Annual Report 2004 BENNETT Ht:Ctrn Ile Ae/Ogi Ehu.Print: Trykkpartner AS

Annual Report2004

The history of the bank A glance at the history of the bank Annual Report 2004 BENNETT ht:Ctrn ile ae/ogi ehu.Print: Trykkpartner AS . Photo:Cathrine DillnerHagen/Torgrim Melhuus. in thecityofTrondhjem forthepromotionofpublicmorality, diligence,orderandthrift. A savingsbank,knownasTrondhjem’s Sparebank,isherebyestablished,underadequateguarantees, In1975Trondhjems SparebankmergedwithStrindens • OnThursday23April1925economicturbulence • Towards theendof1800sTrondhjems Sparebank • In1840itwasdecidedtoearmarkpartofthebank’ • Establishedin1823thecityofTrondhjem; 39ofthe • Important eventsinthebank’shistory: A glanceatthehistoryofbank Sparebank. million. prompted thewithdrawalofmorethanNOK1 served boththecityitselfandsurroundingdistricts. annual netprofitfor“publicandcharitablepurposes”. speciedaler. city’s worthiessubscribedinitialcapitaltotalling1,596 In2004SpareBank1Midt-Norgemadeabidfor • In1996SparebankenMidt-Norgeparticipatedinthe • In1989SparebankenMidt-Norgemergedwith • In1988SparebankenMidt-Norgemergedwith • Towards theendof1984itbecameclearthat23 • In1982allsavingsbanksinTrøndelag andfourin • Romsdals Fellesbank. establishment oftheSpareBank1alliance. Spareskillingsbanken. Sparebanken Inn-Trøndelag andSparebankenNamdal. Midt-Norge. savings banksweresetonestablishingSparebanken look atamerger. Norge; justoverhalfwerewillingtotakeaserious cipate intheestablishmentofSparebankenMidt- neighbouring Møre–31inallwereinvitedtoparti- Contents

Page

A modern bank on historical ground ...... 5

Highlights of 2004 ...... 6

Main figures ...... 9

Business description ...... 10

Statement by the CEO ...... 22

Report of the Board of Directors ...... 24

Presentation of the Board of Directors ...... 32

Profit and loss account ...... 34 Annual Report 2004

Balance sheet ...... 35

Profit and loss account specifications ...... 36 3 Balance sheet specifications ...... 38

Accounting principles ...... 40

Notes ...... 42

Cash flow statement ...... 63

Auditor‘s Report ...... 64

Report of the Control Committee ...... 65 Contents Here when you need us ...... 66

Financial summary ...... 67

Primary capital certificates ...... 68

Group management ...... 70

Coverning bodies ...... 71

Romsdals Fellesbank ASA ...... 72

Marketing ...... 74 Annual Report 2004

4 A modern bank on historical ground

A commitment to society has been a leitmotif of the As an autonomous institution with a local footing, the bank throughout its history. Established in 1823 as a bank is mutually dependent on the region to which it straightforward saving vehicle for the people of belongs. This shared destiny is an important aspect of Trøndelag, the bank encouraged people to put money by, the bank’s foundation and historical identity, and is and was an important tool for alleviating poverty, parti- expressed in a lively involvement with society at large. cularly in Trondheim. In the course of time it has developed into the leading Mid-Norwegian bank, although Most people in Mid-Norway have a relationship with the for most people in Trøndelag it is something more than bank, but not all are aware of the historical treasure that, being the largest single financial contributor to the located below the bank’s head office. The crypt contains region. It accordingly plays an absolutely key role in buil- well-preserved remains of what was probably the first St. Annual Report 2004 ding, supporting and developing the region. Sound ope- Olav’s church in Europe. This year the crypt was turned rations are a prerequisite for this role. Good results into a museum open to anyone wishing to be carried a enable it to pay dividends from its savings bank’s thousand years back in time. We have opted to illustrate reserve, the other major owner alongside the PCC this annual report with lyrical images from the crypt, one 5 holders. Dividends from this reserve are earmarked for of many reflections of the bank’s contributions to the non-profit causes ranging from children’s sports to community in 2004. large-scale business development. Commitment to society Commitment Highlights of 2004

Strategic events sum, 36 grants totalling NOK 700,000 went to deserving recipients in the fields of art, culture, sports and charities. • On 24 November 2004 SpareBank 1 Midt-Norge made an The grants were awarded to individuals and associations offer for Romsdals Fellesbank ASA. The offer was based who are doing something extra for their local community on the vision of a strong regional bank founded on the in their particular field. The bank also granted funds to merging entities’ shared values. Integration of Romsdals causes that contribute to the development of Mid-Norway Fellesbank and SpareBank 1 Midt-Norge will create a as an arena for business. financial entity of great significance to businesses, households and the public sector throughout Mid-Norway. The • Over the year SpareBank 1 Midt-Norge offered many new aim is to put competence and customer service on a local products and modifications to its existing products. footing, and to build further on Romsdals Fellesbank’s These include saving in real estate; equity-linked bank strong market position in the region. deposits; a newly developed internet bank; a newly deve-

Annual Report 2004 loped facility – Bedriftsnett – giving companies high- • SpareBank 1 Midt-Norge increased its stake in the speed access to the bank’s services; and new facilities for SpareBank 1 Group from 14.08% to 15.46% in conjunc- young people. tion with FöreningsSparbanken’s partial withdrawal. • There were two issues of Arena Trøndelags in 2004. Arena • A new corporate market strategy was adopted, and 6 Trøndelag is a business barometer produced jointly by the cautious growth is planned after a period of consolida- Sør- and Nord-Trøndelag county authorities, the tion. In addition, the focus on savings and insurance pro- Trøndelag arms of Innovasjon Norge (a state-owned com- ducts was intensified. Refining the customer portfolio is a pany promoting nationwide industrial development), the continual process that still has high priority. A systematic Trøndelag arm of NHO (Confederation of Norwegian review of the entire corporate market portfolio was initia- Business and Industry) and SpareBank 1 Midt-Norge. ted in 2004, and is an important reason for the reduction in losses and non-performing loans compared with 2003. • Over the year the corporate market and the retail market divisions enhanced their credit process by introducing a scoring system. Operative events • Sør-Trøndelag county authority opted for SpareBank 1 • Customers of the bank have for a time sought alternative Midt-Norge as their principal bank.

Highlights of 2004 forms of saving in real estate. On 26.10.2004 SpareBank 1 Midt-Norge acquired the properties Skipsbygget, • Moody’s Investor Service raised the outlook for Bassengtomten and Verkskontorene Nedre Elvehavn in SpareBank 1 Midt-Norge’s A3/P-2/C rating from stable to Trondheim at a total cost of NOK 825 million. The shares positive. According to Moody’s, the upgrade reflects of Trøndelag Eiendom 1 AS were put on the market on improvements in the bank’s revenue diversification, cost 3.11.2004, and after just three weeks the flotation was efficiency and risk profile, along with positive cross- fully subscribed. Trøndelag Eiendom 1 AS is the largest selling efforts. syndication project in the real estate field to be put on the • A one-for-four bonus issue was carried out in the first-half market in Norway in 2004. year. The bank’s PCC has risen in value from NOK 192 as • SpareBank 1 Midt-Norge donated NOK 18 million to of the start of 2004 to NOK 275 as at year-end, or by 51% more than 1,000 not-for-profit causes in 2004. Of this including dividends paid for 2003. Annual Report 2004

For many people the church remains have been a well-kept secret. continued independence. Dividends also go to the other major However, the bank conceals another secret: its unique ownership owner grouping, the Savings Bank’s reserve. Up to 25% of the latter structure and what it means for the region of which the bank is a dividends can be spent on various not-for-profit causes in Mid- part. Norway. It is precisely this mode of ownership that enables the bank to be the largest single contributor to the region. Funds provi- Much of the bank’s profits go to one of its owner groupings, the ded by the bank help to build, support and develop Mid-Norway. PCC holders, in the form of dividends. This assures the bank Annual Report 2004

Although the remains of the church below the bank have been Visitors can now experience the allure of history in the vault. The accessible for almost 30 years, they are only now receiving the exhibition, which is open to the public, is a fine example of success- attention they deserve. Archaeologist Sissel Ramstad’s recent work ful collaboration between the university and business. has reinforced the theory that the ruins are those of St. Olav’s Promoting collaboration between educational and research circles Church – and by the same token one of the town’s most valuable is a priority for the bank’s community support programme and will cultural relics. remain so in the period ahead. Main figures

(NOK million) From the profit and loss account: 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994

Net interest and credit commission income... 864 864 896 827 785 767 707 676 679 694 711 Other operating income ...... 533 403 61 273 256 288 185 163 183 175 128 Operating expenses ...... -729 -733 -681 -667 -635 -560 -523 -487 -558 -504 -483

Operating profit before losses, gains and write-downs...... 667 534 277 433 406 495 369 352 303 365 355

Losses on loans and guarantees and gains and write-downs on disposals of fixed assets. -93 -223 -200 -115 -62 -56 -38 14 14 -37 -15

Pre-tax operating profit...... 574 311 77 327 344 438 331 366 317 328 340

From the balance sheet:

Total assets...... 38 612 36 876 35 991 33 286 30 929 26 369 22 579 18 629 18 629 17 339 15 742 Annual Report 2004 Outstanding loans (gross) ...... 34 226 32 553 31 089 29 278 26 611 23 707 20 909 17 696 16 859 15 299 13 839 Customer deposits ...... 20 725 19 876 19 049 17 871 17 287 15 238 13 636 12 830 12 830 12 128 11 385

Key figures and ratios 1): Capital base...... 3 239 3 407 2 802 2 843 2 460 1 884 1 634 1 476 1 287 1 151 1 484 9 Risk-weighted volume ...... 25 562 24 483 25 223 23 554 23 019 20 001 17 482 15 223 13 047 11 384 10 219 Capital adequacy ratio...... 12.7% 13.9% 11.1% 12.1% 10.7% 10.9% 11.3% 11.9% 12.6% 13.7% 14.5%

Post-tax return on equity...... 18.7% 10.2% 0.4% 10.1% 12.6% 18.2% 15.4% 19.7% 18.1% 20.3% 26.1%

No. of employees at year-end...... 711 772 825 781 811 818 795 794 872 881 918 No. of full-time position equivalents at year-end 637 713 718 675 709 675 662 673 712 729 749

Key figures PCC 2): PCC ratio ...... 49.8% 51.4% 53.0% 54.0% 56.2% 58.1% 60.4% 62.7% Total issued PCCs ...... 7 685 075 7 685 075 7 685 075 7 624 290 7 566 374 7 500 000 7 500 000 7 500 000 PCC price (NOK) ...... 275 192 116 159 150 182 143 198 Adjusted profit per PCC, in NOK...... 29.01 15.47 4.37 21.10 13.04 26.64 20.40 23.44 Dividend per PCC (NOK) ...... 20.00 14.40 6.00 14.40 13.60 13.60 12.80 12.80 Main figures P/E...... 9.5 12.4 26.5 7.5 11.5 6.8 7.0 8.5 Dividend per PCC/PCC price...... 7.3% 7.5% 5.2% 9.1% 9.1% 7.5% 8.9% 6.5% Booked equity capital per PCC (including dividend) ...... 174 159 150 165 197 182 160 147 Price/Booked equity capital...... 1.58 1.21 0.77 0.96 0.76 1.00 0.89 1.35 Risk (01.01 the following year)...... 9.02 1.33 -2.07 8.35 3.63 22.30 19.10 22.60

1) Definitions The capital base is the total of the bank’s equity capital and subordinated debt (supplementary capital). Risk weighted volume is weighted volume based on the rules governing the capital adequacy of financial institutions. The main elements are the bank’s balance sheet assets (lending and securities). In addition, guarantee commitments and derivatives are weighted in. Capital adequacy is capital base/risk-weighted volume at year-end. Return on equity is the bank’s profit measured against average equity capital during the period.

2) For definitions of key figures for primary capital certificates, see page 69. Business description

Overview Key goals and strategies: • To be a regional savings bank for personal customers, SpareBank 1 Midt-Norge is Mid-Norway’s largest savings small and midsized businesses, the agricultural commu- bank with assets totalling NOK 38.6 billion. Its head office is nity and the public sector in Mid-Norway. in Trondheim and the Group has 711 employees. As one of seven members of the SpareBank 1 alliance, the bank is part • Membership of the SpareBank 1 alliance as a key aspect of of Norway’s third largest financial grouping. the bank’s strategic platform. The alliance confers competitive products, critical size and a basis for cost efficiency Object, ambition, values and strategy through cooperation. According to SpareBank 1 Midt-Norge’s articles of associa- • Lending to the retail market to constitute at least 65% of tion, the bank’s object is: to promote saving by accepting overall lending. deposits from an unrestricted range of depositors and to

Annual Report 2004 • Growth in the corporate market to be commensurate with manage the funds at its disposal in a secure manner in the bank’ responsibilities as market leader in the region. accordance with the legal rules applying to savings banks at Growth should be such that risk exposure is at all times any and all times. commensurate with the bank’s credit strategy, ensuring a moderate level of losses over time. 10 Ambition: SpareBank 1 Midt-Norge’s ambition to be Mid-Norway’s • A clear profile in the savings and pensions market and in recommended bank – involves a serious commitment in the “digitalised” world. relation to our customers, our partners, our employees and • A focus on systematic competence building and on highly- our owners. skilled staff who are proud of working at SpareBank 1 Midt-Norge. Values: SpareBank 1 Midt-Norge will achieve its targets by being: • A return on equity equalling, at minimum, the risk-free Successful – characterised by capableness, result orienta- interest rate plus 6%.

tion, competitiveness and pride. Being successful also • A tier 1 capital ratio of at least 8%. entails a will to improve, and a desire to please the customer. • Cost efficiency on a par with the three best banks in Norway and a cost-income ratio no higher than 55%. Business description Dynamic – having the courage to try one’s hand, and the ability to get things done. A dynamic bank is efficient, com- • A strong focus on risk management. mitted and customer-oriented. It takes the initiative to arrange customer meetings, and sales are a catchword for Presence all staff. A key aspect of SpareBank 1 Midt-Norge’s strategy is to maintain a presence in municipal and administrative cen- Responsible – being recognised for orderliness, reliability tres in our natural catchment area via a variety of office solu- and high ethical standards. The bank must be honest and tions. This, combined with round-the-clock access via the confidence-inspiring in all its communication and must internet bank and telephone bank along with our dedicated think long term, both in its own and its customers’ best inte- customer centre, gives the bank a unique competitive edge. rest. SpareBank 1 Midt-Norge has 60 offices in 42 of the region’s Generous – showing enthusiasm and commitment in the 51 municipalities, ranging from Aure in Møre and Romsdal community. The bank must be close at hand and friendly, county in the south to Bindal in Nordland county in the and cultivate an in-house culture that fosters teamwork and north, and from Frøya in the west to Lierne in the east. The development. bank’s offices service the various customer categories via a variety of office solutions:

• A total of 48 offices providing retail and corporate customers with counselling services in all product areas. All these offices offer self-service facilities, either alone or in combination with OTC services.

