be The nominal value of the bank’s own holdings of PCCs is met. The provision has been calculated as the present value posted as a reduction of paid up equity, while the remainder of future payments required to meet the commitment. is posted as a reduction of retained earnings.

The proposed dividend and gifts for distribution had The reserve for valuation variances relates to changes not been formally decided at year-end and thus do not in the value of financial assets classified as available for sale. meet the criteria for what constitutes a commitment In the parent bank, the reserve for valuation variances also under IAS 37. includes changes in the value of financial assets where the principles used for value determination in IFRS diverge from In the company accounts, dividends and gifts are posted the principles set out in Good Accounting Practice. in the financial year which provides the basis for the allocation. In accordance with the regulations governing primary capital certificates, the basis for payment of dividends and gifts is POST BALANCE-SHEET EVENTS limited to the profit for the year. Events after the balance sheet date are disclosed in accordance with IAS 10. The information relates to events In the consolidated accounts, the proposed dividend and which are not included in the Group’s financial accounts, gifts for distribution are classified as part of equity until but which are of such a kind that they are material for an the final resolutions have been adopted by the Corporate assessment of the business. Assembly.

72 Notes

Note 2 IMPLEMENTATION OF IFRS IN THE COMPANY ACCOUNTS

Implementation effect posted against profits 2006

Profit NGAAP 552 Effects of transition to IFRS

Fair value of changes related to shares 61 Fair value of changes related to commercial paper and bonds (1) Product margin/subscription fee for share-indexed bonds 15 Fair value of lendings (60) Fair value of deposits (17) Fair value of financial debt 197 Fair value of derivatives (136)

Shareholdings in subsidiaries, assessed at cost (28) Group contribution 27 Deferred tax 2

Profit IFRS 612

Implementation effect posted against equity 2007 2006

Parent Bank equity at 1/1 NGAAP 3 485 3 038 Effects of transition to IFRS

Fair value of changes related to shares 189 126 Fair value of changes related to commercial paper and bonds 2 4 Product margin/subscription fee for share-indexed bonds (5) (26) Fair value of lendings 60 Fair value of financial debt 209 38 Fair value of deposits 262 132 Fair value of derivatives (515) (255)

Shareholdings in subsidiaries, assessed at cost (9) (9) Deferred tax 13 7 146 77 Parent Bank equity at 1/1in accordance with IFRS 3 631 3 115 Equity movements 1Q - 4Q Purchase/sale of own PCCs (4) 10 Parent Bank equity movements at 1/1 in accordance with IFRS 3 627 3 125

A simplified IFRS was implemented in the company accounts at 1/1-07. In accordance with IFRS requirements, the comparative figures have been restated and the effects of posting differences against equity have been incorporated from 1/1-06 for purposes of comparison.

73 Notes

Note 3 Segment information

Primary report: Banking activity Capital market/ Capital unallocated Bank Parent Total Agency Activities Estate Other group companies Group Total Corporate Market Corporate Market Retail

Profit and Loss Account

2007

Net interest income 314 649 170 1 133 4 (11) 1 126 Operating income 63 315 204 582 104 (8) 678 Operating expenses (86) (318) (473) (877) (88) (8) (973) Losses 9 23 2 34 34 Pre-tax profit 300 669 (97) 872 20 (27) 865 Taxes (215) (215) (215) Profit after tax 300 669 (312) 657 20 (27) 650

2006

Net interest income 272 669 105 1 046 (4) 1 042 Operating income 55 291 192 538 85 1 624 Operating expenses (74) (294) (470) (838) (69) (14) (921) Losses 38 8 2 48 48 Pre-tax profit 291 674 (171) 794 16 (17) 793 Taxes (182) (182) (8) (190) Profit after tax 291 674 (353) 612 16 (25) 603

Operating income and expenses are allocated directly, with the exception of staff-related costs and depreciation. Net interest is allocated on the basis of internationally calculated intra-group interest based on 3-month NIBOR.

Balance Sheet

2007

Net lendings 14 462 50 234 64 696 (13) 64 683 Other assets 10 309 10 309 86 (26) 10 369 Deposits 11 610 24 378 1 668 37 656 (45) 37 611 Other liabilities and equity 37 349 37 349 70 22 37 441

2006

Net lendings 11 145 42 234 206 53 585 (134) 53 451 Other assets 6 582 6 582 50 149 6 781 Deposits 9 117 21 247 798 31 162 (43) 31 119 Other liabilities and equity 29 005 29 005 50 58 29 113

74 Notes

Note 3 Segment information continued

Secondary report:

Profit and Loss Account

2007 Hordaland Sogn & Fjordane Rogaland Total Net interest 1 003 121 2 1 126 Operating income 631 46 1 678 Operating expenses (907) (56) (10) (973) Losses 33 1 34 Pre-tax profit 760 112 (7) 865

2006 Net interest 943 98 1 1 042 Operating income 587 37 624 Operating expenses (869) (41) (1) (911) Losses 48 48 Pre-tax profit 709 95 0 803

Balanse

2007 Net lendings 55 080 8 620 983 64 683 Other assets 10 327 37 5 10 369 Deposits 33 248 4 222 141 37 611 Other liabilities and equity 32 159 4 435 847 37 441

2006 Net lendings 47 918 5 395 138 53 451 Other assets 6 745 36 6 781 Deposits 28 221 2 879 19 31 119 Other liabilities and equity 29 110 3 29 113

75 Notes

Note 4 Net interest income and credit commissions

Parent Bank Group 1 January - 31 December 1 January - 31 December

NGAAP 2005 2006 2007 2007 2006 2005 48 43 74 Interest etc. on loans to and deposits with credit institutions 74 42 48 1 750 Interest etc. on loans to and receivables from customers: 2 132 3 147 - stated at amortised cost 3 135 2 127 1 676 101 270 - voluntarily stated at fair value through profit or loss 270 101 98 Interest etc. on commercial paper, 61 89 163 bonds and other interest-earning securities 163 89 61 1 859 2 365 3 654 Total 3 642 2 359 1 883

21 33 72 Interest etc. on loans from credit institutions 75 34 21 395 Interest. etc. on deposits and loans from customers 543 1 099 - stated at amortised cost 1 091 540 367 419 Interest etc. on securities issued 358 696 - stated at amortised cost 696 358 270 296 374 - voluntarily stated at fair value through profit or loss 374 296 264 49 Interest payable on subordinated loan capital 27 27 - stated at amortised cost 27 27 28 28 26 - voluntarily stated at fair value through profit or loss 26 28 29 34 227 Other interest and similar costs 1) 227 34 (68) 884 1 319 2 521 Total 2 516 1 317 911 975 1 046 1 133 Net interest income and credit commissions 1 126 1 042 972

1) Interest from derivative contracts made to manage the interest rate risk attached to the bank’s ordinary portfolios is classified as interest income and posted as an adjustment of the bank’s other interest income/interest expenses.

Note 5 Interest on individual balance sheet items

Parent Bank Average rate of interest as a percentage 1) Average volume

2007 2006 2007 2006 Assets Loans to and deposits with credit institutions 4.31 2.59 1 709 1 661 Loans to customers 5.73 4.45 59 866 50 170 Commercial paper and bonds 4.82 3.13 3 391 2 839 Liabilities Debt to credit institutions 4.25 2.86 1 575 1 162 Customer deposits 3.51 2.06 34 326 28 390 Securitised debt 4.85 3.12 24 061 20 177

1) The average rate of interest is calculated as the interest as a percentage of average capital.

76 Notes

Note 6 Net other operating income

Parent Bank Group 1 January - 31 December 1 January - 31 December

NGAAP 2005 2006 2007 2007 2006 2005 12 14 19 Guarantee commissions 19 14 12 203 209 210 Payment transfer charges/interbank credit charges 210 209 203 153 176 193 Other commissions and fees receivable 193 176 153 Commission income receivable 368 399 422 and income from banking services 422 399 368

39 40 40 Payment charges/BBS/EFTPOS 40 40 39 26 24 22 Payment transfer charges/interbank debit charges 22 24 26 14 14 13 Other commissions and fees payable 13 14 14 79 78 75 Commission income payable and cost of banking services 75 78 79

19 34 26 Dividends 26 34 19 22 37 25 Income from owner interests in group companies Income from owner interests in associated companies (4) 19 (5) (6) Gain/(loss) on commercial paper and bonds (6) (5) (1) 24 97 94 Gain/(loss) on shares and securities 98 97 55 (131) 87 Gain/(loss) on financial derivatives 87 (131) (31) 16 16 23 Gain/(loss) on foreign exchange 23 16 16 Net gain/(loss) on financial instruments voluntarily stated at fair value through profit or loss 1) (55) (37) - lendings (37) (55) (52) (9) (82) - deposits (82) (9) (16) 11 - debt to credit institutions 11 183 44 - securitised debt 44 183 103 18 (5) - subordinated loan capital (5) 18 (19) 39 53 Product margin, amortised 53 39 28 100 224 233 Net gain on financial instruments *) 208 187 102

Real estate operating income Brokerage fees 119 102 77 1 3 2 Other operating income 4 14 3 1 3 2 Other operating income 123 116 80 390 548 582 Net other operating income 678 624 471

*) Of which trading portfolio: 3 4 Dividends 4 3 3 33 10 Gain on shares and other securities with a variable return 10 33 25 7 7 Gain/(loss) on financial derivatives 7 7 (6) 5 8 Gain on foreign exchange 8 5 4

1) See notes 11, 21, 22, 23 and 26

77 Notes

Note 7 SALARIES AND GENERAL ADMINISTRATION EXPENSES

Parent Bank Group 1 January - 31 December 1 January - 31 December

NGAAP 2005 2006 2007 2007 2006 2005 350 316 358 Salaries 421 366 383 44 59 13 Pensions 1) 14 63 46 58 57 65 Social security contributions 76 65 64 200 224 241 Administration expenses 256 245 215 652 656 677 Total 767 739 708

1) See note 24

The average number of employees in 2007 was 701 for the Parent Bank and 784 for the Group.

Salaries and other benefits received by senior employees

Senior employees are defined as members of the Group Management.

The information relates to the annual salary at 31/12-07, total taxable benefits charged and paid in 2007, the calculated accrued bonus for 2007 which is payable in 2008 and calculated earned pension rights in 2007 ( figures in brackets are for 2006).

The bonus is linked to the actual return on equity and the target achievement rate using a Balanced Score Card. The upper limit for 2006 is 26% of salary. The earned pension includes the pension rights earned under the bank’s company pension scheme as well as the pension accruing as a member of the top hat scheme. Please refer to note note 24 “Pensions” for details of the pension schemes.

Bonuses accrued/charged in 2006 were paid in 2007 and not included in this information.

At 31/12-07 the managing director, Stein Klakegg, had an annual salary of NOK 1 969 000 and in 2007 received aggregate taxable benefits of NOK 2 173 000 (1 866 000). The accrued bonus for 2007 has been charged and calculated at NOK 461 000 (410 000) and is payable in 2008. Pension rights earned in 2007 are calculated at NOK 896 000 (754 000).

At 31/12-07 the deputy managing director, Jan Erik Kjerpeseth, had an annual salary of NOK 1 375 000 and received aggregate taxable benefits of NOK 1 614 000 (1 192 0002) in 2007. The accrued bonus of for 2007 was charged and calculated at NOK 351 000 (298 000) and is payable in 2008. Pension rights earned in 2007 ar calculated at NOK 306 000 (118 000).

The corresponding information, in the same order, for other senior employees is as follows: Director of Corporate Market Division NOK 1 200 000, NOK 1 288 000 (613 0002), NOK 282 000 (205 000) and NOK 376 000 (124 000); Director of Retail Market Division NOK 1 125 000, NOK 1 136 000 (513 0002), NOK 280 000 (208 000) and NOK 418 000 (159 000); Director of Legal Division NOK 1 050 000, NOK 1 236 000 (1 057 000), NOK 253 000 (218 000) and NOK 497 000 (288 000); Director of Business Support NOK 1 024 000, NOK 1 133 000 (1 112 000), NOK 262 000 (185 000) and NOK 441 000 (211 000); Direktør of Corporate Communications NOK 1 008 000, NOK 1 144 000 (1 107 000), NOK 255 000 (221 000) and NOK 379 000 (142 000); Director of Capital Market NOK 1 200 000, NOK 992 000, NOK 294 000 and NOK 342 000; Personnel Director NOK 1 100 000, NOK 1 309 000, NOK 268 000 and NOK 447 000.

The Director of the Capital Market commenced employment on 15/3-07 and the Personnel Director on 5/2-07.

2) From 1/7 - 31/12-06

The former managing director has a severance pay agreement for 2 years for a maximum of NOK 3m, effective from the first quarter of 2006. In 2007 the salary and other benefits totalled NOK 1 946 000 (1 861 000) while pension rights came to NOK 930 000 (531 000).

The salary paid to the managing director, the deputy managing director and the chief internal auditor is set by the Board of Directors, while the managing director determines the salary of the other senior management after consultation with the Remuneration Committee.

78 Notes

Note 7 SALARIES AND GENERAL ADMINISTRATION EXPENSES continued

Elected officers (NOK) 2007 2006 Total Board of Directors Board fees Additional fees Total remuneration remuneration Pål W. Lorentzen, chairman 320 000 10 500 330 500 335 500 Anne Kverneland Bogsnes, deputy chairman From May 2007 106 666 106 666 Anne Gine Hestetun 120 000 7 000 127 000 134 000 Jan O. Yttredal 120 000 120 000 120 000 Inger Karin Larsen 120 000 120 000 120 000 Øyvind A. Langedal From May 2007 80 000 80 000 Gerd Kjellaug Berge From May 2007 80 000 80 000 Arve Havnerås 120 000 120 000 120 000 Tone Mattsson 120 000 120 000 130 000 Erik Bøckmann Until May 2007 53 333 53 333 162 500 Erling Mjelde Until May 2007 40 000 40 000 120 000 Geir Navarsete Until May 2007 40 000 40 000 120 000 Total 1 319 999 17 500 1 337 499 1 362 000

Board fees and additional fees for participation in committees is pursuant to a resolution of the Corporate Assembly.

2007 2006 Total Control Committee Remuneration Total remuneration remuneration Anne Marit Steen, chairman 106 666 106 666 60 883 Kjell Steinsbø 90 000 90 000 90 000 Liv Henjum 80 000 80 000 80 000 Roald Korsøen From May 2007 53 333 53 333 Lillian Torsvik Until May 2007 26 666 26 666 104 166 Anne Kverneland Bogsnes Until May 2007 40 000 40 000 103 333 Total 396 665 396 665 438 382

Remuneration to the Corporate Assembly of the parent bank totalled NOK 105 000 (2006: NOK 125 000, 2005: NOK 135 000). Additional to this are attendance fees of NOK 643 500 (2006: NOK 594 500 2005: NOK 611 500).

Parent Bank Loans and guarantees to Managing Director Group 2006 2007 and Dep. Managing Director (NOK 1 000) 2007 2006 2 790 2 752 Managing director Stein Klakegg 2 752 2 790 4 346 5 570 Deputy managing director Jan Erik Kjerpeseth 5 570 4 346 The loans are on standard terms for employees

Loans and guarantees to elected officers (NOK 1 000), Parent Bank Chairman of the Board of Directors 28 29 Pål W. Lorentzen 29 28 The loans are on standard terms for employees

Loans to members of the Board of Directors i.a. 2 186 Øyvind A. Langedal 2 186 i.a. The loans are on standard customer terms

Employee representatives 1 264 1 360 Arve Havnerås 1 360 1 264 1 298 1 405 Tone Mattsson 1 405 1 298 The loans are on standard terms for employees.

Chairman of the Corporate Assembly 196 46 Arne Buanes 46 196 The loans are on standard customer terms

718 456 745 622 Total loans and guarantees to employees (NOK 1 000) 3) 868 200 807 782

Total loans and guarantees to other members of the Corporate Assembly and Control Committee (NOK 1 000) 8 974 6 998 Corporate Assembly 4) 6 998 8 974 614 0 Control Committee 0 614

3) Excluding the managing director, deputy managing director and employee representatives.

4) Excluding the chairman of the Corporate Assembly, members of the Board of Directors, Control Committee and employee representatives.

The cost of subsidising the interest rate on laons to the employees is not booked as an operating expense and affects the bank’s net interest income. Loans to employees are subsidised in the form of a 25% rebate on ordinary customer terms.

