Annual Report 2009 2

ANNUAL REPORT 2009 2

Contents

Page

The year 2009… …………………………………………………………… 3

Financial highlights - the Group… ……………………………… 5

Annual Report and Accounts 2009… …………………………… 6

Profit and Loss Account… ………………………………………… 14

Balance sheet…………………………………………………………… 15

Statement of changes in the equity capital… …………… 16

Cash Flow Statement………………………………………………… 17

Notes to the Accounts 2009……………………………………… 18

The control committee’s Annual Report for 2009……… 56

Auditor’s Report for 2009… ……………………………………… 57

Declaration… …………………………………………………………… 58

Key figures and ratios 2005-2009 (group)… ……………… 59

Corporate Governance……………………………………………… 60

Organisation plan……………………………………………………… 64 The year 2009 3

plans. It is also good to see that the Bank’s subsidiary AB- Center Holding AS showed a positive trend compared with a very challenging year in 2008.

The Bank has made a major organizational change during the year and our banking services have now been organized into two separate markets: the retail banking market and the corporate market. This will allow greater focus on each market area and more efficient use of resources and competence.

Sør Boligkreditt AS, which is our own mortgage company, was established in December 2008. The company was used to acquire funding for the Bank during the financial crisis through the swap arrangement with Norges Bank. At year-end, Sør Boligkreditt had a loan portfolio totalling BNOK 5.3. The company will enable us to provide house mortgage loans at more favourable prices and will also provide the Group with favourable and long-term funding.

The Bank is co-owner of insurance company Frende, which is owned by the Savings Banks. In addition to Sparebanken Sør, Sparebanken Vest, Sparebanken Øst and Helgeland Sparebank are also the main owners. Frende Forsikring, 2009 was a good year for the Sparebanken Sør Group com- provides general and life insurance products. The Bank pared with the disappointing result in 2008. The Group’s started offering Frende’s products in 2009 and has already pre-tax profit was MNOK 208, which is up MNOK 174 from achieved good sales results, which is promising for the fu- the previous year. The global financial crisis continued to ture. cast a shadow over the first months of 2009, but as the months passed, the situation stabilized and in the second The Bank is now a co-owner of Norne Securities, which half of the year, results were on a par with budgets and is a full service securities brokerage company, owned by 4

14 independent Savings Banks and Fondsfinans. Through environment is an important factor, which has a major im- Norne Securities the Bank can offer online trading, traditio- pact on living standards. Therefore, there will be strong fo- nal brokerage services and corporate finance. cus in future on the environmental perspective both inside our organization and in our business activities. The Bank’s financial commitment to Start Football Club has been challenging and in both 2008 and 2009, the Bank The Bank’s history since 1825 shows that we have been an has had to recognize losses and write-down the value of the active participant in the community both in good and bad shares in the company. times. We provide competence and financial support to The Bank is now no longer one of the owners, but happily industrial and commercial development, culture, children the club will continue under new owners with a long-term and adolescents, etc. The Bank is also a positive contributor perspective. to many regional and local projects. Sparebanken Sør will continue to be a Bank with local roots and closeness to its Sparebanken Sør is a financially sound bank with a capital customers. adequacy ratio of 14.1 per cent, which is ahead of our management target of 12 per cent. During the year, we have taken the opportunity to borrow MNOK 400 from the Nor- wegian State Finance Fund in order to strengthen our equity and financial strength, which will provide a basis for future growth and development.

In 2009, Sparebanken Sør’s head office and Arendal branch Morten Kraft were awarded “Environment Lighthouse” certification. The CEO Key figures and ratios (Group) 5

Profit and loss account 2009 2008 2007 MNOK % av. of MNOK % av. of MNOK % av. of assets assets assets Interest income 1 571 4.43% 2 241 7.05% 1 573 5.64% Interest costs 948 2.67% 1609 5.06% 1 014 3.64% Net interest and credit commission income 623 1.76% 632 1.99% 559 2.00% Other operating income 176 0.50% 41 0.13% 270 0.97% Operating costs 482 1.36% 525 1.65% 480 1.72% Operating result before losses 317 0.90% 148 0.47% 349 1.25% Losses 109 0.31% 114 0.36% 12 0.04% Pre-tax profit 208 0.59% 34 0.11% 337 1.21% Tax cost 56 0.16% 38 0.12% 99 0.36% Result from ordinary operation after tax 152 0.43% -4 -0.01% 238 0.85%

Balance sheet 2009 2008 2007 Assets 35 340 33 675 30 178 Net loans 29 213 28 340 25 816 Deposits 16 971 16 066 15 695 Equity and related capital 3 142 2 566 2 575

Capital adequacy ratio 15.8 % 12.7 % 12.1 %

No. of full-time employees - group 1) 388 388 415

1) Parent Bank and ABCenter 6 ANNUAL REPORT AND ACCOUNTS 2009

THE SPAREBANKEN SØR GROUP’S BUSINESS quarter alone. This is much better than the average for the previous quarters. Sparebanken Sør is an independent savings bank with its head office in Arendal. The Bank, together with its Net interest income subsidiary Sør Boligkreditt AS, provides a wide range of In 2009, net interest income was MNOK 623, compared banking and investment products for the retail banking with MNOK 632 the previous year. This is equivalent to and corporate markets. 1.76 per cent of the average assets, compared with 1.99 The Group also conducts real estate brokerage through per cent in 2008. The downturn began primarily in the its subsidiary ABCenter, which is the largest real estate first quarter, due to a backlog of funding costs in rela- brokerage firm in Sørlandet (the southernmost region of tion to customer terms and conditions. The funding costs Norway). were gradually reduced during the first half-year and net interest income has improved accordingly.

RESULT FOR THE YEAR There have been frequent changes in Norges Bank’s reference rate of interest during 2009, especially at the be- Accounting principles ginning of the year. Customer terms and conditions on Sparebanken Sør’s Group accounts have been prepared deposits and loans are continuously changed in relation in accordance with the International Financial Reporting to this. In addition, the Bank endeavours to price loans Standards, IFRS. The accounting principles have been according to risk whenever possible. All in all, this has explained in more detail in the Notes to the Accounts. meant that the customer margin for the year as a whole is on the same level as in 2008. The annual accounts have been based on the assumption of a going concern. The Group has satisfactory equity Other (non-interest) income and in the view of the Board of Director’s, there are no Net other operating income totalled MNOK 176 at the end circumstances to suggest anything other than the Bank’s of 2009, which is up MNOK 135 on 2008. This is equivalent continued operations. to 0.50 per cent of the average assets, compared with 0.13 per cent the previous year. The figures referred to in the annual report are Group figures, unless it is stated that the figures apply to the Value changes on financial instruments on the asset and Parent Bank. liability side are the most important reason why there has been significant positive development in net other oper- Result for the year ating income from 2008 to 2009. Reduced credit spreads The Sparebanken Sør Group’s result for 2009 was MNOK and positive value trend for the trading portfolio had an 208 before tax, which is MNOK 174 up on the previous impact on profit. For further details, reference is made to year. This is equivalent to 0.59 per cent of average assets, note 7 in the accounts. compared with 0.11 per cent the previous year. Net fee and commission income was down from MNOK In the Group, return on equity was 6.5 per cent for 2009. 155 in 2008 to MNOK 151 in 2009. The most important reason for this is a decline in income from the real estate The result is weaker than the Group’s earning target brokerage business from MNOK 74 in 2008 to MNOK 67 and therefore the Board of Directors is dissatisfied with in 2009. There has also been a minor fall in income in the the result for 2009. However, there has been a positive payments transmission services and from sale of invest- profit trend during the year, which meant that there was ment products. a profit contribution of MNOK 90 before tax in the fourth 7

Other operating income consists mainly of rental income. up 4.9 per cent or BNOK 1.7 from the previous year.

Costs Total Loans In 2009, total costs were MNOK 482, which is down MNOK Total loans are now BNOK 29.2, compared with BNOK 43. Therefore, measured as a percentage of the average 28.3 the previous year. This is equivalent to a growth of 3. assets, this is reduced by 0.29 percentage points to 1.36 1 per cent, compared with 9.8 per cent in 2008. The retail per cent. At year-end, the cost percentage in the Parent banking market grew by 9.4 per cent and the corporate Bank was 1.12 per cent. market by -6.3 per cent.

The most important reason for the cost reduction is re- There has been a significant level of lending activity in duced costs within the real estate brokerage business. the retail banking market and a good demand for loans Costs associated with refurbishment of the Bank’s com- through the whole year. Growth has fallen in the last few mercial properties have fallen significantly compared months of 2009 and annual growth is 5.1 percentage with 2008. points lower than in 2008.

In the Group result, personnel costs rose marginally in Sør Boligkreditt AS has become an important tool in 2009. In the Parent Bank, personnel costs rose slightly ensuring competitive conditions in the retail banking more than this due to the annual effect of higher man- market. At year-end, loans worth BNOK 5.3 have been ning levels in 2008, whereas the real estate brokerage transferred to the company. An important priority area business had lower personnel costs due to workforce for the Bank is to maintain its strong position in the retail reductions that were implemented in the fourth quar- banking market. ter 2008. IT costs have fallen significantly due to a new agreement entered into with our main supplier. With regard to the corporate market, there has been much less demand for loans than previously. Through the year, the Bank has also been cautious about granting CREDIT LOSSES AND COMMITMENTS IN DEFAULT new loans to the corporate market. Good collateral has been an important condition and existing customers have At year-end, net losses in the Group accounts were been prioritized. This has meant that loans to the corpo- MNOK 109, which is MNOK 5 lower than in 2008 and is rate market have been reduced by 6.3 per cent in 2009. equivalent to 0.37 per cent of the loans. Of this, collective Modest growth in the corporate market is anticipated in write-downs increased by MNOK 23. In other respects, 2010. most of the losses can be attributed to a limited number of commitments in the corporate market. Relatively strong growth in the retail banking market and a reduction in the corporate market means that the retail At year-end 2009, net commitments in default and bad banking market’s share of the loans has increased from and doubtful loans were MNOK 256, compared with 61.2 per cent to 64.8 per cent. MNOK 253 at the end of the previous year. This is equivalent to 0.88 per cent of the loans, compared with 0.89 per Deposits cent in 2008. Customer deposits are the most important source of funding. At year-end, deposits totalled BNOK 17.0, which BALANCE SHEET is equivalent to a growth of MNOK 905 or 5.6 per cent. This is 3.2 percentage points higher than in 2008. The re- Total Assets tail banking market grew 7.0 per cent and the corporate Total assets were BNOK 35.3 at the end of 2009, which is market 3.8 per cent. 8

The financial crisis resulted in very strong competition The Group’s investments in shares and Equity Certifi- between the banks for deposits. There was also focus on cates are a relatively modest part of the balance sheet the banks’ guarantee scheme for customers’ deposits and totalled MNOK 336. Shares in the trading portfolio and it was necessary to have extra focus on having com- are MNOK 140 of this. The trading portfolio consists of petitive terms and conditions for deposits. In connection shares listed on Oslo Børs. Shares in the available for with this, the Bank offered very good terms and condi- sale portfolio are MNOK 196 following an adjustment in tions on 3-months fixed interest deposits. value of MNOK 32, which has been carried to equity.

At year-end 2009, the deposits funded 58.1 per cent of Equity and related capital the net loans. At year-end, the Group’s equity and related capital totalled BNOK 3.1 and consists of accrued profit of BNOK Debt established through issue of securities and liabili- 2.4, which has been assigned to the Savings Bank’s Fund, ties to financial institutions BNOK 0.4 in subordinated bonds from the Norwegian In 2009, securities-related debt was BNOK 8.7, compared State Finance Fund and BNOK 0.3 in subordinated loan with BNOK 11.9 in 2008. The reduction is because the fi- capital. With a risk-weighted asset calculation basis (Ba- nancial crisis resulted in a higher price for this type of sel II standard approach) of BNOK 19.7 at year-end, this funding. Long-term funding to the Bank has mainly been gives a capital adequacy ratio of 15.8 per cent and a core arranged through the swap scheme for covered bonds capital coverage ratio of 14.1 per cent. and loans set up by Norges Bank. Liabilities to financial institutions have therefore increased from BNOK 2.1 in 2008 to BNOK 6.1 in 2009. ALLOCATION OF PROFIT FOR THE YEAR

Securities In the view of the Board of Directors, the presented profit At the end of 2009, the Group’s portfolio of certificates and loss account and balance sheet give a fair view of and bonds was BNOK 4.6, which is an increase of BNOK the Group and the Parent Bank’s financial position and 1.7 from the previous year. The increase mainly concerns result. The Board of Directors is not aware of any circum- Treasury bills in connection with the swap arrangement. stances that have arisen after the turn of the year, which In other respects, the portfolio helps ensure the Bank’s would change its view in this respect. liquidity. Bonds equivalent to BNOK 3.7 of the total portfolio have been pledged as security for loans from Norges The Board of Directors proposes that the Parent Bank’s Bank. profit for the year of MNOK 158 is allocated as follows:

Deposits Gross loans Pre-tax profit MNOK MNOK MNOK 20000 30000 350

25000 300 15000 250 20000 200 10000 15000 150 10000 5000 100 5000 50 0 0 2005 2006 2007 2008 2009 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

corporate market retail banking market corporate market retail banking market pre-tax profit 9

Donations to non-profit purposes 10.0 MNOK Credit risk is managed through the Group’s strategy and Transferred to the Savings Bank’s Fund 148.0 MNOK policy documents, credit routines and processes and Total allocated 158.0 MNOK powers of attorney / delegated lending authority relating to granting credit. These factors constitute the overall guidelines for the Bank’s granting of credit. RISK AND CAPITAL MANAGEMENT The credit strategy is agreed at least once a year by the Risk management in Sparebanken Sør supports the Board of Directors and comprises credit policy guide- Group’s strategic goals and development. Management lines, and also management targets for risk profile and targets have been set for the Bank’s overall risk level, and risk concentrations in the Group. specific management targets have been set within each Management targets have been set for expected losses, risk area. Systems have been established to measure, concentration risk, different sectors, markets and geog- manage and control risk. Risk management ensures that raphy and also limits for key and individual customers. risk exposure is known at any time and helps the Group Risk management targets are monitored and reported to to achieve its strategic targets for financial stability and the Board of Directors at regular intervals. Sparebanken profitability. The risk is adapted to the organization’s size, Sør has developed and actively uses risk classification aims, competence and market. Sparebanken Sør has a models in credit processes and in portfolio management moderate risk profile, with well diversified portfolios on of the retail banking and corporate market. both sides of the balance sheet. The Board of Directors is responsible for the Group’s One of the aims of Sparebanken Sør is that in a long-term granting of credit and has delegated limited powers of perspective the Group shall have sufficient equity so that attorney to the Bank’s CEO, who within his authority has there is a good foundation for development and growth delegated power of attorney further down the organiza- during cyclical upturns and at the same time has the tion. The credit handling routines, credit policy and credit strength to weather cyclical downturns. Financial man- models stipulate requirements with regard to the credit agement shall ensure that Sparebanken Sør has sound processes and risk evaluation that shall be applied in core capital coverage, financial stability and a competi- connection with granting and following-up retail banking tive rate of return in relation to the risk profile. and corporate banking loans and similar commitments. The powers of attorney are related to competence, mar- The Group’s overall risk exposure and development is kets, the size of the commitment in question and risk. followed-up through quarterly reporting to the Group The Bank’s Credit Committee is used when processing management and the Board of Directors. The overall risk large and / or complex commitments. management and reporting is carried out by the Risk Management, which reports directly to the Bank’s CEO. Market risk Market risk is defined as risk of loss due to unfavourable Sparebanken Sør focuses on continuing to develop risk changes in interest rates, exchange rates and the equity management in the Bank and also to prepare the Bank market. The Group’s market risk is associated with a risk for adjustment to the Basel II IRBF rules and regulations. of loss on shares, interest and foreign currency and also credit associated with these.