• A total of 16 In-Store Banks providing basic manual payment services to private individuals as a supplement to the counselling offices and self-service facilities.

In 2004 the Oppdal office was upgraded to a full-service

operation catering to the bank’s customers in the Oppdal Annual Report 2004 district.

Background to the bank’s organisational structure 11 SpareBank 1 Midt-Norge is organised in a retail market division and a corporate market division. The shared services and support function is also organised in two divisions, i.e. finance and business support. The overall aim is to bring about a customer-oriented and cost-effective organisation while respecting the differing competencies required by the four divisions. The retail market and corporate market divisions focus on customer satisfaction, risk management and activity-based sales and counselling. Business support focuses on cost-effective work processes and support to ensure that the customer-facing divisions attain their goals.

The finance division provides an overall basis for decision Business description making, risk management and financial and asset-liability management. Through the SpareBank 1 alliance and through its own subsidiaries, SpareBank 1 Midt-Norge is assured access to competitive products in the fields of financing, insurance, savings and investment, and money transfer services.

In our assessment, divisionalisation of the bank’s business is key to the bank’s positive development. Business description, retail market Retail market 2004 The retail market area's core business is to provide financial counselling to private customers in Mid-Norway. Lending (NOK million) ...... 21 491 Deposits (NOK million)...... 11 256 The bank meets customers’ needs, expectations and Other savings products, total volume...... 2 800 requirements through a broad range of products in the Insurance, total premium volume...... 338 fields of financing, savings and investment, insurance and Number of multi-relationship customers ...... 155 600 payment services. In 2004 the bank launched a series of new Number of employees ...... 300 savings products which were well received in he market. Market share...... 38% In the autumn of 2004 TNS Gallup polled the share of the CSI*...... 73 population reporting SpareBank 1 Midt-Norge as their main * The customer satisfaction index provides a general measure of the bank. The outcome of 38%, representing a good 155,000 strength of the relationship between the bank and its customers. The customer satisfaction index is validated in relation to customer individuals in North and South Trøndelag, shows that the behaviour, and shows a clear correlation with customer loyalty and bank leads the retail market in Mid-Norway by a clear margin. customer loss.)

Awareness of the bank is rising from an already high initial The bank is making a continual effort to increase the share level, and its position in terms of market share and custo- of its income from off-balance sheet products. Sales of mer preference is strengthening. Indeed, customer satisfac- savings, insurance and payment products have yielded tion ratings in 2004 were the highest ever. The overview substantial income growth. The overview on the next side below, illustrating respondents’ view of the importance of shows this trend in terms of gross monthly sales of other individual factors, shows that customers place a large pre- savings products and insurance. mium on staff expertise and the follow-up provided. The bank bases its business on advisers with a high level of

Annual Report 2004 The retail market business reported earnings of about NOK competence. Human resources are the core of any service- 700 million at the end of 2004. The increase of about NOK providing business such as a bank. Staff members’ 100 million achieved over the past four years should be vie- expertise, abilities and commitment form the basis for the wed in the context of repeated interest rate reductions and bank’s future. 12 a tight squeeze on deposit spreads in the same period. The positive development is associated with a substantial A continual competence-enhancing effort is made to meet volume increase in all business areas of the division. This is the demands of today’s financial market and to give the best closely related to good underlying processes throughout the possible assistance to the bank’s customers. The bank business which have in turn made a positive contribution in operates a wide-ranging programme of training and certifi- terms of new customers and an increase in the number of cation for all staff members to this end. products per customer.

According to customer polls, accessibility and relationship elements are of greatest importance to customer satisfaction

Product Distribution Competence Follow-up Terms Accessibility Personal service: Acceptable level of charges General accessibility, channels Friendliness, Initiative, Commitment

Business description Competitive lending rate Queues Competitive deposit rate Rapid access to right person by phone Competence Product and processing time Ability to identify needs Internet bank Advisory expertise in loans, Product range in relation to life-phase needs Overall satisfaction with the investment/pension saving and insurance Order-processing time internet bank

Lending rate 16 Opening hours/branch 17 Friendliness, service accessibility 36 Charges 12 Commitment 11 Accessibility 10 by phone Deposit rate 12 Needs planning 9 Matters... 8 8 Internet bank Matters more... Initative/customer 9 Processing time follow-up Product range 1 Queues 4 Advice on loans 8

Advise on insurance 7 Advise on deposit 5 Matters most... Local mainstay 5 Kilde: TNS Gallup. Enkeltforhold er gruppert i adskilte kategorier. The way a customer is received is crucial to his/her percep- SpareBank 1 Financial Counselling is the bank’s counselling tion of the quality of the bank. Setting quality targets for concept for private customers whose financial assets are of basic deliveries to the customer is therefore crucial to the such size that they need to collaborate with a financial advi- bank’s business. In following up these targets, the bank ser to find investment solutions able to ensure that the gives particular attention to the quantity, continuity and assets in question develop in the desired direction. Again, quality of its contacts with its customers. Customer events the basic principle is that each customer adviser is respon- featuring topical themes and one-to-one meetings between sible for his/her own customer portfolio. Based on the cus- customer and adviser are key activities. In 2004 advisers tomer’s expectation as regards return, willingness to contacted more than 6,000 customers with a basis in signi- assume risk and time horizon, an investment portfolio is ficant events in their relationship with the bank, and more put together that is best able to ensure that the customer than 220 thematic meetings were held with more than attains his/her financial objectives. 14,000 invited customers. The Digital Channel is the bank’s counselling concept for Today the market is served by more than 300 advisers. customers whish to carry out a transaction without turning Common to them all is their personal contact with the cus- up at the bank, and are not in need of direct contact with a tomer. The emphasis is on solid professional competence, personal adviser. good skills, clear attitudes and selling based on good ethical The staffed portion of this channel handles all telephone standards. calls and emails. The bulk of the channels’ customer con- The bank distributes its services via a number of channels tacts are via self-service solutions: of about 27,000 contacts enabling the customer to freely select his/her preferred ser- per weekday, 90% are via the telephone bank and vice channel. The retail market business is accordingly orga- e-mail/internet bank. SpareBank 1 Midt-Norge has 90,000 nised in the following distribution channels: The Personal telephone bank users and 81,000 internet bank users. Channel, SpareBank 1 Financial Counselling and The Digital The Internet Bank provides customers with an overview of Annual Report 2004 Channel. Common to all is the emphasis on personal con- their entire dealings with the bank in all product areas. tact with the customer. Purchases, sales and changes in relation to various pro- The Personal Channel is the bank’s counselling concept for ducts are a central focus of the internet bank, alongside pay- customers desiring direct contact with an adviser. ment services. The internet bank provides a safe electronic 13 Competent advisers provide individual, integrated guidance channel for placing orders and making enquiries. on all products offered by the bank. The basic principle is that each customer adviser is responsible for his/her own customer portfolio.

Sales Millions of NOK

140 2001 195 120 2002 478 2003 761 100 Other savings 20041 167 Business description * 80 products 60 40 20 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

10 9 8 7 6 Insurance 5 4 2001 65 3 2002 82 2003 85 2 2004 95 1 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * Excluding money market funds and savings agreements Annual Report 2004

SpareBank 1 Midt-Norge is among the oldest savings banks in the In 2004 the bank was one of the originators of Arena Trøndelag, country. Not surprisingly, with a history going back more than 180 a unique collaborative project with its finger on the pulse of years, the bank has a keen sense of the past. All the same, it is a Trøndelag. It brings together public and private sector actors to regional bank whose key focus is on the future development of assess growth and prospects for the region. Arena Trøndelag Mid-Norway. comprises two annual publications and a series of seminars held in various localities across Trøndelag. Business description, corporate market The corporate market business focuses on financial coun- Corporate market 2004 selling in the fields of investment and operations financing, Lending (NOK million)...... 12 735 insurance of individuals and buildings/operating equip- Deposits (NOK million) ...... 9 469 ment, investment of surplus liquidity, and money transfers. Number of multi-relationship customers..... 10 340 This business is physically located in 14 localities across the Number of employees ...... 91 entire market area in order to secure proximity to custo- Market share ...... 37% mers, while bearing in mind the need to ensure that compe- CSI* ...... 65 tence units are of sufficient size. The business requires a continual focus on the competence of the individual staff * The customer satisfaction index provides a general measure of the strength of the relationship between the bank and its customers. member, and the division operates a systematic training The customer satisfaction index is validated in relation to customer programme for all staff. The programme contains credit, behaviour, and shows a clear correlation with customer loyalty and customer loss. product and communication training – all of which are crucial factors in the individual employee’s working day. The majority of financial institutions are increasingly involved The business sector in Trøndelag features a large number of in financing real estate operations. This also applies to small and mid-size companies in a variety of segments. As SpareBank 1 Midt-Norge. About 30% of the bank’s loans to much as 83% of businesses in Trøndelag have fewer than the business market are related to real estate. This figure is five employees. This structure has a clear impact on the expected to remain stable in the period ahead. bank’s organisation of its corporate market operations. The SpareBank 1 Midt-Norge has about 5,900 farming bank’s ten largest customers account for an overall lending customers holding loans totalling about NOK 2.1 billion. volume of NOK 2,657 million, representing 7.8% of the The bank is actively involved in further developing Trøndersk bank’s loanable capital.

Landbruk (a regional agricultural trade fair) through Annual Report 2004 In view of the composition of the business sector in Mid- Tenkeloft Trøndersk Landbruk (a “think tank” for agriculture Norway, a considerable share of the bank’s lending goes to in the region), Trøndersk nettverk for mat og drikke (a property management and business services, agriculture regional food and drink network) and the 2005 Trondheim and forestry along with transportation and other services. Food Festival. 15 All in all these three areas account for a total of 72% of all With exposure totalling NOK 1,340 million to the sea far- lending within the corporate market business. ming and allied industries, SpareBank 1 Midt-Norge is the The Corporate Market Division services about 10,500 custo- region’s largest sea farming bank. A total of about 55,000 mers in the small and mid-size business segment and the tonnes of trout and salmon are produced by the bank’s cus- agriculture and public sectors. SpareBank 1 Midt-Norge’s tomers in this sector, about 30 in all, who are monitored on share of the region’s business market is about 37%. a continual basis. They showed a positive trend in 2004, and the bank’s portfolio is considered to be of good quality and In 2004 sales of company pensions were at center stage in moderate risk. relation to Mid-Norway’s business sector. The bank has reinforced its resource input to this area and expects contin- SpareBank 1 Midt-Norge leads the public sector market in ued growth for pension products in 2005. Mid-Norway and services both Trøndelag counties’ adminis- trations in addition to 32 of the 51 local authorities in the

Towards the end of 2004 the Corporate Market Division Business description region. Much of the bank’s effort in the public sector is introduced scoring as an aid to the credit process. This, in based on its high profile in the money transfer combination with systematic work on the loan portfolio, is segment. expected to improve portfolio quality still further in Public sector the course of 2005. The introduction of scoring Transport and Commerce/hotels also brings the Corporate Market Division well other services up to speed in terms of implementing the new Basel II requirements. Manufacturing Building and construction Agriculture/forestry/ fisheries/hunting

Property management/ business services Sea farming Business description, subsidiaries and manages assets for a number of external clients in addition to those of its owners. The company currently has a SpareBank 1 Gruppen AS seven employees and total assets in excess of NOK 1,400 The financial group SpareBank 1 Gruppen AS is owned by million. SpareBank 1 SR-Bank, SpareBank 1 Midt-Norge, SpareBank 1 Nord-Norge and Samarbeidende Sparebanker AS – each Active asset management offers a number of advantages holding a 15.46% stake. Other owners are the Swedish compared with investing in individual shares and equity FöreningsSparbanken AB (19.5%), the Norwegian Confede- funds. Active management clients have their own personal ration of Trade Unions (10%) and Sparebanken Vest portfolio in which they own each individual share/security (8.67%). without needing to spend time and resources on tracking the progress of their investments. Those interested in the SpareBank 1 Gruppen AS wholly owns Bank 1 Oslo, opportunities provided by the share market will receive SpareBank 1 Livsforsikring (life insurer), SpareBank 1 detailed reports showing the number of shares they own in Fondsforsikring (unit linked), SpareBank 1 Skadeforsikring each individual company, and are thus able to keep closer (non-life insurer) and ODIN Forvaltning (fund manager) – track than if they own units in a fund. along with 33% of First Securities and 18.9% of SpareBank 1 Bilplan. EiendomsMegler 1 Midt-Norge AS SpareBank 1 Gruppen AS also has administrative responsi- EiendomsMegler 1 Midt-Norge AS leads the market in all bility for collaborative processes within the SpareBank 1 municipalities in North and South Trøndelag, and is now Alliance in which IT operations, management and develop- one of the country’s financially soundest real estate compa- ment, brandbuilding, competence building, shared proces- nies. It maintains offices in eight localities. The company ses/exploitation of best practice and procurement are at has specialised its operations and has established separate centre stage. The alliance has also established two compe- units for recreational, project and commercial property

Annual Report 2004 tence centres for, respectively, the cash management area broking alongside its traditional residential estate agency (in Trondheim) and the credit area (in Stavanger). business.