79 Notes

Note 8 OTHER OPERATING EXPENSES

Parent Bank Group 1 January - 31 December 1 January - 31 December

NGAAP 2005 2006 2007 2007 2006 2005 1 1 Real estate operating expenses 14 1 79 78 80 Office rental and other running costs 39 9 10 9 7 7 Fixed assets charged against income 27 11 13 35 37 46 Other operating expenses 48 88 85 10 10 Capital taxes 10 10 7 123 133 144 Total 138 119 115

2005 2006 2007 Fee to elected auditor (NOK 1 000) 2007 2006 2005 1 187 1 025 963 Audit fee 1 326 1 163 1 187 85 288 291 Letters of confirmation 291 288 85 30 15 Taxation advisory services 15 16 30 668 227 761 Other services 1 004 227 668 1 970 1 540 2 030 Total 2 636 1 694 1 970

Fees are inclusive of value added tax. Letters of confirmation includes quality control of the internal audit. In 2007, other services includes work related to Basel II / ICAAP NOK 342 000 and other assistance NOK 419 000 and in 2006 and 2005 mainly the implementation of IFRS.

Note 9 Taxes

Parent Bank Group

2005 2006 2007 Tax charge for the year 2007 2006 2005 212 250 181 Tax payable 178 254 216 (49) (58) 34 Change in deferred tax 36 (64) (55) 163 192 215 Tax charge for the year 215 190 161

618 804 872 Pre-tax profit 865 793 636

173 225 244 28% tax on pre-tax profits 242 223 178 Tax on capital assets charged against profits, 3 3 non-deductible 3 3 2 (18) (38) (34) Non-taxable income (33) (39) (20) 1 2 2 Non-deductable costs 3 3 1 (4) Correction for deferred tax (4) 7 4 Insufficient tax provision 4

163 192 215 Tax charge 215 190 161

26 % 24 % 25 % Effective rate of tax 25 % 24 % 25 %

2005 2006 2007 Change in deferred tax assets in the balance sheet: 2007 2006 2005 72 55 126 Balance sheet value at 1 January 112 48 (6) Diff. between closing balance 06 and opening 4 balance 07 posted in profit and loss account 4 49 58 (38) Posted in profit and loss account (35) 64 55 (66) 13 Changes posted against equity 55 126 92 Balance sheet value at 31 December 81 112 48

The calculation of deferred tax /deferred tax assets is based on the timing differences between the accounting and taxation values at year-end and the tax loss to be carried forward. 80 Notes

Note 9 Taxes continued

Group

Deferred tax assets relates the following timing differences: 2007 Change 1/1-07 31/12-06 Change 1/1-06

Financial instruments 150 93 57 58 19 38 Pension commitments 51 (13) 64 64 4 60 Other liabilities 21 4 17 17 (3) 20 Total deferred tax assets 222 84 138 139 20 118

The deferred tax liability relates to the following timing differences:

Profit and loss account 4 4 4 1 3 Fair value option 125 125 Long-term foreign currency items (2) 2 2 (37) 39 Lendings 8 (7) 15 20 (9) 24 Goodwill 4 3 1 1 (4) 5 Total deferred tax liability 141 119 22 27 (48) 70

Net deferred tax assets 81 (35) 117 112 68 48

Parent Bank

Deferred tax assets relates the following timing differences: 2007 Change 1/1-07 31/12-06 Change 1/1-06

Financial instruments 150 106 43 44 18 25 Pension commitments 50 (13) 63 63 4 59 Fixed assets 9 9 9 (2) 11 Profit and loss account 1 1 1 2 Other liabilities 20 2 17 17 (3) 20 Implementation effect posted against equity at 1/1-2007 (13) 13 13 13 Total deferred tax assets 229 83 147 148 18 116

The deferred tax liability relates to the following timing differences:

Fair value option 125 125 Long-term foreign currency items (2) 2 2 (37) 39 Lendings 8 (7) 15 20 (3) 23 Goodwill 5 5 Total deferred tax liability 137 120 17 22 (40) 62

Net deferred tax assets 92 (38) 130 126 58 55

Of the change in deferred tax assets amounting to NOK 38m, NOK 3.5m was posted in the profit and loss account as a change related to 2006.

Net deferred tax assets are posted in the balance sheet as earnings are expected in future years, or a realistic tax situation which will make it possible utilise these assets.

Posted in the balance sheet of the parent company are the deferred tax assets related to an intra-group transfer of real estate in 2002. At 31/12-2007 these tax assets amounted to NOK 4m.

In accordance with the exception provided for in IAS 12, the deferred tax liability relating to the takeover of value added tax on the property in Jonsvollskvartalet AS has not been posted in the profit and loss account. This amounts to NOK 33m.

81 Notes

Note 10 FAIR VALUE OF FINANCIAL INSTRUMENTS

Method of valuation and accounting principles: See description in Note 1 - Accounting Principles

31/12-07 31/12-06

Note Balance sheet value Fair value Balance sheet value Fair value

Assets Cash and deposits with central banks 1 810 1 810 563 563

Loans to and deposits with credit institutions 12 558 558 1 227 1 227

Loans to customers at fair value 11 7 068 7 068 3 581 3 581 Loans to customers at amortised cost 57 615 57 615 49 870 49 870

Shares at fair value through profit or loss 13/14 560 560 530 530

Shares available for sale 13 67 67 67 67

Commercial paper and bonds 15 5 109 5 109 2 812 2 812

Financial derivatives 1 140 1 140 1 009 1 009 Total 73 927 73 927 59 659 59 659

Liabilities Debt to credit institutions at fair value 21 150 150 166 166 Debt to credit institutions at amortised cost 2 631 2 629 1 053 1 053

Customer deposits at fair value 22 2 820 2 820 2 361 2 361 Customer deposits at amortised cost 34 791 34 791 28 758 28 758

Securitised debt at fair value 23 8 983 8 983 8 897 8 897 Securitised debt at amortised cost 18 159 18 104 12 163 12 160

Financial derivatives 1 419 1 419 1 361 1 361

Subordinated loan capital at fair value 26 359 359 406 406 Subordinated loan capital at amortised cost 683 649 318 320 Total 69 995 69 904 55 483 55 482

Off-balance sheet items: Contingent liabilities: Guarantees etc. 1 732 1 092 Mortgages etc. 4 506 2 240

Part of the bank’s funding in the bond market consists of bond loans at a fixed coupon rate. In order to reduce the interest rate risk the bank has entered into interest rate swap agreements. These agreements are stated at fair value in the consolidated balance sheet. In order to ensure that the consolidated balance sheet gives a balanced picture, bond funding at a fixed coupon rate is stated at fair value (FVO). In connection with the reduction in the market risk related to these indexed products, derivative agreements have also been entered into with other financial institutions. The derivative agreements are stated at fair value and as an opposite entry the bank has therefore chosen to state the indexed products at fair value (FVO). The interest rate risk attached to the bank’s fixed interest loans to customers has been partly reduced through interest rate swap agreements. In order to ensure that the consolidated balance sheet gives a balanced picture, fixed rate loans to customers are stated at fair value (FVO).

82 Notes

Note 10 FAIR VALUE OF FINANCIAL INSTRUMENTS continued

Financial derivatives

Financial derivatives are agreements entered into with financial institutions and customers in order to set interest rates, foreign exchange rates and the value of equity instruments for specific periods.

Valuation and accounting principles All derivatives are stated at fair value and any transaction gain/loss is classified as a net gain/loss on financial instruments. Interest from derivatives established in order to manage the interest rate exposure attached to the bank’s ordinary portfolios is classified as interest and posted as an adjust- ment of the bank’s other interest income/expenses.

Sparebanken Vest has used the following financial derivatives in the course of the year:

Forward foreign exchange transactions These are agreements to purchase or sell a specific amount of foreign currency at an agreed exchange rate.

Interest rate contracts comprise: - Forward Rate Agreements (FRA) which stipulate a certain rate of interest on a nominal amount for a future period of time. - Interest rate swaps which are agreements to exchange interest rates (fixed for floating) for a specific amount over a given period of time. - Interest rate (call) options which give the buyer the right to receive from the seller the difference between the market rate and an agreed rate of interest for a specific amount over a given period. - Interest rate (put) options which give the buyer the right to receive from the seller the difference between the market rate and an agreed rate of interest, if the market rate is lower than the agreed rate, for a specific amount over a given period.

Options The bank’s holdings of options relates to bank deposits with a stock exchange return and the issue of share index linked bonds to customers. All indexed products sold to customers are secured against corresponding holdings in the market, and the bank’s open position related these options is very limited.

31/12-07 31/12-06

Credit Nominal Positive Negative Nominal Positive Negative Financial derivatives ekvivalent value market value market value value market value market value

FRA 57 000 7 7 50 000 24 13 Interest rate swaps 116 22 070 181 554 19 084 179 552 Options/Cap/Floor/Collar/Swaption 5 639 30 31 4 547 16 18 Other Total interest rate instruments 84 709 218 592 73 631 219 584

Options 294 6 249 775 761 7 800 747 739 Other Total equity-related contracts 6 249 775 761 7 800 747 739

Forward exchange transactions 128 12 756 147 66 13 247 43 38 Other Total currency-related contracts 12 756 147 66 13 247 43 38 Total listed contracts 0 0 0 0 0 0 Total OTC derivatives 103 714 1 140 1 419 94 678 1 009 1 361

83 Notes

Note 11 LOANS

Parent Bank Group

2006 2007 2007 2006 Distribution of loans by sector - nominal amount of loan principal 5 759 13 073 Overdraft facilities 13 073 5 759 801 1 319 Building loans 1 319 801 43 533 43 472 Instalment loans 43 209 43 399 50 093 57 864 Gross loans to customers 57 601 49 959 (74) (40) Individual loan write-downs (40) (74) 50 019 57 824 Loans to customers after individual write-downs 57 561 49 885 136 179 Accrued interest 179 136 (18) (21) Amortisation (fees etc.) (21) (18) (133) (104) Group write-down of loans (104) (133) 50 005 57 878 Loans to and receivables from customers at amortised cost 57 615 49 870

3 568 7 085 Loans to and receivables from customers - nominal amount of loan principal 7 085 3 568 13 21 Accrued interest 21 13 (38) Adjustment to fair value (38) 3 581 7 068 Loans to and receivables from customers at fair value 7 068 3 581 53 586 64 946 Loans to and receivables from customers 64 683 53 451

Loans to customers stated at fair value with value change posted in profit and loss account 2 137 3 581 Book value at 1 January 3 581 2 137 1 444 3 525 Net addition/reduction 3 525 1 444 (38) Value change in period (38) 3 581 7 068 Book value at 31 December 7 068 3 581

Market distribution of loans 42 063 50 085 Wage earners 50 085 42 063 11 555 14 741 Commercial activity 14 478 11 421 42 123 Public sector 123 42 53 660 64 949 Gross loans and receivables 64 686 53 526 149 200 Accrued interest 200 149 (18) (21) Amortisation (fees etc.) (21) (18) (38) Adjustment to fair value (38) (74) (40) Individual loan write-downs (40) (74) (133) (104) Group write-down of loans (104) (133) 53 585 64 946 Loans to and receivables from customers 64 683 53 451

Of which subordinated loan capital 43 43 Subordinated loans to other financial institutions 43 43 43 43 Subordinated loans booked under lendings 43 43

The net gain/(loss) on loans stated at fair value is included in the gain/(loss) of financial instruments voluntarily stated at fair value through profit or loss (note 6)

84 Note continues on next page Notes

Note 11 Loans continued

Credit risk The credit risk is the risk of loss if the bank’s customers are unable to meet their obligations related to loans, credit facitlites, guarantees and the like. The credit risk is managed on the basis of targets set for risk profile, rate of return and growth. A key element in quantification of the bank’s risk profile is calculation of the default probability for individual customers and portfolios, - see below. The target rate of return is based on the Return on Risk- Adjusted Capital (RORAC). The concentration risk is managed on the basis of the targets set for the proportion for each sector, the largest individual commitments and the overall figure set for major commitments.

Risk classification of loans and guarantees Sparebanken Vest’s credit portfolio is split into 11 risk classes from A to K based on debt-servicing ability (default probability).The default probability is defined as the likelihood that the customer will default on the loan within the next 12 months. A default may relate to a failure to service debt and 90 days have elapsed or other specific circumstances (“unlikely to pay”, cf. Basel II), affecting the customer’s ability to service the debt. The default probability is calculated using statistical models (score cards) based on logical regression. The models combine internal and external data to establish statistical relationships. The results are interpreted and form the basis of logical key figures. Risk classification of all commitments is carried out each month using the automatic collection of data from internal and external sources. There is also manual monitoring of corporate commitments. The frequency of risk classification assessment depends on the size of the commitmment and the nature of the risk.

Commitments are priced to reflect the level of exposure. Those with the highest exposure therefore have the highest price.

The combination of the default probability and the level of collateral cover is used as a basis for 5 risk groups.

Parent Bank Group Distribution of loans by risk group Commitments Individual Commitments Individual write-downs write-downs 31/12-07 31/12-06 31/12-07 31/12-06 31/12-07 31/12-06 31/12-07 31/12-06 Corporate Market Very low 1 943 1 426 1 943 1 426 Low 5 197 3 825 5 197 3 825 Medium 9 367 7 468 9 367 7 468 Medium-to-high 2 291 2 318 2 291 2 318 High 791 400 40 54 791 400 40 54 Total (Corporate market) 19 589 15 437 40 54 19 589 15 437 40 54

Retail Market Very low 29 966 24 992 29 966 24 992 Low 14 350 11 548 14 350 11 548 Medium 7 168 5 896 7 168 5 896 Medium-to-high 2 461 1 769 2 461 1 769 High 587 541 22 587 541 22 Total (Retail market) 54 532 44 746 0 22 54 532 44 746 0 22 Total 74 121 60 183 40 76 74 121 60 183 40 76

(All individual write-downs are allocated to the highest risk group)

No appreciable change in the risk situation is expected in 2008.

The bank’s net losses in 2007 corresponded to -0.06% of total gross lendings of NOK 64 949m. At year-end there were no indications that a major increase in losses could be expected, but in a longer perspective the level of losses could correspond to 0.30 - 0.35% of the portfolio, with a best estimate of average losses of 0.2%.

The expected annual average net loss has been calculated for the next 12 months and is within the parameters for expected losses set by the Board of Directors.