Credit risk The market risk management strategy ensures that the Credit risk is defined as the risk of loss due to customers business is conducted in accordance with the Group’s or counterparts failing to meet their obligations. general strategy plan and that the risk the Group takes is 10

reflected in the return. The Board of Directors has estab- funding risk, funding loans from the capital market are lished management targets for investments in shares, spread over different maturities, markets, funding sourc- bonds and positions in the interest rate and foreign cur- es and instruments. Net refinancing requirements from rency market. Follow-up is done through continuous other sources of funding than customer deposits should reporting of portfolios and management targets to the not exceed BNOK 1 for the next 7 days and maximum Group management and the Board of Directors. BNOK 1.8 for the next three months.

At year-end, the Group’s total share investments were As a liquidity reserve, the Bank has committed, long- MNOK 336, of which the trading portfolio was MNOK 140. term drawing rights amounting to MNOK 65 Euros. The The Board of Directors has set a maximum limit for the rights have not been used through the year or at the trading portfolio of MNOK 196. end of 2009. The Bank also has unused drawing rights amounting to BNOK 1.7 in Norges Bank. As at 31 De- Most of the Group’s interest rate risk is associated with cember 2009, the liquidity indicator is 113.7, including the Bank’s portfolio of interest-bearing securities, fixed drawing rights. The liquidity indicator requirement in the rate loans and deposits. The Board of Directors has set a Group’s liquidity strategy is greater than or equal to 102. limit of MNOK 25 for the total interest rate risk on and off the balance sheet, measured by the impact on the Bank’s Operational risk overall result of a 1 percentage point shift in the level of Operational risk is defined as the risk of loss due to inad- interest rates. On average for the year, less than 25 per equate or failing internal processes, routines or systems, cent of the agreed limit for interest rate risk was used, human error, crime or external events. Internal control and at year-end the Bank’s interest rate risk is MNOK within these areas is subject to ongoing reviews. An an- 0.4. nual risk evaluation is also made of the significant risks for all the Bank’s business areas. No weaknesses of im- The Group is affected by turbulence in the currency portance to the Bank’s risk and capital adequacy were market. The most important balance sheet items are found in 2009. foreign currency loans to customers and bonds in foreign currencies. The foreign currency items will mainly Management of operational risk takes place through be hedged using forward exchange contracts, currency skills training, good systems and routines, good internal swaps or funding in the same currency. The total limit control and quality assurance. for open currency positions is MNOK 100. At year-end, MNOK 76 of the limit has been used. Strategic management targets and risk development are followed-up through quarterly reports to the Group man- Funding risk agement and the Board of Directors. Funding risk is defined as the risk that the Group is unable to meet its obligations, or to fund its assets. There is continuous work on preventive measures and de- The funding risk management strategy ensures that the velopment of new management and reporting systems. Group has adequate funding management that helps to ensure the Group’s ability to survive critical situations. RESEARCH AND DEVELOPMENT Deposits from customers are the most important and the most stable source of funding. The Board of Directors The Bank does not conduct any research. All develop- emphasizes that the ratio between deposits from cus- ment work at the Bank focuses on the IT area, innovation tomers and loans must be satisfactory. In order to reduce and business development. 11

PERSONNEL AND THE WORKING ENVIRONMENT The Bank’s head office and Arendal branch were awarded ”Environment Lighthouse Certificate” certification At the end of 2009, 308 man-years were worked in the in June 2009. In the autumn of 2009, a carbon footprint Parent Bank and 11 employees were on special leave of analysis was carried out to calculate the Bank’s CO2 absence. In the Group (the Parent Bank and ABCenter), emissions. This analysis formed the basis for the Bank’s the number of staff were the equivalent of 388 man- first climate accounts, which have been developed in ac- years. The overall manning level is stable and operations cordance with the international standard the Greenhouse are run in accordance with the framework set by the Gas Protocol Initiative. Board of Directors. The Working Environment Committee has worked on In January 2009, we chose to compensate for the Bank’s matters relating to safety, refurbishment of the Bank’s CO2 emissions car driving and air travel through pur- premises, the occupational health service, the IA agree- chasing UN-certified climate quotas equivalent to a total ment (Inclusive Employment Agreement) and general of 123 tonnes CO2 emissions. environmental issues. The climate quotas, which are called CER (Certified Emis- As an IA company, the Bank works actively in order to sion Reduction), are linked to a small-scale river power take care of matters relating to the Discrimination Act. plant in Southern Brazil (the CDM project 0480 – Jaguari) Absenteeism is at a stable, low level and in 2009, was 4.65 per cent, which is slightly down from 4.8 per cent The Bank works actively to strengthen its own environ- in 2008. The Board of Directors would like to thank the mental image among others, as a ”climate partner” in employees for their efforts in 2009. UN town Arendal.

EQUALITY BETWEEN THE SEXES AND EQUAL DONATIONS TO VARIOUS GOOD CAUSES OPPORTUNITIES The Board of Trustees did not allocate funds from the Sparebanken Sør has 327 employees, 176 of whom are profit in 2008 for donations to various worthwhile causes. women and 151 men. 71 women are employed on a part- However, the Bank has made donations through the year time basis, whereas only 4 men work part-time. In the totalling around MNOK 4 from previous allocations. The Bank’s governing bodies, women account for 25 per cent Bank’s local branch managers have allocated around of the Board of Trustees and 44 per cent of the Board of 30 per cent of the donation funds, which has further Directors, whose Chairmen is a woman. The Bank has 4 improved the Bank’s image in the local communities. women in executive posts, which gives a female quota of Through our donations to various worthwhile causes, 14 per cent. One of the aims of the Bank is to increase the we have further enhanced Sparebanken Sør’s reputation number of women in executive posts. as a bank with local roots committed to and involved in the region’s local communities through its corporate and social responsibility – the best bank for Sørlandet and EXTERNAL ENVIRONMENT Telemark.

The Bank’s operations do not pollute the external environment. In connection with financing of various custom- SUBSIDIARIES AND ASSOCIATED COMPANIES ers and projects, environmental issues are considered an important part of the credit-handling process. In the 4th quarter 2008, the Bank established Sør Bolig- kreditt AS as the Bank’s enterprise for issuing covered 12

bonds. This mortgage company is an important tool in The Bank owns 100 per cent of the shares in Prosjek- adapting to the future framework conditions and in en- tutvikling AS, which owns a commercial building with suring favourable and long-term funding. At year-end, a 600 m2 in Porsgrunn. The building is mainly used by our total of BNOK 5.3 in loans was transferred to the com- Porsgrunn branch. A long-term lease has been entered pany. into.

In the autumn of 2008, the Bank acquired 99 per cent of Rettighetskompaniet AS manages the name rights to Sør the shares in Start Toppfotball AS and Start Stadion AS, Arena. The company is owned 100 per cent by the Bank. which were subsequently sold in June 2009. For information about the companies’ results during the Bank’s The remaining subsidiaries are mainly involved in man- period of ownership, refer to note 34. agement of smaller individual properties.

The Bank owns 100 per cent of the shares in ABCent- Note 18 to the accounts gives a full list of the subsidiaries er Holding AS, which is the parent company in of the and assets. real estate brokerage group ABCenter. ABCenter has 9 branches in Aust-Agder, Vest-Agder and Telemark and also has several display cases in rural locations. SUMMARY AND FUTURE OUTLOOK The head office of ABCenter is located together with our Kristiansand branch at Markensgt. 9 in Kristiansand. Activity in the Norwegian economy is rising, but there During the year, the company sold a total of 1,772 resi- is still spare capacity. House prices continue to rise, as dential properties, including, new builds, existing dwell- does consumer demand. Exports are also rising faster ings, holiday cottages and commercial buildings – all at than anticipated and unemployment is relatively low. an aggregate value of BNOK 3.4. This makes ABCenter These factors mean that 2010 may be a much better year one of the largest real estate brokerage companies in the for the Bank than 2009. region. The global financial crisis continued to have a negative The Bank owns 80 per cent of the shares in Markensgate effect on the first half of 2009, and this had a significant 9 Invest AS, which owns 100 per cent of the shares in impact on the overall result for the year. However, the Markensgate 9 AS. Markensgate 9 AS owns a commer- situation improved considerably in the second half of the cial building of 5000 m2 in Kristiansand. The Bank and year and in the last quarter in particular there were signs ABCenter share this building and have signed long-term of a positive trend in the months to come. Therefore, we leases. The rest of the building is used by other lessees. expect 2010 on the whole to be a much better year than The company will merge with Markensgate 9 Invest AS 2009. in 2010.

The Bank owns 100 per cent of Eiendomsvekst AS, which The Bank’s capital base has been further strengthened owns a site of 120 decares at Longum in Arendal. No during the year and therefore the Board of Directors be- sites have been sold in 2009. Work is in progress to de- lieves that the Group is well equipped to meet the op- velop this area. portunities and challenges that the new year will bring. 13

From left: Cathy Steller, Unni Grete Farestveit, Alice Jervell, Hilde Sakariassen. Back from left: Per Adolf Bentsen, Arne Johan Johnsen, Erling Holm, Olav Inge Nordbø, Kjell Pedersen-Rise.

Arendal, 12 March 2010

Alice Jervell Arne Johan Johnsen Erling Holm Chairman

Cathy Steller Per Adolf Bentsen Kjell Pedersen-Rise

Hilde Sakariassen Olav Inge Nordbø Unni Grete Farestveit

Morten Kraft CEO 14 Profit and Loss Account

PARENT BANK GROUP 2007 2008 2009 MNOK Notes 2009 2008 2007 1 580 2 254 1 556 Interest and similar income 4,23 1 571 2 241 1 573 1 022 1 617 958 Interest and similar costs 4,16,23 948 1 609 1 014 558 637 598 Net interest and credit commission income 4,13 623 632 559 115 114 117 Commissions and income from banking services 5 177 183 220 Commissions payable and costs relating 25 28 26 to banking services 6 26 28 25 90 86 91 Net fee and commission income 13 151 155 195 Income from financial instruments at fair value 29 -138 -1 with value changes through the profit and loss account 7 -32 -138 29 Write-down and gains/losses on investments valued 2 -43 -19 at cost or investment designated as available for sale 7 2 -11 5 22 10 36 Income from financial instruments 7 36 10 22 14 17 14 Other operating income 9 19 25 19 67 -154 30 Total other operating income 13 25 -114 75 182 184 207 Personnel costs 21,22 249 248 244 Depreciation and write-down on fixed 19 21 21 and intangible assets 19 41 40 24 166 181 169 Other operating costs 8,9 192 237 212 367 386 397 Total operating costs 13 482 525 480 348 183 322 Operating result before losses 13 317 148 349 12 114 105 Losses on loans, guarantees, etc. 14 109 114 12 336 69 217 Pre-tax profit 13 208 34 337 98 51 59 Tax cost 20 56 38 99 238 18 158 Result from ordinary operations after tax 152 -4 238 Result from discontinued operations 34 -4 -16 238 18 158 Profit for the year 148 -20 238 Minority interests 1 -7 2 Majority interests 147 -13 236 Allocations -13 -10 For donations -225 -18 -148 Transferred to the Savings Bank’s Fund -238 -18 -158 Total allocations

Total profit statement

238 18 158 Annual profit 148 -20 238 Net change in fair value of financial assets -2 2 34 available for sale 34 2 -2 Net change in fair value of financial assets -2 available for sale transferred to result -2 Total other income and costs in the period -2 2 32 carried to equity 32 2 -2 236 20 190 Total result for the period 180 -18 236 Balance Sheet 15

PARENT BANK MNOK GROUP 31.12.07 31.12.08 31.12.09 ASSETS Notes 31.12.09 31.12.08 31.12.07 543 975 479 Cash and claims on central banks 479 975 543 214 30 1 428 Loans to and claims on financial institutions 11,25 159 21 214 25 887 28 586 24 056 Net loans to customers 13,22,23,25,26 29 213 28 340 25 816 3 7 4 Repossessed assets 5 7 3 2 807 2 797 8 583 Bonds and certificates 25,27 4 550 2 797 2 807 222 221 336 Shares 25,27 336 221 222 65 521 87 Financial derivatives 25,33 87 521 65 129 281 263 Equity stakes in Group companies 18 1 1 1 Equity stakes in associated companies 17 1 1 1 9 11 11 Intangible assets 19 40 66 38 11 35 39 Deferred tax asset 20 26 15 114 110 105 Fixed assets 19 301 479 282 133 192 144 Other assets 10,21 143 232 187 30 138 33 767 35 536 TOTAL ASSETS 13,29 35 340 33 675 30 178

LIABILITIES AND EQUITY 1 591 2 217 6 251 Liabilities to financial institutions 11,16,25 6 078 2 118 1 591 15 709 16 111 16 992 Deposits from and liabilities to customers 13,15,16,23,25 16 971 16 066 15 695 9 711 11 882 8 664 Debt established through issue of securities 25,3 8 664 11 882 9 711 161 458 59 Financial derivatives 25,33 59 458 161 79 63 63 Liabilities relating to period tax 20 68 63 83 Deferred tax 20 11 321 443 333 Other liabilities 12,21 358 522 351 292 299 300 Subordinated loan capital 24,25,31 300 299 292 400 Subordinated bond loan 24,25,32 400 27 864 31 473 33 062 Total liabilities 13,28,29 32 898 31 408 27 895 Minority interests 6 5 17 19 51 Other resevers 13 -8 21 2 257 2 275 2 423 The Savings Bank’s Fund 2 423 2 275 2 257 2 274 2 294 2 474 Total equity 24 2 442 2 267 2 283 30 138 33 767 35 536 TOTAL LIABILITIES AND EQUITY 13,29 35 340 33 675 30 178

OFF-BALANCE SHEET ITEMS Conditional liabilities: 745 747 817 Guarantees 26 817 747 745 1 236 2 451 7 273 Book value of assets provided as security for liabilities 35 3 701 2 451 1 236 1 4 3 Other conditional liabilities 3 4 1

Arendal, 31 December 2009 / 12 March 2010

Alice Jervell Arne Johan Johnsen Kjell Pedersen-Rise Erling Holm Hilde Sakariassen Chairman Deputy Chairman

Unni Grete Farestveit Olav Inge Nordbø Per Adolf Bentsen Cathy Steller Morten Kraft CEO 16 Statement of changes in equity

Group Savings Bank’s Fair value Other Minority TOTAL Fund reserve reserves interests

Equity as at 1 January 2008 2 257 17 4 5 2 283 Profit for 2008 18 -31 -7 -20 Change in fair value of equity instruments available for sale 2 2 Disposals - minority in subsidiaries 4 4 Paid dividend -2 -2 Equity as at 31/12/2008 2 275 19 -27 0 2 267 Profit 2009 158 -11 1 148 Donations -10 -10 Change in fair value of equity instruments available for sale 32 32 Disposals - minority in subsidiaries 5 5 Equity as at 31/12/2009 2 423 51 -38 6 2 442

Parent Bank

Equity as at 01/01/2008 2 257 17 2 274 Profit 2008 18 18 Change in fair value of equity instruments available for sale 2 2 Equity as at 31/12/2008 2 275 19 0 0 2 294 Profit 2009 158 158 Donations -10 -10 Change in fair value of equity instruments available for sale 32 32 Equity as at 31/12/2009 2 423 51 0 0 2 474 Cash Flow Statement 17

PARENT BANK GROUP 2007 2008 2 009 MNOK 2009 2008 2007 1 559 2 206 1 602 Interest receivable 1 637 2 193 1 555 -969 -1 528 -1 054 Interest payable -1 044 -1 524 -970 119 101 131 Other payments received 190 196 227 -341 -391 -366 Operations-related payments -432 -524 -442 5 3 1 Recoveries from confirmed losses 1 3 5 -80 -79 -63 Period tax paid -63 -82 -83 -8 -8 -9 Payments relating to donations -9 -8 -8 -44 Group contributions paid Minority interest -1 7 -2 285 304 198 Net cash flow from operations 279 261 282

-3 795 -2 787 4 421 Change in loans and repossessed assets -989 -2 612 -3 745 -48 -266 378 Change in other assets 401 -254 -58 -72 -183 -5 684 Change in securities -1 684 -183 -69 431 184 -1 398 Change in loans - other financial institutions -138 193 431 1 112 404 881 Change in deposits from customers 905 373 1 108 460 626 4 034 Change in funding loans from financial institutions 3 960 527 460 -14 378 -365 Change in other liabilities -457 420 22 -1 926 -1 644 2 267 Net cash flow from current financial operations 1 998 -1 536 -1 851

-12 -26 -17 Investment in fixed assets -21 -282 -166 -68 -182 -9 Net investment in Group and associated companies 10 1 10 3 Sale of fixed assets 186 19 5 -79 -198 -23 Net cash flow from investments 165 -263 -151

2 193 1 970 -3 338 Change in debt est. Through issue of securities -3 338 1 970 2 193 400 Change in subordinated loan capital 400 2 193 1 970 -2 938 Net cash flow from long-term funding activities -2 938 1 970 2 193

473 432 -496 Net change in liquid funds -496 432 473 70 543 975 Liquid funds as at 01/01 975 543 70 543 975 479 Liquid funds as at 31/12 479 975 543 18 NOTES TO THE 2009 ACCOUNTS

1. General information assets to which the surplus value relates within the market value of these assets. The part of the cost price that The Sparebanken Sør Group consists of the Parent Bank cannot be added to specific assets represents goodwill. Sparebanken Sør and the subsidiaries ABCenter Hold- If the value of the acquired assets exceeds the cost price, ing AS, Bankbygg AS, AS Eiendomsvekst, Markensgate 9 the difference is carried to income. Invest AS, Prosjektutvikling AS, Rettighetskompaniet AS, and Sør Boligkreditt AS. In the Parent Bank’s accounts, the assets are recognized The Group conducts banking operations in 28 different at the cost price on initial inclusion. The shares are test- locations and real estate brokerage business in 9 loca- ed annually for any impairment in value and if necessary tions in Aust-Agder, Vest-Agder and Telemark. a write-down to the recoverable amount is made.