The SpareBank 1 alliance’s strategy for the period 2004-2007 EiendomsMegler 1 Midt-Norge has developed and imple- was reviewed in 2004. The review confirmed that the alliance mented quality assurance routines giving it with major 16 members are agreed on the main challenges facing the alli- competitive advantages on the logistics front. ance and that their ambitions for this banking partnership In 2004 EiendomsMegler 1 Midt-Norge sold a total of 3,295 have risen. properties representing about 35% of all residential transactions in the bank’s catchment area and involving more than SpareBank 1 Finans Midt-Norge AS 6,000 buyers and sellers in Trøndelag. Market profile ratings SpareBank 1 Finans Midt-Norge AS markets and manages in 2004 show that the company enjoys a high customer leasing products and car loans. Car loans are offered via car satisfaction rating. Recent years’ growing preference for the dealers, newspaper advertisements and via the internet. brand among house sellers in Mid-Norway was reinforced in Leasing products are sold via the bank, via suppliers of capi- 2004. EiendomsMegler 1 Midt-Norge reinforced its position tal goods and to the direct market. SpareBank 1 Finans as Mid-Norway’s leading estate agent in all segments. Like Midt-Norge offers both financial leasing and operational preceding years, 2004 brought positive growth in turnover leasing. Administrative leasing is offered through and market share.

Business description SpareBank 1 Bilplan. The company is a wholly-owned subsidiary of the bank. The company has 15 employees in Trondheim and in Steinkjer. 80% of the leasing agreements are with customers Midt-Norge Regnskap AS in the two Trøndelag counties. At year-end the company Midt-Norge Regnskap AS, founded in 1985, is South and managed leasing and car loan agreements worth well over North Trøndelag’s largest independent accountancy firm NOK 1 billion, of which leasing agreements accounted for with offices in Trondheim, Rissa, Stjørdal, Levanger and NOK 880 million and car loans for NOK 185 million. Namsos. It has 30 highly qualified staff, an annual turnover The company is a wholly-owned subsidiary of the bank. of NOK 15 million and a solid financial position.

Midt-Norge Regnskap AS is a forward looking one-stop Allegro Finans ASA supplier of financial services in the fields of accounting, Allegro Finans ASA, an active asset management company, money transfer, tax and counselling and currently caters to was founded in 1998. SpareBank 1 Midt-Norge has a 90% about 1,000 small and mid-size businesses in the corporate stake in the company. Allegro Finans ASA, headquartered in and farming segments as well as housing cooperatives and Trondheim, is licensed to carry on active asset management co-ownerships. While the bulk of its clients are based in Annual Report 2004

The original stone church was destroyed by fire some time between Our objective is to help them accomplish their ideas, to the enrich- 1430 and 1531, after which the site was cleared and designated as ment of all who live in Mid-Norway. common land. Traces of the old church remained intact below We run a grant scheme for these young talents and dedicated souls. ground, and, when the new bank building was erected, care was We call it “GUTS”, a word that epitomizes these individuals, taken to preserve this important part of our history. whether engaged in arts and the culture, sport or charity. Preserving history is important for SpareBank 1 Midt-Norge. Just as It’s all down to their efforts, of course. But a little help on the way important is helping to create the future. comes in handy, and each year the bank awards about 35 grants to That’s why it’s natural for us is to support talented young people deserving recipients. It does so with delight. and others who make their local community a better place to live. Annual Report 2004

Trøndelag’s cultural legacy features dramatic and colourful historic The bank’s involvement extends far beyond financial support; lines. One of these lines is to be found in the axis extending from indeed, it is one of several organisers behind the business Stiklestad to the bank, i.e. the route of St. Olav’s final journey, at conference “1000 to 1000” held at Stiklestad each year. the end of which his body was concealed in a hovel on the same spot as the remains of the church. This is the very same Stiklestad with which the bank is now involved through its substantial support for the Stiklestad National Culture Centre. Trøndelag, modern technology means that remoteness in Operations relation to clients is no impediment. SpareBank 1 Midt-Norge’s object is: “to promote saving by accepting deposits from an unrestricted range of depositors Midt-Norge Regnskap AS’s mission is to be an attractive and to manage the funds at its disposal in a secure manner partner to its clients with a service range and technology in accordance with the legal rules applying at any and all that meet their needs now and in the future. The require- times to savings banks.” The bank’s values, vision and ment it sets itself – which as a minimum is to meet the cri- object are described under on page 10. teria set by Kredittilsynet (Norway’s financial supervisory authority) and the Norwegian Association of Authorised PCC capital and dividends Accountants – provides its clients with a guarantee of the SpareBank 1 Midt-Norge strives for a clear and predictable quality of its operations. PCC holder and dividend policy (page 68) The company is a wholly-owned subsidiary of the bank. The authorisations available to the Board of Directors to increase the bank’s capital are restricted to specified purpo- Corporate Governance ses. These authorisations are valid up to the next review of SpareBank 1 Midt-Norge has adopted a distinct corporate the annual accounts. Authorisation to buy back the bank’s governance policy, and will further develop its corporate PCCs has a duration of 18 months. governance structure within the framework of applicable laws and in keeping with recommendations issued by influ- SpareBank 1 Midt-Norge aims for a total capital ratio of ential sources. 12.0% and a tier 1 capital ratio of 8%. The bank has implemented a tool for measuring economic capital and The bank has given special emphasis to: risk-adjusted return in the credit area, but will not be • a structure assuring targeted and independent manage- adjusting its capital adequacy targets until further notice. ment and control Annual Report 2004 • systems assuring monitoring and accountability Free negotiability • organisation, health, environment and safety The bank’s PCC is freely negotiable. • effective risk management • full information and effective communication to underpin Election Committee the relationship of mutual trust between the Supervisory SpareBank 1 Midt-Norge has two election committees. 19 Board, the Board of Directors and management • non-discrimination of PCC holders and a balanced relati- Election Committee for the Supervisory Board onship with other stakeholders The Supervisory Board appoints an Election Committee • compliance with laws, rules and ethical standards from among the members of the Supervisory Board. The Election Committee comprises one representative from,

Governing and monitoring bodies respectively, the PCC holders, the depositors, public appointees and the employees, totalling four in all. The committee shall give due attention to a composition based on conside-

Supervisory Board Control Committee rations of competence and gender.

Election Committee for PCC holders’ election of Election Committee Audit – external Supervisory Board members

The PCC holders appoint an Election Committee at a Business description Board of Directors Audit – internal meeting of PCC holders. The Election Committee shall have three members and two alternates. At least one of the mem-

Managing Director bers and one of the alternates must be members of the Supervisory Board. The Election Committee prepares the Risk Management PCC holders’ election of Supervisory Board members and alternates.

The functions of the respective bodies are described below. Supervisory Board and Board of Directors, composition Principles of corporate governance and independence Good corporate governance at SpareBank 1 Midt-Norge The Supervisory Board comprises 56 members of whom encompasses the values, goals and overarching principles 22 (40%) are elected from among the PCC holders, while 10 by which the bank is governed and controlled with a view to are public appointees and 10 are elected by the depositors. securing the interests of owners, depositors and other The employees have 14 members. stakeholders in the bank. Annual Report 2004

Visiting the crypt is a unique experience. A stone stair descends The episode was also the direct mainspring for the establishment from busy, modern bank premises into the remains of an ancient of the foundation Trygt Samfunn (A Safe Society) a nationwide church. Most people lower their voices down here, face to face with think-tank devoted to preventing crime. The foundation was instiga- the drama of history that comes into view. ted by SpareBank 1 Midt-Norge, and turned into reality in conjunction with the SpareBank 1 alliance. Its mission is to identify and Quite another story shook Norwegian society to its foundations on support projects which contribute to and inspire crime prevention Monday, April 5th, when policeman Arne Sigve Klungland was killed efforts. on duty during the robbery of the NOKAS currency depot in Stavanger. The episode brought home to Norwegians the reality of violent crime in no uncertain manner. The Supervisory Board approves the accounts and appoints Remuneration to senior employees the members of the bank’s Board of Directors, Control The Board of Directors fixes the managing director’s Committee and Election Committee. The Supervisory Board remuneration on an annual basis, and shall be informed of also adopts the remuneration of the Board of Directors, remuneration to senior employees of the company. Control Committee and Election Committee. The Remuneration to the managing director and senior emp- Supervisory Board is also responsible, at a joint meeting loyees is disclosed in Note 1 with the Board of Directors, for the appointment and in the event dismissal of the managing director. Information and communication The bank attaches importance to full and effective commu- Control Committee nication in underpinning the relationship of trust between The Control Committee is appointed by the Supervisory the bank’s owners, Board of Directors and management, Board and has three members. and in ensuring that the bank’s stakeholders are at all times able to assess and relate to the bank. The bank’s informa- The Control Committee’s tasks include overseeing that the tion policy accordingly places a premium on proactive bank and the group conduct their business in an appropri- dialogue with respective stakeholder groups in which open- ate and satisfactory manner in accordance with laws and ness, predictability and transparency are at centre stage. regulations, articles of association, guidelines issued by the Supervisory Board and orders issued by Kredittilsynet The bank also attaches importance to correct, relevant and (Norway’s financial supervisory authority). The Control timely information on the bank’s progress and performance Committee normally meets 11 times each year. The mana- as a means of instilling investor market confidence. ging director attends these meetings. The Committee also Information is communicated to the market via quarterly meets with the chairman of the Board of Directors on an investor presentations, an Investor Relations area on the annual basis. bank’s website and press releases. Presentations for international partners, lenders and investors are also arranged Board of Directors on a regular basis. The Board of Directors has nine members of which eight are Annual Report 2004 SpareBank 1 Midt-Norge has received the Oslo appointed by the Supervisory Board. The members are Stock Exchange’s information award for meeting appointed for two years at a time and can hold office for a specific requirements as to the scope and distri- maximum of 20 years, but not more than 12 years continu- bution of information. ously in the same position. The chair and deputy chair are 21 elected by the Supervisory Board at separate elections for Audit – external and internal two years at a time. The managing director is required by An external auditor is appointed by the Supervisory Board. law to be a member of the Board of Directors. The Board The bank utilises the same auditor in the parent company normally meets 11 times each year. and in all subsidiaries. The external auditor performs the A guiding principle at SpareBank 1 Midt-Norge is that mem- statutory confirmation of the financial information provided bers of the Board of Directors shall be independent, and gui- by the companies in their public accounts. The external delines have been established to deal with competence auditor briefs the Board of Directors each year on the main issues. features of the audit plan, and attends the meeting of the Board of Directors at which the annual accounts are Board of Directors’ functions reviewed. A separate set of instruction for the Board of Directors is The external auditor has not provided the group with advisory being drawn up. services of significance. Any such services from the external An annual plan has been adopted for the Board of Directors. auditor must comply with the Auditors Act section 4-5. Business description

The Board of Directors conducts an annual self-evaluation. With effect from 2004 SpareBank 1 Midt-Norge has established an agreement with Ernst & Young on the provision of Two subcommittees have been established by the Board of internal audit services. The agreement covers the parent Directors: a temporary audit committee and a remuneration bank, subsidiaries subject to the internal control regulations committee. and other significant subsidiaries. A temporary three-strong committee to the Board of The internal audit function’s main task is to confirm that the Directors was established in conjunction with changes established internal control system functions as intended, made to the internal audit arrangement. The committee was and to ensure that established risk-management arrange- mandated to clarify the internal audit’s mode of cooperation ments are adequate in relation to the bank’s risk profile. The and reporting process. This in no way reduces the responsi- internal audit function reports on a quarterly basis to the bilities of the Board of Directors. Board of Directors which adopts annual plans and budgets for the internal audit. The internal audit function performs Remuneration to the Board of Directors no financial audit. The Board of Directors receives no remuneration over and above directors’ fees. Statement by the Chief Executive Officer

SpareBank 1 Midt-Norge can look back on a highly eventful 2004 marked by sound profit performance in most areas. The corporate sector’s operating environment was good, largely as a result of low market interest rates and a stable krone exchange rate. This, along with a positive development for securities markets, provided the financial industry with a good setting for the improved profits achieved in 2004.

SpareBank 1 Midt-Norge distinguished itself with a significant reduction in loan losses and a similar reduction in non- performing and doubtful loans, along with reduced costs.

Annual Report 2004 We also saw strong growth in other operating income, chiefly thanks to good sales performances by the Retail Market Division. Hence there is a clear correlation between key change and development processes that were brought to 22 completion and a result for the year that is the best in the bank’s history.

A focus on change as a means of achieving improvement is an important ingredient in the bank’s strategy implementation. The bank still has substantial potential for further improvement, and will continue to initiate and implement improvement programmes in 2005 and further ahead.

SpareBank 1 Midt-Norge is a competence-driven underta- king. It will continue to facilitate employees’ development of new skills in 2005, turning us into an even better sales and counselling organisation. Leadership development will be given higher priority. Chief Executive Officer In 2005 activity-based sales and counselling efforts, along with continued professionalisation of the bank’s customer- facing units, will be the most important elements in contin- synergies as early as in 2005 and to achieve our income uing the success experienced by the Retail Market Division. synergy target in 2006 based on the expectation that sales at The interplay between the bank’s outlets – both in relation Romsdals Fellesbank will generate results at least on a par to SpareBank 1 Finansrådgivning (the financial counselling with the Group as a whole. arm) and in relation to Eiendomsmegler 1 Midt-Norge (the We are also gratified by the substantially improved perfor- real estate agency arm) – is expected to continue to generate mance posted by SpareBank 1 Gruppen AS. Here too, major growth in all business areas in 2005. After a period of con- change processes have been implemented, producing result solidation, the Corporate Market Division will strive to effects far in excess of expectations. The collaborative effort expand its activity with the aim of maintaining moderate within the SpareBank 1 alliance is functioning better than balance sheet growth, low-level losses and an assertive ever, and all SpareBank 1 banks appear to be performing focus on sales of off-balance sheet products. Cash manage- better than other comparable banks. This demonstrates the ment products and company pensions are key focal areas in

success of our alliance strategy. Annual Report 2004 this context. Enthusiasm and delight with our success in achieving our The acquisition of Romsdals Fellesbank ASA will require goals permeate the entire organisation. A solid job is being much attention on the part of the management team with a done by every single staff member at all levels. A keenness view to integration of the two banks in 2005. As a matter of to strive for further improvement is evident throughout, and 23 fact the application for permission to go ahead with the the positive trend reflected in customer satisfaction ratings merger is being considered by Kredittilsynet (Norway’s has a stimulating effect on the entire organisation. We financial supervisory authority) and the Ministry of Finance, expect our customers to be even more pleased with the the due diligence process has been initiated and extensive bank in 2005, and we anticipate further advances. I am preparations are being made for a PCC flotation to partially proud that we have established a positive, performance-ori- finance the acquisition price of NOK 1,072 million. I am ented organisation culture in which our zeal to improve and firmly convinced that acquiring Romsdals Fellesbank will our focus on the customer are at centre-stage. prove a highly profitable investment. The integration process is under way, a process which also involves a concerted I would like to express my great appreciation of the first-rate effort to realise substantial synergies from the merger of the effort made by all employees of the Group in 2004, as two banks. We aim to achieve accounting integration as previously. I would also like to welcome our new colleagues from 1 September 2005 and to complete the overall integra- in Møre and Romsdal to SpareBank 1 Midt-Norge. I hope Chief Executive Officer tion project by year-end. The merged entity will present a and trust that all of them will rapidly find their feet and unified and assertive profile throughout its market area thrive, and that we will attain the ambitious goals we will be from 2006 onwards. Our ambition is to achieve profit setting for the Group in its new market area.