31/12-07 31/12-06 Parent Bank Group Parent Bank Group Distribution of loans by Pro- Write- Pro- Write- Pro- Write- Pro- Write- geographical area portion Loans down portion Loans down portion Loans down portion Loans down Hordaland 79.4 51 613 39 79.4 51 350 39 84.2 45 120 74 84.2 44 986 74 Sogn & Fjordane 10.6 6 876 10.6 6 876 8.3 4 445 8.3 4 445 Rogaland 3.5 2 247 3.5 2 247 2.1 1 119 2.1 1 119 Other parts of Norway 5.9 3 804 1 5.9 3 804 1 4.9 2 644 4.9 2 644 Total - Norway 99.4 64 540 40 99.4 64 277 40 99.5 53 328 74 99.5 53 194 74 Foreign 0.6 406 0.6 406 0.5 257 0.5 257 Note continues on next page continues Note Total - geographical areas 100.0 64 946 40 100.0 64 683 40 100.0 53 585 74 100.0 53 451 74

85 Notes

Note 11 Loans continued

2007

Gross loans and guarantees distributed Guarantees and Unapplied credit limits guarantee and other Defaults bad debts potential on loans Write-downs and guarantees of loan Write-down groups by main industries and retail market Net loans

Group Retail clients 49 990 103 4 480 105 32 Foreign (retail clients) 92 11 Total - retail clients 50 082 103 4 491 105 0 32 Primary industries 1 319 38 201 Manufacturing and mining 1 099 664 536 35 6 Building and construction, power and water supply 1 241 243 359 3 Commerce, hotels and restaurants 1 069 106 334 58 21 International shipping and pipe transportation 1 617 296 96 Transportation, post and telecommunications 862 79 136 5 1 Real estate operations 5 420 160 330 5 1 Insurance and finance 194 Services 1 343 43 244 140 10 Municipal/public sector 123 120 Foreign 314 5 10 Group write-downs, commercial sector 72 Total, commercial sector 14 601 1 629 2 356 251 49 72 Total 64 683 1 732 6 847 356 49 104

Parent Bank Retail clients 49 990 103 4 480 105 32 Foreign (retail clients) 92 11 Total - retail clients 50 082 103 4 491 105 0 32 Primary industries 1 319 38 201 Manufacturing and mining 1 099 664 536 35 6 Building and construction, power and water supply 1 241 243 359 3 Commerce, hotels and restaurants 1 069 106 334 58 21 International shipping and pipe transportation 1 617 296 96 Transportation, post and telecommunications 862 79 136 5 1 Real estate operations 5 683 200 330 5 1 Insurance and finance 194 Services 1 343 43 244 140 10 Municipal/public sector 123 120 Foreign 314 5 10 Group write-downs - commercial sector 72 Total, commercial sector 14 864 1 669 2 356 251 49 72 Total 64 946 1 772 6 847 356 49 104

86 Note continues on next page Notes

Note 11 Loans continued

2006

Gross loans and guarantees distributed Guarantees and Unapplied credit limits guarantee and other Defaults bad debts potential on loans Write-downs and guarantees of loan Write-down groups by main industries and retail market Net loans

Group Retail clients 42 043 28 2 594 121 21 30 Foreign (retail clients) 77 7 2 1 Total - retail clients 42 120 28 2 601 123 22 30 Primary industries 1 030 5 169 8 8 Manufacturing and mining 662 337 633 16 8 Building and construction, power and water supply 963 192 280 14 5 Commerce, hotels and restaurants 1 055 109 342 62 23 International shipping and pipe transportation 1 573 174 346 Transportation, post and telecommunications 308 70 164 6 1 Real estate operations 3 754 85 168 24 7 Insurance and finance 124 15 2 Services 1 640 90 343 15 Municipal/public sector 42 27 Foreign 180 2 32 1 Group write-downs, commercial sector 103 Total, commercial sector 11 331 1 064 2 520 147 54 103 Total 53 451 1 092 5 120 270 76 133

Parent Bank Retail clients 41 968 28 2 594 121 21 30 Foreign (retail clients) 77 7 2 1 Total - retail clients 42 045 28 2 601 123 22 30 Primary industries 1 030 5 169 8 8 Manufacturing and mining 662 337 633 16 8 Building and construction, power and water supply 963 192 280 14 5 Commerce, hotels and restaurants 1 055 109 342 62 23 International shipping and pipe transportation 1 573 174 346 Transportation, post and telecommunications 308 70 164 6 1 Real estate operations 3 963 125 168 24 7 Insurance and finance 124 15 2 Services 1 640 90 343 15 Municipal/public sector 42 27 Foreign 180 2 32 1 Group write-downs - commercial sector 103 Total, commercial sector 11 540 1 104 2 520 147 54 103 Total 53 585 1 132 5 120 270 76 133 Note continues on next page continues Note

87 Notes

Note 11 Loans continued

Losses on loans and guarantees

Parent Bank Group

2005 2006 2007 2007 2006 2005 (4) (31) (26) Change in individual write-downs in period (26) (31) (4) (10) (27) (29) Change in loan group write-downs in period (29) (27) (10) 35 26 29 Actual losses not covered by previous write-downs 29 26 35 (98) (16) (16) Recoveries on lossess realised previously (16) (16) (98) (77) (48) (42) Write-downs and loan losses (42) (48) (77) Realised losses on guarantees 2 not covered by previous loss provisions 2 8 Change in loss provisions for guarantees in period 8 2 0 8 Loss on guarantees 8 0 2 (75) (48) (34) Total losses on loans and guarantees (34) (48) (75)

28 7 (9) Realised losses on loans covered by previous write-downs (9) 7 28 Realised losses on guarantees not covered 2 by previous loss provisions 2 Realised losses on loans not covered by 35 26 29 previous write-downs 29 26 35 65 33 20 Realised losses 20 33 65

Write-downs for impaired commitments Individually assessed

Parent Bank Group

2005 2006 2007 2007 2006 2005 Non-performing commitments 149 148 133 Gross non-performing commitments 133 148 149 (26) (22) (6) Write-down (6) (22) (26) 123 126 127 Net non-performing commitments 127 126 123 17 % 15 % 5 % Percentage provided for 5 % 15 % 17 %

Potential bad debts and defaults (in excess of 90 days) where the balance in default on one of the commitments is more than NOK 1 000.

Parent Bank Group

2005 2006 2007 2007 2006 2005 Performing commitments provided for 218 122 223 Gross commitments subject to impairment assessment 223 122 218 (85) (52) (33) Write-down (33) (52) (85) 133 70 190 Net commitments subject to impairment assessment 190 70 133 39 % 43 % 15 % Percentage provided for 15 % 43 % 39 %

New regulations for the accounting treatment of loans have resulted in lower write-downs compared with previous years’ loss provisions.

88 Notes Note 11 Loans continued

Loan write-downs posted in the balance sheet

Movements in individual and loan group write-downs and provisions for losses on guarantees

Parent Bank Group

31/12-06 31/12-07 31/12-07 31/12-06

Individual write-downs 111 74 Loan write-downs at 1 January (nominal values) 74 111 (7) (9) Realised losses on loans covered by previous write-downs (9) (7) 0 0 Increase in write-down of loans written down previously 0 0 11 23 Write-down of loans not written down previously 23 11 (41) (49) Reduction in previous years’ write-downs of individually assessed loans (49) (41) 74 39 Individual write-downs 39 74

Write-down of loan groups 160 133 Write-down of loan groups at 1 January (nominal values) 133 160 0 0 Increase in write-down of loan groups 0 0 (27) (29) Reduction in write-down of loan groups (29) (27) 133 104 Write-down of loan groups 104 133 207 143 Total write-downs of commitments 143 207

Provisions for losses on guarantees 2 2 Provisions to cover losses on guarantees at 1 January 2 2 0 9 Provisions for losses on guarantees not provided for prerviously 9 0 0 (1) Reduction in previous years’ loss provisions (write-back) (1) 0 0 0 Realised loss on guarantees covered by previous loss provisions 0 0 2 10 Specified provisions to cover losses on guarantees 10 2

All commitments which are to individually assessed shall be considered to determine it there is objective evidence that a loss has arisen and that the loss event will reduce the loan’s estimated future cash flow.

If objective evidence of impairment is found, the loss on the loan is calculated as the difference between the balance sheet value (balance + accrued interes at the date of assessment) and the present value of futire cash flows. In estimating future cash flows only the credit loss caused by the loss event that has occurred shall be taken into account. The estimation of future cash flows from a loan shall also take account of the takeover and sale of related loan collateral, including the costs of such takeover and sale.

When the best estimate of the future cash flow is estimated and recorded, the system will calculate the new value of the loan (amortised cost) and the difference will be the amount of the write-down.

The write-down of the loss (against the customer’s commitment) shall be carried out when all of the loan collateral has been realised and it is certain that no further payments will be received on the commitment. The calim on the customers remains and will be followed up, unless an agreement has been made with the customer to waive the claim.

Note 12 LOANS TO AND RECEIVABLES FROM CREDIT INSTITUTIONS

Parent Bank Group 31 December 31 December

2006 2007 2007 2006 68 62 Loans to and deposits with credit institutions with no agreed term or period of notice 65 69 1 158 493 Loans to and deposits with credit institutions with an agreed term or period of notice 493 1 158 1 226 555 Total 558 1 227

Geographical areas 123 Hordaland 123 30 Rogaland 30 1 Sogn & Fjordane 1 563 359 Other parts of Norway 362 564 662 43 Foreign 43 662 1 226 555 Total 558 1 227

89 Notes

Note 13 SHARES

Shares are classified at fair value and posted in profit and loss account or as available for sale.

31/12-07 31/12-06 Cost Book value Book value Shares stated at fair value through the profit and loss account are divided into the following portfolios: Trading portfolio - listed shares 78 109 120 Shares classified at fair value through profit or loss on first-time entry in balance sheet 315 451 410 Total shares assessed at fair value through profit or loss 560 530 Valuation method: Listed shares 211 204 Shares valued on the basis of the OTC list 162 176 Fund investments as valued by the investment management company 13 12 Venture shares valued on the basis of EVCA 1) 55 40 Shares valued on the basis of other evaluation techniques 2) 119 98 Shares stated at fair value through profit or loss 560 530

1) The venture portfolio relates mainly to fund investments (or participation in investment companies). Some of funds/companies prepare price assessments based on the underlying portfolio value, which we use for valuation purposes.

2) Value assessments are based on the last issue price, traded amounts which are known to us and whether accounting practice indicates the need for a write-down of our cost price if there has been no turnover. Clear evidence of value appreciation is incorporated as a value adjustment, while smaller holdings are written down where necessary.

At 31/12-07 the Group has a commitment to pay in further equity related to the following ordinary share limits and venture investments at 31/12-07

Committed amount Paid in Ordinary share limits: HitecVision Private Equity IV 11 3 Borea Opportunity II AS 50 1 61 3 Venture portfolio: HitecVision Private Equity III 5 3 Sarsia Life Science Fund 15 5 Fjord Invest Sør Vest AS (Seedcorn) 12 Growth fund 5 1 Sarsia Seed 20 1 Norgesinvestor Opportunity AS 5 1 Incitia Ventures II AS 5 Marin Vekst II AS 30 Pareto Growth AS 10 107 11

Committed amount related to share investments 168 14

31/12-07 31/12-06 No. of shares Ownership (%) Cost Book value Book value

Blå Holding AS 364 205 3.59 7 67 67 Shares classified as available for sale 67 67

Shares available for sale are valued in accordance with the merger prospectus. The merger was implemented in 2007.

90 Notes

Note 14 SHARES STATED AT FAIR VALUE THROUGH PROFIT OR LOSS

Specification of shares, mutual funds and PCCs at 31 December 2007

Book value (NOK 1 000) No. of shares Ownership (%) Book value

Norwegian companies ACERGY SA 20 000 0.01 2 425 AKER ASA 9 000 0.01 3 051 AKER FLOATING PRODUCTION ASA 60 000 0.27 4 830 BERGENS TIDENDE 75 220 4.82 75 972 BERGENSAVISEN KONSERN AS 315 840 9.84 6 317 BOREA NOTERTE 111 AS A-shares 100 000 2.12 9 500 CARBONTECH HOLDING AS 110 18.33 5 500 CHRISTIAN MICHELSEN RESEARCH AS 1 400 5.00 2 067 DnB NOR ASA 140 000 0.01 11 620 EIDESVIK OFFSHORE ASA 282 800 0.94 14 918 EIENDOMSKREDITT AS 123 000 12.30 11 070 EKSPORTFINANS AS 1 517 1.00 16 232 FJORD LINE AS 150 000 2.00 3 000 FJORDINVEST AS 10 000 9.69 9 000 HITEC VISION PRIV. EQ. III AS - tot. NOK 5m. 31 996 0.81 7 615 KREDITTFORENINGEN FOR SPAREBANKER 2 760 5.52 2 760 MARIN VEKST II AS (Tot. NOK 30m) 92 879 16.55 8 359 NETWORK NORWAY AS 1 500 000 0.70 4 500 NORSK HYDRO ASA 66 000 0.03 5 122 NORSK TILLITSMANN ASA 4 000 3.71 6 000 NORSUN AS 18 900 0.61 28 350 NYGÅRDSTANGEN AS 760 20.27 6 840 ORKLA-BORREGAARD, A-shares 110 000 0.05 11 578 OSLO BØRS VPS HOLDING ASA 550 505 1.28 79 823 OSMOLIFE AS 10 000 000 7.85 3 000 PETROLEUM GEO-SERVICES, A-shares 25 000 0.01 3 944 PROSAFE, A-shares 40 000 0.12 3 780 RENEWABLE ENERGY CORPORAT 17 000 0.00 4 692 RIEBER & SØN, A-shares 450 000 0.57 23 513 SAGAFJORD SEA FARM AS 8 900 10.00 4 681 SARSIA INNOVATION AS 12 200 4.23 3 050 SARSIA LIFE SCIENCE FUND B-shares 2 288 880 9.26 7 370 SCHIBSTED, A-shares 15 000 0.02 3 533 STATOILHYDRO ASA 56 834 0.00 9 605 STOREBRAND, A-shares 46 247 0.02 2 622 TANDBERG ASA, A-shares 20 000 0.01 2 270 TELENOR ASA 95 000 0.01 12 326 TIDE ASA, A-shares 248 700 1.56 14 798 VESTKANTEN AS 3 112 1.22 3 112 VOSS VEKSEL- OG LANDMANDSBANK, A-shares 9 499 10.00 26 597 YARA INTERNATIONAL ASA 30 000 0.01 7 545 Other Norwegian companies 49 405 522 290

Foreign companies HITECVISION PRIV. EQ. IV L.P. tot. NOK 10.5m 810 058 0.29 7 463 ODFJELL INVEST LIMITED 141 100 0.10 2 639 SEADRILL LIMITED 45 000 0.02 5 963 VIZRT 90 000 0.72 3 465 Other foreign companies 4 596 24 124

Holdings in share trusts HOLBERG NORDEN 38 624 0.29 8 690 HOLBERG NORGE 11 758 0.43 4 115 12 806

Total listed shares 559 220

91 Notes

Note 15 COMMERCIAL PAPER AND BONDS STATED AT FAIR VALUE THROUGH PROFIT OR LOSS

31/12-07 31/12-06

Average rate Cost Book value Book value Commercial paper and bonds - trading portfolio Listed 4.91 % 16 16 20 Unlisted 6.38 % 10 10 10 26 30

Commercial paper and bonds are stated at fair value through profit or loss on initial entry in balance sheet. Listed 1) 5.29 % 3 388 3 404 1 900 Unlisted 5.91 % 1 680 1 679 882 5 083 2 782 Commercial paper and bonds 5 109 2 812

of which foreign 334 207

The average real rate of return is calculated by identifying the discount rate which gives a calculated value equal to the stated market value.

1) Including subordinated loan of NOK 7.3m

Note 16 SHARES IN SUBSIDIARIES AND ASSOCIATED COMPANIES

Subsidiaries are defined as companies in which Sparebanken Vest owns more than 50% of the shares. Associated companies are companies in which the bank owns between 20% and 50% of shares and exercises considerable influence.

Shareholdings in subsidiaries and associated companies are booked at cost in the company accounts. Subsidiaries are incorporated in the consolidated accounts. Accounting entries concerning associated companies are made on the basis of the equity method in the consolidated accounts. The Group’s share of profits/losses is posted in the profit and loss account and credited/debited to the balance sheet value.

Book value Book value in the sub-group in the parent bank Owner- No. of shares ship (%) 31/12-07 1/1-07 31/12-07 1/1-07 Subsidiaries (book value in parent bank accounts) AS Filialbygg 4 150 100 7 7 Jonsvollskvartalet AS 100 100 107 Eiendomsmegler Vest AS 1 200 100 15 1 Eiendomsmegler Vest Haugalandet AS 200 100 5 6 Ottesen & Dreyer AS 210 70 5 Kyte Næringsmegling AS 150 70 8 8 Eiendomssenteret AS 100 100 Vestlandskonferansen AS 100 100

Total 22 8

Capital was channelled to Eiendomsmegler Vest AS in 2007 through a capital increase.

Associated company (book value in parent bank accounts)

Frende Holding AS 149 970 000 49.99 156 Total shareholdings in associated companies 156 i.a.

Frende Holding AS is a holding company which owns a 100% shareholding in Frende Livsforsikring AS and Frende Skadeforsikring AS. The company was founded in June 2007. There was no insurance activity in 2007. The loss in 2007 relates to start-up costs and investments.

Associated company (book value in consolidated accounts)

Frende Holding AS 149 970 000 49.99 156 Share of loss posted in 2007 (5) Total shareholdings in associated companies 151 i.a.