The head office of the Parent Bank and the mortgage company, Sør Boligkreditt AS, are located in Aren- Associated companies dal, whereas ABCenter’s head office is located in Kris- tiansand. Associated companies are companies in which the Bank has significant interest. Significant interest exists when the Bank has an ownership interest of between 20 and 2. Accounting principles 50 per cent. Associated companies are incorporated in the Group accounts according to the equity method. This Use of IFRS means that on initial incorporation, the assets are recognized at cost price and then adjusted for the Bank’s share Sparebanken Sør reports both its Parent Bank and Group of the associated company’s result. accounts according to the International Financial Report- ing Standards, IFRS, and applicable interpretations. The In the Parent Bank’s accounts, the assets are recognized accounts have been based on IFRS standards and inter- at cost price on initial incorporate. The shares are test- pretations, which are mandatory and approved by the EU ed annually for impairment in value and if necessary, a for accounts to be presented for 2009. write-down to the recoverable amount is made.

Consolidation and Group companies Foreign currency

The Group accounts include the Parent Bank and subsid- The accounts are presented in Norwegian kroner, which iaries, where the Bank alone, or together with subsidiar- is also the Group’s functional currency. ies, owns more than 50 per cent and / or has controlling interest and also that the ownership is considered to be Transactions in foreign currencies are converted into permanent. Inter-company transactions and balances NOK at the exchange rates on the transaction date. Any are netted out. foreign exchange losses and gains arising from such transactions and from conversion of money items in for- When a subsidiary is acquired, the cost price of the shares eign currency on the balance sheet date are recognized in the Parent company is netted out against the equity in in the profit and loss account. the subsidiary at the time of acquisition. The difference between the cost price and the net book value of assets The Group’s receivables and liabilities in foreign cur- in the subsidiary at the time of acquisition is added to the rencies are converted into NOK at the middle rate of ex- 19 change in Oslo Børs on the balance sheet date. Foreign Loans to customers currency positions are limited through the use of hedging transactions in the same currencies. Initially, loans are assessed at the fair value. In subse- quent periods, loans at floating rates are assessed at the amortized cost using the effective interest method. Fees Interest income and costs associated with the loans are included in the calculation of the effective interest rate and are recognized in Interest income and costs relating to assets and liabili- the profit and loss account accordingly. Amortized cost is ties assessed at the amortized cost are recognized in the equal to the acquisition cost less repayments on the prin- profit and loss account on an ongoing basis using the ef- cipal amount, adjusted for the amortization effect result- fective interest rate method. The effective interest rate is ing from the effective interest rate method and adjusted defined as the rate of interest that when applied means for impairment in value. that the present value of the expected cash flow over the expected lifetime of the financial asset or liability be- Fixed rate loans to customers are incorporated in the ac- comes equal to the book value of the financial asset or counts at the fair value, any gains and losses due to a liability. When calculating the effective interest rate, the change in fair value being included in the profit and loss cash flow incorporated in the agreement is estimated, account as a change in value. Fair value is calculated by but without taking into consideration any future credit discounting the cash flow in the loans with the required losses. If a financial asset is written-down for impair- return based on zero coupon interest. ment of value, the new effective interest rate is calculated using an adjusted, estimated cash flow. Impairment in value of loans In the case of interest-bearing instruments measured at the fair value, the interest rate will be classified as the It is regularly assessed whether there are objective indic- interest income or cost, where the effect of the value tors of an impairment in value of loans or groups of loans. change will be classified as income or costs relating to Impairment in value exists if there is objective proof of financial instruments. events that may cause a reduced cash flow. The impairment in value must refer to events after initial incorporation and it must be possible to make a reliable assess- Commission income and costs ment. Events that indicate impairment in value are: – Significant financial difficulties being experienced by In general, commission income and costs are accrued the borrower when the service is provided or received. Fees associated – Default with loans will not be recognized directly in the profit and – Special terms and conditions having been agreed due loss account, but will be included in calculation of the to the borrower’s financial situation effective interest rate and will be recognized in the profit – The borrower is likely to enter into debt negotiations or and loss account accordingly. Income from the real es- other financial restructuring tate brokerage business is recognized in the profit and – Data that can be observed indicates measurable re- loss account when it has been earned. Consequently, duction in future cash flows from a group of loans the income involved is recognized in the profit and loss account on signing the contract regarding purchase and The Bank first assesses whether there is individual ob- sale of property, etc. jective proof of impairment in value. If this is the case, the loan is included in a group of loans with the same credit 20

risk. The group of loans is then assessed on an aggregate Repossessed assets basis with regard to impairment in value. Loans which are written-down individually are excluded from this. In some cases, the Bank repossesses assets which have been pledged as collateral security for loans, as part of If there is objective proof that impairment in value has the treatment of loans and guarantees in default. At the occurred, the amount of loss is calculated as the differ- time of repossession, the assets are assessed at their ence between the loan’s book value and the present value estimated sale value and the commitment in question of future estimated cash flows discounted by the loan’s is adjusted accordingly. When the value is subsequently original effective interest rate. The loan’s value is re- recognized in the accounts, it is adjusted for the change duced by using an appropriation account and the impair- in sale value. ment in value is included in the profit and loss account. Write-down on groups of loans is dealt with according to corresponding principles. Impairment in value of other financial assets

Impairment in value of other financial assets is assessed Loans in default and bad or doubtful loans in the same way as impairment in value of loans.

A customer’s aggregate commitments are deemed to be in default if repayments due or interest due have not been Financial instruments paid 90 days after the due date in question or if credit facilities have been overdrawn for more than 90 days. Financial instruments consist of shares and unit trust Loans which are not in default, but where the customer’s certificates, certificates, bonds and financial derivatives. financial situation would suggest that the commitment is Shares, unit trust certificates, and Equity Certificates are bad or doubtful, are classified as bad or doubtful. classified in the account either at ”fair value through the profit and loss account) or as ”available for sale”, with any change in value to be shown directly against equity. Confirmed losses Certificates, bonds and derivatives as assets are classified in the accounts at the fair value with the value change Losses are classified as confirmed when it is highly prob- recognized in the profit and loss account. able that these are final. Losses are deemed to be confirmed in the case of a formally announced composition All financial liabilities, with the exception of subordinated with creditors, or in case of bankruptcy, if the imposition loan capital and subordinated bond loans, are incorporat- of restraint upon chattels and the sale thereof have not ed in the accounts at the fair value. In the case of finan- given the required result, a final and enforceable judge- cial liabilities at fixed rates of interest, which have been ment, or if the Bank has waived its rights relating to all swapped at a floating interest rate, accounting inconsist- or part of the commitment involved. Confirmed losses encies are avoided as the derivatives will be recognized against which no write-down has been made or where in the accounts at the fair value. Financial liabilities at there is too large or little cover in relation to the write- floating rates of interest established by the Parent Bank down made, are recognized in the profit and loss account. are also incorporated in the accounts at the fair value, because this is assessed and report at the fair value in connection with the Bank’s ongoing follow-up of liquidity and interest rate risk. 21

Financial liabilities established by the subsidiary Sør Bo- All financial instruments are managed, assessed and ligkreditt AS are incorporated in the accounts at the am- reported with the applicable strategy for the financial in- ortized cost. strument in question.

All financial instruments classified at the fair value In practice, the Bank uses derivatives mainly for hedging through the profit and loss account are presented in the purposes, but hedge accounting is not used. balance sheet at the fair value and the change in fair value from the opening balance is recognized in the profit and loss account as net loss / gain on financial instru- Subordinated loans ments. Subordinated loans have priority after all other debt. The fair value of securities, such as shares, unit trust Subordinated loans are classified as a liability in the bal- certificates and Equity Certificates, which are not listed ance sheet and are recognized in the accounts at the am- in ordinary markets, is defined as the last quoted pur- ortized cost. chase price.

The fair value of securities, such as shares, unit trust Subordinated bond loan certificates and Equity Certificates, which are not listed in ordinary markets have been based earnings and / or A subordinated bond loan is included in the Bank’s core equity in the company in question. capital under given assumptions. A subordinated bond loan is a loan that ranks after other loans, including sub- The fair value of securities, such as bonds and certifi- ordinated loan capital, but has priority over the Bank’s cates issued by others and which are owned by the Bank, equity. A subordinated bond loan is classified as a liabil- has been determined by obtaining information on credit ity in the balance sheet and is recognized in the balance spreads from key market players and using own calcula- sheet at amortized cost. tions base don present value models.

The fair value of securities-related debt is calculated as a Deposits present value based on the swap curve for the remaining life, including an addition or deduction for the group of Most deposits are recognized in the accounts at the am- issuers to which the Bank belongs. ortized cost. The exception is deposits with share dividend, which are recognized in the accounts at the fair The fair value of interest rate derivatives is calculated as value with change in value through the profit and loss a present value based on the swap curve for the remain- account. ing life. Derivatives in foreign currencies are assessed at the applicable prices at year-end. Intangible assets Financial assets or liabilities are removed from the balance sheet when the right to receive cash flows from the Intangible assets consist of goodwill, rights and compu- investment or liability to pay cash flows ends or has dis- ter software. continued through sale. Goodwill is defined as the difference between the purchase price and the identified value of the net assets in 22

the acquired business. Goodwill is not depreciated, but Uncertain liabilities assessed annually with regard to write-down. The Bank issues financial guarantees as part of its ordi- Rights are presented in the balance sheet at cost price nary operations. Loss assessment is made as part of the less depreciation. The depreciation period reflects the assessment of losses on loans and is reported together life of the right. with these.

Computer software is presented in the accounts at cost Provisions are made for other uncertain liabilities if it is price less depreciation. The Bank uses straight-line de- more than likely that the liability will materialize, and the preciation, which reflects the asset’s economic life. financial consequences can be calculated reliably. Provi- sions for restructuring costs are made when the Group has an agreement-related or legal liability. Tangible assets

Tangible assets include buildings, land and fixtures & fit- Tax tings. Buildings and fixtures & fittings are recognized in the accounts at cost price less depreciation and write- Tax recognized in the profit and loss account consists of downs. The Bank uses a straight-line depreciation meth- tax payable and change in deferred tax. od, which reflects the asset’s economic life. In the case of deferred tax, liabilities or assets are calculated on temporary differences, which is the difference Pensions between book value and tax-related value of assets or liabilities. Deferred tax is 28 per cent of the temporary The Bank has various pension schemes, which are all de- differences at the end of the financial year. Tax-increas- fined benefit schemes. A defined benefit pension scheme ing or tax-reducing temporary differences that reverse or entitles members to a defined future benefit on reach- may be reversed in the same period are netted out and ing retirement age. The pension is determined by factors, recognized in the accounts on a net basis. Deferred tax such as age, number of years in employment and salary. asset is presented in the balance sheet based on expec- The most comprehensive pension schemes are guaran- tations of taxable income from future earnings. teed through payments to an insurance company.

The liabilities included in the balance sheet relating to Segment reporting a defined benefit scheme amount to the defined liability less the fair value of the pension assets. The liability A segment is a customer category of similar products, is calculated annually by an independent actuary. The services, return and risk. The Group’s operations are di- present value of future defined benefits is calculated by vided into the primary segments of retail banking mar- discounting the future estimated payments using inter- ket, corporate market and real estate brokerage. est rates recommended by Norsk Regnskapsstiftelse.

Economic parameters used in calculation of the pension Cash flow statement liability have been updated on the balance sheet date. The cash flow statement has been prepared on the basis of gross cash flows from operational, investment and fi- 23 nancing activities. Cash flows from operational activities ry effort must be made to ensure a depreciation period are defined as current interest relating to lending and that agrees with the economic life, but there will always deposit operations involving customers, net payments be a risk that in practice, the economic life deviates from received / made relating to the lending and deposit oper- the depreciation period. ations, fees and commission from other operations, and also payments made in connection with costs relating to The pension liabilities are based on estimated related to the ordinary operations. Investment activities are defined return on the pension assets, future interest rates, wage as investments in the ”available for sale” portfolio, and and pension development, public pension adjustments, also investments in fixed assets and real estate. Cash staff turnover, the share of disable pensioners, expect- flows from establishment and repayment of subordinated use of early retirement pensions and duration of life. ed loans and other securities-related debt are defined as Changes in the estimates may have a significant impact financing activities. on the pension liabilities and pension costs.

The fair value of financial instruments that are traded in Use of estimates and assessment when using account- an active market can usually be established with a rea- ing principles sonable degree of certainty. Where this is not the cause, difference assessment models are applied, and these Critical estimates and assessments are primarily related models are mentioned in more detail under the descrip- to the write-down of individual loans or groups of loans, tion of financial instruments. In our view, the models give pension liabilities, depreciation and amortization, and a good estimate of the fair value, even if there some un- also establishment of the fair value of financial instru- certainty regarding this. ments. The accounting estimates may deviate from the results achieved, but are based on the best estimate at the time of presenting the accounts. Events after the balance sheet date

The Bank and the mortgage company’s corporate com- The accounts are deemed to be approved for publication mitments are divided into different risk classes according when the Board of Directors has adopted the accounts. to the customer’s financial strength and earnings. The The Supervisory Board and the regulatory authorities will commitments in the weakest risk classes are reviewed then be able to refuse to approve the accounts, but not 3-4 times a year in order to assess the need for write- change them. down. All larger commitments will be reviewed with regard to whether it is necessary to make a write-down. Events occurring up to the time the accounts are pub- The write-down criteria have been discussed under im- lished, and which were known on the balance sheet date pairment in value of loans. The Bank’s risk classification in question, have been taken into consideration in the systems have been discussed under risk management. accounts. Events that concern matters, which were not Assessment of individual and group write-downs will known on the balance sheet date, will be made known if always be based on a great degree of discretionary as- they are of significant importance. sessment. You can never know for certain what relevant historical data has been used as a basis for a decision. The accounts have been presented on the assumption of Realization of collateral assets relating to special objects a going concern. In the view of the Board of Directors, or sectors will always involve a lot of uncertainty. this assumption was valid at the time the accounts were approved for publication. Depreciation must reflect the asset’s economic life. Eve- 24

3. Financial risk management The credit risk is managed through the Group’s strategy and policy documents, credit routines and processes Risk and capital management and authority relating to granting of credit. These set the overall guidelines for the Bank’s credit policy. Risk management in Sparebanken Sør supports the Group’s strategic goals and development. Management The Board of Directors agrees on the credit strategy at targets have been established for the Bank’s total risk least once a year and this contains credit policy guide- level, and specific management targets within each risk lines and also management targets for risk profile and area. Systems have been established to assess, manage risk concentrations in the Group. and control risk. Risk management ensures that risk Management target have been established for antici- exposure is known at any time and helps the Group to pated loss, concentration risk, sectors, markets and ge- achieve its strategic goals for financial stability and prof- ography and also limits for key and individual custom- itability. The risk is adjusted to the organization’s size, ers. The management targets for risk are monitored and ambition, competence and market. Sparebanken Sør has reported at regular intervals to the Board of Directors. a moderate risk profile, with well diversified portfolios on Sparebanken Sør has developed and actively uses risk both side of the balance sheet. classification models in the credit process and in portfolio management of the retail banking and corporate One of the aims of Sparebanken Sør is that from a long- markets. term perspective, the Group shall be well capitalized so that there is a good basis for development and growth The Board of Directors is responsible for the Group’s during cyclical upturns and also financial strength to granting of credit and has delegated powers of attorney to meet cyclical downturns. Capital management must the CEO, who, within his power of attorney, has delegated ensure that Sparebanken Sør has good core capital ad- this to others within the organization. The credit-handling equacy, financial stability and a competitive return on eq- routines and risk classification models set requirements uity capital in relation to its risk profile. regarding the credit processes and risk evaluations that must be carried out in connection with granting of loans The Group’s overall risk exposure and development is and other commitments within the retailing banking and follow-up through quarterly reporting to the Group man- corporate sectors. The powers of attorney are related to agement and the Board of Directors. The overall risk competence, markets, the size of the commitments and management and reporting is carried out by the Risk risk. The Bank’s Credit Committee is used when handling Management Department, who report directly to the large and / or complex commitments. Bank’s CEO.