Finn Haugan Chief Executive Officer Report of the Board of Directors

General setting and the macro economy figures are still higher than the average for recent years. in 2004 Since 1999 each year has seen about 4,000 company insolvencies. For the Trøndelag counties the number of Most observers had great hopes that 2004 would provide a insolvencies has risen slightly since 2003 – from 352 in 2003 favourable climate for Norwegian households and enterpri- to 373 in 2004. As in the country as a whole, the majority of ses. The upshot proved even better than expected. Interest insolvencies are in the fields of retail trade, property mana- rates, the international economy and exchange rates are the gement and business services, along with hotels and three key factors contributing to Norway’s auspicious restaurants. These sectors account for almost 20% of all setting in 2004. A record-high oil price also played its part. insolvencies nationwide. Compulsory liquidations have The krone exchange rate was on average 3.8% lower in 2004 risen by 18.6% since 2003. This is attributable to revision of than in 2003. The gyrations witnessed in 2003 were absent the companies legislation, and to higher equity capital in 2004, bringing welcome predictability for enterprises requirements. Annual Report 2004 trading abroad. At year-end the exchange rate was approxi- Prospects for the Norwegian economy at the start of 2005 mately on a par with the average for the period since 1990. are bright. Factors that put 2004 on a positive path are not One of the reasons for the current extremely low interest expected to turn around in the current year. There is much 24 rates is Norway’s very low level of inflation. In 2004 the core to indicate some increase in interest rates over the year. inflation rate was 1.0% compared with the central bank’s Inflation is edging up, and Norwegian households have target of 2.5%. This explains the reluctance to restore higher exploited low interest rates to expand their borrowing. Both interest rates – in spite of the improvement seen in the factors normally prompt a rise in interest rates. Moreover, economy. It is some time since Norway’s key rates were the risk of a krone appreciation cannot be ruled out. The lower than their counterparts in both Europe and the US. central bank is aware of the problems that this will bring in Many countries, among them the US and the UK, have its wake, which is why we do not anticipate a currency appre- made allowance for the improvement seen in economic ciation on a par with that seen in 2002/2003. conditions and have started to raise their interest rates. Over the year Norway’s central bank lowered its key rate on Results two occasions from 2.25% at the start of the year to the SpareBank 1 Midt-Norge recorded a post-tax profit of NOK current level of 1.75%. Norway’s low inflation is not due to 430 million (NOK 222 million) in 2004, equivalent to a low domestic price pressures but to the fact that imported return on equity of 18.7% (10.2%). The result for the year goods have plunged in value since a steadily increasing measured 1.16% (0.60%) of average total assets (ATA). The share of their production takes place in low-cost countries, parent bank’s cost-income ratio (exc. capital gains) was Report of the Board Directors chiefly in Asia but also in Eastern Europe. 51% (58%).

The favourable economic setting has had a positive impact Business volume is growing. In 2004 customer deposits on Norwegian business and industry. Company insolvencies rose by NOK 0.8 billion or 4.3%, and the volume of other have fallen in number since 2003, as has joblessness. At savings products by NOK 0.9 billion or 47.4%. Lending grew year-end a total of 84,854 persons were entirely unem- by NOK 1.7 billion or 5.1%. The overall volume of insurance ployed, 6,812 fewer than 12 months previously. The two premiums rose by 9.5%. Trøndelag counties saw a net reduction of 473 persons, The marked improvement compared with 2003 is ascribed comprising an increase of 25 in North Trøndelag and a reduc- to a number of factors: tion of 498 in South Trøndelag. The number of insolvency – Increased operating income, especially from commissions proceedings initiated showed a positive trend nationwide, on sales of savings products and commissions related to falling from 5,072 in 2003 to 4,267 in 2004. Despite the fall, payment services. Post-tax result of NOK 430 million (222 million) – the best in the bank’s history.

– Substantially lower losses on loans to the corporate sector. substantial portion of the funds will be transferred to a busi- – Reduced cost“ levels on the back of the cost-reduction pro- ness foundation and earmarked for business development gramme “Efficiency 2004”. initiatives in the bank’s market areas. – Improved results for the SpareBank 1 Group and subsidi- “ aries. Stable net interest income – Savings banks’ exemption from payment of the levy to the Net interest and credit commission income came to NOK Savings Banks Guarantee Fund. This improves net inte- 864 million (864 million). The interest margin was 2.34% rest income by NOK 30 million or 0.08 percentage points. (2.34%).

At year-end the bank’s primary capital certificate (PCC) was Exemption from payment of the levy to the Guarantee Fund priced at NOK 275. Dividend of NOK 18 per PCC (for 2003) improves net interest income by NOK 30 million or 0.08 was paid in 2004. When adjusted for the effect of a bonus percentage points compared with 2003. issue, dividend paid in 2004 came to NOK 14.40 per PCC. Annual Report 2004 Disregarding levy exemption, net interest income shows a Earnings per PCC came to NOK 29 and the PCC’s book fall of NOK 30 million or 0.08 percentage points compared value at year-end (incl. dividends for payment in 2005) was with 2003. This reduction is due to reduced margins on len- NOK 174. ding and deposits and to a lower return on the bank’s equity capital in the wake of low market interest rates. In the last 25 Application of net profit quarter of 2004 net interest income stabilised due largely to Profit for distribution came to NOK 430 million. The Board a systematic effort to curb margin falls . of Directors recommends the Supervisory Board to set a cash dividend of NOK 20 per PCC, totalling NOK 152 mil- High capital and currency gains lion. Overall capital gains and dividends on securities came to NOK 68 million (69 million). In keeping with the bank’s dividend policy, the net profit is distributed between the savings bank’s reserve and the PCC Return on the bank’s portfolio of short-term shareholdings capital in proportion to their relative shares of the bank’s and PCCs totalled NOK 36 million (48 million) as of year- equity capital, such that dividends and the allocation to the end. Yield on Norwegian Treasury bills, bonds and derivatives dividend equalisation fund constitute 51.4% of the net profit. totalled NOK 32 million (21 million).

Currency gains and gains on financial instruments totalled 2004 2003 2002 NOK 18 million (7 million). Net profit for the year 430 223 7 Revaluation reserve 0 0 54 Report of the Board Directors Strong growth in commission income Adjusted net profit for the year 430 223 61 Net commission income and other operating income Dividends 152 109 46 totalled NOK 424 million (332 million), an increase of NOK Dividend equalisation fund 69 9 -13 Savings Bank’s fund 140 77 28 92 million or 28% on 2003. Gifts 69 28 0 This positive trend is attributable to good sales of savings Total distributed 430 223 61 products to retail customers (+NOK 33 million), an increased volume of payment services (+NOK 20 million), Of the share accruing to the savings bank’s fund, NOK 69 increased income for the subsidiaries (+28 million) and an million is set aside for non-profit purposes. This is the increase in other operating income (+NOK 11 million). maximum permitted by law. At the same time as the Board NOK 10 million of the rise in income on savings products is of Directors proposes increasing the allocation to non-pro- attributable to commission income earned on the sale of fit purposes, steps are being taken to put the allocation interests in Trøndelag Eiendom AS. process on a more professional footing. As from 2005 a Subsidiaries Other operating expenses showed a net reduction of NOK The overall result of the bank’s subsidiaries was NOK 36 14 million compared with end-2003. The costs of postage, million (25 million) after tax. buildings and miscellaneous operating expenses were cut considerably. EiendomsMegler 1 Midt-Norge posted a net profit of NOK 5.8 million (8.3 million), while SpareBank 1 Finans Midt- Operating expenses measured 1.97% of ATA (1.99%). Norge (leasing) reported a net profit of NOK 11.7 million The parent bank ratio was 1.65% (1.70%). (12.6 million), Midt-Norge Regnskap (accounting) a net profit of NOK 0.5 million (0.5 million), Allegro Finans ASA The cost-income ratio (exc. capital gains) was 55% (61%) (active asset management) a net profit of NOK 16.1 million for the Group and 51% (58%) the parent bank. (3.0 million) and the bank’s property companies a net profit of NOK 0.9 million (0.6 million). Gain/loss on long-term shareholdings and disposal of financial fixed assets The real estate agent, EiendomsMegler 1 Midt-Norge, is the The overall write-down on the bank’s portfolio of long-term market leader in Mid-Norway, and further cemented this shareholdings as of end-2004 was NOK 12 million (gain of position in 2004. SpareBank 1 Finans Midt-Norge is the NOK 6 million). The write-downs are spread across a region’s leading finance company in leasing and car loans. number of small shareholdings. This company again recorded sound growth in 2004, parti- cularly in car loans. The asset manager Allegro Finans ASA Substantially lower loan losses and reduction in non-per- showed considerable growth in active investment services forming loans in both 2003 and 2004. A systematic review of the entire corporate market portfolio was carried out in 2004, and is a key reason for the reduc- Good results for the SpareBank 1 Gruppen AS tion in losses and non-performing loans compared with The SpareBank 1 alliance is a Nordic banking and product

Annual Report 2004 2003. The most important initiative was a general consolida- partnership in which the SpareBank 1 banks in Norway col- tion of corporate market business through targeted negative laborate through a jointly-owned holding company, growth in lending, systematic risk pricing, phasing out of SpareBank 1 Gruppen AS. doubtful commitments and reduction of total exposure to The bank's stake in the SpareBank 1 Group is regarded as large customers. Moreover, competence was enhanced in 26 participation in a joint venture, and is accounted for by the all aspects of the bank’s credit processes. equity method in the bank’s accounts. Net problem loans (non-performing loans and other doubt- In 2004 SpareBank 1 Gruppen AS recorded a post-tax profit ful commitments less loss provisions) were NOK 139 mil- of NOK 149 million (-35 million). SpareBank 1 Midt-Norge’s lion down on the figure at end-2003. share of SpareBank 1 Gruppen AS’s earnings is provisionally Loan losses totalled NOK 81.3 million (228.8 million). put at NOK 23 million (-5 million). Of net specified losses of NOK 84.7 million (275 million), In the second quarter of 2004 SpareBank 1 Midt-Norge NOK 71.6 million (267.5 million) are specified losses on expanded its stake in SpareBank 1 Gruppen AS from 14.08% loans to corporate customers, while specified losses on to 15.46%. It did so in conjunction with a disinvestment by loans to retail customers came to NOK 13.1 million (NOK FöreningsSparbanken AB (PUBL) from 25.0% to 19.5%. 7.6 million).

Reduced operating expenses As of end-2004 unspecified loss provisioning totalled NOK Operating expenses came to NOK 729 million (733 million), 314 million (NOK 318 million) or 0.9% of all outstanding

Report of the Board Directors enabling an overall reduction in costs of 0.6%. Parent bank loans.

costs decreased by NOK 15 million or 2.4%. As of end-2004 specified loss provisioning totalled NOK 290 Group-wide staff costs rose by NOK 11 million in 2004. This million, a decrease of NOK 90 million since end-2003.

figure incorporates a reduction of NOK 22 million in the Of loans in default for more than 90 days totalling NOK 354 parent bank’s ordinary wage bill and an increase of NOK 18 million (455 million), NOK 156 million (NOK 211 million) million in bonuses to the bank’s workforce. The subsidia- or 44% (46%) are loss provisioned. Of the decrease in loans ries’ staff costs rose by NOK 15 million in 2004, comprising in default for more than 90 days, totalling NOK 101 million, increases in ordinary salaries and commissions, bonuses NOK 31 million refers to the retail market and NOK 70 and pension costs. million to the corporate market. Other doubtful commit- The number of staff FTEs (Full-time Equivalents) in the ments total NOK 312 million (NOK 439 million), of which Group fell by 85 as a direct result of the “Efficiency 2004” NOK 134 million (NOK 168 million) or 43% (38%) are loss programme. At year-end there were 637 FTEs (713) in the provisioned. Group, and 510 FTEs (592) in the parent bank. personal insuranceNOK61million atyear-end. volume innon-lifeinsurancewas NOK277millionandin insurance combinedgrewby9.5%.Theoverallpremium and theoverallpremiumvolumeforlifenon-life The bank’sinsuranceportfolioalsoshowedgrowthin2004, Insurance products million atend-2004. Allegro FinansrosebyNOK518milliontoreach888 asset managementproductssoldviathebank’ssubsidiary NOK 142millionto727million.Theportfolioofactive linked, pensionsavingandlifeannuityportfolioroseby million toNOK1,196in2004,whiletheoverallunit The valueofequityandfixed-incomefundsrosebyNOK243 overall volumeofothersavingsproductsin2004. Good sales,especiallytoretailcustomersproducedahigher Excellent salesofothersavingsproducts showed zerogrowthin2004. (0.6 billion)or9.8%(6.9%),whileretailcustomerdeposits Corporate customerdepositsrosebyNOK0.8billion 2004, anincreaseof4.3%(4.3%). Customer depositsrosebyNOK0.8billion(0.9billion)in Deposits to 65%. credit riskbyincreasingtheretailmarketshareofitslending customer lendingatyear-end.Thebankaimstoreduce Loans totheretailmarketaccountedfor63%(61%)of rose byNOK0.2billion(-0.6billion)or1.5%(-4.4%). billion) or7.4%(11.4%)whileloanstothecorporatemarket Loans totheretailmarketrosebyNOK1.5billion(2.0 5.1% (4.7%)in2004toreachNOK34.2billionatyear-end. Total outstandingloansrosebyNOK1.7(1.5)billionor Lending billion, NOK1.7billion(4.7%)higherthanatend-2003. At year-endthebank’stotalassetscametoNOK38.6 Growth inbusinessvolume “ Substantial fallinloanlosses and reduceddefaults. unemployment andrisinginvestment propensity. Mid-Norwegian industryispositive, withrelativelylow actors inbusinessandindustry. Thecurrenttrendfor collaboration betweenSpareBank1Midt-Norgeandkey This isaneconomicbarometeroriginatinginabroad-based Arena Trøndelag was issued forthesecondtimein2004. ahead. sector hasalsoproducedresults,andwillbeapriorityarea increased focusoncapitalmarketservicestothecorporate Continued goodsalesofcashmanagement productsandan keener focusonsavingsandinsuranceproducts. growth willbetheorderofday. Therewillalsobea performance. Afteraperiodofconsolidation,cautious tion designedtoreducelendingrisk,lossesandnon- produced resultsintheformofimprovedpricedifferentia- income. Areviewofthecustomerportfoliohasalready folio qualityandmeasurestogeneratehighercommission The Corporate MarketDivisionhasastrongfocusonport- faction withthebank’schannels,serviceandproducts. autumn of2004showedasolidincreaseincustomersatis- satisfaction surveyconductedbyNorskGallupinthe The bankleadstheretailmarketinMid-Norway. Acustomer also beintensified. estate agent)generatesgoodincomesynergies,andwill coordination withEiendomsMegler1Midt-Norge(real continue toreceivepriorityahead.Collaboration and income fromoff-balancesheetproducts.Thisfocuswill volume percustomerandamarkedincreaseincommission solutions andinsurance.Theresultisanincreasedbusiness in thefieldsoffinancing,savingsandinvestment,payment nalising thesalesprocessandhasachievedexcellentresults The RetailMarketDivisionhasastrongfocusonprofessio- Divisional performance services tothecorporatemarketwerealsoonapositivetrend. telephone bankingservices.Salesofcashmanagement retail market,includinginternetbanking,creditcardand ascribable toahighervolumeofself-servicefacilitiesforthe A markedincreaseinincomefrompaymentservicesislargely Increased volumeofpaymentservices “