92 Notes

Note 17 INTANGIBLE ASSETS

Parent Bank Group Excess value on value Excess customer portfolio Goodwill Total Goodwill Total Excess value on value Excess customer portfolio Software Software and licences Software and licences

At 1 January 2006 45 45 Cost 45 45 22 22 Accumulated depreciation and write-downs 22 22 23 0 0 23 Book value at 1 January 2006 23 0 0 23

Financial year 2006 23 23 Book value at 1 January 2006 23 23 18 18 Additions 18 13 31 17 17 Depreciation 2006 17 17 24 0 0 24 Book value at 31 December 2006 24 0 13 37

At 31 December 2006 63 63 Cost 63 13 76 39 39 Accumulated depreciation 39 39 24 0 0 24 Book value at 31 December 2006 24 0 13 37

Financial year 2007 24 24 Book value at 1 January 2007 24 13 37 24 140 82 246 Additions 24 140 85 249 15 8 23 Depreciation 2007 15 8 23 33 132 82 247 Book value at 31 December 2007 33 132 98 263

At 31 December 2007 87 140 82 309 Cost 87 140 98 325 54 8 62 Accumulated depreciation 54 8 62 33 132 82 247 Book value at 31 December 2007 33 132 98 263

Software/licences are depreciated on a straight line basis over their expected economic lifetime which is estimated at 3 years.

Excess value on the customer portfolio is amortised over the remaining contract period which is estimated at 12 years.

Value depreciation test for goodwill Goodwill is tested for value depreciation at year-end. The assessed value of goodwill related to the acquisition in Sogn & Fjordane relates to the development of business in the region. The test for value depreciation in volves measuring the development of lending and deposit volumes in the period following the acquisition and measuring this against the total volume in the customer divisions. The measurements are made for the market segments comprising the Corporate Market (CM) and Retail Market (RM) individually.

Corporate Division - total CM Sogn & Fjordane Loans 11.6 % 27.7 % Deposits 17.9 % 17.5 %

Retail Division - total RM Sogn & Fjordane Loans 12.0 % 14.1 % Deposits 8.8 % 10.6 %

The increase in both deposits and loans in Sogn & Fjordane is virtually at the same level as or above the total level for the bank. On this basis, it is considered that there is no need to amortise goodwill.

93 Notes

Note 18 FIXED ASSETS

Parent Bank Group Buildings and estate other real Total Machinery, and vehicles equipment Buildings and estate other real Total Machinery, and vehicles equipment

At 1 January 2006 432 432 Cost 446 293 739 327 327 Accumulated depreciation and write-downs 336 67 403 105 0 105 Book value at 1 January 2006 110 226 336

Financial year 2006 105 105 Book value at 1 January 2006 110 226 336 68 Obsolescence 68 37 37 Additions 39 39 1 1 Disposals 12 12 68 Accumulated depreciation on obsolescence 68 32 32 Depreciation 2006 35 10 45 109 0 109 Book value at 31 December 2006 114 204 318

At 31 December 2006 400 400 Cost 412 281 693 291 291 Accumulated depreciation 298 77 375 109 0 109 Book value at 31 December 2006 114 204 318

Financial year 2007 109 109 Book value at 1 January 2007 114 204 318 32 7 39 Additions 33 156 189 1 1 Disposals 1 1 33 33 Depreciation 2007 35 10 45 107 7 113 Book value at 31 December 2007 111 350 461

At 31 December 2007 431 7 438 Cost 444 437 881 324 324 Accumulated depreciation 333 87 420 107 7 113 Book value at 31 December 2007 111 350 461

10-33% 0-10% Percentage rate for accounting depreciation 10-33% 0-10%

94 Notes

Note 19 FINANCIAL ASSETS AND INSURANCE LIABILTIES - CUSTOMERS BEARING THE RISK

Parent Bank Group

2006 2007 2007 2006 6 33 Mutual funds 33 6 7 29 Bank deposits 29 7 13 62 Total financial liabilities, customers bearing the risk 1) 62 13 13 62 Total insurance liabilities, customers bearing the risk 62 13

1) The figures show the breakdown of customer assets invested in mutual funds and deposits linked to compulsory occupational pensions.

Note 20 PURCHASE OF ACTIVITIES IN SOGN & FJORDANE

On 22 March 2007 Sparebanken Vest took over the activities of Fokus Bank in the county of Sogn & Fjordane. The portfolio comprises around 8000 customers with toal lendings of NOK 1 926m and deposits of NOK 879m. The cash consideration paid for the business totalled NOK 220m.

Purchased assets, liabilities and goodwill were as follows:

Cash consideration 1 267 Direct acquisition costs 5

Total acquisition cost 1 272 Fair value of net assets ( see specification) 1 190

Goodwill 82

Goodwill relates to the strong position and competence related to the acquired activities. Goodwill is tested for value depreciation at year-end 2007. See note 17.

Assets and liabilities taken over on acquisition of the business:

Fair value Book value on acquisition Loans 1 926 1 926 Customer portfolio 140 Fixed assets taken over 4 4

Deposits (879) (879) Other liabilities taken over (1) (1)

Net acquired assets 1 190 1 050

The surplus value related to the customer portfolio is depreciated on a straight line basis over 12 years. Some of the customers taken over were also customers of Sparebanken Vest. In view of this, the customer portfolios have been merged and it is not practically possible to identify the proportion of profits attributable to the acquired unit, either for the year as a whole or for the period from the date of acquisition.

95 Notes

Note 21 DEBT TO CREDIT INSTITUTIONS

Debt to credit institutions is classified at amortised cost after voluntary assessment at fair value through profit or loss.

Parent Bank Group

31/12-06 31/12-07 31/12-07 31/12-06 122 104 No agreed term or period of notice 104 122 931 2 527 With an agreed term or period of notice 2 527 931 1 053 2 631 Fair value 2 631 1 053

166 150 With an agreed term or period of notice 150 166 166 150 Stated at fair value through profit or loss 150 166

1 219 2 781 Debt to credit institutions 2 781 1 219

31/12-07 1/1 - 31/12-07 31/12-06 Debt stated at fair value through profit or loss Nominal amount Book value Change in exchange rate Value change Book value Debt to credit institutions EUR 20 166 166 Value adjustment (16) (6) (10) 0 150 166

The net gain/(loss) on debt stated at fair value is included in the accounting item net gain/(loss) of financial instruments voluntarily stated at fair value through profit or loss (note 6).

96 Notes

Note 22 DEPOSITS

Customer deposits are classified at amortised cost or voluntarily stated at fair value through profit or loss.

Parent Bank Group

31/12-06 31/12-07 31/12-07 31/12-06 28 801 34 836 Stated at amortised cost 34 791 28 758 2 361 2 820 Stated at fair value 2 820 2 361 31 162 37 656 Total deposits 37 611 31 119

31/12-07 1/1 - 31/12-07 31/12-06 Nominal Deposits stated at fair value through profit or loss amount Book value Additions/disposals Value change Book value Indexed deposits 1) NOK 3 072 2 695 373 2 322 Value adjustment 125 86 39 2 820 2 361

The net gain/(loss) on deposits stated at fair value is included in the accounting item net gain/(loss) of financial instruments voluntarily stated at fair value through profit or loss (note 6).

1) These are savings products comprising a deposit part and a derivative part, and where the return to the customer depends on te development of difined market variables. Each part of the product is treated separately for accounting purposes.

Distribution of deposits from and debt to customers

Parent Bank Group 31. desember 31. desember

2006 2007 2007 2006 NOK % NOK % Næringsfordeling NOK % NOK % 496 1.59 559 1.48 Primary industries 559 1.49 496 1.59 1 334 4.28 1 700 4.51 Manufacturing, plant and construction 1 700 4.52 1 334 4.29 Wholesale and retail trade, 1 015 3.26 1 198 3.18 hotels and restaurants 1 198 3.19 1 015 3.26 Transporation, real estate 5 863 18.81 7 377 19.59 operations and services 7 332 19.49 5 754 18.49 209 0.67 210 0.56 Foreign (other) 210 0.56 209 0.67 824 2.64 1 204 3.20 Municipal / public sector 1 204 3.20 824 2.65 1 101 3.53 2 075 5.51 Insurance and finance 2 075 5.52 1 101 3.54 10 842 34.79 14 323 38.04 Total - commercial customers 14 278 37.96 10 733 34.49 20 214 64.87 23 305 61.89 Retail customers 23 305 61.96 20 280 65.17 31 056 99.66 37 628 99.93 Total distribution by sector 37 583 99.93 31 013 99.66 106 0.34 28 0.07 Accrued interest 28 0.07 106 0.34 31 162 100.00 37 656 100.00 Total 37 611 100.00 31 119 100.00

Geographical distribution 26 865 86.21 31 389 83.36 Hordaland 31 344 83.34 26 822 86.19 2 853 9.16 4 283 11.37 Sogn & Fjordane 4 283 11.39 2 853 9.17 19 0.06 493 1.31 Rogaland 493 1.31 19 0.06 1 199 3.85 1 281 3.40 Other parts of Norway 1 281 3.41 1 199 3.85 30 936 99.27 37 446 99.44 Norway - total 37 401 99.44 30 893 99.27 226 0.73 210 0.56 Foreign 210 0.56 226 0.73 31 162 100.00 37 656 100.00 Total geographical distribution 37 611 100.00 31 119 100.00

Under the Guarantee Act for banks and the public administration etc. of financial institutions, all savings banks are required to be members of the Savings Banks’ Guarantee Fund. The Fund guarantees to cover losses incurred by a depositor on deposits with a member institution for an amount not exceeding NOK 2m of the depositor’s total deposits. By deposit is meant any credit balance with the bank on an account registered by name, as well as commitments under certificates of deposit registered by name. The fee payable to the Savings Banks’ Guarantee Fund is determined in accordance with the provisions of the Guarantee Act.

97 Notes

Note 23 SECURITISED DEBT

Securitised debt is classified at amortised cost or voluntarily stated at fair value through profit or loss.

31/12-07 31/12-06 Valued at amortised cost Nominal amount Book value Book value NOK 10 105 10 206 7 077 EUR 990 7 953 5 086 18 159 12 163

1/1 - 31/12-07 Net additions/ Stated at fair value disposals Value change Indexed bonds 1) NOK 1 015 923 (220) 1 143 Value adjustment 64 28 36 987 1 179

Fixed rate bonds NOK 7 975 8 232 347 7 885 Value adjustment - interest rates (228) (53) (175) Value adjustment - credit spread 2) (8) (16) 8 7 996 7 718

8 983 8 897

Securitised debt 27 142 21 060

The net gain/(loss) on deposits stated at fair value is included in net gain/(loss) on financial instruments voluntarily stated at fair value through profit or loss (note 6).

1) These are savings products consisting of a savings element and a derivative element and where the return to the depositor depends on the development of defined market variables. Each of the product elements is treated separately for accounting purposes.

2) The change in the credit spread represents the increase in the credit spread that has been a feature of the market in general.

98 Notes

Note 24 PENSION COMMITMENTS

Under the Compulsory Occupational Pension Act, the Sparebanken Vest Group is required to have an occupational pension scheme, and the Group’s scheme meets the requirements of the Act. The pension scheme consists of the following:

1. A group pension scheme with a life insurance company which provides all the bank’s employees with a pension equal to 70% of the final salary, based on the present level of national insurance but limited to 12 times the national insurance base rate (G). At year-end 2007 the scheme covered 817 (parent bank: 754) persons in employment. A further 255 persons (parent bank: 255) currently receive pensions under the scheme. Under the scheme, disability benefit, spouse’s pension and children’s pension are provided for1). Until 30 April 2007 the scheme covered all employes. The benefits-based scheme was closed to new members in 2007 with the option of transferring to a defined contribution-based scheme. 2. A contribution-based scheme covering 111 employees (parent bank: 83). All new employees are covered by the contribution-based scheme. 3. Early retirement pension with supplementary benefits from 62 to 67 years of age. Pensions are currently being paid to 81persons (parent bank: 80) under the scheme. The scheme is uninsured and is covered through operations. 4. A top hat scheme covering 14 employees, with the option of a retirement pension at the age of 64 (managing director at 60). The pension benefits correspond to 70% of the final salary at which point these persons become members of the group pension scheme. Under any other early retirement scheme than a Contractual Pension Agreement (CPA) the person in question will be withdrawn from the occupational pension scheme but will be compensated from the ordinary pension age for the reduction in pension entitlements. The managing director also has an agreement which provides him with 70% of salary in excess of 70% of the salary in excess of 12G from 67 years of age. The top hat scheme is uninsured and is covered through operations.

Economic assumptions used to calculate pension costs and commitments Costs 1/1 - 31/12 Commitment at 31/12 Percentage 2007 2006 2005 2007 2006 Discount rate 4.35 4.00 5.00 4.70 4.35 Expected return on pension fund assets 5.40 5.00 6.00 5.75 5.40 Annual salary growth 4.50 3.00 3.00 4.50 4.50 Annual pension regulation 4.25 2.50 2.50 3.38 4.25 Change in national insurance base rate 4.25 2.50 2.50 4.25 4.25 Voluntary withdrawals 1.00 1.00 1.00 1.00 1.00 CPA acceptance rate 50.00 50.00 40.00 50.00 50.00

Sparebanken Vest uses the special “corridor” equalisation method for the accounting treatment of changes in estimates and the difference between the expected and the actual return on pension fund assets, and changes in economic assumptions used to calculate pension commitments.

Investment of pension fund assets Percentage 2007 2006 Bonds 50 64 Shares 30 23 Money market and similar 7 Real estate 13 13

The book return on pension fund assets at 30 September 2007 was 9.9%, corresponding to an annualised return of 8.5% at 31 December 2007. The book return on pension fund assets in 2006 was 7.5%.

Group 1/1-07 - 31/12-07 1/1-06 - 31/12-06 1/1-05 - 31/12-05 Pension costs TOTAL UNINSURED INSURED TOTAL UNINSURED INSURED TOTAL UNINSURED INSURED Accumulated pension rights for year 47 9 39 37 6 31 30 5 26 Interest charge on accrued pension commitments 51 7 44 36 5 30 35 5 31 Expected return on pension fund assets (31) 0 (31) (26) 0 (26) (29) 0 (29) Plan changes posted in the profit and loss account 2) (128) 0 (128) 0 0 0 35 4 0 Changes in estimates posted in the profit and loss account 74 5 68 9 2 7 0 0 0 Net pension cost *) 13 21 (8) 56 14 42 40 13 27 Employer’s national insurance contributions 9 2 7 7 2 5 6 2 4 Pension cost posted in profit and loss account 23 23 (1) 63 15 47 46 15 31 Premium paid in to the defined contribution-based pension scheme: 1

*) Total included in salaries and general administration expenses (note 7)

31/12-07 31/12-06 Historical development Pension commitment TOTAL UNINSURED INSURED TOTAL UNINSURED INSURED 31/12-05 31/12-04 01/01-04 Present value of accumulated pension commitments 1 091 181 910 1 185 168 1 017 935 736 642 Pension fund assets stated at fair value (619) 0 (619) (559) 0 (559) (507) (497) (447) Net pension commitment 472 181 291 626 168 458 428 239 194 Employer’s national insurance contributions 67 25 41 88 23 65 Note continues on next page continues Note Unposted effect of changed estimates (353) (89) (268) (484) (76) (408) (205) (59) 0 Net pension commitment in balance sheet 186 117 65 230 115 115 223 180 194 99 Notes

Note 24 PENSION COMMITMENTS continued

Change in pension commitment in year 2007 2006 Pension commitment at 1 January 1 184 907 Accumulated pension rights for the year 47 37 Interest charge on accrued pension commitments 51 36 Plan change 2) (112) 0 Estimate divergences (45) 232 Other balance sheet changes 0 1 Pension payments (34) (29) Pension commitment at 31 December 1 091 1 185

Change in pension fund assets in year 2007 2006 Pension fund assets (fair value) at 1 January 559 507 Return on pension fund assets 31 26 Estimate divergences 2 5 Premium paid / paid in to premium fund 43 38 Pension payments (17) (17) Pension fund assets (fair value) at 31 December 619 559

Parent Bank 1/1-07 - 31/12-07 1/1-06 - 31/12-06 1/1-05 - 31/12-05 Pension expenses TOTAL UNINSURED INSURED TOTAL UNINSURED INSURED TOTAL UNINSURED INSURED Accumulated pension rights for year 44 8 36 35 6 29 29 4 24 Interest charge on accrued pension commitments 49 7 43 35 5 29 34 5 30 Expected return on pension fund assets (30) 0 (30) (25) 0 (25) (29) 0 (29) Plan changes posted in the profit and loss account 2) (123) 0 (123) 0 0 0 35 4 0 Changes in estimates posted in the profit and loss account 71 5 66 9 2 6 0 0 0 Net pension cost 12 20 (9) 53 13 40 38 13 26 Employer’s national insurance contributions 9 2 7 6 2 5 5 2 4 Pension cost posted in profit and loss account 21 22 (2) 59 15 44 44 15 29 Premium paid in to the defined contribution-based pension scheme: 1

31/12-07 31/12-06 Historical development Pension commitment TOTAL UNINSURED INSURED TOTAL UNINSURED INSURED 31/12-05 31/12-04 01/01-04 Present value of accumulated pension commitments 1 056 175 881 1 149 163 986 903 727 628 Pension fund assets stated at fair value (598) 0 (598) (541) 0 (541) (498) (490) (436) Net pension commitment 458 175 283 608 163 445 405 237 192 Employer’s national insurance contributions 65 25 40 86 23 63 Unposted effect of changed estimates (343) (86) (257) (467) (75) (393) (193) (62) 0 Net pension commitment in balance sheet 180 114 66 226 111 115 212 175 192

Change in pension commitment in year 2007 2006 Pension commitment at 1 January 1 149 885 Accumulated pension rights for the year 44 35 Interest charge on accrued pension commitments 49 35 Plan change 2) (108) 0 Estimate divergences (44) 223 Other balance sheet changes 0 0 Pension payments (34) (29) Pension commitment at 31 December 1 056 1 149

Change in pension fund assets in year Pension fund assets (fair value) at 1 January 541 492 Return on pension fund assets 30 25 Estimate divergences 2 6 Premium paid / paid in to premium fund 41 36 Pension payments (17) (17) Pension fund assets (fair value) at 31 December 598 541

1) Spouse’s pension and children’s pension was terminated with effect from 1 January 2008.