Sparebanken Sør focuses on continuing to develop risk Market risk management in the Bank and also preparing the Bank for adaptation to the Basel II IRBF rules and regulations. The market risk is defined as risk of loss due to unfavourable market changes in interest rates, foreign exchange rates and also the securities market. The Group’s mar- Credit risk ket risk is associated with risk of loss on shares, interest rates and foreign currency, and also credit associated Credit risk is defined as the risk of loss due to customers with this. or counterparts failing to meet their obligations. The strategy for management of market risk ensures 25 that the business is conducted in accordance with the Deposits from customers are the most important and Group’s overall strategy plan and that risk the Group stable source of funding. The Board of Directors focuses takes is reflected in the return. The Board of Directors on the ratio between deposits from customers and loans has established management targets for investments being satisfactory. in shares, bonds and positions in interest rate and the In order to reduce the funding risk, funding from the cap- foreign exchange market. Follow-up takes place through ital market are spread with regard to maturity, markets, ongoing reporting of portfolios and management targets funding sources and instruments. Net funding require- to the Group management and Board of Directors. ments from other funding sources than customer deposits may be a maximum of BNOK 1 for the next 7 days and At year-end, the Group’s overall share investments were maximum BNOK 1.8 for the next three months. 336 MNOK, of which, of which the trading portfolio was MNOK 140. The Board of Directors has established a As a liquidity reserve, the Bank has committed, long- maximum limit for the trading portfolio of MNOK 196. term drawing rights amounting to 65 million Euros at the end of 2009. In addition, the Bank has unused drawing Most the Group’s interest rate risk is related to the rights amounting to BNOK 1.7 in Norges Bank. Bank’s portfolio of interest-bearing securities, fixed rate As at 31 December 2009, the liquidity indicator is 113.7, loans and deposits. The Board of Directors has set a limit including drawing rights. In the Group’s liquidity strat- of MNOK 25 for the aggregate interest risk on and off the egy, the liquidity indicator requirement is greater than or Bank’s balance sheet, measured by the overall impact on equal to 102. results of a 1 percentage point change in the level of interest rates. On average for the year, use of the allowed interest rate risk limit is less than 25 per cent and at Operational risk year-end the Bank’s interest rate was MNOK 0.4. Operational risk is defined as the risk of loss due to in- The Group’s result is affected by fluctuations in the for- sufficient or failing internal processes, routines or sys- eign exchange market. The most important balance sheet tems, human error, crime or external events. An ongo- items are lending in foreign currencies to customers and ing review is made of internal control in these areas. In bonds in foreign currencies. The foreign currency items addition, an annual risk evaluation is made of material are mainly hedged using forward exchange contracts, risk for all the Bank’s business areas. No weaknesses of currency swaps or funding loans in the same currency. importance to the Bank’s risk and capital adequacy were The total limit for open currency positions was MNOK 100 uncovered in 2009. and at year-end, MNOK 76 of the limit was used. Management of operational risk is done through skills training, good systems and routines, good internal con- Funding risk trol and quality assurance.

Funding risk is defined as the risk of the Group being un- Strategic management targets and risk development are able to meets its obligations, or being able to fund its as- followed-up through quarterly reports to the Group man- sets. agement and Board of Directors. The strategy for management of liquidity risk ensures that the Group has adequate liquidity management to There is continuous work on preventive measures and help ensure the Group’s ability to survive critical situa- development of new management and reporting sys- tions. tems. 26

4. Net interest rate and credit commission income

Parent Bank Group 2007 2008 2009 2009 2008 2007 23 27 22 Interest, etc. on claims on financial institutions 10 27 23 1,414 2,007 1,331 Interest, etc. on loans to customers 1,412 1,994 1,407 143 220 203 Interest, etc. on certificates and bonds 149 220 143 1580 2,254 1,556 Total interest income 1,571 2,241 1,573

60 93 103 Interest, etc. on liabilities to financial institutions 98 90 60 520 762 406 Interest, etc. on deposits from customers 401 757 512 426 736 418 Interest, etc. on issued securities 418 736 426 16 20 13 Interest, etc. on subordinated loan capital and bond loans 13 20 16 6 18 Levy paid to the Norwegian Banks Guarantee Fund 18 6 1,022 1,617 958 Total interest costs 948 1,609 1,014 558 637 598 Net interest and credit commission income 623 632 559

5. Commissions and income from banking services

Parent Bank Group 2007 2008 2009 2009 2008 2007 11 12 15 Guarantee commission 15 12 11 10 8 7 Securities trading and management 7 8 10 6 6 5 Interbank fees 5 6 6 72 70 69 Payments transmission services 68 70 72 8 9 7 Insurance services 7 9 8 Real estate brokerage and management 67 69 105 8 9 14 Miscellaneous 8 9 8 115 114 117 Total commission income and income from banking services 177 183 220

6. Commission costs and costs relating to banking services

Parent Bank Group 2007 2008 2009 2009 2008 2007 6 5 5 Interbank fees 5 5 6 17 18 18 Payments transmission services 18 18 17 2 5 3 Other commission costs 3 5 2 25 28 26 Total commission costs and costs relating to banking services 26 28 25 27

7. Income from financial instruments

Parent Bank Group 2007 2008 2009 2009 2008 2007 8 -71 51 Gains/losses, value change, trading port., equity instruments 51 -71 8 -13 -113 120 Gains/losses and value change, certificates and bonds 87 -113 -13

-8 35 -6 Value change, loans and deposits at fair value -4 35 -8 -38 8 Value change in related derivatives 8 -38

77 -222 -48 Value change, issued securities at fixed interest rate -48 -222 77 -50 297 -80 Value change in related derivatives -80 297 -50

16 12 -72 Value change, issued securities at floating interest rate -72 12 16

-1 -38 26 Value change, other financial instruments 26 -38 -1

Total income from financial instruments at fair value 29 -138 -1 with value change through the profit and loss account -32 -138 29

-10 -10 Loss/write-down - Start Toppfotball AS -20 -7 Write-down - ABCenter Holding AS -3 -2 -10 Write-down - Rettighetskompaniet AS

Write-down and loss/gain on investment assessed 5 -11 8 as available for sale or valued at cost price 2 -11 5

Total write-downs and loss/gain on investments valued 2 -43 -19 at cost price or investments assessed as available for sale 2 -11 5

10 12 10 Dividends from equity instruments 10 12 10 12 -2 26 Foreign exchange trading 26 -2 12 22 10 36 Total income from other financial instruments 36 10 22

8. Other operating costs

Parent Bank Group 2007 2008 2009 2009 2008 2007 25 30 27 Marketing 27 37 32 61 64 61 IT costs 64 69 65 14 13 14 Operating costs related to real estate 25 37 27 5 6 7 External fees 11 9 7 61 68 60 Other operating costs 65 85 81 166 181 169 Total other operating costs 192 237 212 28

9. Rental income and costs

The Group rents premises in certain locations. In 2009, the annual rental totalled MNOK 7.4. Own premises are rented out if these are not used for own operations. In 2009, the annual rental was MNOK 7.7. The Group also rents out payment terminals for renting out to customers. In 2009, the annual income was MNOK 5.4 and rental cost was MNOK 3.7.

10. Other assets

Parent Bank Group 2007 2008 2009 2009 2008 2007 98 146 102 Accrued income, not yet received and prepaid costs 82 146 98 9 33 36 Pension assets 36 33 9 26 13 6 Other assets 25 53 80 133 192 144 Total other assets 143 232 187

11. Loans and liabilities to financial institutions

Parent Bank Group 2007 2008 2009 2009 2008 2007 Loans to and claims on financial institutions 27 30 1.428 No agreed maturity or notice of withdrawal 159 21 27 187 Agreed maturity or notice of withdrawal 187 214 30 1,428 Total loans and claims on financial institutions 159 21 214

Liabilities to financial institutions 77 38 23 No agreed maturity or notice of withdrawal 23 38 77 1,514 2,179 6,228 Agreed maturity or notice of withdrawal 6,055 2,080 1,514 1,591 2,217 6,251 Total liabilities to financial institutions 6,078 2,118 1,591

12. Other liabilities

Parent Bank Group 2007 2008 2009 2009 2008 2007 77 81 74 Pension liabilities 74 81 77 5 6 5 Trade creditors 14 18 13 8 8 8 Tax deducted 12 15 11 32 26 66 Appropriation accounts 66 26 32 64 107 56 Other liabilities 62 137 70 16 17 18 Accrued holiday pay 22 24 22 94 182 86 Incurred interest 86 184 96 25 16 20 Other incurred costs 22 37 30 321 443 333 Total other liabilities 358 522 351 29

13. Segment reporting

Reporting by segment Group 2009 Group 2008

Retail Corp. Real est. Not Retail Corp. Real est. Not Profit and loss account (MNOK) bkg. bkg. brokerage allotted Total bkg. Bkg. brokerage allotted Total

Net interest and cred. comm. income 347 270 -1 7 623 288 196 148 632 Net other operating income 67 24 67 18 176 45 19 74 -97 41 Operating costs 194 90 72 126 482 166 111 126 122 525 Op. res. before losses by segment 220 204 -6 -101 317 167 104 -52 -71 148 Losses on loans and guarantees 6 83 20 109 12 78 24 114 Result before tax by segment 214 121 -6 -121 208 155 26 -52 -95 34

Net loans to customers 18,962 10,251 29,213 17,496 10,844 28,340 Other assets 50 6.077 6,127 105 5,230 5,335 Total assets by segment 18,962 10,251 50 6.077 35,340 17,496 10,844 105 5,230 33,675

Deps. from / liabs. to customers 10,533 6,213 225 16,971 9,942 6,124 16,066 Open accounts/other liabilities 8,429 4,038 50 3.410 15,927 7,554 4,720 105 2,963 15,342 Total liabs. by segment 18,962 10,251 50 3.635 32,898 17,496 10,844 105 2,963 31,408 Equity 2442 2442 2,267 2,267 Total liab. and eq. by segment 18,962 10,251 50 6.077 35,340 17,496 10,844 105 5,230 33,675

Reporting by segment Parent Bank 2009 Parent Bank 2008

Retail Corp. Not Retail Corp Not Profit and loss account (in MNOK) bkg. bkg. allotted Total bkg. Bkg. allotted Total

Net int. and credit comm. income 316 270 12 598 288 196 153 637 Net other operating income 65 24 32 121 45 19 -132 -68 Operating costs 185 90 122 397 166 111 109 386 Op. result bef. loss by segment 196 204 -78 322 167 104 -88 183 Losses on loans and guarantees 2 83 20 105 12 78 24 114 Result before tax by segment 194 121 -98 217 155 26 -112 69

Net loans to customers 13,621 10,435 24,056 17,496 11,090 28,586 Other assets 11,480 11,480 5,181 5,181 Total assets per segment 13,621 10,435 11,480 35,536 17,496 11,090 5,181 33,767

Deps. from/liabs. to customers 10,533 6,213 246 16,992 9,942 6,169 16,111 Open accounts/other liabilities 3,088 4,222 8,760 16,070 7,554 4,921 2,887 15,362 Total liabilities by segment 13,621 10,435 9,006 33,062 17,496 11,090 2,887 31,473 Equity 2,474 2,474 2,294 2,294 Total liabs. and eq. by segment 13,621 10,435 11,480 35,536 17,496 11,090 5,181 33,767 30

14. Losses and write-downs on loans

Parent Bank Group 2007 2008 2009 2009 2008 2007 Individual write-downs 60 52 88 Individual write-downs as at 01/01 88 52 60 -Period’s confirmed losses against which individual 11 5 25 write-down was previously made 25 5 11 0 17 20 +Increased individual write-downs in the period 20 17 0 13 30 40 +New individual write-downs in the period 40 30 13 10 6 10 -Reversal of individual write-downs in the period 10 6 10 52 88 113 =Individual write-downs as at 31/12 113 88 52

Write-down on groups of loans 53 66 91 Collective write-down as at 01/01 91 66 53 13 25 19 +The period’s change in collective write-downs 23 25 13 66 91 110 =Collective write-downs as at 31/12 114 91 66

Loss costs -8 36 25 The period’s change in individual write-downs 25 36 -8 13 25 19 +The period’s change in collective write-downs 23 25 13 +The period’s confirmed losses against which 11 5 25 individual write-down was previously made 25 5 11 +The period’s confirmed losses against which 1 49 32 no individual write-down was previously made 32 49 1 0 2 5 +Carried to income as interest income 5 2 0 5 3 1 -The period’s recoveries from previous confirmed losses 1 3 5 12 114 105 =The period’s loss costs 109 114 12

Losses on loans and guarantees, etc. divided into customer groups

Parent Bank Group 2007 2008 2009 2009 2008 2007 0 0 1 Primary industries 1 0 0 0 1 10 Industry 10 1 0 0 11 22 Building and construction 22 11 0 0 0 0 Transport and communication 0 0 0 -2 13 9 Wholesale and retail trade 9 13 -2 -1 2 -1 Hotels and restaurants -1 2 -1 1 40 14 Real estate 14 40 1 0 12 24 Financial / business services 24 12 0 1 11 5 Retail banking customers 5 11 1 0 -1 2 Other 2 -1 0 -1 89 86 Total losses on customers 86 89 -1 13 25 19 Increase in collective write-downs 23 25 13 12 114 105 Total losses on loans, guarantees, etc. 109 114 12 31

15. Deposits from customers divided into key industries and sectors

Parent Bank Group 2007 2008 2009 2009 2008 2007 8,350 9,315 9,962 Retail banking customers 9,962 9,315 8,350 1,667 1,736 1,778 Public sector 1,778 1,736 1,667 246 204 158 Primary industries 158 204 246 627 552 900 Industry 900 552 627 344 451 533 Building and construction 533 451 344 221 275 323 Transport and communication 323 275 221 435 462 483 Wholesale and retail trade 483 462 435 89 92 94 Hotels and restaurants 94 92 89 1,558 1,098 952 Real estate 932 1,056 1,544 1,176 836 990 Financial / business services 990 836 1,176 996 1,090 819 Sundry / other industries 818 1,087 996 15,709 16,111 16,992 Total deposits from customers 16,971 16,066 15,695

16. Average interest rates and special terms for some liability items

Parent Bank Group 2007 2008 2009 2009 2008 2007 Liabilities to financial institutions 2.9% 3.0% 1.8% Loans and deps. from fin. institutions – no agreed maturity 1.8% 3.0% 2.9% 5.1% 4.9% 2.4% Loans and deps. from cred. institutions – agreed maturity 2.4% 4.9% 5.1% Deposits from customers 4.3% 4.9% 1.7% Deposits from customers – no agreed maturity 1.7% 4.9% 4.3% 4.2% 4.4% 1.9% Deposits from customers – agreed maturity 1.9% 4.4% 4.2% Debt incurred through issue of securities 5.5% 7.2% Certificate-related debt 7.2% 5.5% 5.4% 5.7% 3.8% Bond debt 3.8% 5.7% 5.4%

The average rate of interest is calculated as a weighted Of the total debt to financial institutions, MNOK 543 is average of the actual interest rate terms and conditions in foreign currencies. Of this, MNOK 540 is in EUR. Of as at 31 December 2009, defined as annual interest paid the deposits from customers, MNOK 202 is in USD and in arrears. No liability items have special terms and con- MNOK 49 is in EUR. The total deposits from customers ditions. in foreign currencies are MNOK 257. Liabilities related to issue of securities are all in NOK. 32

17. Associated companies

Amounts in 1 000 NOK Book val. of eq. Opening Result Other Closing Name of company/reg. office Eq. stake Acq. cost at acq. bal. changes changes bal.