Annual Report 2004 Report of the Board of Directors 27 Healthy liquidity with the other banks in the SpareBank 1 collaboration, The bank is in a good, stable liquidity position, and at year- SpareBank 1 Midt-Norge continued the task of adapting end our Liquidity Indicator 1*) was 92%. At year-end the existing risk management processes – including the relevant proportion of money market financing above 1 year was framework, guidelines and organisation – to expected future 64% (68% at end-2003). requirements from Basel.

Good financial strength Credit risk At end-2004 the bank’s total capital adequacy ratio was The bank’s credit strategy and credit policy derive from its 12.7% (13.9%) and the tier 1 capital ratio was 10.9% main strategy, and contain guidelines for risk profile, (10.1%). The decrease in relation to end-2003 is attributable distribution between the retail market and the corporate to the falling due of subordinated loans in the fourth quar- market, geographical constraints, maximum overall ter of 2004 and cross-ownership entailed by the bank’s stake commitment in some sectors and size of individual in Romsdals Fellesbank ASA. commitments, as well as separate rules for specific types of commitments. The credit strategy is reviewed and adopted Risk-weighted volume increased by 4.3% in 2004. Overall by the Board of Directors on an annual basis. Compliance lending growth came to 5.1%, with the highest growth in with the credit strategy and limits adopted by the Board of low-weighted home loans. Directors is monitored by Risk Management and reported to the Board of Directors. Figures in (NOK million) 31.12.04 31.12.03 31.12.02 The bank’s risk classification system is designed with a view Tier 1 capital 2.773 2.478 2.049 to managing the bank’s loan portfolio in line with the ban- Subordinated loan 876 1.235 1.064 k’s credit strategy and to securing an appropriate risk-adju- Capital adequacy reserve/ sted return. Lending authorisations are related to size of cross-ownership - 410 - 305 - 310 commitment and risk and are delegated with a basis in the Capital base 3.239 3.408 2.802 Annual Report 2004 individual market area’s portfolio. Corporate clients are Risk-weighted volume 25.562 24.483 25.222 classified in terms of likelihood of default. A scoring model Total capital ratio 12.7% 13.9% 11.1% is employed that takes into account financial position along Tier 1 capital ratio 10.9% 10.1% 8.1% with internal and external behavioural data. Account is also 28 taken of the estimated value of collateral upon realisation. A staff member is assigned responsibility for each client. Primary Capital Certificates This staff member is responsible for following up the client The book value of the bank’s PCC was NOK 174 at end- on a daily basis and for checking that the client maintains 2004, and earnings per PCC were NOK 29.01. The PCC’s his ability to pay. In addition the bank has a Credit Support market price was NOK 275, and the P/E ratio 9.5 Division that takes over dealings with clients who are A bonus issue was carried out in 2004 involving the issue of obviously unable, or are highly likely to become unable, to one new PCC for four old PCCs by way of a transfer from the service their commitments unless action is taken beyond dividend equalisation fund. Dividend of NOK 18 per PCC ordinary follow-up. was paid in the first quarter of 2004. Corrected for the bonus The bank’s retail market customers are scored using a issue, the dividend was NOK 14.40 per PCC. scoring tool that takes into account financial and behavioural data. The credit model is adapted to anticipated Basel Risk management requirements and assigns each customer to one of 11 risk Assuming risk is a basic element in any bank's business classes based on likelihood of default. The risk classification model. Hence the bank gives heavy emphasis to identifying, system and credit routines place clear-cut requirements on

Report of the Board Directors measuring, managing and monitoring central risks in such credit processes and risk assessments to be conducted a way that the bank achieves its strategic objectives. Risk when dealing with corporate and retail customer commit- management is a key element of management philosophy, ments. organisation, routines and systems, including good mana- The bank has maintained its policy of sector-related, gement by objectives using the balanced scorecard appro- unspecified loss provisioning reflecting normalised losses ach. SpareBank 1 Midt-Norge aims to maintain a moderate for the respective sectors. risk profile and to apply risk monitoring of such high quality that no single event will seriously impair the bank’s financial position. As part of this effort, the bank scrutinises its most Market risk critical risk areas and the measures established to manage Market risk is defined as the potential for losses from market these risks at least once a year. This scrutiny is an important value falls due to fluctuations in fixed-income, currency and element in the bank’s ongoing risk management. Together securities markets. Market risk is managed by means of

*) Liquidity indicator 1: (deposits + long-term funding + equity + loss provisions)/(loans + fixed assets + required liquidity reserve) “Efficiency 2004” with an overall effect in excess of target.

detailed limits for investments in equities, bonds and on Operational risk is assessed in conjunction with the bank’s positions taken in the fixed-income and currency markets. internal control process, and any flaws found are reported to The limits are reviewed“ at least once a year and are adopted appropriate levels of the organisation along with recom- yearly by the bank’s Board of Directors. Exposures relative to mended improvements. the adopted limits are monitored by Risk Management and “ reported monthly to the Board of Directors. The limits are Compliance with frameworks well within the maximum limits set by the authorities. One of the internal audit function’s tasks is to test compliance with frameworks and routines. The internal audit Liquidity risk function reports its findings to the Board of Directors. The bank’s most important source of finance is customer deposits. At year-end the bank’s ratio of deposits to loans Personnel and organisation was 62%, as at end-2003. Due to changes in customer Full-time position equivalents (FTEs) saving behaviour and relatively high credit demand, the ban- Annual Report 2004 In conjunction with the “Efficiency 2004” programme, the k’s dependence on other sources of capital has increased. bank conducted in the autumn of 2003 a major staff reduc- The bank expects this situation to persist. The bank miti- tion process as a result of which the number of employees gates its liquidity risk by diversifying funding across a variety was reduced by about 85 FTEs in autumn 2004 and spring of markets, funding sources and instruments, and by 2005. At the turn of the year 2004/2005 the bank had 517 29 employing long-term funding. FTEs distributed across 548 employees. Of these, 274 were The Board of Directors has adopted a liquidity strategy and women and 274 were men. Their average age was 45.6 years established a framework that promote a long-term perspec- and average length of service 18.4 years. tive and balance in liquidity procurement. External rating is The first half of 2004 largely featured adjustments to the key when it comes to securing access to international new organisation. The process was completed according to sources of capital. In December 2004 the bank was given a plan, without this affecting the quality or operational stabi- “positive outlook” by Moody’s. lity of areas and functions encompassed by the change. The Compliance with the limits is monitored by Risk bank aims to avoid new, wide-ranging staff reductions, alt- Management and reported to the Board of Directors on a hough some pressure on staffing is to be expected due to monthly basis. A reserve in the form of committed drawing intense competition and the implementation of new techno- rights is maintained to further reduce liquidity risk. The bank logy and modern, more efficient, work processes. The bank has a preparedness plan to handle both bank-specific and will strive to ensure that resources and competence are sector-related crisis scenarios. adjusted to meet future challenges on a continual basis. Report of the Board Directors Operational risk Recruitment Operational risk is defined as the risk of loss inherent in the Our recruitment policy focuses on career development bank’s ongoing operations as well as in external events opportunities for our staff. The staff downsizing in 2003 set including risk of loss due to inadequate or faulty internal the stage for an internal labour market, and many staff took processes and systems, human error and various forms of on new challenges in the bank in the course of 2004. attack on the bank such as robbery, check counterfeiting, embezzlement, arson and computer crime. The bank Competence development attaches importance to authorisation structures, good The bank has focused heavily on competence development descriptions of routines and clear definition of responsibili- for many years. In 2004 this focus was intensified by the ties in supply contracts between the respective divisions as development of a common competence strategy for the elements of a framework for handling operational risk. SpareBank 1 Alliance. An express goal is that competence Take over offer accepted by 98.4 per cent of Romsdals Fellesbank’s shareholders in February 2005.

should be the bank’s foremost competitive advantage, and The bank regularly runs safety courses and drills for all that continual learning should be part and parcel of its day- employees. Nineteen courses were held in 2004. No robbe- to-day activity.“ Staff development should be based on invol- ries were carried out against the bank in 2004, nor were any vement, clear-cut goals and follow-up. Annual development occupational injuries“ recorded. plans are drawn up for all employees. Cooperation between the bank’s management and staff A key element of the bank’s educational offering is a lear- representatives is marked by commitment and openness. ning model involving electronic study modules and class- The Liaison Committee, which doubles as the bank’s Work room tuition designed to meet the need for professional Environment Committee, met four times. training. In 2004 the model was adapted to the require- The bank's operations are not of a type that pollutes the ments set for financial advisers by the Norwegian Financial external environment. Services Association. In parallel with this, continual development programmes are under way with a focus on sales Annual Report 2004 Gender equality and communication training. Training is also provided via While there are equal numbers of female and male employ- other internal and external courses, job training and in-firm ees in the bank as a whole, an aim is to get more women university college programmes. Internal training involved into senior positions. A further principle is to preclude gen- 1,400 course days in 2004. 30 der-based discrimination in the context of recruitment, pro- A variety of in-house management development program- motion and salary conditions. mes are offered that are closely linked to real-life assign- The gender breakdown in the bank's governing bodies is as ments. This develops managerial skills at the same time as it follows: supports the implementation of important work processes. Board of Directors: Four women of a total of nine ordinary Health, Environment and Safety (HES) members. The bank’s health, environment and safety effort gives much Supervisory Board: 15 women of a total of 56 ordinary emphasis to training, follow-up and concrete preventive members. activities. The psychosocial work environment and ergono- mics have received priority in recent years, and the bank’s The bank introduced a new job-assessment and perfor- HES objective is to ensure that all HES matters are dealt mance-pay system in 2001 which has minimised differences with the lowest possible level and as rapidly as possible. in pay between women and men at the same level.

In connection with the year’s organisation analysis, the bank The bank initiated two processes in 2004 which are being provided coaching for all managers and safety delegates to continued in 2005, both designed to bring into focus

Report of the Board Directors ensure good follow-up of the results. New routines and new women’s conditions and career development opportunities methods for follow-up and reporting were introduced, at the bank. The processes are a) evaluation and further designed to ensure a greater focus on developing and development of the bank’s human resources policy and b) enhancing the work environment. development of a manager-evaluation system. Both processes will foster an awareness of priorities and of consequen- Sickness absence has been at a relatively stable, low level in ces for various staff categories and will provide a basis for recent years (3.7% in 2002, 4.15% in 2003 and 4.15% in further development and improvements. 2004). Efforts to prevent sickness absence and to set the stage for good follow-up of staff who report sick has been Efficiency 2004 given high priority for several years. The bank’s routines in Cost savings of about NOK 60 million were identified this area were further tightened in 2003 as part an inclusive through the Efficiency 2004 programme. The programme employment agreement. has enabled cost savings with an annual effect of about NOK 70 million. The bank greatly improved its profit performance and redu- acquisition of Romsdals Fellesbank is one of the most ced its cost ratio to 51% in 2004. This is lower than the important strategic events in the bank’s history, offering figure achieved by other banks in the SpareBank 1 Alliance substantial growth potentials in the longer term. and lower than several of our competitors. Outlook Takeover of Romsdals Fellesbank ASA The Directors are highly satisfied with the bank’s perfor- On12 November 2004 SpareBank 1 Midt-Norge made an mance in 2004 which produced the best after-tax profit in its offer to take over all the shares of Romsdals Fellesbank ASA. history. The fine performance is ascribable to a number of After a demanding process the bank won through with an improvement processes. These processes have improved offer price of NOK 171 per share, equivalent to an overall the loan portfolio’s risk profile, increased operating effici- cost of NOK 1,072 million. As of 18 January 2005 the accep- ency, professionalised sales processes and put a stronger tance level among Romsdals Fellesbank ASA’s shareholders focus on high-quality customer counselling and customer was 98.4%. Application for permission to take over the bank Annual Report 2004 service at all levels of the organisation. A marked increase in in its entirety has been sent to Kredittilsynet (Norway’s customer satisfaction ratings confirms the robustness of financial supervisory authority) and the Ministry of Finance. the bank’s profit trend. SpareBank 1 Midt-Norge’s Board of Directors and administration devoted substantial resources to planning and exe- The Directors will continue to prioritise loss prevention and 31 cuting the takeover. The rationale was that it presented an other initiatives important to securing good profitability for historical opportunity to incorporate an entirely new market the bank. area in the bank’s natural catchment area of Mid-Norway. In 2005 the Directors will give special attention to ensuring Moreover, analyses showed Romsdals Fellesbank to be a that the process of integrating Romsdals Fellesbank ASA very well-run bank. It has a solid market position and a satis- into the Group is of high quality. factory profitability and risk profile, and a major potential for improved profitability through integration with SpareBank 1 Based on a continued strong focus on internal improvement Midt-Norge. This potential is greatest in the area of “other programmes, a high level of activity directed at the bank’s income” and, over time, on the costs front. The Board of existing customers, and the profit potentials inherent in Directors considered a price of NOK 171 per share was jus- growth based on Romsdals Fellesbank ASA’s solid market tified, even though it is as much as NOK 33 higher than the position in Møre og Romsdal county, it is the view of the original offer. Besides assuring documentable synergies, the Directors that 2005 will be another good year for the bank.