2) With effect from 1 May 2007 the Group stopped adjusting current pensions on the basis of changes in the National Insurance Base Rate and instead uses the average rise in wage and price levels. This reduction led to a decline in pension commitments and this was posted in the profit and loss 100 account in the period.

Notes

Note 25 OTHER PROVISIONS FOR COMMITMENTS

Provision for restructuring

Provision at 1 January 2007 13 Applied in 2007 (2) Provision at 31 December 2007 11

The provision is linked to the restructuring programme that started in 2005 with effect for the years 2005-2007. The entire amount of funds provided for at 31 December 2007 has been used for pension agreements and termination packages agreed at year-end.

Note 26 SUBORDINATED LOAN CAPITAL

Issued Nominal amount Interest rate Redemption right 31/12-07 31/12-06 2004 Perpetual subordinated loan 1) USD 60 Fixed rate 7.30% call option 30/4-14 359 406 2007 Subordinated loan EUR 85 3-mth EURIBOR + 0.375% call option 12/7-12 683 0 Due/redeemed 318 Subordinated loan capital 1 042 724

Subordinated loans are stated at amortised cost or voluntarily classified at fair value through profit or loss.

Accumulated at 31/12-06 1/1 - 31/12-07 31/12-07 Original book Exchange Exchange Stated at amortised cost value NOK rate change Value change rate change Value change Book value Subordinated loan EUR 85m 677 i.a. (2) i.a. 675 Amortised interest and costs 8 683

Stated at fair value Subordinated perpetual loan USD 60m 429 (52) (52) 325 Accrued interest 4 Value change (12) 14 2 Change in credit spread 2) 36 (8) 28 359 Total 1 106 (52) 24 (54) 6 1 042

Effective rate of interest for the subordinated loan stated at fair value: 2007: 6.66% (2006: 6.89%)

Net gain/(loss) on subordinated loan capital stated at fair value is included in “Net gain/(loss) on financial instruments voluntarily classified at fair value through profit or loss” (note 6).

1) The loan interest rate is fixed until 2034. Thereafter it will run at a floating rate.

2) The change in the credit spread reflects the increase in the credit spread for the market generally.

101 Notes

Note 27 CAPITAL ADEQUACY

Banking activity entails risk in many areas. Good risk and capital management is a key strategic element of Sparebanken Vest’s value creation process. The Board of Directors of Sparebanken Vest is targeted on the establishment of a moderate risk profile for the bank. The bank’s ability to baance ambitions against its ability and willingness to take risks will have both quantitative and qualitative effects. A strong risk culture characterises an organisation with a strong focus on risk and profitability. This will strengthen the bank’s rating and ensrue good access to the capital market. Risk-adjusted capital is used as an expression of the bank’s risk measurement and risk tolerance.

Although expected losses are taking into account in its pricing, Sparebanken Vest must have capital reserves in order to meet unforeseen losses. Risk-adjusted capital is calculated for all risk areas. This capital shall correspond to the capital needed to enegage in banking operations. The risk-adjusted capital and the statutory minimum requirement shall be set against the bank’s actual equity.

The bank’s processes related to capital assessment is based on quantification of the capital requirement for the individual risk areas. Stress tests are carried out in order to simulate the effects of situations that are unlikely to arise, but which could result in large, unexpected losses for the bank. At the same time, the quantitative assessments are supplemented by qualitative analyses.

At the start of 2007 the Financial Supervisory Authority of Norway gave Sparebanken Vest approval to used basic IRB methods. The approval was subject to certain conditions, all of which were met by Sparebanken Vest in 2007. Status as an IRB bank entails monitoring activities which are part of the Authority’s supervision of the bank. For regulatory capital purposes there are transitional regulations for the calculation of capital up to 2010.

All of the bank’s customers who are covered by the IRB system are given a score based on the bank’s internal score models. The bank also calculates values for Loss Given Default (LGD) for retail market customers and small corporate clients. In the case of corporate clients, LGD rates are used pursuant to the capital adequacy regulations. No external rating is used by the bank, nor does it have self-determined risk parameters beyond those which are used to set the basis of calculation and the amount of expected losses. Any values used for safety purposes are taken account of in setting LGD and in the scoring given to retail market customers.

The framework used by the bank to manage and control the IRB system folllows from its credit strategy, policy and procedures. Sparebanken Vest has also drawn up a validation mandate to ensure that there is monitoring of both model tools (PD, LGD, EAD) and application. Each year, a validation report is drawn up for the Board of Directors.

All commitments covered by the IRB system are reported by the bank each month. Quantification of the risk parameters takes place in the same operation and are also updated each month. In the retail market the safety values are updated each year or when a new case arises. In the corporate market the updating of safety values is part of the procedure of monitoring commitments. The bank applies the definition of defaults used in the capital adequacy regulations, i.e. where an account is overdrawn for more than 90 days in respect of amounts of NOK 500 or more. A default may also be deemed to exist based on an “unlikeliness to pay” criterion, such as insolvency, where information to this effect is received.

Validation is carried out annually for PD, EAD and LGD. Bank has outcome data for 6 years.

Parent Bank Group Basis of calculation Basis of calculation

2006 2007 (NOK 1 000) 2007 2006 LGD LGD Credit risk Introductory / Exceptional commitments under IRB 0 0 Sovereign states 0 0 0 0 Central banks 0 0 13 250 24 703 Regional / local government 24 703 13 250 547 088 826 596 Institutions 800 777 552 863 1 229 100 421 321 Other commitments 872 672 1 315 375 210 238 825 236 Off-balance sheet items / non-trading items 825 236 211 078 1 999 675 2 097 856 Total 2 523 388 2 092 566

IRB method 1 398 150 1 649 584 40.89 Company S=50. no SL 40.89 1 649 584 1 398 150 5 270 050 9 090 029 42.08 Company S<50. no SL 42.08 9 090 029 5 270 050 3 833 838 3 722 298 39.21 Company SL 39.21 3 722 298 3 833 838 4 218 488 6 205 311 14.12 Real estate 14.12 6 205 311 4 218 488 221 675 276 336 22.01 SME 22.01 276 336 221 675 1 340 900 2 253 841 67.65 Other 67.65 2 253 841 1 340 900 16 283 101 23 197 399 Total 23 197 399 16 283 101

Equity positions / simple risk-weighting method 0 296 341 Unlisted low-risk / well diversified portfolios 296 341 0 0 0 Traded on stock exchange or in authorised marketplace or similar 0 0 1 764 550 1 914 598 Other equity positions 1 914 598 1 764 550 1 764 550 2 210 939 Total 2 210 939 1 764 550 20 047 326 27 506 194 Total credit risk 27 931 727 20 140 216

Note continues on next page 102 Notes

Note 27 CAPITAL ADEQUACY continued

Parent Bank Group Basis of calculation Basis of calculation

2006 2007 (NOK 1 000) 2007 2006

Market risk 185 700 155 574 Position risk. instruments of debt 155 574 185 700 179 300 163 958 Position risk. equity instruments 163 958 179 300 82 325 131 360 Currency risk 131 360 82 325 447 325 450 892 Total market risk 450 892 447 325

Operational risk 412 125 577 617 Trading and intermediary portfolio 813 665 600 175 590 088 621 844 Banking services for corporate clients (Corporate Market) 621 844 590 088 1 371 625 1 417 209 Banking services for retail market clients (Retail Market) 1 417 209 1 371 625 2 373 838 2 616 670 Total operational risk 2 852 718 2 561 888

22 868 488 30 573 757 Basis of calculation. Basel II 31 235 337 23 149 429

39 344 124 49 899 930 IRB reporting of basis 50 048 525 39 640 229 39 344 124 95 % 47 404 934 Basis of calculation under transitional scheme, Basel I 47 546 099 95 % 39 640 229

3 147 530 8 % 3 792 395 Capital requirement under transitional scheme 3 803 688 8 % 3 171 218

Capital adequacy / Net capital base 724 425 1 042 476 Subordinated loan capital 1 042 476 724 425 3 627 119 4 131 149 Equity 4 318 173 3 798 417 (308 492) (615 921) Deductions (763 429) (474 753) 4 043 052 10.28 % 4 557 704 9.61 % Net capital base 4 597 219 9.67 % 4 048 087 10.21 %

3 738 012 9.50 % 3 925 344 8.28 % Net core capital 3 962 700 8.33 % 3 743 047 9.44 % 3 232 598 3 884 494 Reserves 3 924 018 3 550 916 247 500 246 655 PCCs 246 655 247 500 Capital loans USD 60 fixed rate 376 980 325 508 interest of 7.3% call option 30/4-14 325 508 376 980 (119 066) (531 313) Deductions (533 481) (432 349)

305 040 0.78 % 632 360 1.33 % Net supplementary capital 634 519 1.33 % 305 040 0.77 % 314 150 675 421 Subordinated loan capital EUR 85m 675 421 314 150 (9 110) (43 061) Deductions (40 902) (9 110)

895 522 765 309 Calculated regulatory surplus. Basel I 793 531 876 869

On completion of the de-escalation period, capital adequacy with current figures will be as follows 4 043 052 17.68 % 4 557 704 14.91 % Net capital base 4 597 219 14.72 % 4 048 087 17.49 % 3 738 012 16.35 % 3 925 344 12.84 % Net core capital 3 962 700 12.69 % 3 743 047 16.17 % 305 040 1.33 % 632 360 2.07 % Net supplementary capital 634 519 2.03 % 305 040 1.32 %

1 829 479 2 445 901 Capital requirement. Basel II 2 498 827 1 851 954

2 213 573 2 111 803 Calculated regulatory surplus. Basel II 2 098 392 2 196 133

103 Notes

Note 28 PRIMARY CAPITAL CERTIFICATES

PCC capital consists of 2 500 000 primary capital certificates, each with a nominal value of NOK 100.

Earnings per PCC The PCC share of profits is calculated as the profit after tax divided on the basis of the proportion of the bank’s capital which PCCs represent In the com- pany accounts at 1 January. There are no option agreements linked to the bank’s PCCs and the diluted profit therefore corresponds to the profit per PCC.

PCC proportion (A / B) Calculation Parent Bank (NOK 1 000) 1/1-08 1) 1/1-07 PCC capital 250 000 250 000 PCC premium reserve 1 500 1 500 Equalisation reserve 5 324 5 324 Total - numerator (A) 256 824 256 824

Equity at 31 December 4 131 150 3 625 104 Reserve for variation variances (104 893) (107 577) Total - denominator (B) 4 026 257 3 517 527

PCC fraction (A / B) as % 6.38 7.30

2007 2006 PCC proportion used 7.30 8.36

1) The proportion at 1 January 2008 assumes that the Board’s proposed allocation of the parent bank’s profit is approved. The provision for dividends and undistributed gifts is therefore not included in equity in this table.

Group earnings per PCC 18.95 20.16

Dividend per PCC The maximum dividend per PCC is calculated as the share of the total capital base less the reserve for variation variances, capital loans and subordinated loan capital at 1 January in the accounting year to which PCCs, the premium reserve and the equalisation reserve are entitled.

2007 2006

Proposed dividend 19.00 18.25

Total dividend for 2 500 000 PCCs (NOK 1000) 47 500 45 625

Figures for previous years have been calculated on the basis of NGAAP

104 Note continues on next page Notes

Note 28 PRIMARY CAPITAL CERTIFICATES continued

Holdings of own PCCs

Where the bank purchases its own PCCs, the purchase price including direct costs is debited to equity. The nominal amount of the bank’s holdings of its own PCCs is posted to reduce the amount of paid-in capital and the remainder as a reduction of retained earnings.

2007 2006 Holding of own PCCs at 1. January 25 000 68 600 PCCs purchased 65 200 31 400 PCCs sold 56 750 75 000

Holding of own PCCs at 31 December 33 450 25 000

Effective return per PCC 2007 2006 Listed price at 31 December 190.00 213.00 Dividend paid in year 18.25 17.10 Listed price at 1 January 213.00 206.00 Effective return in NOK (4.75) 24.10 Effective return as a percentage (2.23) 11.70

20 largest owners No. of PCCs Proportion of PCC capital (%) Frank Mohn AS 115 000 4.60 Bergen Kommunale Pensjonskasse 110 000 4.40 Terra utbytte 75 200 3.01 Nistad Gruppen AS 70 250 2.81 Kaare Holmefjord AS 40 000 1.60 MP Pensjon 36 900 1.48 Goldman Sachs & Co 35 000 1.40 Solvang ASA 35 000 1.40 Sparebanken Vest 33 450 1.34 Aske Investering AS 30 650 1.23 Citibank N.A. 29 200 1.17 Cubi Eiendom AS 26 300 1.05 Deutsche Bank AG 24 945 1.00 Forsvarets personellservice 23 800 0.95 Jan H. Freuchen 22 250 0.89 Flyfisk AS 21 000 0.84 Aristar AS 20 050 0.80 Nordea Bank Norge AS 18 000 0.72 Torbertra kapital AS 18 000 0.72 Skibsaktieselskapet 15 500 0.62 Total 800 495 32.03

Note continues on next page continues Note

105 Notes

Note 28 PRIMARY CAPITAL CERTIFICATES continued

PCCs owned by the managing director, senior employees, members of the Board of Directors, Corporate Assembly and Control Committee, and closely related persons as defined in section 7-26 of the Accounting Act and section 8-20 of the Supplementary Regulations pursuant to the Act:

No. of PCCs Arne Buanes, chairman, Corporate Assembly 20 Trond Mohn, member, Corporate Assembly 10 000 Siri Birkeland, member, Corporate Assembly 100 Einar Nistad, member, Corporate Assembly 7 300 Widar Slemdal Andersen, member, Corporate Assembly 200 Kjell Sævdal, member, Corporate Assembly 200 Inger Finne, member, Corporate Assembly 300 Agathe Bøe Risa, member, Corporate Assembly 200 Linda K. Nordeide, member, Corporate Assembly 200 Liv Erstad, member, Corporate Assembly 125 Karen Dahle, member, Corporate Assembly 300 Per Audun Kloster, member, Corporate Assembly 300 Margunn Y. Samnøy, member, Corporate Assembly 83 Kirsten Gulbrandsen, member, Corporate Assembly 100 Kåre Røssland, member, Corporate Assembly 100 Steinar Danielsen, member, Corporate Assembly 100 Roald Korsøen, member, Control Committee 100 Tone Mattsson, Board member 100 Arve Havnerås, Board member 250 Stein Klakegg, Managing Directorr 1 100 Jan Erik Kjerpeseth, Deputy Managing Director 200 Jørn Lekve, Director of Corporate Communications 200 Arne Selle, Divisional Director, Business Support 300 Benedicte Schilbred Fasmer, Divisional Director, Capital Market 100 Henning Nordgulen, Director, Corporate Market 100 Pål Pedersen, Legal Director 100 Bernt R. Petersen, Head Internal Auditor 600

Nominal amount per PCC: NOK 100

Distribution by number

No. of PCCs No. of PCCs No. of owners Proportion (%) 1 - 100 83 293 3.33 1 020 40.73 101 - 1000 479 758 19.19 1 134 45.29 1001 - 5000 573 255 22.93 266 10.62 5001 - 10000 344 898 13.80 47 1.88 10001 - 250000 1 018 796 40.75 37 1.48 Total 2 500 000 100.00 2 504 100.00

106 Notes

Note 29 GUARANTEES AND MORTGAGES

Parent Bank Group 31 December 31 December

2006 2007 Guarantees Note 2007 2006 Guarantee specification: 629 862 Payment guarantees 862 629 222 565 Contract guarantees 565 222 0 30 Loan guarantees 30 0 2 2 Guarantees for taxes 2 2 279 314 Other guarantee liabilities 274 239 1 132 1 772 Total customer guarantees 11 1 732 1 092 0 0 Guarantees on behalf of Savings Banks’ Guarantee Fund 0 0 1 132 1 772 Total guarantee liability 1 732 1 092

Mortgages Bonds and commercial paper 2 240 4 506 - as security for overnight loans from Norges Bank, valued at 4 506 2 240 2 240 4 506 Total mortgages 4 506 2 240

107 Notes

Note 30 LIQUIDITY RISK / RESIDUAL MATURITY OF BALANCE SHEET ITEMS

Liquidity risk means the risk that the bank is unable to refinance its debt as it matures, or is unable to fund increases in assets. The liquidity risk is reduced by adjusting the balance sheet structure, including the bank’s dependence on funding from sources other than its customers, and the extra costs involved in raising long-term funding in the money market compared with the cost of shorter-term funding until maturity. In 2007, Sparebanken Vest again reviewed and developed its strategy and parameters for liquidity management activities. The current strategy takes account of the recommendations of the Basel Committee concerning good liquidity management for banks.