Associated companies: Kragerø Næringshavn AS 25% 28 28 0 0 Søndeled Bygg A/S 29% 870 870 1,155 -7 1,148 Total equity stakes in associated companies 898 898 1,155 -7 1,148

18. Group companies

Amounts in 1 000 NOK Equity stake Book value As at 31/12/09 2009 2008 2007

ABCenter Holding AS 100% 25,114 35,095 22,681 A/S Eiendomsvekst 100% 2,935 2,935 2,935 Bankbygg A/S 51% 191 191 191 Kaldvell Eiendom AS 7,162 Markensgate 9 AS 77,049 75,375 Markensgate 9 Invest AS 80% 19,208 24,010 Prosjektutvikling AS 100% 3,923 3,131 107 Rettighetskompaniet AS 100% 11,266 21,530 23,659 Skippergata 10 AS 3,616 Start Stadion AS 3 Start Toppfotball AS 10,000 Sør Boligkreditt AS 100% 200,000 100,000 Total equity stakes in group companies 262,637 281.106 128,564 33

19. Fixed and intangible assets

Group Machinery/fixtures/ transport Buildings Intangible assets 2009 2008 2009 2008 2009 2008

Acquisition cost as at 01/01 147 140 568 374 140 90 Additions for the year 6 18 9 214 6 50 Disposals for the year 15 11 174 20 14 Acquisition cost as at 31/12 138 147 403 568 132 140 Accumulated depreciation and write-downs 109 112 131 124 92 74 Book value as at 31/12 29 35 272 444 40 66

Ordinary depreciation 11 11 8 9 15 9 Write-downs 7 13 Gains on sale 2 3

Parent Bank Machinery/fixtures/ transport Buildings Intangible assets 2008 2007 2008 2007 2008 2007

Acquisition cost as at 01/01 132 130 197 201 26 18 Additions for the year 4 14 5 4 7 8 Disposals for the year 9 12 0 8 2 0 Acquisition cost as at 31/12 127 132 202 197 31 26 Accumulated depreciation and write-downs 102 102 122 117 20 15 Book value as at 31/12 25 30 80 80 11 11

Ordinary depreciation 9 9 6 6 6 6 Gains on sale 2 0 0 3 0 0

Estimated economic lifetime harmonizes with the depreciation period for the various groups of assets. The assets are depreciated on a straight-line basis. The Group’s buildings are mainly located in the Bank’s own region and are for the Bank’s own use. 34

20. Accounting treatment of tax

Parent Bank Group 2007 2008 2009 2009 2008 2007 Deferred tax and deferred tax assets: 2 9 10 Pension assets 10 9 2 -11 -12 -12 Negative tax-related reserves in fixed assets -12 -6 -4 Premium relating to buildings in Group accounts 22 22 22 -3 -38 3 Premium /discount relating to securities -6 -38 -3 -4 5 3 Fixed rate loans 3 5 -4 11 53 36 Financial derivatives – assets 36 53 11 -22 -23 -21 Pension liabilities -21 -23 -22 -30 -16 -11 Financial derivatives – liabilities -11 -16 -30 46 -13 -47 Certificates and bond loans -47 -13 46 Other accounting provisions -8 -7 -11 -35 -39 Total deferred tax and deferred tax assets in accounts -26 -15 11

Breakdown of tax recognized in the profit and loss account: 72 67 58 Tax payable on profit for the year (period tax) 63 67 76 7 8 8 Wealth tax 8 8 7 18 -24 -4 Deferred tax recognized in the profit and loss account -11 -36 15 1 -3 Too much / too little set aside in previous years -4 -1 1 98 51 59 Tax recognized in the profit and loss account 56 38 99

Reconciliation of tax payable on profit for the year (period tax): 94 19 61 28% of the pre-tax profit 58 5 94 -4 24 -7 Permanent differences -6 26 -4 -18 24 4 Deferred tax recognized in the profit and loss account 11 36 -15 72 67 58 Tax payable on profit for the year (period tax) 63 67 75 21.4 97.1 26.7 Tax payable as a percentage of the profit for the year 29.8 366.7 22.2

Tax payable in the balance sheet 72 67 58 Tax payable on profit for the year 63 67 76 7 8 8 Wealth tax 8 8 7 -12 -3 Tax reduction due to paid group contribution -3 -12 79 63 63 Tax payable in the balance sheet 68 63 83 35

21. Pension liabilities relating to staff and elected representatives

Guaranteed scheme tirement pension (AFP). The AFP scheme has been es- Sparebanken Sør provides a Group pension scheme for tablished for 344 employees, who may retire on reaching its employees through a life assurance company. The 62 years age. A separate arrangement has been provided Bank’s liabilities in this respect comprise 342 employ- for 18 management personnel with the possibility to re- ees and 153 retired employees. These liabilities are pre- tire following an application with a gift pension in addition sented in the Bank’s accounts in accordance with IAS19. to AFP. In addition, a separate arrangement has been In accordance with this accounting standard, the Bank’s provided for CEOs past and present, which entitles them pension scheme is treated as a benefit scheme. to retire on reaching 60 years of age.

The estimated value at the end of the applicable account- These arrangements have been incorporated in the ing period is used when assessing the pension assets. Bank’s accounts in accordance with IAS19 for benefits The estimated value is adjusted each year in accordance provided for employees. The assumptions used are iden- with the statement from the life assurance company re- tical to the fund-based scheme- With regard to the AFP garding the transferable value of the pension assets. scheme, a withdrawal tendency of 50 per cent and 100 per The estimated liability at the end of the relevant account- cent withdrawal tendency for the management scheme. ing period is used when assessing the incurred pension liabilities. The estimate liability is adjusted each year in Calculations are base don the accordance with the statement from the assurance com- following assumptions: 2009 2008 Discount interest 4.00% 5.10% pany regarding incurred pension liabilities. Annual anticipated wage growth 4.00% 4.50% Annual anticipated of basic salary amount 3.75% 4.25% An actuarial calculation is carried out each year based on Annual anticipated adjustment information from the Bank. of pensions being paid 2.00% 2.35% Anticipated return on pension assets 6.00% 6.10% Non-guaranteed scheme Financial assumptions – opening balance: Sparebanken Sør provides an annual amount to employ- Discount interest 4.40% 4.00% ees who have retired before normal pensionable age, Anticipated return on pension assets 5.60% 6.00% or for employees who have not accumulated a full pension entitlement. This pension scheme is funded directly through operations and includes 16 pensioners with a current pension and 22 employees receiving an early re-

Breakdown of pension costs for the year 2009 2008 Guaranteed Non-guar. Guaranteed Non-guar.

Pensionable amounts accrued during the year 15 4 11 3 Interest cost relating to the pension liabilities 13 4 14 4 Anticipated return on pension assets -16 -15 Effects of estimate changes recognized in the profit and loss account 2 5 2 5 Accrued payroll costs 2 1 1 1 Administration costs 2 1 Plan changes -8 Net pension costs 18 14 14 5 36

21. Pension liabilities relating to staff and elected representatives

2009 2008 Guaranteed Non-guar. Guaranteed Non-guar. Movements in pension liabilities: Liabilities at the beginning of the period -333 -93 -277 -100 Pension earnings for the year -15 -4 -12 -3 Interest costs relating to the pension liabilities -13 -3 -14 -4 Takeover / acquisition 13 26 Actuarial loss- / gain+ 67 9 -36 -17 Pension payments 6 5 6 5 Pension liabilities at the end of the period 1) -288 -73 -333 -93

1) MNOK 56 of the non-guaranteed scheme for 2009 is AFP liabilities.

Movements in pension assets: Pension assets at the beginning of the period 260 242 Anticipated return on the pension assets 16 15 Actuarial loss+/gain- -13 -19 Administration costs -2 -1 Contributions 17 29 Pension payments -6 -6 Pension assets at the end of the period 272 260

31.12.09 31.12.08 Guaranteed Non-guar. Guaranteed Non-guar. Pension liabilities -288 -73 -333 -93 Pension assets 272 260 Payroll costs relating to net pension liabilities -2 -10 -11 -13 Effect of estimate changes not recognized in the profit and loss account 54 9 117 25 Net pension assets/liabilities 36 -74 33 -81

In 2009, the Bank contributed MNOK 17.5 to the pension assets and paid payroll tax of MNOK 2.5 on this amount. The Group’s pension schemes satisfy the requirements relating to mandatory occupational pension.

Investment profile for the pension assets. Short-term Money Long-term Real Shares bonds market bonds estate Sundry 31/12/2008 3.8% 29.9% 14.0% 28.8% 16.8% 6.7% 31/12/2009 14.0% 23.4% 8.0% 35.7% 16.6% 2.3% 37

22. Information relating to employees and elected representatives

Amounts in 1 000 NOK External auditor’s fees (all amounts ex. VAT): Parent Bank Group No. of employees Auditing 840 1,126 Tax advice 85 85 In 2009, there was an average of 393 employees, inclu- Accounts-related assistance 225 329 ding technical personnel, working in the Group (Parent Other assistance 292 481 Bank and ABCenter) Total fees paid to external auditor 1,442 2,021 This was equivalent to 379 full-time employees.

Loans and guarantees Fees paid at Parent Bank to employees in the Group Loans Guarantees

Supervisory Board 165 Employees 527,659 0 Board of Directors 863 Control Committee 191 Total fees paid to elected representatives 1,219 Costs relating to interest subsidy for loans to employees were MNOK 5.4. There are no agreements regarding any other remuneration other than those mentioned in note 21 on pension liabilities.

Dir. Marketing 01/01-14/08 Gry J. Moen * 900 127 267 1,294 Dir. Group Services 01/01-31/12 Rolf H. Søraker 900 135 274 1,309 1,182 Dir. Corporate Market 01/01-31/12 Øyvind Aasen 900 160 236 1,296 1,985 Dir. Retail Banking Market 01/01-31/12 Gunnar P. Thomassen 904 162 263 1,329 1,627

Board of Directors Chairman 01/01-31/12 Alice Jervell 142 142 0 Dep. Chairman 01/01-31/12 Arne Johan Johnsen 98 98 0 Member 01/01-31/12 Hilde Sakariassen 89 89 0 Member 01.01-31/12 Unni Grethe Farestveit 89 89 45 Member 01/01-31/12 Olav Inge Nordbø 89 89 1,389 Member 01/01-31/12 Kjell Pedersen-Rise 89 89 0 Member 01/01-31/12 Erling Holm 89 89 0 Member 01/01-31/12 Cathy Steller 89 245 20 354 2,005 Member 01/01-31/12 Per A. Bentsen 89 421 27 537 1,898 38

Wages, loans/guarantees and other benefits to key personnel Fees and Accrued Total other remuner- Total Fringe pension remun- Loans and ation wages benefits costs eration guarantees Control Committee Chairman 01/01-31/12 Sverre Irgens 79 79 0 Member 01/01-31/03 Sølvi Sanden 12 12 Member 01/04-31/12 Dag Jørgen Hveem 41 41 0 Member 01/01-31/03 Dennis Danielsen 18 18 Member 01/04-31/12 Aage Petter Danielsen 41 41 0

Supervisory Board Chairman 01/01-31/12 Øystein Haga 29 29 863 Dep. chairman 01/01-31/12 Tone H. Strat 6 6 454 Member 01/01-31/03 Bente O. Brekka 2 2 Member 01/04-31/12 Aud Grethe N. Myhren 3 3 9 Member 01/01-31/12 Per E. Andersen 2 2 1,622 Member 01/01-31/12 Kari Øi 6 6 773 Member 01/01-31/12 Knut B. Aall 6 6 845 Member 01/01-31/12 Dag O. Hødnebø 4 4 2,160 Member 01/01-31/12 Mikkjel Skjevrak 6 6 750 Member 01/01-31/12 Helge Sandåker 2 2 0 Member 01/01-31/12 Jan Lindland 3 3 497 Member 01/01-31/12 Rolf Sannes 4 4 1,124 Member 01/01-31/12 Anita P. Hærås 4 4 0 Member 01/01-31/12 Aanen Leland 6 6 0 Member 01/01-31/12 Per Jan Ougland 4 4 0 Member 01/01-31/12 Rune Grimsby 6 6 784 Member 01/01-31/12 Einar Amundsen 6 6 397 Member 01/01-31/12 Øyvind Tveit 6 6 0 Member 01/01-31/12 Ole M. Retterholt 6 6 304 Member 01/01-31/12 Harald Andersen 8 8 0 Member 01/01-31/12 Eivind R. Larssen 6 6 0 Member 01/01-31/12 Anne-Nora Oma Dahle 6 6 0 Member 01/01-31/12 Anne Efjestad 6 380 16 402 1,048 Member 01/01-31/03 Merete Lie Seland 1 396 17 414 Member 01/0131/03 Jan D. Dalen 1 476 30 507 Member 01/01-31/12 Carl Ove Jensen 6 403 26 435 2,448 Member 01/01-31/03 Vivien Sveinall 0 261 20 281 Member 01/01-31/12 Birger Sløgedal 6 419 25 450 245 Member 01/01-31/03 Ingull Solbu 2 344 18 364 Member 01/04-31/12 Bjørg Jortveit 3 402 20 425 1,359 Member 01/04-31/12 Jan Tore Stenersen 3 341 41 385 1,555 Member 01/04-31/12 Tor Arvid Kristensen 3 384 11 398 265 Member 01/04-31/12 Per Bø 3 493 21 517 1,100

Key personnel ABCenter Man. Dir. 01/01-14/08 Alfred Solgaard 878 189 1.067 Man. Dir. 15/08- 31/12 Gry J. Moen * 28 28 2,139 * Salary paid by Sparebanken Sør the whole year. All loans have been extended on general terms and conditions, which apply to employees or on standard customer terms and conditions. 39

23. Closely related parties Group Board of Control Chairman of of Amounts in 1 000 NOK management Directors Committee Super. Board 2009 2008 2009 2008 2009 2008 2009 2008 Loans outstanding as at 31/12. 6,954 7,930 5,340 5,677 0 0 864 967 Interest income 210 361 201 319 0 13 41 58 Deposits as at 31/12 2,301 3,122 1,976 1,507 14 725 24 67 Interest costs 82 182 35 45 0,1 8 0.1 0.3

Subsidiaries Assoc. companies 2009 2008 2009 2008 Loans outstanding as at 31/12 185,372 284,439 0 14,715 Interest income 8,123 16,993 513 1,057 Deposits as at 31/12 343,545 357,591 64 586 Interest costs 14,878 20,899 4 18 Guarantees 1,600 Deposits also include funds from customers, which are not presented in the subsidiaries’ balance sheets.

