Annual Report 2006 A modern bank built on 183 years’ experience A modern and competitive bank, SpareBank 1 is built on two pillars: stability and change. Stability lies in our vision of being “the recommended bank”. Living up to our vision at all times is what requires change. BENNETT AS Photos: SPOT, Jørn Adde, Schrøder Foto, Forbregd, Morten Andersen Contents Page The story of SpareBank 1 Midt-Norge. 4 Important events in 2006 . 8 Main figures Group . 9 Group management . 12 Key goals and strategies . 13 Statement by the CEO . 16 3 Report of the Board of Directors. 18 Presentation of the Board of Directors . 32 Corporate Governance . 34 Here when you need us. 37 SpareBank 1’s social commitment . 38 Business description . 40 Improvement 2010 . 48 GROUP IFRS Income statement . 52 Annual Report 2006 Balance sheet . 53 Pro forma income statement . 54 Pro forma balance sheet . 55 Changes in equity . 56 Balance sheet – impacts of IFRS . 57 Income statement – impacts of IFRS . 59 Notes . 60 Cash flow statement . 89 Contents Parent Bank NGAAP Income statement . 92 Balance sheet . 93 Income statement specifications . 94 Balance sheet specifications. 96 Income statement pro forma inclusive RomsdalsFellesbank . 98 Pro forma balance sheet inclusive RomsdalsFellesbank . 99 Accounting Principles . 100 Notes . 102 Cash flow statement . 123 Auditor’s report and Control Committee’s report . 124 Financial summary . 126 Primary capital certificates . 128 Governing bodies . 131 Presentation of the Supervisory Board 2006. 132 Marketing. 134 The story of SpareBank 1 Midt-Norge In an announcement in the Adresseavisen newspaper, five of (the central bank) described Norwegian banks’ credit needs 4 Trondhjem’s (as the city was then known) most prominent as “insatiable”, and many banks were in dire straits despite men urged their fellow citizens to contribute towards government support. Early in April 1925 there were rumours the establishment of a savings bank, for the “beneficent that the crisis had taken hold of Trondhjems Sparebank. promotion of enterprise, thrift and public morality”. Thirty- When it was heard that Orkedalens Sparebank had asked nine men replied to the announcement. The year was 1823, to be placed into administration, panic spread and people and Trondhjem’s Sparebank was duly established with an started to withdraw their savings. In the space of just over initial capital of 1,596 Specidaler. The first chapter of the a week, nervous savers withdrew a total of 6 million kroner. story of SpareBank 1 Midt-Norge had now been written. The peak was reached on Thursday 23 April when more than 1 million kroner were taken out of the bank in just one day. At the outset Norwegian savings bank managers took a The story has it that this prompted a flippant play on words Årsrapport 2005 personal responsibility for the common people’s assets. In by Bank Manager Kristian Bryn. He denied this, although he Annual Report 2006 addition to creating secure institutions in which to deposit did later admit that he thought his comment a witty one. savings, savings banks were also keen to promote diligence By 30 April tempers were soothed, and the bank once again and public morality. recorded a cash surplus at the end of the day. Social actor Society and technology in change The desire to be a social actor, and not “just a bank”, is In the 1960s the authorities looked with concern at the probably a legacy of the moral aspirations of that period. In banking structure in Norway; the banking system was lagging 1840 it was decided that part of the bank’s profits should be behind general social developments. The trend elsewhere in allotted “to public and charitable causes”. In the beginning society was one of centralisation: fewer, but larger entities. the money often went to schools, nursing homes, voluntary Banks still comprised a large number of small entities. organisations or to the community’s paupers. To this day The challenge was to create a banking structure featuring the bank’s shared destiny with the region is a driver behind financially solid banks that did not draw all loanable capital the support given to non-profit causes. Each year about a away from the rural communities. thousand causes benefit from financial support from the Concurrently new technology provided new opportunities savings bank’s reserves. to extend the range of banking services and we begin to Upon the establishment of the bank a point was that see the outlines of the self-service customer. Norway’s first “small sums would be received from persons of either sex”. cash dispensers saw the light of day in the 1970s. Computer The story of SpareBank 1 Midt-Norge The story of SpareBank 1 Midt-Norge Trondhjems Sparebank was not for men alone. Indeed the technology also erased many of the differences between first mortgage loan granted by the bank went to a woman. commercial banks and savings banks, and