Most of the bank’s long-term funding which matures in more than one year is linked to agreements where the interest rate is tied up to fixed short-term interest rates. This is done in order to reduce the interest rate risk involved in raising long-term funding.

Residual maturity of 0 - 1 1 - 3 3-12 1 - 5 Over 5 No residual balance sheet items at 31 December 2007 month months months years years maturity Total Cash and deposits with central banks NOK 1 799 1 799 Foreign currency 11 11 Loans to and deposits with credit institutions NOK 400 89 24 513 Foreign currency 45 45 Net loans to customers Amortised cost NOK 13 382 341 4 746 7 426 29 676 55 571 FVO NOK 6 4 10 44 7 004 7 068 Foreign currency 87 83 511 1 363 2 044 Commercial paper and bonds NOK 60 1 240 2 098 1 011 350 4 759 Foreign currency 16 334 350 Other assets NOK 2 872 2 872 Foreign currency 20 20 Total assets 13 848 1 761 6 953 9 326 38 393 4 771 75 052

Debt to credit institutions NOK 1 504 1 358 1 863 Foreign currency 9 759 150 918 Deposits Amortised cost NOK 34 188 1 62 34 251 FVO NOK 338 18 518 1 946 2 820 Foreign currency 540 540 Securitised debt Amortised cost NOK 1 100 4 331 4 633 205 10 269 FVO NOK 312 1 019 1 015 5 761 876 8 983 Foreign currency 6 655 1 235 7 890 Other liabilities NOK 2 158 2 158 Foreign currency Subordinated loan capital NOK Amortised cost Foreign currency 683 683 FVO Foreign currency 359 359 Equity NOK 4 318 4 318 Total liabilities and equity 36 351 2 678 5 864 20 113 3 570 6 476 75 052

Financial derivatives gross settlement (inflows) NOK 1 365 87 165 55 1 672 Foreign currency 6 098 4 068 1 115 10 11 291

Financial derivatives gross settlement (outflows) NOK 4 648 3 867 1 081 1 9 597 Foreign currency 2 697 360 173 65 3 295

NOK (25 777) (4 244) 74 (4 164) 35 887 (1 781) (5) Foreign currency 3 392 3 255 1 041 (6 624) (1 064) 76 76 Net total - all items (22 385) (989) 1 115 (10 788) 34 823 (1 705) 71

All items in the table are posted at book value. In the case of indexed bonds and deposits, the derivative is separated from the main contract and posted individually. The derivative appears in the table below under other liabilities. 108 Notes

Note 30 LIQUIDITY RISK/RESIDUAL MATURITY OF BALANCE SHEET ITEMS continued

0 - 1 1 - 3 3-12 1 - 5 Over 5 No residual Residual maturity at 31 December 2006 month month month years years maturity Total Debt to credit institutions NOK 7 28 7 350 84 476 Foreign currency 39 249 455 743 Deposits Amortisd cost NOK 28 425 45 28 470 FVO NOK 97 2 264 2 361 Foreign currency 288 288 Securitised debt Amortised cost NOK 300 282 1 689 4 524 325 7 120 FVO NOK 1 749 6 953 195 8 897 Foreign currency 4 216 827 5 043 Subordinated loan capital NOK Amortised cost Foreign currency 318 318 FVO Foreign currency 406 406

Financial derivatives gross settlement (outflows)*) 8 563 1 406 2 262 16 12 247

Total payments 37 334 2 049 5 797 18 229 2 876 84 66 369

*) Financial derivatives gross settlements (inflows) 8 539 1 429 2 267 17 12 252

109 Notes

Note 31 INTEREST RATE RISK / PERIOD UNTIL INTEREST RATE REGULATION

0 - 1 1 - 3 3-12 1 - 5 Over 5 No residual Interest rate adjustment date at 31/12-07 month months months years years maturity Total Cash and deposits with central banks NOK 1 572 227 1 799 Foreign currency 11 11 Loans to and deposits with credit institutions NOK 424 89 513 Foreign currency 45 45 Net loans to customers Amortised cost NOK 55 571 55 571 FVO NOK 11 142 108 811 668 5 328 7 068 Foreign currency 800 1 087 157 2 044 Commercial paper and bonds NOK 747 1 909 2 094 7 2 4 759 Foreign currency 350 350 Other assets NOK 2 872 2 872 Foreign currency 20 20 Total assets 3 599 3 577 2 359 818 670 64 029 75 052

Debt to credit institutions NOK 1 504 359 1 863 Foreign currency 289 479 150 918 Deposits Amortised cost NOK 228 34 023 34 251 FVO NOK 338 18 518 1 946 2 820 Foreign currency 540 540 Securitised debt Amortised cost NOK 836 5 121 4 312 10 269 FVO NOK 312 1 150 674 5 970 877 8 983 Foreign currency 2 785 3 108 1 997 7 890 Other liabilities NOK 2 158 2 158 Foreign currency Subordinated loan capital NOK Amortised cost Foreign currency 683 683 FVO Foreign currency 359 359 Equity NOK 4 318 4 318 Total liabilities and equity 6 747 10 775 7 729 7 916 1 386 40 499 75 052

Purchase positions NOK 4 187 23 899 41 182 10 143 1 201 80 612 Foreign currency 6 098 4 203 1 115 150 580 12 146 Sales positions NOK (12 158) (28 847) (43 677) (2 969) (886) (88 537) Foreign currency (2 697) (1 080) (173) (200) (4 150) Derivatives not posted in balance sheet (4 570) (1 825) (1 553) 7 124 895 0 71

NOK (8 207) (9 456) (6 025) 76 108 23 499 (5) Foreign currency 489 433 (898) (50) 71 31 76 Net interest rate exposure (7 718) (9 023) (6 923) 26 179 23 530 71

110 Notes

Note 32 SENSITIVITY ANALYSIS - MARKET RISK

Conditions for calculating market risk The market risk due to trading activities is limited by using risk parameters set by the Board of Directors. The risk is reported regularly to the Board of Directors. The parameters for foreign exchange positions are those set by the Board of Directors. The parameters for the interest rate risk, the share risk and the foreign exchange risk are set at a level which limits the risk so that the bank’s core activities do not suffer.

Market risk arises as a consequence of open positions in the foreign exchange, interest rate and capital markets. The risk is related to variations in financial results due to fluctuations in market prices and exchange rates.

The risk-adjusted capital requirement for market risk, at a confidence level of 99%, should cover all potential losses related to market risk on the balance sheet date over a period of one year. Calculations of risk-adjusted capital are based on statistical methods based on a normal distribution and constant volatility for the year. Calculations of risk-adjusted capital also require a certain level of discretion and estimation, especially in relation to positions where little price data is available.

The model has a one-year time horizon. The calcutaion is based on the expected maximum utilisation of limits and is thus conservative, but the model takes account of correlations between the defined portfolios.

The Group’s overall market risk is estimated at NOK 567m (377m).

The overall capital requirement related to market risk may be summarised as follows:

2007 2006 Trading portfolio 190 155 Other equity positions 377 222 Total 567 377

Note 33 INTEREST RATE SENSITIVITY

Interest rate sensitivity by period of maturity Throughout 2007 Sparebanken Vest had holdings of bonds and commercial paper, mainly for the purpose of meeting statutory requirements relating to liquidity reserves and deposits required as security for payment settlements and loans from Norges Bank.

At year-end, the bank’s holdings of bonds and commercial paper amounted to NOK 5 109m, with an average duration of 0.25 years. Taken separately, the interest rate risk on these investments would result in a loss of value of NOK 12.9m in the event of a parallel rise in the interest rate of 1 percentage point. As well as investments in bonds and commercial paper, the bank takes positions in derivatives which affects the interest rate exposure.

In managing its interest rate exposure, the bank realises that that different maturities can develop differently. The interest rate risk related to fixed interest funding, indexed products with an interest rate risk and fixed-interest loans to customers is largely eliminated through interest rate swaps.

The table shows the interest rate risk in the event of a parallel rise in the interest rate of 1 percentage point for the bank’s overall positions.

0 - 1 month 1 - 3 months 3 - 12 months 1 - 5 years Over 5 years Total 31/12-07 NOK (3.5) 13 (4.6) 13.1 (18.9) (0.9) Foreign currency (0.1) 31/12-06 NOK (3.3) 13.7 (18.9) 23.6 (14.8) 0.3 Foreign currency (0.9)

Note 34 FOREIGN EXCHANGE POSITIONS

The figures show Sparebanken Vests’s net foreign currency exposure at 31 December including financial derivatives as defined by Norges Bank. Net positions in each currency cannot exceed 2.5% of the bank’s equity and the aggregate foreign exchange position cannot exceed 5% of the bank’s equity.

Foreign of which: currency USD EUR GBP SEK DKK JPY Other Net foreign currency exposure at 31 December 2007 90 1 103 4 (41) 11 1 11 Net foreign currency exposure at 31 December 2006 66 (2) 70 1 2 (6) 2 (1)

111 Notes

Note 35 TRANSACTIONS WITH ASSOCIATED COMPANIES

This information is provided in accordance with the provisions of IAS 24 concerning “Information about associated companies”.

Transactions involving senior employees and elected officers appear in note 7.

Sparebanken Vest has defined its subsidiaries Filialbygg AS and Eiendomsmegler Vest AS as well as Frende Holding AS (note 16) as associated companies in relation to the accounting standard.

All intra-group transactions and transactions with associated companies are conducted on the basis of normal commercial terms and principles.

Total intra-group transactions (NOK 1 000) 2007 2006 2005 Profit and Loss Account Interest and credit commissions received from subsidiaries 12 524 5 442 4 946 Interest paid on deposits from subsidiaries 8 533 2 592 1 559 Office rental costs 56 111 55 605 54 568 Refund of operating expenses 25 322 25 417 25 372

Balance Sheet Loans to subsidiaries at 31 December 280 515 135 094 Deposits from subsidiaries 45 442 32 478 Group contributions receivable (gross) 44 385 52 603

There have been no transactions with Frende Holding AS apart from the direct refund of outlays which were incurred by the bank on behalf of the company in the start-up phase.

In 2007 the bank paid NOK 2.1m to the firm of lawyers Thommessen, Krefting, Greve, Lund AS - of which the chairman of the Board of Directors is a partner - in connection with the establishment of the Frende companies and a dispute with SpareBank 1. This assignment was approved by the bank’s Board of Directors.

Note 36 DISPUTES

At year-end 2007 the Sparebanken Vest Group was not involved in any litigation or legal disputes of material economic significance for the Group. The bank is otherwise subject to various claims related to its normal activities. Loss provisions have been made where considered appropriate.

112 Auditor’s Report for 2007

Auditor’s Report for 2007

We have audited the annual financial statements of An audit also includes assessing the accounting Sparebanken Vest for 2007 which show a profit for the year principles used and significant estimates made by of NOK 657 million for the parent company and a profit management, as well as evaluating the overall content for the year of NOK 650 million for the Group. We have also and presentation of the financial statements. audited the information in the Directors’ Report concerning To the extent required by law and auditing standards, the financial statements, the going concern assumption and an audit also comprises a review of the management the proposal for the appropriation of the profit for the year. of the Company’s financial affairs and its accounting and The annual accounts consist of the accounts for the parent internal control systems. We believe that our audit provides bank and the consolidated accounts. The accounts for the a reasonable basis for our opinion. parent bank comprise the profit and loss account, balance sheet, statement of cash flows, a statement of changes In our opinion, in equity and notes to the accounts. The consolidated • the accounts of the parent company have been accounts comprise the profit and loss account, balance prepared in accordance with the law and regulations sheet, statement of cash flows, an overview of changes and are a correct presentation of the financial position in equity and notes to the accounts. The accounts of the of the company at 31 December 2007 and of the results parent bank have been prepared in accordance with of its operations and its cash flows and changes in equity simplified IFRS in accordance with the Norwegian in the financial year, in accordance with simplified IFRS Accountancy Act, section 3-9. pursuant to the Norwegian Accountancy Act, section 3-9

International Financial Reporting Standards as laid down • the consolidated accounts have been prepared in by the EU have been applied to prepare the consolidated accordance with the law and regulations and are accounts. These financial statements are the responsibility a correct presentation of the financial position of the of the Company’s Board of Directors and the Managing Group at 31 December 2007 and of the results of its Director. Our responsibility is to express an opinion on these operations and its cash flows and changes in equity financial statements and on other information according in the financial year in accordance with International to the requirements of the Norwegian Act on Auditing Financial Reporting Standards as laid down by the EU and Auditors. • the Company’s management have fulfilled their We have conducted our audit in accordance with laws, obligation in respect of registration and documentation regulations and auditing standards and practices of accounting information as required by law and generally accepted in Norway, including the auditing accounting standards, principles and practices generally and accounting standards adopted by the Association accepted in Norway of Norwegian Accountants. Those standards and practices require that we plan and perform the audit to obtain • the information in the directors’ report concerning the reasonable assurance that the financial statements financial statements, the going concern assumption, are free of material misstatement. An audit includes and the proposal for the appropriation of the profit is examining, on a test basis, evidence supporting the consistent with the financial statements and complies information contained in the financial statements. with law and regulations.

Bergen, 27 February 2008 PricewaterhouseCoopers AS

Jon Haugervåg State Authorised Public Accountant

113 Control Committee’s Report

The corporate assembly of Sparebanken Vest Control Committee’s Report for 2007

The Control Committee has carried out the checks the bank’s Articles of Association, resolutions of the considered necessary to comply with the guidelines and Corporate Assembly or other relevant provisions. directives which it is required to observe under the Savings Banks Act and in accordance with the instructions issued The Committee is of the view that the Board of Directors’ to the Control Committee. assessment of the bank’s financial position, as presented in the annual report, is comprehensive. The Committee has worked closely with the internal auditor, while maintaining contact with the external auditor. In the view of the Committee, the annual report and The Committee has had two meetings with the chairman accounts, including the consolidated accounts, have been of the Corporate Assembly, the chairman of the Board of prepared in accordance with the Savings Banks Act and Directors, the Managing Director and directors responsible regulations laid down by the Financial Supervisory Authority for various areas of operations. of Norway. The Committee recommends that the profit and loss account and the balance sheet for 2007, including The Control Committee has not found the Bank’s activities the consolidated accounts, as submitted by the Board to be in conflict with the provisions of the Savings Banks Act, of Directors, be adopted by the Corporate Assembly the Financing Activity Act, the Securities Trading Act, as the accounts of Sparebanken Vest for 2006.