24. Equity and related capital and capital adequacy ratio

Capital adequacy From and including the first quarter of 2009, we have reported capital adequacy according to the Basel II Standard Approach. The capital adequacy requirement is that the equity and related capital must at least be 8 per cent of a defined weighted assets calculation basis. The equity and related capital consists of core capital and supplementary capital in the form of Subordinatedd loan capital.

Parent Bank Group 31.12.08 31.12.09 31.12.09 31.12.08 2.275 2.423 The Savings Banks’ Fund 2,423 2,275 400 Subordinated bonds 400 Other core capital 15 32 51 Additions to core capital 51 32 -109 -95 Deductions in core capital -97 -112 2,198 2,779 Core capital 2,792 2,195 299 300 Subordinated loan capital 300 299 9 23 45% of fund for fair value reserve 23 9 308 323 Supplementary capital 323 308 2,506 3,102 Net equity and related capital 3,115 2,503

Calculation basis: 18,315 16,962 Calculation basis for credit and counterpart risk 18,134 18,216 344 547 Calculation basis for market risk 547 344 1,189 1,170 Calculation basis for operational risk 1,207 1,189 -101 -138 Deduction in the calculation basis -142 -101 19,747 18,541 Total calculation basis 19,746 19,648

12.69% 16.73% Capital adequacy ratio 15.77% 12.74% 11.13% 14.99% Core capital coverage 14.14% 11.17% 40

25. Financial assets and liabilities according to classification Fair value through Trading P&L Amortized Available Total book Parent Bank 31.12.2009 portfolio account cost for sale value Fair value

Loans to financial institutions 1,428 1,428 1,428 Loans to customers 772 23,284 24,056 24,056 Bonds and certificates 1,892 6,691 8,583 8,583 Shares 140 196 336 336 Financial derivatives 87 87 87 Total 2,032 7,550 24,712 196 34,490 34,490

Liabilities to financial institutions 6,251 6,251 6,251 Deposits from customers 4 16,988 16,992 16,992 Debt through issue of securities 8,664 8,664 8,664 Financial derivatives 59 59 59 Subordinated loan capital and bonds 700 700 700 Total 8,727 23,939 32,666 32,666

Fair value Trading in P&L Amortized Available Total book Group 31.12.2009 portfolio account cost for sale value Fair value

Loans to financial institutions 159 159 159 Loans to customers 1,176 28,037 29,213 29,213 Bonds and certificates 1,892 2,658 4,550 4,550 Shares 140 196 336 336 Financial derivatives 87 87 87 Total 2,032 3,921 28,196 196 34,345 34,345

Liabilities to financial institutions 6,078 6,078 6,078 Deposits from customers 4 16,967 16,971 16,971 Debt through issue of securities 8,664 8,664 8,664 Financial derivatives 59 59 59 Subordinated loan capital and bonds 700 700 700 Total 8,727 23,745 32,472 32,472 41

25. Financial assets and liabilities according to classification - continued

Fair value Trading in P&L Amortized Available Total book Group 31.12.2008 portfolio account cost for sale value Fair value

Loans to financial institutions 21 21 21 Loans to customers 738 27,602 28,340 28,340 Bonds and certificates 443 2,354 2,797 2,797 Shares 69 152 221 221 Financial derivatives 521 521 521 Total 512 3,613 27,623 152 31,900 31,900

Liabilities to financial institutions 2,118 2,118 2,118 Deposits from customers 8 16,058 16,066 16,066 Debt through issue of securities 11,882 11,882 11,882 Financial derivatives 458 458 458 Subordinated loan capital 299 299 261 Total 0 12,348 18,475 0 30,823 30,785

Fair value Trading in P&L Amortized Available Total book Group 31.12.2007 portfolio account cost for sale value Fair value

Loans to financial institutions 214 214 214 Loans to customers 738 25,078 25,816 25,816 Bonds and certificates 475 2,332 2,807 2,807 Shares 113 109 222 222 Financial derivatives 65 65 65 Total 588 3,135 25,292 109 29,124 29,124

Liabilities to financial institutions 1,591 1,591 1,591 Deposits from customers 11 15,684 15,695 15,695 Debt through issue of securities 9,711 9,711 9,711 Financial derivatives 161 161 161 Subordinated loan capital 292 292 292 Total 0 10,175 17,275 0 27,450 27,450 42

25. Financial assets and liabilities according to classification - continued

A 10% change in value of the shares in the trading portfo- A 10 point change in credit spread in our securities-relat- lio represents a total value change of MNOK 14. A gener- ed debt represents a change in value of MNOK 21. al change in credit spreads of 10 points in our portfolio of bonds and certificates represents an aggregate change The effect of the change in the general level of interest in value of MNOK 2. rates has been discussed in note 29.

Determination of fair value as at 31 December 2009 Level 2: Other information than in level 1, which is ob- servable for the asset / liability, either directly or indi- When determining the fair value, the information used is rectly. divided into three levels. Level 3: Other input, which has not been based on ob- servable market data. Level 1: Quoted prices in active markets for identical assets and liabilities.

Parent Bank Level 1 Level 2 Level 3 Total Bonds and certificates 8,583 8,583 Shares 140 196 336 Financial derivatives 87 87

Securities-related debt 8,664 8,664 Financial derivatives 59 59

Group Level 1 Level 2 Level 3 Total

Bonds and certificates 4,550 4,550 Shares 140 196 336 Financial derivatives 87 87

Securities-related debt 8,664 8,664 Financial derivatives 59 59 43

26. Loans according to types, markets and risk

Loans according to type and markets

31.12.2009 Retail banking market Corporate market Gross Write- Net Gross Write- Net Total net Parent Bank loans down loans loans down loans loans

Credit facilities 2,956 3 2,953 946 17 929 3,882 Building loans 141 141 614 7 607 748 Repayment loans 10,077 39 10,038 8783 157 8,626 18,664 Total loans at floating int. rate at amortized cost 13,174 42 13,132 10,343 181 10,162 23,294 Repayment loans at fixed int. rate at fair value 489 489 273 273 762 Total loans 13,663 42 13,621 10,616 181 10,435 24,056

31.12.2009 Retail banking market Corporate market Gross Write- Net Gross Write- Net Total net Group loans down loans loans down loans loans

Credit facilities 4,555 3 4,552 946 17 929 5,481 Building loans 141 141 614 7 607 748 Repayment loans 13,420 43 13,377 8,599 157 8,442 21,819 Total loans at floating int. rate at amortized cost 18,116 46 18,070 10,159 181 9,978 28,048 Repayment loans at fixed int. rate at fair value 892 892 273 273 1.165 Total loans 19,008 46 18,962 10,432 181 10,251 29,213

31.12.2008 Retail banking market Corporate market Gross Write- Net Gross Write- Net Total net Group loans down loans loans down loans loans

Credit facilities 4,029 2 4,027 1,136 23 1,113 5,140 Building loans 142 142 1,049 1,049 1,191 Repayment loans 12,985 57 12,928 8,440 97 8,343 21,271 Total loans at floating int. rate at amortized cost 17,156 59 17,097 10,625 120 10,505 27,602 Repayment at fixed int. rate at fair value 399 399 339 339 738 Total loans 17,555 59 17,496 10,964 120 10,844 28,340

31.12.2007 Retail banking market Corporate market Gross Write- Net Gross Write- Net Total net Group loans down loans loans down loans loans

Credit facilities 3,041 1 3,040 1,157 7 1,150 4,190 Building loans 147 147 1,372 1,372 1,519 Repayment loans 11,738 47 11,691 7,741 63 7,678 19,369 Total loans at floating int. rate at amortized cost 14,926 48 14,878 10,270 70 10,200 25,078 Repayment loans at fixed int. rate at fair value 399 399 339 339 738 Total loans 15,325 48 15,277 10,609 70 10,539 25,816 44

26. Loans according to types, markets and risk - continued

Loans, guarantees, commitments in default etc. divided into important industries sectors Building and Parent Bank Public sector Primary Industry Industry Construction 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 Gross loans 36 56 62 377 450 401 787 829 727 1.592 702 709 Guarantees 0 0 0 3 4 2 400 268 260 175 86 184 Unused drawing rights 371 351 350 56 57 65 241 165 98 253 139 145 Commitments in default 0 0 0 7 4 2 34 1 1 24 19 4 Other bad and doubtful commitments 0 0 0 4 0 0 7 2 2 46 39 49 Write-down on individual loans 0 0 0 1 0 1 6 3 1 18 17 8 Spec. loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0

Wholesale and Hotels and Parent Bank Transport retail trade restaurants Real estate 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 Gross loans 308 284 275 890 1,091 1,283 267 358 428 5,112 6,369 5,737 Guarantees 32 38 38 76 87 82 11 7 3 57 208 147 Unused drawing rights 31 21 31 292 192 226 7 27 63 402 611 697 Commitments in default 4 2 0 6 7 3 6 14 1 42 26 47 Other bad and doubtful commitments 1 2 4 7 43 10 24 25 12 21 24 8 Write-downs on individual loans 2 2 2 36 19 7 4 6 5 16 3 4 Special loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0

Parent Bank Business services Retail banking Other TOTAL 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 Gross loans 574 708 637 13,909 17,462 15,209 428 456 537 24,280 28,765 26,005 Guarantees 46 26 7 16 12 13 1 11 9 817 747 745 Unused drawing rights 55 47 72 1,000 1,169 995 31 40 44 2,739 2,819 2,786 Commitments in default 18 2 2 89 78 44 5 8 2 235 161 106 Other bad and doubtful commitments 3 7 1 18 39 48 0 0 0 131 181 134 Write-downs on individual loans 5 4 1 25 33 22 0 1 1 113 88 52 Spec. Loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0

Building and Group Public sector Primary Industry Industry Construction 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 Gross loans 36 56 62 381 450 401 794 829 727 1,638 702 709 Guarantees 0 0 0 3 4 2 400 268 260 175 86 184 Unused drawing rights 371 351 350 56 57 65 241 165 98 256 139 145 Commitments in default 0 0 0 7 4 2 34 1 1 24 19 4 Other bad and doubtful commitments 0 0 0 4 0 0 7 2 2 46 39 49 Write-downs on individual loans 0 0 0 1 0 1 6 3 1 18 17 8 Spec. loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0 45

26. Loans according to types, markets and risk - continued

Loans, guarantees, commitments in default divided into important industries and sectors - continued Wholesale Hotels and Group Transport and retail trade restaurants Real estate 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 Gross loans 324 284 275 911 1,091 1,283 270 358 428 4,928 6,123 5,666 Guarantees 32 38 38 76 87 82 11 7 3 57 208 147 Unused drawing rights 31 21 31 294 192 226 18 27 63 402 611 697 Commitments in default 4 2 0 6 7 3 6 14 1 42 26 47 Other bad and doubtful commitments 1 2 4 7 43 10 24 25 12 21 24 8 Write-downs on individual loans 2 2 2 36 19 7 4 6 5 16 3 4 Spec. loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0

Group Business services Retail banking Other TOTAL 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 Gross loans 604 708 637 19,104 17,462 15,209 450 456 537 29,440 28,519 25,934 Guarantees 46 26 7 16 12 13 1 11 9 817 747 745 Unused drawing rights 58 47 72 1,327 1,169 995 31 40 44 3,085 2,819 2,786 Commitments in default 18 2 2 92 78 44 5 8 2 238 161 106 Other bad and doubtful commitments 3 7 1 18 39 48 0 0 0 131 181 134 Write-downs on individual loans 5 4 1 25 33 22 0 1 1 113 88 52 Spec. loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0

Gross loans according to location

Parent Bank Group 2007 2008 2009 2009 2008 2007 2,570 3,234 3,411 Telemark 3,826 3,234 2,570 10,542 11,813 9,747 Aust-Agder 11,847 11,567 10,471 9,695 10,406 8,580 Vest-Agder 10,362 10,406 9,695 3,198 3,312 2,542 Other 3,405 3,312 3,198 26,005 28,765 24,280 Total 29,440 28,519 25,934

Guarantees according to location

Parent Bank Group 2007 2008 2009 2009 2008 2007 62 56 62 Telemark 62 56 62 375 296 333 Aust-Agder 333 296 375 217 269 364 Vest-Agder 364 269 217 91 126 58 Other 58 126 91 745 747 817 Total 817 747 745 46

26. Loans according to types, markets and risk - continued

Commitments in default and individual write-downs on loans

Parent Bank Group 2007 2008 2009 2009 2008 2007 106 161 235 Commitments in default 238 161 106 18 24 73 Write-downs 73 24 18 88 137 162 Net commitments in default 165 137 88

134 180 131 Bad and doubtful commitments 131 180 134 34 64 40 Write-downs 40 64 34 100 116 91 Net bad and doubtful commitments 91 116 100

Loans according to risk classes Risk class PD Upper limit PD Lower limit A 0.00 0.10 The models used are base don internal and external date B 0.10 0.25 C 0.25 0.50 for calculation of probability of default (PD) and expected D 0.50 0.75 losses (EL) at customer and portfolio levels. Both re- E 0.75 1.25 tail banking and corporate customers are scored each F 1.25 2.00 month and divided into 11 classes (A – K) based on the G 2.00 3.00 probability of default. Class K contains loans in default H 3.00 5.00 and commitments against which individual write-downs I 5.00 8.00 J 8.00 100.00 have been made. K 100.00 100.00 The table below shows intervals for the different risk classes base don the probability of default. The risk classification only takes into consideration debt servicing capacity, i.e. a calculation of the probability of default. Therefore, the collateral is not taken into consideration when dividing customers into different risk classes below. 47

26. Loans according to types, markets and risk - continued

Loans according to risk classes

Parent Bank Group 2007 2008 2009 2009 2008 2007 192 223 267 Loans with individual write-downs included under risk class K 267 223 192 -52 -88 -113 Individual write-down -113 -88 -52 140 135 154 Net loans with individual write-down 154 135 140

Loans against which collective write-down has been made included in: 1 49 58 45 Risk class A-D 58 58 49 175 138 97 Risk class E-G 108 138 175 53 47 35 Risk class H 37 47 53 41 39 51 Risk class I 53 39 41 21 139 280 Risk class J 288 139 21 339 421 508 Total loans with collective write-down 544 421 339 -66 -91 -110 Collective write-down -114 -91 -66 273 330 398 Net loans with collective write-down 430 330 273

Loans in default against which no write-down has been made are included in risk class K 16 30 25 Up to 1 month 25 30 16 13 37 26 1-3 months 26 37 13 3 41 9 3-6 months 9 41 3 7 6 15 6-12 months 18 6 7 9 4 21 Over 1 year 21 4 9 Total loans in default against which no write-down 48 118 96 has been made – included in risk class K 99 118 48

Loans not in default against which no-write down has been made 17.119 16.454 14.610 Risk class A-D 18,815 16,454 17,119 6.778 8.795 6.160 Risk class E-G 6,920 8,549 6,707 652 1.117 824 Risk class H 883 1,117 652 347 568 733 Risk class I 758 568 347 530 1.069 1.081 Risk class J 1,154 1,069 530 25.426 28.003 23.408 Total risk class A-J 28,530 27,757 25,355

25.887 28.586 24.056 Total net loans 29,213 28,340 25,816

1 The volume of loans has been calculated by multiplying the volume of loans by the average probability of default (PD) in each risk class

2007 has been reclassified by using the classification model for 2008 48

26. Loans according to types, markets and risk - continued

Open risk according to risk classes when the value of collateral security has been taken into consideration. Shows the average open risk as a percentage

Parent Bank Group 2008 2009 2009 2008 3,6 % 4,0 % Risk class A-D 2.9% 3.6% 5,1 % 5,7 % Risk class E-G 4.8% 5.1% 6,1 % 3,0 % Risk class H 2.7% 6.1% 3,0 % 4,8 % Risk class I 4.5% 3.0% 3,7 % 6,1 % Risk class J 5.6% 3.7% 4,1 % 4,6 % Total 3.6% 4.1%