with their That was in 1865, and the mortgaged items included in creasingly identical products they became competitors to Sakshaug Church and some land properties in Sparbu. a larger degree than previously. Growth and crisis Age of mergers In the 1800s Trondhjems Sparebank grew in step with Developments in the 1960s and 1970s forced a number the town. In 1874 the bank purchased the two uppermost of mergers. In 1975 Trondhjems Sparebank merged with properties on the west side of Søndre Street, prompted by Strindens Sparebank. Trøndelag had now acquired its the management’s desire for a new bank building. A build- first major regional savings bank. The new bank featured ing committee was appointed and the new bank building, a decentralised power structure with substantial decision- costing 421,090 kroner was completed in 1882. making at branch level. The philosophy was that the local community was best taken care of by the local community No truly hard times were encountered by the bank until the itself. banking crisis at the start of the 1920s. In 1921, Norges Bank Merger discussions continued in the 1980s. In 1982 31 Romsdals Fellesbank savings banks were invited to participate in the establish- 5 In 2004 SpareBank 1 Midt-Norge cast its eyes upon Roms- ment of Sparebanken Midt-Norge. Trondhjems Sparebank dals Fellesbank – a well run bank with considerable potential and Strindens Sparebank had the new name approved by for improvement. An offer was made, and after a hard tug the authorities the following year, but postponed the name of war Mr. Haugan could say: “The acquisition of Romsdals change until the merger negotiations were completed. Fellesbank is probably the second most important event in In 1984 it was clear that 23 banks would be forming a new the bank’s 183-year history. That is, next after the establish- regional bank. Sparebanken Inn-Trøndelag and Sparebanken ment of the bank itself”. Namdal were absorbed in 1988. Spareskillingsbanken, which only joined Sparebanken Midt-Norge in 1989, entered Whether the President’s words are to be taken literally, or as the negotiations at an early stage but was sceptical of the a symbol of an important milestone in the bank’s history, is new regional bank. difficult to tell. What is certain is that this level of aspiration Annual Report 2006 was intentional – promising that SpareBank 1 RomsdalsFel- SpareBank 1 Alliance lesbank would be an “even better bank for people in Møre and Romsdal” was certainly a tall order. In Sparebanken Midt-Norge’s annual report published in 1995, Managing Director Finn Haugan wrote that 1996 would bring “a taste of the future”. Mr. Haugan was spea- Financial industry into a new reality king of the SpareBank 1 Alliance between Sparebanken In February 2007 Kredittilsynet (Norway’s Financial Supervi- Rogaland, Sparebanken Vest, Sparebanken Nord-Norge and sory Authority) approved SpareBank 1 Midt-Norge’s appli- Sparebanken Midt-Norge. The object of the alliance was to cation for IRB status. This approval can be compared with meet the competition from the major financial groups in the ISO certification, and ushers in a new epoch in the finan- capital and to strengthen the bank’s position at the local cial industry in terms of control. The Bank’s application was level. The four regions had already collaborated at an earlier filed in response to new rules for computing capital charges stage. The new alliance put this collaboration on a formal, (Basel II), which are designed to promote stability in the professional footing. financial system. Kredittilsynet’s approval is further confir- mation that the SpareBank 1 Alliance has put the Bank in a Digital age position to achieve its goal of competing with larger actors without relinquishing local control and identity. The 1990s were also marked by the digital revolution. Online banking became commonplace and new technology opened And what better benchmark of success than a 184-year up new ways of doing one’s banking. Today the Internet history: The story of SpareBank 1 Midt-Norge The story of SpareBank 1 Midt-Norge Bank and Customer Centre comprise a complete approach A savings bank, known as Trondhjem’s Sparebank, is here- to banking. All types of business can be transacted digitally. by established, under adequate guarantees, in the city of Customers make other demands of an automated bank – it Trondhjem for the promotion of public morality, diligence, is important for the market to have access to the bank wha- order and thrift. Under this arrangement, duly established tever the time of day and wherever one happens to be. At the in the best interests of working people and servants, small same time the resourceful, automated customer has greater sums will be received from persons of either sex, and will requirements in terms of personal counselling and tailored bear fruit for their owners by the calculation of interest.” products.