Trondheim, February 17 2005 The Board of Directors of SpareBank 1 Midt-Norge Report of the Board Directors

Per Axel Koch Eli Arnstad Christel Borge Kjell Eriksen Chairman Deputy chair

Egill Vatne Terje Roll Danielsen Anne Brit Skjetne Venche Johnsen Employee representative

Finn Haugan Chief Executive Officer Board of Directors Annual Report 2004

From left: Egill Vatne jr., Eli Arnstad (Deputy Chair), Venche Johnsen, Terje Roll Danielsen, Per Axel Koch (Chair), Kjell Eriksen, Christel Borge, Finn Haugan (CEO) and Anne-Brit Skjetne. Board of Directors Per Axel Koch Board member of: Born 1961 Person Norge AS Chair The Federation of Norwegian Manufacturing Industries (TBL) Man. dir., Adresseavisen ASA Owns no PCC’s as of 31.12.2004 Board chairman of: Anne-Brit Skjetne Kanal24 AS Born 1946 Adressa-Trykk AS Senior adviser at Hunt Research Centre, Norwegian University TVTrøndelag AS of Science and Technology, Trondheim (NTNU) Board member of: Deputy Chair of: FINN.no AS Mid-Norway Public Health (Helse Midt-Norge RHF) Papirkjøp AS Board member of: Dagens Næringsliv AS Red Cross Ambulance, North Trøndelag Chairman of: Trønderavisa Supervisory Board of SpareBank 1 Gruppen AS Owns 312 PCC’s as of 31.12.2004 Owns no PCC’s as of 31.12.2004 Egill Vatne jr. Eli Arnstad Born 1948 Born 1962 Personnel Manager, Namsos municipality Deputy Chair Board chairman of: Man. dir., Enova SF Namsos Industribyggeselskap AS Board member of: Verftsgate 8 AS Nidaros Cathedral Restoration Works Nordsjø Skalldyr AS Norwegian Association of Publicly Owned Owns no PCC’s as of 31.12.2004 – Companies (NAVO) Annual Report 2004 Friskgården Stjørdal Venche Johnsen Economic Research Centre at the Norwegian University Born 1952 Science and Technology, Trondheim (NTNU) Employee representative, Finance Sector Union of Norway Member of Supervisory Board of: (SpareBank 1 Midt-Norge) The Royal Norwegian Society for Rural Development Board member of: 33 Owns no PCC’s as of 31.12.2004 Sameiet Bergheim Amfi Owns no PCC’s as of 31.12.2004 Terje Roll Danielsen Born 1956 Finn Haugan Property developer Born 1953 Board member of: CEO Roll Severin AS Member of Supervisory Board of: David-Andersen AS Sparebanken Nord-Norge Adresseavisen ASA Sparebanken Rogaland Nedre Elvehavn AS Board chairman of: Investor Forum Trøndelag EiendomsMegler 1 Midt-Norge AS Owns 69,812 PCC’s as of 31.12.2004 Chairman of: Board of Directors Supervisory Board of Selskabet for Trondhjems bys Vel Christel Borge Deputy chairman of: Born 1967 Savings Banks Guarantee Fund Assistant Director Strategy and Business Development, Board member of: Telenor Nordic SpareBank 1 Gruppen AS Board member of: Leiv Eriksson AS Component Software AS Fotograf Schrøders stiftelse Sønnichsen AS Adolf Øiens fond Owns no PCC’s as of 31.12.2004 Owns 6,250 PCC’s as of 31.12.2004 Kjell Eriksen Jan Gunnar Kvam Born 1950 Born 1947 Man. dir., Brekke Industrier AS Deputy Chair: Board chairman of: Finance Sector Union of Norway (SpareBank 1 Midt-Norge) Superlon OY, Finland Regularly attending employee representative UAB Superlon Baltic, Lithuania Owns no PCC’s as of 31.12.2004 Westnofa Industrier AS Profit and loss account

Parent bank Group 2002 2003 2004 (NOK million) Notes: 2004 2003 2002 2 691 2 225 1 574 Interest income a 1 596 2 249 2 707 1 818 1 393 739 Interest expenses b 732 1 385 1 811 873 832 835 Net interest and credit commission income 864 864 896 18 6 9 Dividends and profits on securities with variable return c 9 6 18 -168 -5 23 Income from holdings in associated/jointly controlled companies c 23 -5 -168 7 25 35 Income from holdings in group companies c 0 0 0 251 278 333 Total commission and fee income d 438 355 310 -75 -70 -63 Total commission expenses e -63 -68 -73 -85 54 59 Net gain/loss on securities f 59 54 -85 14 15 18 Net gain/loss on currency f 18 15 14 8 7 13 Other operating income g 49 45 45 -29 309 427 Total other operating income (net) 533 403 62 844 1 141 1 261 Total income 1 396 1 267 958 268 299 295 Salaries, fees and other personnel costs h, 1, 2 379 368 331 205 224 210 Administrative expenses h 228 239 224 34 33 34 Depreciation etc., of fixed assets etc. i 39 39 42

Annual Report 2004 74 71 73 Other operating expenses i 83 86 84 582 627 612 Total operating expenses 729 733 681 263 514 650 Operating profit before losses, gains and write-downs 667 534 277 218 219 80 Losses on loans and guarantees j 81 229 229 34 30 6 -10 Gains and write-downs on disposals of fixed assets k -12 6 30 74 301 559 Operating profit 574 311 77 66 79 130 Taxes 27 144 89 70 7 222 430 Profit for the year 28 430 222 7

Tranfers 54 0 0 Transferred from fund for evalution differences 0 0 54 13 0 0 Transferred from equalisation fund 0 0 13 67 0 0 Total transfers 0 0 67

Allocation of profit -46 -109 -152 Dividens on primary capital certificates -152 -109 -46 -28 -76 -140 Transferred to Sparebankens fund -140 -76 -28 0 0 0 Transferred to gift fund 0 0 0 0 -28 -69 Set aside to the public good -69 -28 0 0 -8 -69 Transferred to dividend equalisation fund -69 -8 0 -74 -222 -430 Amount allocated -430 -222 -74 Profit and loss account specifikations Balance sheet

Parent bank Group 31.12.02 31.12.03 31.12.04 (NOK million) Notes: 31.12.04 31.12.03 31.12.02 884 827 989 Cash and claims on central banks l, 19 989 827 884 1 838 1 304 1 331 Loans to and claims on credit institutions n 552 590 1 149 30 409 31 791 33 365 Loans before loss provisions o 34 226 32 553 31 089 -525 -370 -285 – Specified loan loss provisions o, 5 -290 -380 -531 -349 -302 -301 – Unspecified loan loss provisions o, 5 -314 -318 -364 29 535 31 118 32 779 Loans to and claims on customers 33 622 31 855 30 194 0 1 0 Repossesed assets t 0 6 0 2 342 2 481 2 312 CDs, bonds and other interest-bearing securities p 2 312 2 481 2 342 486 288 370 Shares (and other securities with variable yield) q, 20 370 290 487 439 406 473 Holdings in associated companies and group companies r, 20 312 263 268 148 141 140 Fixed assets s, 16 173 175 184 79 117 97 Other assets t, 29 158 173 190 293 214 105 Prepayments and accrued incomes u 124 216 293 36 044 36 896 38 596 Total assets 38 612 36 876 35 991 2 131 1 114 48 Debt to credit institutions v 48 1 114 2 131 19 082 19 917 20 765 Deposits from and debt to customers w 20 725 19 876 19 049 10 778 11 361 13 165 Debt created by issuance of securities x 13 165 11 361 10 778

802 624 740 Other debt and accrued expenses etc. y 787 637 777 Annual Report 2004 80 125 144 Provision for commitments and costs z 154 132 86 1 064 1 560 1 347 Subordinated debt æ, 21, 25 1 347 1 560 1 064 33 938 34 700 36 209 Total depts 36 225 34 680 33 885

603 607 761 Primary capital (primary capital certificates) ø, 24 761 607 603 35 10 10 10 Premium fund ø 10 10 10 472 482 400 Equalisation fund ø 400 482 472 958 1 040 1 180 Savings bank's fund ø 1 180 1 040 958 6 0 0 Gift fund ø 0 0 6 57 57 36 Other equity ø,28 36 57 57 1 493 1 579 1 616 Earned equity 28 1 616 1 579 1 493 2 106 2 196 2 387 Total equity 2 387 2 196 2 106 36 044 36 896 38 596 Total liabilities and equity 38 612 36 876 35 991 Balance sheet

Trondheim, 17 February 2005 The Board of Directors of SpareBank 1 Midt-Norge

Per Axel Koch Eli Arnstad Terje Roll Danielsen Christel Borge Chair Deputy chair

Anne-Brit Skjetne Kjell Eriksen Egill Vatne jr. Venche Johnsen Employee representative

Finn Haugan Chief Executive Officer Profit and loss account specifications

Parent bank Group 2002 2003 2004 (NOK million) Notes: 2004 2003 2002 a) Interest and similar income Interest and similar income on loans to and receivables 73 94 29 from credit institutions 26 10 61 27 Interest and similar income on loans to and receivables 2 470 2 038 1 490 from customers 5,6,26 1 530 2 093 2 530 Interest and similar income on CDs, bonds and 147 94 54 other interest-bearing securities 54 94 147 0 -1 1 Other interest and similar income 2 1 3 2 691 2 225 1 574 Total interest income and similar income 1 596 2 249 2 707 b) Interest and similar expenses 87 36 25 Interest and similar expenses on debt to credit institutions 26 19 31 83 Interest and similar expenses on deposits from and 996 701 276 debt to customers 26 273 696 990 630 541 354 Interest and similar expenses on issued securities 354 541 630 72 79 85 Interest and similar expenses on subordinated debt 85 79 72 34 36 0 Other interest and similar expenses * 1 38 36 1 818 1 393 739 Total interest expenses and similar expenses 732 1 385 1 811

Annual Report 2004 873 832 835 Net interest and credit comission income 864 864 896 29 30 0 * Of which : levy to Savings Banks' Guarantees Fund 0 30 29 c) Dividend and other income from securities with variable yield 18 6 9 Income from shares and other securities with variable yield 9 6 18 36 -168 -5 23 income from holdings in associated/jointly controlled companies 23 -5 -168 7 25 35 Income from holdings in group companies 0 0 0 -142 26 67 Total dividend and gain on securities 31 1 -150 d) Commissions and income from banking services 16 13 14 Guarantee commision 14 13 16 0 0 0 Broker's commission 75 69 53 17 22 50 Charges on securities trading and management 77 27 20 34 40 43 Charges on sale of insurance services 43 40 34 155 163 188 Charges from payments transmission system 188 163 155 29 40 40 Other charges 42 43 32 251 278 333 Total commission income 438 355 310 e) Commission expenses and expenses on banking services 0 0 0 Guarantee commission 0 0 0 71 67 62 Charges on payment transmission 62 67 72 4 3 1 Charges of purchases of securities 1 0 0 75 70 63 Total commision expenses and expenses on banking services 63 68 73 f) Net gain/loss on foreign currency and securities Profit and loss account specifications Net gain/loss on CDs, bonds and -11 13 31 other interest-bearing securities 31 13 -11 Net gain/loss on shares and other securities -74 41 28 with variable yield 20 28 41 -74 -85 54 59 Total gain/loss on securities 59 54 -85 14 15 18 Net gain/loss on foreign exchange and financial derivatives 18 15 14 -70 69 77 Total net gain/loss on foreign currency and derivatives 77 69 -71 g) Other operating income 1 2 2 Real estate income 26 7 7 7 0 0 0 Charges on property management and sale 17 18 14 0 0 0 Charges on keeping customer accounts 15 13 13 7 4 11 Other operating income 17 10 7 12 8 7 13 Total other operating income 49 45 45 -29 309 427 Commission income and other operating income 533 403 62 Parent bank Group 2002 2003 2004 (NOK million) Notes: 2004 2003 2002 h) Salaries and general administrative expenses 209 226 222 Salaries 1 288 280 259 16 27 25 Pensions 2 31 32 19 43 46 48 Social costs 60 56 52 268 299 295 Salaries etc. 379 368 331 75 77 81 EDP expenses 87 80 77 46 72 70 Telephone, postage, freight, computer-line rental 73 75 49 25 20 21 Marketing 22 24 31 8 10 8 Travel expenses 10 12 10 5 3 3 Training expenses 4 4 6 7 7 7 Office supplies, printed matter 9 9 9 40 36 20 Other administrative expenses 22 37 43 205 224 210 Administrative expenses 228 239 224 474 523 505 Salaries and general administrative expenses 608 608 555 i) Depreciation and other operating expenses 34 33 32 Ordinary depreciation 16 37 39 42

0 0 2 Write-downs 2 0 0 Annual Report 2004 34 33 34 Depreciation etc., of fixed assets etc. 39 39 42 2 3 3 Expenses on leased premises 4 4 10 50 44 40 Operating expenses, real properties 26 42 50 44 10 8 9 Machinery, fixtures, vehicles 10 10 11 37 5 7 7 Dues/fees/insurance 9 8 6 0 0 0 Loss on disposal of capital assets 0 0 0 6 8 13 Misc. operating expenses 18 14 12 74 71 73 Other operating expenses 83 86 84 108 105 107 Total depreciation and other operating expenses 122 125 126 582 627 612 Operating income 729 733 681 263 514 650 Pre-tax profit 667 534 277 j) Losses on loans and guarantees 218 219 80 Loans losses 81 229 229 218 219 80 Total losses on loans and guarantees 4, 5, 12 81 229 229 k) Write-down and gain/loss on long-term securities 20 -6 10 Write-downs 20 10 -6 20 50 0 0 Gains/losses -2 0 50 30 6 -10 Total write-down and gain/loss on long-term securities -12 6 30