27. Securities

Certificates and bonds

Parent Bank Group 2008 2009 Risk weighting 2009 2008 Certificates and bonds 0 1.341 Certificates and bonds issued by the public sector 0% 1,341 0 489 562 Certificates and bonds issued by the public sector 20% 562 489 107 404 Certificates and bonds issued by the public sector 100% 404 107 0 4,108 Certificates and bonds issued by others 10% 75 0 1,480 1,481 Certificates and bonds issued by others 20% 1,481 1,480 721 687 Certificates and bonds issued by others 100% 687 721 2,797 8,583 Total certificates and bonds 4,550 2,797

Shares at fair value in the profit and loss account 60 140 Listed equity instruments in the trading portfolio 140 60 9 0 Unit trust investments price by the management company 0 9 69 140 Total shares valued at the fair value in the profit and loss account 140 69

No. of % equity Acquisition Fair Trading portfolio shares stakes cost value

Financial institutions DnB NOR 85,555 0.01 5 5 Sparebank1 SMN 168,609 0.24 4 9 Sparebanken Møre 3,921 0.06 1 1 Sparebanken Pluss 31,600 2.43 4 5 Sparebank1 SR Bank 182,901 0.15 4 9 Storebrand 100,000 0.02 4 4 49

27. Securities - continued No. of % equity Acquisition Fair Trading portfolio shares stakes cost value

Other listed companies Acergy 120,000 0.06 8 11 Atea 50,000 0.05 2 2 Austvoll Seafood 50,000 0.02 2 2 Fred Olsen Energy 15,000 0.02 4 3 Golden Ocean Group 250,000 0.05 5 3 Norsk Hydro 250,000 0.02 11 12 Norwegian Energy Company 225,000 0.09 4 4 Orkla A-shares 170,000 0.02 13 10 Royal Caribbean Cruises 38,800 0.02 5 6 SeaDrill 60,000 0.02 8 9 Sevan Marine 72,000 0.01 2 1 StatoilHydro 105,000 0.01 15 15 Tandberg 30,000 0.03 3 5 Telenor 150,000 0.01 11 12 Yara International 45,000 0.02 10 12

Total trading portfolio 125 140

Shares at fair value with value change against equity

Shares available for sale Coventure 1,619 8.72 3 2 Eksportfinans 3,497 1.33 41 50 Fjord Invest SørVest 1,500,000 6.10 1 1 Frende Holding 423,300 9.96 51 51 Nordito 309,243 3.05 12 53 Norne Eierselskap 4,452,381 14.84 13 13 Såkorninvest Sør 571,400 3.30 2 1 Visa Inc. A-shares 2,155 1.38 1 1 Visa Inc. C-shares 5,027 1.38 2 2 Other companies 3 4

Trading portfolio No. of % equity Acquisition Fair shares stake cost value Unit trusts Norgesinvestor Opportunities 57,600 6 6 Norgesinvestor Pro 50,000 5 6

Shares in limited liability companies Skagerak Venture Capital 5 5 Skagerak Seed Capital 1 1

Total shares and unit trusts available for sale 146 196 50

28. Funding risk

Funding risk / remaining life Funding risk is defined as risk of the Bank not being able to meet is obligations at maturity or to refinance its debt as it falls due for repayment, or being unable to fund an increase in its total assets. Funding risk arises as a result of different remaining lives for claims and liabilities. The Bank makes every effort to reduce the risk by prioritizing more long-term funding, provided this can be arranged at an acceptable cost in relation to short-term funding. Further- more, the way in which the overall deposit coverage ratio develops is crucial for the Bank’s dependence on the money market.

The tables below show the remaining life of the main items on the liabilities side of the Group’s balance sheet, including interest from 31/12 and up to maturity.

No Total Balance Parent Bank Up to 1 1–3 3 mnd. 1-5 Over 5 maturity inc. sheet Liabilities as at 31.12.2009 month months 1 year years years agreed Interest total Liabs. to financ. institutions 697 300 5,442 448 6,887 6,251 Deposits from and liabs. to Customers 17,006 6 4 17,016 16,992 Debt est. through issue of securities 1,525 7,419 464 9,408 8,664 Other liabilities 169 62 35 12 177 455 455 Subordinated loan capital 354 354 300 Subordinated bonds 518 518 400 Total liabilities 17,872 68 1,864 13,391 1,266 177 34,638 33,062

No Total Balance Group Up to 1 1–3 3 mnd. 1-5 Over 5 maturity inc. sheet Liabilities as at 31.12.2009 month months 1 year years years agreed Interest total Liabs. to financ. institutions 524 300 5,442 448 6,714 6,078 Deposits from and liabs. to customers 16,985 6 4 16,995 16,971 Liabs. est. through issue of securities 1,525 7,419 464 9,408 8,664 Other liabilities 169 62 35 12 207 485 485 Subordinated loan capital 354 354 300 Subordinated bonds 518 518 400 Total liabilities 17,678 68 1,864 13,391 1,266 207 34,474 32,898

No Total Balance Group Up to 1 1–3 3 mnd. 1-5 Over 5 maturity inc. sheet Liabilities as at 31.12.2008 month months 1 year years years agreed Interest total Liabs. to financ. institutions 245 336 1,170 745 2,496 2,118 Deposits from and liabs. to customers 16,064 60 4 5 16,133 16,066 Debt est. through issue of securities 10 924 3,249 8,128 1,122 13,433 11,882 Other liabilities 116 115 56 18 738 1,043 1.043 Subordinated loan capital 423 423 299 Total liabilities 16,435 1,435 3,309 9,321 2,290 738 33,528 31,408 51

28. Funding risk - continued No Total Balance Group Up to 1 1–3 3 mnd. 1-5 Over 5 maturity inc. sheet Liabilities as at 31.12.2007 month months 1 year years years agreed Interest total Liabs. to financ. institutions 328 148 646 749 1,871 1,591 Deposits from and liabs. to customers 15,702 40 10 15,752 15,695 Debt est. through issue of securities 150 1,033 1,398 6,918 1,382 10,881 9,711 Other liabilities 92 91 40 24 359 606 606 Subordinated loan capital 373 373 292 Total liabilities 16,272 1,312 1,438 7,598 2,504 359 29,483 27,895

Liquidity indicator

The Bank uses liquidity indicators according to Norges Bank’s standard, with the addition of unused drawing rights.

Liquidity indicator 1 may be defined as follows:

Financing with remaining life of more than 1 year Illiquid assets

Liquidity indicator 2 may be defined as follows:

Financing with remaining life of more than 1 month Illiquid assets

2009 2008 2007

Liquidity indicator 1 as at 31/12. 113.7 105.5 107.7 Liquidity indicator 2 as at 31/12 119.8 119.8 117.2

Liquidity indicator 1 – average for the year 110.6 106.3 106.3 Liquidity indicator 2 – average for the year 120.1 115.9 115.0

29. Interest rate risk

Interest rate risk / remaining time until agreed / probable interest rate re-fixing Interest rate risk arises when there are differences in interest rate fixing period between asset and liability items. The Bank will therefore not be able to apply interest rate changes on a parallel basis for all balance sheet items. Total interest rate risk, together with interest rate risk relating to the portfolio of certificates and bonds, is reported on a regular basis to the Board of Directors. The Bank shall have a moderate risk and throughout the year the risk has been within the limits adopted by the Board of Directors.

Based on the Bank’s balance sheet as at 31 December 2009, a parallel shift in the yield curve of 1 percentage point would produce an aggregate impact on the overall result of MNOK 0.4. 52

29. Interest rate risk - continued

The table below shows the remaining time until the next interest rate re-fixing for the main items in the Group’s balance sheet as at 31 December 2009.

Parent Bank Up to 1 1–3 3 mnd. 1-5 Over 5 No Assets month months 1 year years years Interest Total

Cash and claims on central banks 407 72 479 Loans to and claims on financial institutions 1,428 1,428 Loans to and claims on customers 8 23,310 127 509 102 24,056 Bonds and certificates 4,978 2,098 1,402 105 8,583 Other asset items 990 990 Total assets 6,821 25,408 1,529 614 102 1,062 35,536

Of which in foreign currencies 269 1,200 16 6 27 1,518

Up to 1 1–3 3 mnd. 1-5 Over 5 No Liabilities and equity month months 1 year years years Interest Total

Liabs. to financ. institutions 1,237 2,438 2,576 6,251 Deposits from and liabs. to customers 182 16,169 631 10 16,992 Debt est. through issue of securities 1,408 2,411 4,388 457 8,664 Other liabilities 455 455 Subordinated loan capital 300 300 Subordinated bonds 400 400 Equity 2,474 2,474 Total liabilities and equity 3,227 21,318 3,207 4,398 457 2,929 35,536

Of which in foreign currencies 794 6 18 818

Net interest rate risk exposure on the balance sheet 3.594 4.090 -1.678 -3.784 -355 -1.867 Nominal value of financial derivatives that effect the interest rate exposure -534 -2.851 -1.120 4.123 382

Total interest rate exposure 3.060 1.239 -2.798 339 27 -1.867

Net interest rate exposure as a percentage of assets 8,6 3,5 -7,9 1,0 0,1 -5,3

Group Up to 1 1–3 3 mnd. 1-5 Over 5 No Assets month months 1 year years years Interest Total

Cash and claims on central banks 407 72 479 Loans to and claims on financ. institutions 159 159 Loans to and claims on customers 14 28,070 144 833 152 29,213 Bonds and certificates 945 2,098 1,402 105 4,550 Other asset items 939 939 Total assets 1,525 30,168 1,546 938 152 1,011 35,340

Of which foreign currencies 269 1.200 16 6 27 1,518 53

29. Interest rate risk - continued

Group Up to 1 1–3 3 mnd. 1-5 Over 5 No Liabilities and equity month months 1 year years years Interest Total

Liabs. to financ. institutions 1,064 2,438 2,576 6,078 Deposits from and liabs. to customers 182 16,148 631 10 16,971 Debt est. through issue of securities 1,408 2,411 4,388 457 8,664 Other liabilities 485 485 Subordinated loan capital 300 300 Subordinated bonds 400 400 Equity 2,442 2,442 Total liabilities and equity 3,054 21,297 3,207 4,398 457 2,927 35,340

Of which in foreign currencies 794 6 18 818

Net interest rate exposure in the balance sheet -1,529 8,871 -1,661 -3,460 -305 -1,916 Nominal value of financial derivatives that affect the interest rate exposure -534 -2,451 -1,120 3,723 382

Total interest rate exposure -2,063 6,420 -2,781 263 77 -1,916

Net interest rate exposure as a percentage of assets -5.8 18.2 -7.9 0.7 0.2 -5.4

Net interest rate exposure in the balance sheet -1.529 8.871 -1.661 -3.460 -305 -1.916

30. Bond debt according to maturities Of which Nominal for own Repayment Final ISIN number Ticker amount account Fair value Coupon structure maturity NO 0010224652 SORG02 900 299 602 NIBOR 3M + 0.19 Bullet 05/05.2010 NO 0010393986 SORG13 PRO 900 0 902 NIBOR 3M + 0.17 Bullet 29/10/2010 NO 0010344864 SORG10 PRO 750 0 751 NIBOR 3M + 0.065 Bullet 10/02/2011 NO 0010416878 SORG15 PRO 900 0 929 5.50% Bullet 16/05/2011 NO 0010279300 SORG04 850 0 856 3.75% Bullet 18/08/2011 NO 0010350424 SORG11 PRO 800 5 815 5.00% Bullet 26/01/2012 NO 0010438989 SORG17 PRO 660 0 666 NIBOR 3M + 0.69 Bullet 04/06/2012 NO 0010442056 SORG18 PRO 500 0 505 NIBOR 3M + 0.78 Bullet 03/10/2012 NO 0010311111 SORG07 PRO 900 0 902 4.45% Bullet 15/05/2013 NO 0010460330 SORG19 PRO 500 200 326 7.00 % Bullet 26/09/2013 NO 0010467525 SORG20 PRO 500 130 392 NIBOR 3M + 2.15 Bullet 17/02/2014 NO 0010490410 SORG21 PRO 550 0 561 5.25% Bullet 17/09/2014 NO 0010302425 SORG06 500 24 457 4.25% Bullet 19/02/2016 TOTAL 9,210 658 8,664 54

31. Subordinated loan capital Of which Nominal for own Repayment Final ISIN number Ticker amount account Fair value Coupon structure maturity NO 0010329626 SORG08 PRO 300 0 300 NIBOR 3M + 0.42 Bullet 15.03.2017

32. Subordinated bond loan Of which Nominal for own Repayment Final ISIN number Ticker amount account Fair value Coupon structure maturity Norwegian annual effective interest rate on Treasury Subordinated bill 6 mnths Sparebanken Sør bond FRN 09/13 400 0 400 maturity + 5.50 Bullet

33. Derivates

2009 2008 2007 Assets Liabs Assets Liabs. Assets Liabs. Book Book Book Book Book Book Ordinary banking operations as at 31/12 value value value value value value

Forward exchange contracts -bought and sold 20 17 403 390 56 11 Interest swap contracts 67 42 118 63 9 150 FRA contracts 0 0 0 5 0 0 Total financial derivatives 87 59 521 458 65 161

Interest rate swaps: Agreements to swap interest rates for a nominal amount for a fixed period Forward exchange contracts: Agreements to buy or sell a certain currency amount at a future date at an agreed rate. FRA contracts: Agreements fixing a rate of interest for a nominal amount for a future period. 55

34. Result from discontinued operations

Start Toppforball AS and Start Stadion AS were sold in From the balance sheet on 1 January 2009, the following June. The results during the period of ownership from have been removed due to the sale: these sold subsidiaries have been removed from the respective item in the accounts and have been presented as Intangible assets 12 result of discontinued operations on a separate line in the Tangible assets 163 profit and loss accounts. Other assets 7 2009 2008 Other liabilities 91 Operating income 43 16 Other operating costs -50 -29 Interest costs -3 Result of operations -7 -16 Effect of the sale on the result 3 Total effect on the result -4 -16

35. Security and guarantees

Bonds and certificates at a book value of BNOK 3.7 have Covered bonds issued by Sør Boligkreditt AS, with a no- been pledged as collateral for intra-day loans and loans minal value of BNOK 3.6, are owned by the Bank and in Norges Bank. Such loans will be fully secured through used in connection with the swap scheme established by pledging of securities in the Norwegian Registry of Se- Norges Bank. curities.

36. Events after the balance sheet date

The Bank’s existing early retirement (AFP) scheme ends counts in the first quarter and partly in the fourth quarter at the end of 2010 and the Bank will change to the new 2010. AFP scheme. The transition to the new AFP scheme will Reference is made to note 21 regarding book liability as be treated as deduction/settlement. The effect of the de- at 31 December 2009. duction / settlement will partly be recognized in the ac- 56 THE CONTROL COMMITTEE’S ANNUAL REPORT FOR 2009

To Sparebanken Sør’s Board of Trustees

During the course of the year, the Control Committee has monitored the Bank’s operations in accordance with the Savings Banks Act and currently valid directives and instructions.

The Bank’s operations have been conducted in compliance with the Savings Banks Act, the Bank’s by- laws, the Board of Trustees’ resolutions and other currently valid rules and regulations.

The Control Committee has examined the Bank’s annual financial statements for 2009 and recommends that the Profit and Loss Account and Balance Sheet are adopted as the Bank’s official accounts.

The Control Committee is of the opinion that the Board of Directors’ assessment of the Bank’s financial position covers all appropriate and relevant aspects.

Arendal, 15. March 2009 AUDITOR’S REPORT FOR 2009 57

KPMG AS Telephone +47 04063 P.O. Box 103 Fax +47 37 00 52 25 Iuellsklev 4 Internet www.kpmg.no N-4801 Arendal Enterprise 935 174 627 MVA

Respective Responsibilities of Directors and Auditors We have audited the annual financial statements of Sparebanken Sør as of 31 December 2009, showing a profit of NOK 157,621,182 for the Parent Bank and a profit of NOK 148,000,000 for the group. We have also audited the information in the Board of Directors’ report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit. The annual financial statements comprise the Parent Bank’s financial statements and the Group accounts. The Parent Bank’s financial statements and the Group accounts comprise the balance sheet, the statements of income, the statement of comprehensive income, the and cash flows, thestatement of changes in equity and the accompanying notes. The rules of the Norwegian Accounting act and International Financial Reporting Standards as adopted by the EU have been applied to prepare the financial statements. Thesefinancial statements and the Board of Directors’ report are the responsibility of the Bank’s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on the otherinformation according to the requirements of the Norwegian Act on Auditing and Auditors.