Bergen, 27 February 2008

Anne Marit Steen Kjell Steinsbø

Liv Henjum Roald Korsøen

114 Group Key Figures 5 years

1 January - 31 December

PROFIT AND LOSS ACCOUNT SUMMARY 2007 2006 2005 2004 2003

Interest income etc. 3 642 2 359 1 883 1 725 2 316 Interest expenses etc. 2 516 1 317 911 765 1 413

Net interest income and credit commissions 1 126 1 042 972 960 903

Commissions receivable and income from banking services 422 399 368 363 333 Commissions payable and cost of banking services 75 78 79 78 89 Net banking services 347 321 289 285 244 Net gain on financial instruments 208 187 102 62 61 Other operating income 123 116 80 59 48 Net other operating income 678 624 471 406 353

Net operating income 1 804 1 666 1 443 1 366 1 256

Salaries and general administration expenses 767 739 708 657 583 Depreciation 68 63 59 60 47 Other operating expenses 138 119 108 102 117 Total operating expenses 973 921 875 819 747

Profit before write-downs and tax 831 745 568 547 509

Write-downs and losses on loans and guarantees (34) (48) (75) 60 114

Profit before tax 865 793 643 487 395

Taxes 215 190 168 179 118

Profit after tax 650 603 475 308 277

Minority interests 1

Profit for the period 649 603 475 308 277

115 Group Key Figures 5 years

31 December

BALANCE SHEET SUMMARY 2007 2006 2005 1/1-05 2003

Assets

Cash and deposits with central banks 1 810 563 328 351 229 Loans to and deposits with credit institutions 558 1 227 2 840 1 441 677 Net lendings 64 683 53 451 46 672 41 469 36 559 Shares at fair value through profit or loss 560 530 381 464 316 Commercial paper and bonds 5 109 2 812 2 721 2 527 2 031 Shares available for sale 67 67 62 62 Fincial derivatives 1 140 1 009 1 219 679 Shareholdings in associated companies 151 Deferred tax assets 81 112 48 26 91 Other intangible assets 263 37 23 25 18 Fixed assets 461 318 336 357 279 Prepaid expenses 11 47 25 59 139 Customer funds - contribution-based pension agreements 33 Other assets 121 59 25 15 12

Total assets 75 048 60 232 54 680 47 475 40 351

Liabilities and equity

Debt to credit institutions 2 781 1 219 1 097 1 522 1 793 Deposits 37 611 31 119 27 390 24 762 22 237 Securitised debt 27 142 21 060 19 862 15 840 12 426 Financial derivatives 1 419 1 361 1 230 692 Accrued expenses and prepaid income 141 147 157 147 202 Provisions and pension commitments 196 232 216 179 104 Tax provision 189 264 223 135 113 Subordinated loan capital 1 042 724 942 1 094 731 Other liabilities 209 308 291 229 316

Total liabilities 70 730 56 434 51 408 44 600 37 922

Primary capital certificates 250 250 250 250 250 Holdings of own PCCs (3) (3) (7) (3) PCC premium reserve 4 4 4 4 4 Total paid-up equity 251 251 247 251 254

Reserve for valuation variances 60 60 58 Gift fund 200 150 100 45 25 Equalisation reserve 6 9 2 Other equity 3 800 3 328 2 865 2 579 2 150 Minority interests 1 Total retained earnings 4 067 3 547 3 025 2 624 2 175

Total equity 4 318 3 798 3 272 2 875 2 429

Total liabilities and equity 75 048 60 232 54 680 47 475 40 351

AVERAGE TOTAL ASSETS 66 706 56 253 50 500 43 826 38 827

116 Group Key Figures 5 years

RESULTS AS PERCENTAGE OF TOTAL ASSETS 2007 2006 2005 2004 2003

Interest income etc. 5.46 4.19 3.73 3.94 5.96 Interest expenses etc. 3.77 2.34 1.80 1.75 3.64

Net interest income and credit commissions 1.69 1.85 1.93 2.19 2.33

Commissions receivable and income from banking services 0.63 0.71 0.73 0.83 0.86 Commissions payable and cost of banking services 0.11 0.14 0.16 0.18 0.23 Net banking services 0.52 0.57 0.57 0.65 0.63 Net gain on financial instruments 0.31 0.33 0.20 0.14 0.16 Other operating income 0.18 0.21 0.16 0.13 0.12 Net other operating income 1.02 1.11 0.93 0.93 0.91

Net operating income 2.70 2.96 2.86 3.12 3.23

Salaries and general administration expenses 1.15 1.32 1.40 1.50 1.50 Depreciation 0.10 0.11 0.12 0.14 0.12 Other operating expenses 0.21 0.21 0.21 0.23 0.30 Total operating expenses 1.46 1.64 1.73 1.87 1.92

Profit before write-downs and tax 1.25 1.32 1.13 1.25 1.31

Write-downs and losses on loans and guarantees (0.05) (0.09) (0.15) 0.14 0.29

Profit before tax 1.30 1.41 1.28 1.11 1.02

Taxes 0.32 0.34 0.33 0.41 0.30

Profit after tax 0.97 1.07 0.95 0.70 0.71

Minority interests 0.00

Profit for the year 0.97 1.07 0.94 0.70 0.71

Return on investment. earnings and capital structure (%)

1. Return on equity after tax 16.24 17.86 15.44 11.54 11.80 2. Return on total assets before losses and tax 1.25 1.32 1.13 1.25 1.31 3. Net return on total assets 0.97 1.07 0.95 0.70 0.71 4. Ratio of operating costs to net operating income 53.94 55.28 60.64 59.96 59.47 5. Funding ratio 58.15 58.22 58.70 59.71 60.82

Balance Sheet Development (%)

6. Change in net loans 21.01 14.52 12.55 13.43 14.83 7. Change in commercial paper and bonds 81.69 3.34 7.68 24.42 10.20 8. Change in deposits 20.86 13.61 10.61 11.35 0.20 9. Change in total assets 24.60 10.15 15.18 14.66 13.83

Defaults, provisions and loan losses

10. Loan loss ratio (0.06) (0.09) (0.16) 0.14 0.31 11. Gross default ratio 0.21 0.28 0.32 0.36 0.43 12. Net default ratio 0.20 0.24 0.26 0.25 0.28 13. Percentage write-down of defaulted loans 4.52 14.86 17.45 32.45 34.81

Capital adequacy

14. Net capital base 4 624 4 048 3 909 3 477 2 901 15. Basis of calculation 47 546 39 640 34 414 30 835 27 690 16. Capital ratio 9.67 10.21 11.36 11.28 10.48 17. Core capital ratio 8.33 9.44 9.95 9.56 8.38

117

Group Key Figures 5 years

Primary Capital Certificates (Parent Bank) 2007 2006 2005 2004 2003

19. Primary capital certificates (NOK mill.) 250 250 250 250 250 20. Dividend per PCC (NOK) 19.00 18.25 17.10 12.60 12.60 21. Traded price at 31 December 190.00 213.00 206.00 187.50 162.00 22. PCCs as a percentage of capital base 6.38 7.30 8.36 9.48 10.35 23. Book equity per PCC (NOK) 100.00 100.00 100.00 100.00 100.00 24. Profit (gross) per PCC (NOK) 262.80 220.80 182.00 123.60 110.80 25. Earnings per PCC (NOK) 19.19 20.47 17.25 12.96 12.62 26. Diluted earnings per PCC (NOK) 19.19 20.47 17.25 12.96 12.62 27. Effective rate of return per PCC (2.23) 11.70 16.59 23.52 59.13 28. Direct rate of return 10.00 8.57 8.30 6.72 7.78 29. Payout ratio 7.23 8.27 9.40 10.19 11.37 30. Provision for dividends as a % of PCCs’ share of profits 99.02 89.15 99.13 98.46 99.84

Personnel

Number of employees 845 795 802 848 854 Number of full-time positions 803 750 749 791 795

Distribution network

Sales outlets 60 57 58 58 58

Definitions:

1. Profit for the year as a percentage of opening equity adjusted for IFRS + 50% of the profit for the year. 2. Operating profit before losses and taxes as a percentage of average total assets. 3. Operating profit after tax as a percentage of average total assets. 5. Deposits from and debt to customers as a percentage of loans to and receivables from customers. 6. Change in net lendings to customers at year-end compared with the previous year-end volume 7. Change in securities at year-end compared with the previous year-end volume. 8. Change in customer deposits at year-end compared with the previous year-end volume. 10. Losses on loans and guarantees as a percentage of gross loans to and receivables from customers at year-end. 11. Ratio of gross defaults to gross lendings. 12. Ratio of defaulted loans less individual write-downs to net lendings. 13. Individual write-downs on defaulted loans as a percentage of the gross volume of these loans. 22. PCCs as a percentage of parent bank’s equity at year-end, corrected for allocations to the reserve for valuation variances. 24. Profit for the year divided by the number of PCCs. 25. PCCs’ share of the profit for the year divided by the number of PCCs. 27. Dividend plus change in market price from 1 Jan. to 31 Dec. as a percentage of stock exchange price at 1 Jan. 28. Provision for dividends as a percentage of the stock exchange price at year-end. 30. Dividend as a percentage of the gross operating profit per PCC.

118 Group Key Figures 2006 - 2007 - Quarterly Results

PROFIT AND LOSS ACCOUNT SUMMARY 31/12-07 30/09-07 30/06-07 31/03-07 31/12-06 30/09-06 30/06-06 31/03-06

Interest income etc. 3 642 2 531 1 577 721 2 359 1 684 1 077 520 Interest expenses etc. 2 516 1 701 1 036 459 1 317 910 568 268

Net interest income and credit commissions 1 126 830 541 262 1 042 774 509 252

Commissions receivable and income from banking services 422 318 204 102 399 292 191 95 Commissions payable and cost of banking services 75 55 37 18 78 57 39 18 Net banking services 347 263 167 84 321 235 152 77 Net gain on financial instruments 208 164 113 48 187 138 81 54 Other operating income 123 91 64 25 116 83 57 22 Net other operating income 678 518 344 157 624 456 290 153

Net operating income 1 804 1 348 885 419 1 666 1 230 799 405

Salaries and general administration expenses 767 567 377 185 739 544 365 177 Depreciation 68 49 32 14 63 48 32 15 Other operating expenses 138 90 61 23 119 70 49 24 Total operating expenses 973 706 470 222 921 662 446 216

Profit before write-downs and tax 831 642 415 197 745 568 353 189

Write-downs on loans and guarantees (34) (47) (25) (7) (48) (44) (33) (19)

Profit before tax 865 689 440 204 793 612 386 208

Taxes 215 176 105 48 190 146 93 56

Profit after tax 650 513 335 156 603 466 293 152

Minority interests 1

Profit for the period 649 513 335 156 603 466 293 152

AVERAGE TOTAL ASSETS 66 706 64 827 62 809 59 884 56 253 55 366 54 622 53 772

RESULTS AS A PERCENTAGE OF AVERAGE TOTAL ASSETS

Interest income etc. 5.46 5.22 5.06 4.88 4.19 4.07 3.98 3.92 Interest expenses etc. 3.77 3.51 3.33 3.11 2.34 2.20 2.10 2.02

Net interest income and credit commissions 1.69 1.71 1.74 1.77 1.85 1.87 1.88 1.90

Commissions receivable and income from banking services 0.63 0.65 0.65 0.69 0.71 0.71 0.71 0.72 Commissions payable and cost of banking services 0.11 0.11 0.12 0.12 0.14 0.14 0.14 0.14 Net banking services 0.52 0.54 0.54 0.58 0.57 0.57 0.56 0.58 Net gain on financial instruments 0.31 0.34 0.36 0.33 0.33 0.33 0.30 0.41 Other operating income 0.18 0.19 0.21 0.17 0.21 0.20 0.21 0.17 Net other operating income 1.02 1.07 1.10 1.06 1.11 1.10 1.07 1.15

Net operating income 2.70 2.78 2.84 2.84 2.96 2.97 2.95 3.05

Salaries and general administration expenses 1.15 1.17 1.21 1.25 1.32 1.31 1.35 1.33 Depreciation 0.10 0.10 0.10 0.09 0.11 0.12 0.12 0.11 Other operating expenses 0.21 0.18 0.20 0.16 0.21 0.17 0.18 0.18 Total operating expenses 1.46 1.46 1.51 1.50 1.64 1.60 1.65 1.63

Profit before write-downs and tax 1.25 1.32 1.33 1.33 1.32 1.37 1.30 1.43

Write-downs on loans and guarantees (0.05) (0.10) (0.08) (0.05) (0.09) (0.11) (0.12) (0.14)

Profit before tax 1.30 1.42 1.41 1.39 1.41 1.48 1.43 1.57

Taxes 0.32 0.36 0.34 0.33 0.34 0.35 0.34 0.42

Profit after tax 0.97 1.06 1.08 1.06 1.07 1.13 1.08 1.14

Minority interests 0.00

Profit for the period 0.97 1.06 1.08 1.06 1.07 1.13 1.08 1.14 119 Group Key Figures 2006 - 2007 - Quarterly Results

QUARTERLY RESULTS 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q (non-cumulative) 2007 2007 2007 2007 2006 2006 2006 2006

Interest income etc. 1 111 954 856 721 675 607 557 520 Interest expenses etc. 815 665 577 459 407 342 300 268

Net interest income and credit commissions 296 289 279 262 268 265 257 252

Commissions receivable and income from banking services 104 114 102 102 107 101 96 95 Commissions payable and cost of banking services 20 18 19 18 21 18 21 18 Net banking services 84 96 83 84 86 83 75 77 Net gain on financial instruments 44 51 65 48 49 57 27 54 Other operating income 32 27 39 25 33 26 35 22 Net other operating income 160 174 187 157 168 166 137 153

Net operating income 456 463 466 419 436 431 394 405

Salaries and general administration expenses 200 190 192 185 195 179 188 177 Depreciation 19 17 18 14 15 16 17 15 Other operating expenses 48 29 38 23 49 21 25 24 Total operating expenses 267 236 248 222 259 216 230 216

Profit before write-downs and tax 189 227 218 197 177 215 164 189

Write-downs on loans and guarantees 13 (22) (18) (7) (4) (11) (14) (19)

Profit before tax 176 249 236 204 181 226 178 208

Taxes 39 71 57 48 44 53 37 56

Profit after tax 137 178 179 156 137 173 141 152

Minority interests 1

Profit for the period 136 178 179 156 137 173 141 152

AVERAGE TOTAL ASSETS (non-cumulative) 72 142 68 793 65 702 59 884 58 885 56 830 55 462 53 772

120 Group Key Figures 2006 - 2007 - Quarterly Results

QUARTERLY RESULTS 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q (non-cumulative) 2007 2007 2007 2007 2006 2006 2006 2006

Interest income etc. 6.11 5.50 5.23 4.88 4.55 4.24 4.03 3.92 Interest expenses etc. 4.48 3.84 3.52 3.11 2.74 2.39 2.17 2.02

Net nterest income and credit commissions 1.63 1.67 1.70 1.77 1.81 1.85 1.86 1.90

Commissions receivable and income from banking services 0.57 0.66 0.62 0.69 0.72 0.71 0.69 0.72 Commissions payable and cost of banking services 0.11 0.10 0.12 0.12 0.14 0.13 0.15 0.14 Net banking services 0.46 0.55 0.51 0.58 0.58 0.58 0.54 0.58 Net gain on financial instruments 0.24 0.29 0.40 0.33 0.33 0.40 0.20 0.40 Other operating income 0.18 0.16 0.24 0.17 0.22 0.18 0.25 0.17 Net other operating income 0.88 1.00 1.14 1.06 1.13 1.16 0.99 1.15

Net operating income 2.51 2.67 2.84 2.84 2.94 3.01 2.85 3.05

Salaries and general administration expenses 1.10 1.10 1.17 1.25 1.31 1.25 1.36 1.33 Depreciation 0.10 0.10 0.11 0.09 0.10 0.11 0.12 0.11 Other operating expenses 0.26 0.17 0.23 0.16 0.33 0.15 0.18 0.18 Total operating expenses 1.47 1.36 1.51 1.50 1.76 1.51 1.66 1.63

Profit before write-downs and tax 1.04 1.31 1.33 1.33 1.19 1.50 1.19 1.43

Loan write-downs and losses on guarantees 0.07 (0.13) (0.11) (0.05) (0.03) (0.08) (0.10) (0.14)