74 301 559 Result from ordinary operations 574 311 77 Profit and loss account specifications Balance sheet specifications

Parent bank Group 31.12.02 31.12.03 31.12.04 (NOK million) Notes: 31.12.04 31.12.03 31.12.02 884 827 989 l) Cash and receivables from central banks 989 827 884 n) Loans to and receivables from credit institutions Loans to and receivables from credit institutions 170 143 78 without agreed term or period of notice 26 78 143 170 Loans to and receivables from credit institutions 1 668 1 160 1 253 with agreed term or period of notice 26 474 447 979 1 838 1 304 1 331 Total loans to and receivables from credit institutions 552 590 1 149

o) Loans to and receivable from customers 0 0 0 Leasing 885 809 803 2 517 2 135 1 390 Bank, overdraft, operating and working capital facilities 26 1 390 2 135 2 517 551 367 489 Building loans 489 367 551 27 340 29 288 31 486 Repayment loan 26 31 462 29 241 27 218 30 409 31 791 33 365 Gross outstanding loans 6,7,11,14 34 226 32 553 31 089 -525 -370 -285 – Specfied loss provisions 4, 5 -290 -380 -531 -349 -302 -301 – General loan loss provisions 4, 5 -314 -318 -364 29 535 31 118 32 779 Total loans to and receivables from customers 33 622 31 855 30 194 Annual Report 2004

p) CDs, bonds and other interest-bearing securities 153 427 497 CDs and bonds issued by public institutions 497 427 153 2 050 1 823 1 699 CDs and bonds issued by other institutions 1 699 1 823 2 050 139 232 116 CDs and bonds, own holding 116 232 139 38 2 342 2 481 2 312 Total CDs, bonds and other interest-bearing securities 7, 18 2 312 2 481 2 342

q) Shares (and other securities with variable yield) 485 288 370 Shares, units and primary capital certificates 370 290 487 0 0 0 Units in general partnerships, limited partnerships etc. 0 0 0 486 288 370 Total shares (and other securities with variable yield) 20 370 290 487

r) Ownership interests in group companies 268 263 309 Ownershipinterest in connected companies 312 263 268 80 92 104 Ownership interests in credit institutions 0 0 0 91 51 60 Ownership interests in other group companies 0 0 0 439 406 473 Total ownership interests in group companies 26 312 263 268

s) Total fixed assets 67 66 67 Machinery/fixtures/vehicles 74 74 76 80 75 73 Buildings and real property 99 102 108

Balance sheet specifications 148 141 140 Total fixed assets 16,17 173 175 184

t) Other assets 0 0 0 Goodwill 2 4 5 44 34 14 Deferred tax advantages 27 28 43 52 44 34 14 Total immaterial assets 30 47 57 0 1 0 Repossesed assets 0 6 0 35 83 83 Other fixed assets 30 128 126 133 79 117 97 Total other assets 158 179 190

u) Prepayments and accrued revenues, other assets Accrued, unpaid revenues and prepaid non-accrued expenses 293 214 105 non-accrued expenses 124 216 293 293 214 105 Total prepayments and accrued revenues, other assets 124 216 293 36 044 36 896 38 596 Assets 38 612 36 876 35 991 Parent bank Group 31.12.02 31.12.03 31.12.04 (NOK million) Notes: 21.12.04 31.12.03 31.12.02 v) Debt to credit institutions Loans and deposits from credit institutions 61 50 38 without agreed term or period of notice 38 50 61 Loans and deposits from credit institutions 2 070 1 064 10 with agreed term or period of notice 10 1 064 2 070 2 131 1 114 48 Total debt to credit institutions 48 1 114 2 131

w) Deposits from and debt to customers 17 808 17 850 18 732 Deposits from and debt to customers without agreed term 18 692 17 809 17 775 1 275 2 067 2 033 Deposits from and debt to customers with agreed term 2 033 2 067 1 275 19 082 19 917 20 765 Total deposits from and debt to customers 13, 26 20 725 19 876 19 049

x) Debt created by issuance of securities 5 876 3 897 3 330 Negiotable certificates and other short-term funding 3 330 3 897 5 876 4 902 7 463 9 835 Bonds 21 9 835 7 463 4 902 10 778 11 361 13 165 Total debt created by issuance of securities 13 165 11 361 10 778

y) Other debt, accrued expenses and prepaid income Annual Report 2004 294 335 194 Other current liabilities 211 339 250 508 289 546 Accrued expenses and prepaid incomes 576 298 527 802 624 740 Total other debt, accrued expenses and prepaid income 787 637 777

z) Provision for commitments and expenses 39 40 44 39 Pension commitments etc. 2 49 50 46 40 81 105 Other provisions 29 105 81 40 80 125 144 Provisions for commitments 154 132 86

æ) Other capital 164 661 597 Perpentual subordinated loan capital 597 661 164 900 899 749 Subordinated loan capital 749 899 900 1 064 1 560 1 347 Total other capital 21, 25 1 347 1 560 1 064

ø) Equity capital 615 615 769 Company capital (primary capital certificates) 24 769 615 615 -12 -8 -8 Holding of own primary capital certificates -8 -8 -12 10 10 10 Premium fund 10 10 10 613 617 771 Total primary capital 771 617 613 958 1 040 1 180 Savings bank's fund 1 180 1 040 958

6 0 0 Gift fund 0 0 6 Balance sheet specifications 472 482 400 Equalisation fund 400 482 472 57 57 36 Other equity 36 57 57 1 493 1 579 1 616 Total earned equity 1 616 1 579 1 493 2 106 2 196 2 387 Total equity capital 28 2 387 2 196 2 106 36 044 36 896 38 596 Debt and equity capital 38 612 36 876 35 991 Accounting Principles

General comments The shortfall in value of loans in default and of problem loans not formally in default is deducted in the balance sheet in the The annual report and accounts are drawn up in accordance form of specified and unspecified loss provisions on loans. with applicable laws and provisions and good accounting prac- Changes related to loss provisions and actual losses show in tice. Unless otherwise stated in the individual note, the informa- the profit and loss account under “Losses on loans and tion in the notes refers to the Group. Unless otherwise stated, guarantees”. all amounts in the profit and loss account, balance sheet and notes are in millions of kroner. Realised loan losses are losses regarded as final, and include losses where the bank has lost its claim on the debtor after Treatment of subsidiaries and participation bankruptcy proceedings, composition proceedings etc. Other registered losses are losses on loans where it is highly probable in activity under joint control that the loss is final, but where the bank has not cancelled its The group accounts encompass Sparebanken Midt-Norge and claim on the customer. subsidiaries and associated companies. Subsidiaries are defined as companies in which the bank has a long-term invest- Specified provisions are provisions for estimated, unrealised, ment of more than 50 % of the capital in the company and has losses on problem loans and defaulted loans. Specified loss a determining influence on its operations. All significant invest- provisions are reversed when a new assessment makes it clear ments in subsidiaries are consolidated using the equity method. that basic conditions requiring loss provisions are no longer Mutual balance sheet items, and all significant result compo- present. nents linked to these items, and profit/loss elements linked to Unspecified loss provisions against loan losses are intended to the same items are eliminated. cover losses which are expected to arise in addition to losses The bank’s share of a subsidiary’s profit is based on the actually identified and measured. Such provisions are made subsidiary’s post-tax profit, and is shown on the line “revenues based on evidence indicating loss risk associated with overall on ownership interests in group companies”. loan structure, changes in sectoral composition and trend in the loan portfolio. The provisioning ratio varies between 0.25 and The bank’s ownership interest in SpareBank 1 Gruppen AS is 3.0 per cent depending on the degree of risk represented by the valued as participation in joint controlled activity. Both in the loans. The average ratio for business/corporate loans is 2.0 per parent bank’s accounts and the consolidated accounts, the sha- Annual Report 2004 cent and for retail loans 0.3 per cent. The increase in lending res of SpareBank 1 Gruppen AS are valued using the equity met- over the preceding six months is loss-provisioned at half the hod, and accounting data are incorporated using the equity normal ratio. method. Securities Recording of income/expenses 40 Shares, primary capital certificates and mutual fund units are Interest and commissions are included in the accounts as reve- classified as current assets in the trading portfolio, are shown at nues or expenses as they are earned or incurred. Arrangement true value on the balance sheet date when traded on a stock and deposit fees charged to private individuals upon taking out exchange or in a regulated market and have a good owner a loan are taken to income in their entirety in the year of disbur- spread and liquidity. Other shares, primary capital certificates sement since they are considered to meet the costs of arrange- and units are classified as current assets and are valued collec- ment. tively at acquisition cost or true value, whichever is lowest. Share dividend and other commissions and fees received by the Long-term investments in shares and units are valued at acqui- bank are taken to income as they accrue. The recipient company sition cost. Long-term trade investments are written down when takes share dividend and group contributions from group com- the true value is substantially lower than acquisition cost and panies to income in the year they are allocated by the donor the drop in value is not assumed to be transient. Write-downs company. are reversed when the basis for the write-down no longer exists. Average acquisition cost is employed when calculating gains on Certificates of deposit and bonds are classified as current assets convertible financial assets. in the trading portfolio and are valued collectively at true value. Revenues and costs on these securities are shown under the Loans, defaults and losses on loans and item “net gain on securities”. Certificates of deposit and bonds are classified as current assets in the hedging portfolio and are Accounting Principles guarantees valued collectively at original acquisition price adjusted for Loans are valued at nominal values except for problem loans premium/discount on securities. Premium/discount is expen- not formally in default and loans in default. sed/taken to revenue over the lifetime of the security. Loans and other commitments that are not in default, but where the customer’s financial situation makes it likely that the bank Fixed income and foreign exchange will incur losses, are classified as problem loans and commitments. instruments Financial instruments include transferable financial assets and Loans in default are loans where the borrower pursuant to the liability items as well as financial derivatives. Financial assets in loan agreement is behind with payments and where 90 days the balance sheet include shares, primary capital certificates, have passed since the due date or overdraft date. A customer in bonds and certificates of deposit. Financial derivatives are con- default on one or more loans is reported as being in default tracts entered into with financial institutions or customers to fix overall. financial values in the form of interest rate terms, exchange Interest on non-performing loans is not taken to income. rates and the value of equity capital instruments for specified Interest is only taken to income when actually paid. periods. Such contracts include forward exchange contracts, interest rate swaps and currency swaps, currency and interest Losses on the above types of loans are assessed in the light of rate options, forward rate agreements and stock-exchange- the bank‘s total exposure to the customer, the value of security quoted financial futures etc. the value of the underlying security, the customer’s financial position and any measures applied at the customer. Security is The hedging portfolios were introduced to limit interest rate risk valued on the basis of the assumed realisation value. on the bank’s subordinated debt, loans and funding at fixed interest, and to accrue agreed margins over the term of the shows as the difference between gross pension commitment, transactions. One of the hedging portfolios comprises fixed which is the current value of the presumed future pension interest loans and funding and interest rate hedging of both benefit, and pension assets. The amount of uncovered pension these items. commitment also includes employer’s contributions which will accrue at the rates in effect at any given time. Moreover, All asset, liability and off-balance sheet items included in the variance in estimates and effects of changed assumptions are hedging portfolios are valued at original cost price adjusted for treated on an accruals basis in the net pension commitment accrued premium/discount. Premium/discount is shown in the shown in the balance sheet. Such estimates and variance from profit and loss account as interest. All realised capital gain/loss expectations are measured in aggregate against the gross is entered in the profit and loss account as interest earned or pension commitment or total pension assets, whichever is accrued. Own funding is valued at book value. Repurchase of largest. If the variances exceed 10 per cent of the measurement own issued securities is valued at market value. Hedging base, the excess difference is accrued over the residual contracts are valued in accordance with the same principle as accumulation period. the hedged items. The trading portfolio comprises bonds and interest rate instru- Other liabilities ments that the bank trades in on a daily basis, and where the The bank’s own subordinated bond debt is shown in the bank’s net interest rate exposure is placed. The bank’s directors balance sheet at net nominal value after deduction of the ban- have set limits on the size of interest rate exposure. The port- k’s own holding. In the case of sizeable amounts, premium is folio’s balance sheet items are valued at acquisition cost or taken to revenue and discount is expensed on a systematic market value, whichever is lowest, and unrealised losses are basis as an adjustment of current interest expenses up to the expensed/taken to revenue with a contra entry in the balance due date of the bond. The bank’s ordinary bond loans are boo- sheet. ked in the balance sheet at nominal value less the bank’s own holding booked at acquisition cost. Sizeable direct costs incur- Repossessed assets red on bond issues and other funding are systematically expen- Assets that are entirely or partially repossessed as settlement sed as an adjustment of current interest expenses up to the due for loans are valued at their assumed realisation value on the date of the bond or loan. repossession date and subsequently valued on the balance sheet date. Write-down as a result of possible decline in value or loss incurred on disposal is entered as a loan loss. Gain on sale Tax of assets is booked, when risk has been transferred to the pur- The tax charge for the year in the profit and loss account com- chaser, as reduction in/recovery of losses. Assets repossessed prises tax payable on the income for the year adjusted by the Annual Report 2004 for rapid realisation are classified as current assets, while assets amount (surplus or deficit) set aside in previous years and any repossessed for permanent ownership or use is classified as change in deferred tax assets and deferred tax. Deferred tax is capital assets. calculated against the background of temporary differences between accounting values and tax values at the end of the accoun- Real estate and capital assets ting year. Positive and negative differences within the same time interval are eliminated. Write-up and write-down of capital 41 Buildings and other real estate in the bank’s balance sheet are assets and pension commitments are nonetheless appraised valued at acquisition cost with the addition of any revaluation separately. Deferred tax advantages arise and are shown as an value, but with deduction for accumulated write-off and possible asset in the balance sheet if the bank has temporary differences write-down. Ordinary depreciation is based on the assets' that qualify for tax deductions in the future. assumed economic lifetime and is carried out using the straight- line method. Write-downs are undertaken when the difference between actual value and book value of buildings is substantial International financial reporting standards and not assumed to be of a transient nature. The write-down is (IFRS) reversed when the basis for the write-down is no longer present. Being a stock exchange listed entity, the group will prepare and report the consolidated accounts in compliance with the IFRS Leasing as from 2005. Leasing as administered by the subsidiary SpareBank 1 Midt- Norge Finans AS. This is financial leasing where rights and The group has started work on implementing the IFRS. The obligations pertaining to the leased objects rest with lessee. consequences of the various optional accounting principles for Leasing is entered as lending in the group accounts, and the the group in connection with the switch to the IFRS have been interest segment of the rental as interest income. identified and assessed. The group will establish an IFRS- compliant opening balance as of 1 January 2004. Accounting Principles Assets and liabilities in foreign currency The main difference compared with the present accounting Assets and liabilities in foreign currency are converted at the principles refers to reporting and monitoring of financial instru- middle rate quoted by Norges Bank at the end of the accounting ments. Derivatives will be presented at market value, which may year. Income and expenditure in the bank’s accounts are conver- have repercussions for instruments that use derivatives for ted at the prices in effect on the date they were earned/incurred. hedging purposes. In other areas there will be minor changes or The foreign exchange items are hedged by corresponding items no significant changes at all. As a consequence of IFRS on the opposite side of the balance sheet or by off-balance sheet implementation, the group's profit and loss account and equity hedging transactions. capital can be expected to show somewhat more volatility than under the present accounting principles. Pension costs and pension commitments The group will present its first IFRS-compliant accounts in 2005. The group’s pension commitments and pension costs are cal- One reason for this is the uncertainty inherent in the develop- culated in conformity with Norwegian accounting standards for ment of IFRS in the run-up to 2005. In 2005 one year's pension costs. Net pension costs are classified in their entirety comparable figures (2004) will be presented except in the case under wage costs in the profit and loss account and include of financial instruments where comparable figures are not pension rights accumulated in the period and interest expenses required in the year of IFRS implementation (2005). on pension commitments less estimated return on pension assets. Business area Sparebanken Midt-Norge regards the operations of the bank as In the balance sheet the net uncovered pension commitment is a single business area. classified as long-term debt. The net pension commitment Notes 2004 (Amounts in NOK million unless otherwise stated)