Basis of Opinion We conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and good auditing practice in Nor- way, including standards on auditing adopted by Den norske Revisorforening. These auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material missta- tement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and good auditing practice an audit also comprises a review of the management of the Bank’s financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion.

Opinion In our opinion, • the financial statements are prepared in accordance with the law and regulations and give a true and fair view of the financial position of the Parent Bank and the Group as of 31 December 2009, the results of its operations, its cash flows and the changes in equity for the year then ended, in accordance with the rules of the Norwegian Accounting Act and International Financial Reporting Standards as adopted by the EU. • the Bank’s management has fulfilled its duty to produce a proper and clearly set out registration and documentation of accounting information • the information in the Board of Directors’ report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit for the Parent Bank is consistent with the financial statements and complies with the law and regulations.

Arendal, 15. March 2009 KPMG AS

Terje H. Holst State Authorised Public Accountant

Note: This translation from Norwegian has been prepared for information purposes only. 58 Declaration

Declaration from the Board of Directors According to our best conviction: and Chief Executive Officer – The Annual Accounts for 2009 for the Group and Parent Bank have been prepared in accordance with currently The Board of Directors and the Bank’s Chief Executive applicable accounting standards. Officer have today dealt with and approved the Annual Report and Accounts for the Parent Bank and Spareban- ken Sor Group for the calendar year 2009 and as at 31 – The information contained in the accounts gives a cor- December 2009. rect, fair and true picture of the Group’s and Parent Bank’s assets, liabilities and financial position and re- The Annual Accounts for the Parent Bank and Group sult as a whole as at 31 December 2009. have been prepared in accordance with the EU-approved IFRS and related interpretation statements, and in com- – The Annual Report for the Group and Parent Bank gi- pliance with further information requirements relating ves a correct, fair and true overview of: to the Accounting Act and which are to be applied as at – the development, result and financial position of the 31.12.2009. The Annual Report for the Group and Parent Group and Parent Bank. Bank is in accordance with the requirements contained – the most central risk- and uncertainty factors facing in the Accounting Act and compliance with Norsk Regn- the Group and Parent Bank. skapsstandard 16 (Norwegian Accounting Standard) as at 31.12.2009.

Arendal, 12. mars 2010

Alice Jervell Arne Johan Johnsen Kjell Pedersen-Rise Erling Holm Hilde Sakariassen Chairman of the Board Deputy Chairman of the of Directors Board of Directors

Unni Grete Farestveit Olav Inge Nordbø Per Adolf Bentsen Cathy Steller Morten Kraft Chief Executive Officer KEY FIGURES 2009-2005 (GROUP) 59

Profit and loss account in MNOK 2009 2008 2007 2006 2005

Interest and credit commission income 1 571 2 241 1 573 1 001 772 Interest costs 948 1 609 1 014 504 303 Net interest and credit commission income 623 632 559 497 469 Net other operating income 176 41 270 241 234 Operating costs 482 525 480 433 397 Operating result before losses 317 148 349 305 306 Losses on loans, guarantees, etc. 109 114 12 -1 Pre-tax profit 208 34 337 306 306 Tax cost 56 38 99 88 85 Result from continued operations 152 -4 238 218 221 Result from discontinued operations -4 -16 Result from ordinary operations after tax 148 -20 238 218 221

Profit and loss account as a % of average assets 2009 2008 2007 2006 2005

Interest and credit commission income 4.43 % 7.05 % 5.64 % 4.27 % 3.75 % Interest costs 2.67 % 5.06 % 3.64 % 2.15 % 1.47 % Net interest and credit commission income 1.76 % 1.99 % 2.00 % 2.12 % 2.28 % Net other operating income 0.50 % 0.13 % 0.97 % 1.02 % 1.14 % Operating costs 1.36 % 1.65 % 1.72 % 1.84 % 1.93 % Operating profit before losses 0.90 % 0.47 % 1.25 % 1.30 % 1.49 % Losses on loans, guarantees, etc. 0.31 % 0.36 % 0.04 % Pre-tax profit 0.59 % 0.11 % 1.21 % 1.30 % 1.49 % Tax cost 0.16 % 0.12 % 0.36 % 0.37 % 0.41 % Profit from continued operations 0.43 % -0.01 % 0.85 % 0.93 % 1.08 % Average assets 35 500 31 794 27 890 23 453 20 550

From the balance sheet Assets 35 340 33 675 30 178 26 227 21 665 Net loans 29 213 28 340 25 816 22 102 19 050 Deposits from customers 16 971 16 066 15 695 14 591 12 235 Equity and related capital 3 142 2 566 2 575 2 361 1 844 Capital adequacy ratio 15.80 % 12.70 % 12.10 % 13.00 % 12.80 %

Other key figures Costs as a % of income 60.32 % 80.75 % 57.90 % 58.67 % 56.47 % Deposits as a % of loans 58.09 56.70 % 60.80 % 66.02 % 64.22 % Return on equity 6.50 % -0.88 % 11.54 % 11.60 % 13.20 % No. of man-labour years - Group 1) 388 388 415 402 389

1 )Parent Bank and ABCenter. 60 CORPORATE GOVERNANCE

Purpose some of its profit back to the local community through Sparebanken Sør’s corporate governance principles in- donations to worthwhile causes and would like to make clude the objectives according to which the bank is ma- allocations within the framework of the law, as far as the naged and controlled in order to protect the depositors operating result and a sound balance sheet allows. and other groups’ interest in the Bank. The object of corporate governance is to clarify the distribution of roles Sparebanken Sør makes an annual review of the Bank’s between the Bank’s governing bodies and the day-to-day business strategy, including vision, objectives and stra- management over and above what is stated in the legis- tegies. The Bank’s business strategy forms the basis for lation. The principles are based on the Norwegian Code specification of the level of ambition in the Bank’s overall of Practice for Corporate Governance of 4 December business and thereby also for the Bank’s market activi- 2007 and the rules and regulations for good corporate ties in order to achieve the targets for financial return, governance given by the Committee of European Banking growth and development. The Bank’s employees are in- Supervisors (CEBS). volved in the work and information about the Bank’s business strategy is published on the Bank’s website and in In Sparebank Sør, corporate governance must ensure its annual report. good interaction between the Bank’s various interests, such as lenders, customers, employees, governing bodies, management and society as a whole. The principles Governing bodies of corporate governance describe how the Bank will be The Board of Trustees is the Bank’s supreme body and managed and supervised in order to create values for the will ensure that the Bank operates according to its object Bank and its interested parties. in accordance with applicable laws, by-laws and its own resolutions. The Board of Trustees consists of 28 mem- The principles of corporate governance have been spe- bers, who are elected by the Bank’s depositors (a total cified in various controlling documents for Sparebanken of 16 members), the county municipalities of Vest-Agder, Sør’s business. This includes, among other things, the Aust-Agder and Telemark (a total of 5 members) and the Bank’s articles of association, strategies, board of direc- Bank’s employees (a total of 7 members). tors’ manual, the management and supervision framework, code of conduct and own-account trading routines. The Board of Trustees elects the Board of Directors, which consists of 9 members, three of whom must be elected from each of the Agder counties, 1 member from Value creation Telemark and 2 employee representatives. The Chairman Sparebanken Sør’s objects clause is given in the Bank’s of the Board is responsible for convening the meetings articles of association. The object of the Bank is to supply and for making sure that Board of Directors’ discussions financial services to the private sector, industry and com- are duly recorded in the minutes of meeting. The Board merce and the public sector in Vest-Agder, Aust-Agder of Directors has overall responsibility for management and Telemark. The business will be conducted with sa- of the Bank and for supervision of the day-to-day ma- tisfactory profitability and justifiable risk. nagement of the business. The Board of Directors also ensures that the Bank operates in accordance with the Sparebanken Sør is a self-owning institution. The Bank applicable law, by-laws and the Board of Trustees reso- has not issued Equity Certificates or other external equity lutions. The Board of Directors is responsible for ensur- capital and therefore does not have any external owners. ing that the assets Sparebanken Sør has control of are managed in a safe and reassuring manner. The Board An important tool related to the Bank’s social responsi- of Directors must ensure that the Bank’s operations are bility is the donation fund. The Bank endeavours to give organized in an appropriate way and there is good and 61 reassuring control. The Board of Directors has set up an The Bank also has an internal auditing unit, which is led Auditing Committee consisting of 3 members. Powers of by the internal audit manager, who reports directly to the attorney to the CEO is granted by the Board of Directors Board of Directors. The internal audit manager attends and these are delegated onward to the Bank’s managers the Board of Directors’ meetings and submits reports to and employees to an appropriate extent. the Board of Directors on the quality of the Bank’s internal control. The internal audit manager is allowed The CEO is appointed by the Board of Directors, who also to make comments on matters presented by the Group stipulate his terms of employment. He is responsible for management. The internal audit manager submits an the day-to-day management of the Bank and must follow annual confirmation of the Bank’s internal control and the instructions given by the Board of Directors. Day-to- risk management to the Board of Directors. The internal day management does not include matters of an unusual auditing unit’s action plan is subject to the Board of Di- nature or great importance to the Bank. He must ensure rectors’ annual approval. ongoing accounting complies with the applicable laws and regulations and that management of all assets and liabilities is done in a safe and reassuring manner. The Election committee CEO’s remuneration is not linked to performance nor is The Election Committee is elected by the Board of he included in the Bank’s ordinary profit sharing scheme. Trustees and consists of 5 members. The Committee The CEO has appointed a Group management, who to- must make the necessary preparations for election of gether with him are responsible for the operational ma- depositor-elected members of the Board of Trustees, the nagement of the Bank’s operations. Sparebanken Sør’s Chairman and Deputy Chairman of the Board of Trustees, Group management team consists of 4 members, inclu- the Chairman and Deputy Chairman of the Board and the ding the CEO, and holds weekly meetings, or more frequ- other members of the Board of Directors. The Election ently if circumstances so require. Committee must make preparations for election of the Control Committee’s Chairman, Deputy Chairman and members and also the Chairman, Deputy Chairman and Supervisory bodies members of the Election Committee. The Control Committee is elected by the Board of Truste- es and consists of 3 members, one of whom must be a lawyer. On behalf of the Board of Trustees, the Control Management and control, including organization Committee must supervise the Bank’s operations and In accordance with law and regulations and also inter- make sure that these are in accordance with the appli- nally adopted management, control and reporting routi- cable laws and regulations and instructions given by the nes, there is clear distribution of responsibilities between Board of Trustees. the various bodies in the Bank. The key bodies are the Board of Trustees, the Control Committee, the Board of Directors, external auditing, internal auditing and Group Auditing, internal control and risk management management. The external auditor is elected by the Bank’s Board of Trustees. He or she must confirm that the financial infor- Long-term income targets for the operations are based mation contained in the Annual Accounts is correct and on the adopted strategies and objectives. These control that the accounts comply with the applicable laws and the Bank’s specific targets, frameworks, budget, etc. regulations. The external auditor must also ensure that Risk-adjusted targets for the operations are set wherever the Bank has organized the management of assets and this is natural. The required rate of return reflects that liabilities in a safe, secure and reassuring manner and the various risks the Bank undertakes must be moderate with appropriate internal control. and manageable, both on the asset and liability side of 62

the balance sheet, and is expressed in an adopted risk ement for the CEO, which enables him to leave the Bank profile. Risk and capital assessments are integrated in on reaching 60 years of age. the Bank’s management process and value creation. The Board of Directors adopts the Bank’s risk strategies (credit, market, funding, operational), and risk identifica- Market communication / information tion procedures have been established. In addition to the The Bank will establish trust in the financial markets Bank’s ongoing finance reporting, there is quarterly risk through focus on correct, relevant and timely information reporting, which shows the status in relation to targets regarding the Bank’s development and results. Informa- and any action required. Analyses and reports are car- tion to the market is communicated through quarterly ried out when required and are discussed by the Bank’s stock exchange reports and press releases, the Bank’s management and Board of Directors. website and also annual and quarterly reports.

The Board of Directors has adopted guidelines for the Bank’s capital assessment and an annual process is im- Compliance with acts, regulations and ethical plemented relating to the Bank’s risk and capital require- standards ments (ICAAP). This is based on requirements set by the The Bank depends on the customers’ trust and the trust authorities and also the Bank’s own assessments. of the community in general. Therefore, the Bank has The Bank’s internal control follows instructions, routines developed a communication strategy to underpin the and guidelines for the line organization. Overall control Bank’s values and operations. Emphasis is also placed and follow-up, including event reporting and internal on maintaining a high ethical standard in the Bank’s bu- control confirmation, is taken care of by the Bank’s Risk siness operations. Sparebanken Sør has a code of con- Management Unit. duct that applies to all employees and employee representatives. This code of conduct includes areas such as impartiality, duty of confidentiality, customer relations, Remuneration for members of the board of directors participation in the business activity and transactions Board members receive a fixed annual remuneration, with closely related parties. which is determined by the Board of Trustees. There are no performance-related fees or other bonus scheme for Rules have also been adopted relating to the employees the members of the Board of Directors. and the employee representatives’ securities trading – including own account and insider trading. These guidelines will ensure that the Bank’s operations at all levels Remuneration for members of the group management are conducted in a reassuring manner with regard to im- team partiality and objectivity. Compliance within sub-areas is The Board of Directors determines the CEO’s remune- taken care of by various specialist functions in the orga- ration. The CEO determines the remuneration for all nization. There is a special Compliance Officer in the se- other members of the Group management team accor- curities and trading activities. Possible breaches / devia- ding to guidelines from the Board of Directors. None of tions shall be reported to the Bank’s group management these members receives performance-based remunera- and Board of Directors. tion, apart from their participation in the Bank’s ordinary profit-sharing scheme, which comprises all the Bank’s The employees’ duty of confidentiality is an important as- employees and which is the same for all. pect of the Bank’s handling of confidential information The Board of Directors has established a pension agre- about private persons, companies and the public sector. 63

From left: Managing Director CEO, Morten Kraft, Dirictor Group Services, Rolf H. Søraker, Director retail market, Gunnar P. Thomassen, Direktor coorperate market, Øyvind Aasen 64 ORgANisATiON PLAN

senior personnel at head Offi ce: Retail Banking Market - Group Services, General Manager Øyvind Raddum Risk Management, General Manager IT, General Manager Trond Ivar Moen Magne Kvaslerud Customer Service, General Manager Capital Markets, General Manager Hans Tore Haugland Kjetil Korneliussen Financial Control/Real Estate, General Manager Market, General Manager Terje Grut-Johnsen Olaf Eivindstad Credit Support, General Manager Tormod Holte Internal Auditing, Audit Manager Vidar Hansen Legal/Safe Custody, General Manager Frode Mathiesen

Board of Trustees

Board of directors internal Auditing Managing director/ CEO Morten Kraft sør ABCenter Boligkreditt As holding As

director director director iT gunnar P. Thomassen Øyvind Aasen Rolf h. søraker financial Control Retail Banking Corporate Market hR Capital Markets Market Credit support Market Risk Management Customer service Legal/safe Custody Communication/PR

A map of the district, showing the location of Sparebanken Sør’s branches

Hovden

Kviteseid Bø

Åseral Bygland Nissedal Fyresdal Porsgrunn Evje Byremo Kragerø Tingvatn Åmli Brokelandsheia Risør Konsmo Tvedestrand Eydehavn Farsund Øyslebø Froland Vanse Arendal Lyngdal Fevik Spangereid Grimstad Mandal Kristiansand 65 S.W.I.F.T. address: AASPNO22, Companyreg.no.: NO00937893566 Telephone: +4737025000,Telefax: +4737024150, www.sor.no Sparebanken Sør,Postal address: Postbox 782Stoa, N-4809Arendal, Norway The year 2009

| 0015 | Foto: Øivind Berg og Arild deLange Nilsen