Profit before tax 0.97 1.44 1.44 1.39 1.22 1.58 1.29 1.57

Taxes 0.21 0.41 0.35 0.33 0.30 0.37 0.27 0.42

Profit after tax 0.75 1.03 1.09 1.06 0.92 1.21 1.02 1.14

Minority interests 0.01

Profit for the period 0.74 1.03 1.09 1.06 0.92 1.21 1.02 1.14

121 Group Key Figures 2006 - 2007 - Quarterly Results

BALANCE SHEET SUMMARY 31/12-07 30/09-07 30/06-07 31/03-07 31/12-06 30/09-06 30/06-06 31/03-06

Assets

Cash and deposits with central banks 1 810 1 116 321 290 563 468 307 213 Loans to and deposits with credit institutions 558 2 313 1 971 850 1 227 1 024 973 854 Net lendings 64 683 62 014 60 000 57 955 53 451 51 685 49 800 47 949 Shares at fair value through profit or loss 560 593 595 552 530 495 440 457 Commercial paper and bonds 5 109 3 400 3 139 3 757 2 812 2 505 2 869 2 868 Shares available for sale 67 68 68 67 67 62 62 62 Financial derivatives 1 140 1 096 1 066 949 1 009 892 681 838 Shareholdings in associated companies 151 156 156 Deferred tax assets 81 113 113 112 112 47 48 48 Other intangible assets 263 250 255 259 37 37 39 28 Fixed assets 461 471 474 315 318 305 321 329 Prepaid expenses 11 53 43 43 47 84 19 83 Customer funds - contribution-based pension agreements 33 27 23 14 Other assets 121 36 126 49 59 35 97 72 Total assets 75 048 71 706 68 350 65 212 60 232 57 639 55 656 53 801

Liabilities and equity

Debt to credit institutions 2 781 1 370 1 703 1 945 1 219 988 1 512 996 Deposits 37 611 37 005 36 150 32 676 31 119 29 963 29 483 27 082 Securitised debt 27 142 25 637 23 186 23 755 21 060 20 250 18 378 19 490 Financial derivatives 1 419 1 603 1 720 1 342 1 361 893 1 028 976 Accrued costs and prepaid income 141 155 141 129 147 217 156 170 Provisions and pension commitments 196 212 215 236 232 217 215 215 Tax provision 189 218 145 200 264 0 252 212 Subordinated loan capital 1 042 1 010 657 700 724 899 838 894 Other liabilities 209 315 428 404 308 566 322 434 Total liabilities 70 730 67 525 64 345 61 387 56 434 53 993 52 184 50 469

Primary capital certificates 250 250 250 250 250 250 250 250 Holdings of own primary capital certificates (3) (6) (5) (5) (3) (10) (10) (10) PCC premium reserve 4 4 4 4 4 4 4 4 Total paid-up equity 251 248 249 249 251 244 244 244

Revaluation reserve 60 60 60 60 60 58 58 58 Gift fund 200 150 150 150 150 100 100 100 Equalisation fund 6 9 9 9 9 9 9 9 Other equity 3 800 3 200 3 201 3 201 3 328 2 769 2 768 2 769 Minority interests 1 1 1 Total retained earnings 4 067 3 420 3 421 3 420 3 547 2 936 2 935 2 936

Total equity 4 318 3 668 3 670 3 669 3 798 3 180 3 179 3 180

Interim profit (unallocated) 513 335 156 466 293 152 Total liabilities and equity 75 048 71 706 68 350 65 212 60 232 57 639 55 656 53 801

122 Group Key Figures 2006 - 2007 - Quarterly Results

Return on investment, earnings and capital structure (%) 31/12-07 30/09-07 30/06-07 31/03-07 31/12-06 30/09-06 30/06-06 31/03-06

Return on equity after tax 16.24 17.45 17.57 16.88 17.86 18.65 17.92 18.86 Return on total assets before losses and tax 1.25 1.32 1.33 1.33 1.32 1.37 1.30 1.43 Net return on total assets 0.97 1.06 1.08 1.06 1.07 1.13 1.08 1.14 Ratio of operating costs to operating income 53.94 52.37 53.11 52.98 55.28 53.82 55.82 53.33 Ratio of operating costs to operating income, corrected for currency gain/loss 60.96 59.63 60.88 59.84 62.27 60.62 62.12 61.54 Funding ratio 58.15 59.67 60.25 56.38 58.22 57.97 59.20 56.48

Solvency (%)

Capital ratio 9.73 9.36 9.07 9.34 10.21 10.05 10.51 11.02

Personnel

Number of full-time positions 803 801 768 765 750 741 746 739

Primary Capital Certificates (Parent Bank)

Profit per PCC (NOK) 19.19 14.69 9.49 4.50 20.47 14.98 9.40 4.95 Diluted profit per PCC (NOK) 19.19 14.69 9.49 4.50 20.47 14.98 9.40 4.95 PCC percentage of capital base 6.38 7.30 7.30 7.30 7.30 8.36 8.36 8.36

Definitions see page 118.

123 Regional map

Regional map

Sogn & Stadlandet Fjordane Selje Region Stryn Måløy Bryggja Davik Nordfjordeid Florø Førde Årdal Sogndal Høyanger

Nordhordland Masfjorden Region Lindås Mastrevik Fedje Haus Manger Lonevåg Knarvik Frekhaug Valestrandsfossen Dale Vest Rong Bjørkheim Hardanger/ Region Kleppestø Norheimsund Midthordland Ågotnes Strandebarm Region Straume Eikelandsosen Skogsvåg Odda Os Røldal Storebø Bekkjarvik

Sunnhordland/ Fitjar Haugalandet Husnes Region Sagvåg Kaigaten Bergen Bremnes Korskirkeallmenningen Region Mosterhamn Xhibition Leirvik Danmarksplass Sveio Sletten Haugesund Åsane Sæbøvik Arna Skånevik Loddefjord Etne Oasen Nesttun Rogaland Stavanger (spring 2008) Lagunen Region Sandnes

124 Organisational structure

Organisational structure

Managing Director

Information - Special Commitments Legal and PR - Anti-Laundering - Company Secretariat

Personnel and Risk Management Competence

Visjon Vest

Retail Market Corporate Market Business Development Business Support Capital Market Division Division Division Division Division

- Bergen Region - Bergen Region - Market - IT - Asset Management - Nordhordland Region - Nordhordland Region - Products - Contingencies/Security - Foreign Exchange/ - Hardanger/Midt- - Hardanger/Midt- - Business Development - Banking Systems Interest Rates hordland Region hordland Region - Management - Custodial Services - Liquidity - Sogn & Fjordane Region - Sogn & Fjordane Region Accounting/Accounts - Purchases/Group - Long-term Funding - Vest Region - Vest Region - Eiendomsmegler Vest Services - Sunnhordland/ - Sunnhordland/ - Insurance - AS Filialbygg Haugalandet Region Haugalandet Region - Rogaland Region - Rogaland Region - Customer Service - Major Clients - Payment Services - Insurance

125 Elected officers, management and branches

Members of the Corporate Assembly Board of Directors Market following the elections in 2007 Pål W. Lorentzen, Chairman Aina Tysse, Section Manager Members elected by depositors Anne Kverneland Bogsnes, Deputy Chair- Products Arne Buanes, Chairman man Birthe Bjørnes, Section Manager Lillian Torsvik, Deputy Chairman Øyvind A. Langedal Business Development Ingri Geitrheim Waage Jan O. Yttredal Bjørg Marit Eknes, Section Manager Håkon Østgulen Anne Gine Hestetun Management Accounting Ottar Arve Sætre Gerd Kjellaug Berge Terje Mjelde, Ingolf Arne Marifjæren Inger Karin Larsen Head of Management Accounting Torill Kvamme Tone Mattsson Eiendomsmegler Vest Johannes O. Berge Arve Havnerås Rune Hansen, Managing Director Margunn Y. Samnøy Magnhild Bjørlo Control Committee Business Support Division Ove Ellingsen Anne Marit Steen, Chairman Arne Selle, Director Einar Vatne jr. Kjell Steinsbø, Deputy Chairman Terje Vidar Vestvik Liv Henjum Contingencies / Security Jostein Valen Roald Korsøen Hans Thorsø Einum, Assistant General Anne Grete Ådland Manager External auditor Purchases / Group Services Members elected by local authorities Jon Haugervåg, Gerda Sørheim Bøe, Section Manager Helge Stormoen PriceWaterhouseCoopers DA (PWC) EDP / Systems Gro Berge Inge Ådland, Section Manager Eli Årdal Berland Internal auditor Banking Systems Terje Søviknes Bernt R. Petersen Kristian Maubach, Assistant General Mette Holmefjord Olsen Manager Brigt O. Gåsdal Management Custodial Services Margreta Navelsaker Managing Director: Stein Klakegg Eivind Ingolfsen, Section Manager Arvid Stenehjem Deputy Managing Director: Jan Erik AS Filialbygg Kjerpeseth Bent Helge Aardal, Managing Director Members elected by owners of PCCs Tor Johannessen Office address: Kaigaten 4, NO-5016 Bergen Capital Market Division Widar Slemdal Andersen Post address: P.O. B. 7999, NO-5020 Bergen Benedicte Schilbred Fasmer, Director Leif Holst Tel.: +47 815 22 002 - Fax: +47 55 21 73 05 Trond Mohn E-mail: [email protected] Asset Management Eyvind Lunde Karstein Lien, General Manager Siri Birkeland Corporate Communications Foreign Exchange / Interest Rates Rolf W. Karlsen Jørn Lekve, Director Torleif Berg, Assistant General Manager Erik Sture Larre Liquidity Jan S. Johannessen Legal Stein Tore Davidsen, Assistant General Einar Nistad Pål Pedersen, Director Manager Birgit Nistad Long-term Funding Anne Marit Steen Special commitments Egil Mokleiv, Director Eyvind Bagge, General Manager Financial Products Employee-elected members Anti-Laundering Kirsten Gulbrandsen, Deputy Manager Kjell Sævdal Inger Søndervik, Manager Compliance Kirsten Gulbrandsen Company Secretary Øyvind Telle, Section Manager Inger Finne Silje Risdal Paulsen International Payment Services Agathe Bøe Risa Lars Magnar Stølen, Section Manager Kåre Røssland Risk Management Back-office Linda K. Nordeide Frank Johannesen, Director Finn Rolland, Deputy Manager Anne Karin Bjørkelo Liv Erstad Personnel and Competence Retail Market Division Steinar Danielsen Gro Hatleskog, Director Kate Henriksen, Director Karen Dahle Per Audun Kloster Visjon Vest Customer Service Møyfrid Gassand Siren Sundland, Manager Gro Heidi Skarstein (since spring 2008) (currently on leave of absence) Business Development Division Corporate Market Division Jan Erik Kjerpeseth, Deputy Managing Henning Nordgulen Director

126 Major Clients Vest Region Nesttun Eirik Fausa, General Manager Regional Bank Manager - RM Nesttunvegen 98, NO-5221 Nesttun Payment Services Trygve Wåge Tel.: +47 55 11 61 20 – Fax: +47 55 11 61 21 Terje Kvamme, General Manager Regional Bank Manager - CM Øystein Bredholt (acting) Lagunen Bergen Region Lagunen Storsenter, NO-5239 Rådal Regional Director - RM P.O.B. 152/153, NO-5342 Straume Tel.: +47 55 11 29 34 – Fax: +47 55 11 29 31 Frank H. Bjørndal Tel.: +47 815 22 003 Regional Director - CM Fax: +47 56 32 34 01 Os Audun Rebnor Branches: Straume, Rong, Skogsvåg, Storebø, Brugården, NO-5200 Os Bekkjarvik, Ågotnes, Kleppestø and Os Tel.: +47 56 57 00 13 – Fax: +47 56 57 0016 P.O.B. 7999, NO-5020 Bergen Tel.: +47 815 22 002 Sunnhordland/Haugalandet Region Fyllingsdalen Fax: 55 21 73 50 Regional Bank Manager - RM Oasen Bydelssenter, Branches: Arna, Åsane, Loddefjord, Arnt Sortland NO-5147 Fyllingsdalen Oasen, Korskirkeallmenningen, Regional Bank Manager - CM Tel.: +47 55 21 70 00 - Fax: +47 55 17 54 29 Xhibition, Lagunen, Nesttun, Jan Arild Nesse Sletten, Danmarksplass Sotra and Kaigaten P.O.B. 404, NO-5402 Stord Sartor Senter, P.O.B. 152, Tel.: +47 815 22 002 NO-5342 Straume Hardanger/Midthordland Region Fax: +47 56 45 68 91 Tel.: +47 56 32 34 80 – Fax: +47 56 32 34 81 Regional Bank Manager - RM Branches: Leirvik, Bremnes, Mosterhamn, Tom Rasmussen Sæbøvik, Husnes, Fitjar, Skånevik, Sveio, Knarvik Regional Bank Manager - CM Sagvåg, Haugesund and Etne Knarvik Senter, P.O.B. 140, Lars Audun Torvik NO-5903 Isdalstø Rogaland Region Tel.: +47 56 34 28 78 – Fax: +47 56 34 28 75 Grova 14, NO-5600 Norheimsund Regional Director - RM Tel.: +47 815 22 002 Bjørn Tjensvold Førde Fax: +47 56 55 07 01 Regional Director - CM Storhaugen 9, P.O.B. 229, NO-6800 Førde Branches: Norheimsund, Strandebarm, Njål Skår Tel.: +47 57 82 81 70 – Fax: +47 57 82 81 61 Bjørkheim, Dale, Eikelandsosen, Odda and Røldal Langgata 1 E, 4306 Sandnes Stord Tel.: +47 815 22 002 Borggaten 8, P.O.B. 404, Leirvik, Nordhordland Region Fax: +47 55 54 81 71 NO-5403 Stord Regional Bank Manager - RM Branch: Sandnes. Tel.: +47 53 45 68 80 – Fax: +47 53 45 68 85 Jan-Tore Thunestvedt Stavanger from spring 2008 Regional Bank Manager - CM Haugesund Geir Rasmussen Eiendomsmegler Vest AS Haraldsgata 162, NO-5501 Haugesund Head Offi ce Tel.: +47 52 70 46 50 - Fax: +47 52 70 46 59 P.O.B. 140, NO-5903 Isdalstø Managing Director Rune Hansen Tel.: +47 815 22 002 Eiendomsmegler Vest AS Sandnes Fax: +47 56 34 28 41 Offi ce address: Nedre Korskirkeallm. 1, Ottesen & Dreyer, Langgata 1 E, Branches: Knarvik Senter, Frekhaug, NO-5017 Bergen NO-4306 Sandnes Lindås, Masfjorden, Post address: P.O.B. 7999, NO-5020 Bergen Tel.: +47 51 53 20 20 – Fax: +47 51 53 20 21 Mastrevik, Manger, Fedje, Lonevåg, Haus Tel.: +47 55 21 77 00 – Fax: +47 55 21 77 14 and Valestrandsfossen Central Bergen Stavanger Xhibition Senter, Småstrandgaten 3, Ottesen & Dreyer Sogn & Fjordane Region NO-5014 Bergen Kirkegt. 20, NO-4004 Stavanger Regional Bank Manager - RM Tel.: +47 55 21 77 00 – Fax: +47 55 21 77 01 Tel.: +47 51 53 20 20 – Fax: +47 51 53 20 21 Atle Stalheim Regional Bank Manager - CM Askøy Kyte Næringsmegling Olav Hjelle Kleppestø Senter, P.O.B. 54, Bankgaten 8, NO-5020 Bergen NO-5321 Kleppestø Tel.: +47 55 55 33 50 – Fax: +47 55 55 33 54 P.O.B. 243, NO-6771 Nordfjordeid Tel.: +47 56 15 11 98 – Fax: +47 56 15 11 96 AS Filialbygg Tel.: +47 815 22 002 Åsane Managing Director Bent Helge Aardal Fax: +47 57 88 56 01 Åsane Senter, P.O.B. 160, Ulset, Offi ce address: Nedre Korskirkeallm. 1 A Branches: Nordfjordeid, Måløy, Selje, NO-5873 Bergen Post address: P.O.B. 7999, NO-5020 Bryggja, Davik, Stadtlandet, Florø, Tel.: +47 55 19 74 50 – Fax: 047 55 19 74 51 Tel.: +47 55 21 75 11 - Fax: +47 55 21 76 80 Sogndal, Førde, Årdal, Høyanger and Stryn

129 RETURN ADDRESS: Sparebanken Vest Postboks 7999 NO-5020 Bergen B

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