Note 1 Salaries, fees and other personnel expenses

Parent bank Group 2002 2003 2004 2004 2003 2002 Salaries and remuneration to employees and 243 278 251 elected officers 337 348 306 Staffing 594 592 510 No. of FTE’s 637 713 718 675 646 553 No. of employees 711 772 825

Under the CEO‘s employment contract the bank is obligaed to pay salary and other compencation for up to 36 months after his retirement, however such that compensation payable for the final 12 months shall be reduced by any salary earned in other employment. The CEO is entitled to retire upon reaching the age of 60 and to receive a pension of 68 per cent of his pensionable income. The pension obligation to the CEO is included in the bank's group occupational pension scheme, cf, Note 2.

Emoluments and Fees (NOK 1000) Emoluments to the Board of Directors 1 154 1 140 1 165 Of which emoluments to chairman of the Board of Directors 270 250 250 Emoluments to the Supervisory Board 289 241 309 Emoluments to the Control Committee 350 425 440 Emoluments to the CEO 1 780 1 762 1 667 Annual Report 2004 Additional pension expenses 465 466 289 Audit fees 857 1 144 839 Fee to auditor for audit-related advisory services 92 285 334 Fee to auditor for non audit-related advisory services 61 284 Fee to collaborating companies – Deloitte Advokatfirma DA 64 42 Note 2 Pension expenses and pension commitments

The pension schemes are administered by the Group's own pension fund, and confer the right to specified pension benefits as from the age of 67. The schemes also include spouse's pension, child's pension and disability pension in accordance with further rules. The Group also has commitments vis-à-vis early retirees and some employees with earnings in excess of 12 times the basic amount under the National Insurance Scheme. The banking and financial industry has entered into an agreement on contractual early retirement as from the age of 64. The bank's contribution is about 60 per cent of pensions disbursed to employees who take out early retirement. Retirement age has since been changed to 62 years, and the bank's responsibility is 100% from 62 to 64 years. Calculations are based on the assumption that 50% will retire at age 62 and 100% at age 64. The expenses on the early retirement scheme will be systematically distributed over the average remaining qualifying period. Notes Parent bank Group 2002 2003 2004 Pension expenses 2004 2003 2002 12 17 19 Present value of pension accumulated in the year 23 20 15 22 23 22 Interest expenses on pension commitments 24 25 23 -23 -20 -20 Expected return on pension assets -21 -21 -24 1 1 1 Recorded effect of plan changes 1 1 1 Recorded effect of estimate changes and difference 0 3 3 between actual and expected return 4 3 0 2 3 4 Expenced employer's contribution 4 4 2 14 28 29 Net pension expenses exc. employer's contribution 35 32 18

Pension commitments -338 -421 -461 Estimated accrued commitments exc. contribution -498 -450 -362 317 308 354 Estimated value of pension assets 374 323 331 -21 -113 -107 Estimated net pension assets -124 -126 -31 Non-recorded effect of estimate changes and -23 67 66 difference between actual and expected return 75 74 -20 9 8 7 Non-recorded effect of plan change 7 8 10 -5 -5 -5 Employer’s contribution -6 -6 -6 -40 -44 -39 Net pension commitment in the balance sheet -49 -51 -46 Assumptions underlying the calculation: Average retirement rate up to 50 yrs 2–3% Discount rate 5.2% Thereafter 0% Expected wage growth 3.3% Annual growth of basic pension under nat. ins. scheme 2.5% Expected pensions growth 2.5% Annual growth of pensions 2.5% Expected return on pension resources 6.2% Corridor size set at 10.0%

In 2004 the Group booked pension expenses and pension commitments in accordance with the Norwegian Accounting Foundation's standard for accounting treatment of pension expenses. The pension schemes are treated as benefit plans and encompass 1062 members. The actuarial calculation of pension commitment as of 31.12.2004 is based, as an estmate, members inforation as of 01.01.2004. The assumptions underlying the calculation have been changed in relation to 2003. The discount rate is reduced from 6% to 5.2%, and expected return from 7% to 6.2%. Employer’s contribution comes in addition to the pension costs shown above. The amount is calculated and shown in the balance sheet under provision for commitments. Deferred tax benefit is calculated and recorded in accordance with generally accepted accounting principles for the treatment of deferred tax.

Note 3 Assets and liabilities in foreign currency

Parent bank Group Morbank Konsern 2002 2003 2004 2004 2003 2002 1 836 1 710 942 Assets 942 1 710 1 836 Annual Report 2004 2 280 2 965 2 487 Liabilities 2 487 2 965 2 280

Note 4 Losses on loans and guarantees 43 Parent bank Group 2002 2003 2004 Losses of the year on loans and guarantees 2004 2003 2002 110 -154 -86 Change in specified losses in the period -90 -151 114 -26 -47 -1 Change in general losses in the period -3 -46 -23 Actual losses in the period on loans for which 106 228 132 loss provisions were made earlier 137 232 110 Actual losses in the period on loans for which 43 206 52 not loss provisions were made earlier 55 208 43 Incomings in the period on loans for which loss -14 -13 -18 provisions were not made earlier -18 -14 -14 218 219 80 Losses of the year on loans and guarantees 81 229 229 Notes

Note 5 Loss provisions and loans in default

Parent bank Group 2002 2003 2004 Specified loss provisions 2004 2003 2002 Specified provisions to cover losses as at 1 January 414 525 370 Loans 380 531 417 0 0 0 Guarantees 0 0 0 19 38 36 Increase in specific loss provisions from prev. period 37 41 22 55 30 44 Reduction in specified loss provisions from prev. period 46 30 55 252 66 54 New specified losses in the period 55 70 256 106 228 132 - Reduction in specified losses due to previous realization 137 232 110 525 370 285 Specified provisions to meet losses as at 31 December 290 380 531

Uspecified loss provisions 375 349 302 Unspecified provisions to meet losses as at 01.01 318 364 388 -26 -47 -1 + Unspecified loss provisions in the period -4 -46 -23 349 302 301 Unspecified provision to meet the losses as at 31.12 314 318 364 Parent bank Group 2001 2002 2003 2004 2004 2003 2002 2001 Total defaults 632 569 455 354 Loans in default for more than 90 days 354 455 569 632 275 240 211 156 - Specified loss provision 156 211 240 275 357 329 244 198 Net defaults 198 244 329 357 44% 42% 46% 44% Provision rate 44% 46% 42% 44%

Non-accrual loans (parent bank)*) 484 592 439 312 Non-accrual loans 312 439 592 484 139 285 159 129 - Specified loss provision 134 168 291 142 345 307 280 183 Net non-accrual loans 178 271 301 342 29% 48% 36% 41% Provision rate 43% 38% 49% 29%

Loans on which interest accurals have been suspended 2004 2003 2002 2001 2000 Loans on which interest accruals have been suspended 272 470 490 412 338 - Specified loss provision 118 156 351 250 254 Net loans on which interest accruals have been suspended 154 314 139 162 84 Annual Report 2004 Provision rate 43% 33% 72% 61% 75%

* Non-accrual loans are defined as loans where interest is taken to income when the customer pays.

44 Change in interest on loans not taken to income Interest, accrued, not taken to income as at 01.01 44 37 34 28 27 - Interest taken to income from previous periods 32222 - Interest accrued, not taken to income, on loans no longer on the balance sheet 22 19 16 12 9 + Interest not taken to income on loans identified as problem loans 17 28 21 20 11 = Interest accrued, not taken to income, on loans on the balance sheet as at 31.12 37 44 37 34 28 Notes Risk classification of loans The bank’s loans and guarantees are classified in risk categories. The risk classification system differentiates customers in terms of debt-servicing ability, financial strength and qualified collateral. A commitment can comprise the balance outstanding on a loan, credit ceiling, guarantee limit and interest accrued

Commitments distributed on risk classes as at 31.12.2004 (Parent bank) Residual Guarantees and Spec. Loss Risk class Commitment loan unutilised credit provision Low risk 16 406 15 773 665 0 Normal risk 11 692 9 559 1 906 3 Substantial risk 5 396 4 859 486 9 High risk 4 009 3 174 492 273 Total 37 503 33 365 3 549 285

The bank takes account of risk when pricing loans. Hence pricing is normally relative to risk classification. Loans entailing the lowest risk carry a low interest rate. See also comments on risk factors in the Directors' Report. Unspecified loss provisions are not assigned to a risk class.

Annual expected loss level distributed on risk classed The loss estimated for 2005 is about 0.40% of gross outstanding loans.

Gross outstanding loans and guarantees and defaulted/other problem loans and loss provisions as at 31.12.2004 (Parent bank) Annual Report 2004 Gross Guaran- Unutilised Problem Spec. loss Unspec. loss loans tees limit Defaults loans provision provision Retail customers 21 485 10 185 194 211 112 58 Other 470 75 365 0 41 25 5 45 Sectors: Construction 452 275 255 19 8 7 10 Prop. management/business serv. 4 220 79 642 40 128 43 111 Retailing/hotels 1 246 215 419 19 23 11 26 Primary industries 2 560 7 285 36 29 13 22 See farming industries 698 0 83 18 46 22 21 Manufacturing 753 267 136 9 61 26 15 Transport and other services 1 482 191 60 20 53 26 33 Total 2004 33 365 1 119 2 430 355 598 285 301 Total 2003 31 791 873 1 930 455 858 370 302 Notes Total 2002 30 409 1 069 2 887 568 1 088 525 349

Unspecified loss provisions are not assigned to individual sectors; sectoral analyses are employed as parameters to compute the size of loss provisions. Note 6 Loans and guarantees to officers and employees

Parent bank Group

2002 2003 2004 2004 2003 2002 443 480 465 Loans and guarantees to officers and employees 465 480 443

Loans and guarantees to officers Interest (NOK thousand) Loan subsidy CEO 1 302 3 Chairman of the Supervisory Board 1 055

Board members Eli Arnstad 1 424 Venche Johnsen 1 096 2 Egill Vatne 192 Jan Gunnar Kvam 883 2

Senior executives

Annual Report 2004 Executive Director, Corporate Market Division 1 942 3 CFO, Executive Director 1 388 3 Deputy CEO Executive Director Retail Market Division 1 700 2 COO, Executive Director Business Operations 1 744 3 Executive Director, Communications 923 2 46 Legal Director 1 466 1 Control Committee 357 Supervisory Board 28 220 25 Of which to the chairman of the Supervisory Board 2 348

Total loans to employees include loans to senior employees and officers, see note 1 for specification. All loans to employees are booked in the parent bank. Strict requirements as to collateral apply to these loans. The interest subsidy for 2004 is estimated at NOK 0.7 million using the interest rate underlying the tax on the benefit of low-interest loans to employees.

Notes Note 7 Subordinated loan capital in other institutions

Parent bank Group

2002 2003 2004 2004 2003 2002 15 4 0 Bearer bonds 0 4 15 71 76 71 Loans 71 76 71 86 80 71 Total subordinated loan capital 71 80 86 15 4 55 Of which placed with financial institutions 55 4 15 Note 8 Interest rate and foreign exchange agreements

Off-balance sheet financial instruments are employed to meet customer's financing requirements, and to guide tha bank's foreign exchange and interest rate exposure. These instruments are also used to exploit expected interest rate and exchange rate movements. The bank has no netting agreements. In the context interest rate and exchange rate agreements are financial instruments defined as follows:

Forward contracts in foreign currencies These are agreements to buy or sell a specific amount in foreign currency at a future date at a predetermined exchange rate. It also includes agreements to exchange specific amounts of two different foreign currencies at a predetermined exchange rate and pay interest on these for an agreed period of time (foreign currency swaps).

Interest rate SWAPS An agreement whereby interest rate on nominal amounts are exchanged with customers or banks.

Forward rate agreements (FRAs) Agreements which stipulate a certain interest rate on a nominal amount for a future period of time.

Currency option A contract that gives the buyer a right, but not an obligation, to buy or sell a currency at a fixed price on a specified date or within a specified period.

Interest rate cap

An agreement between a seller and buyer (borrower) where the borrower puts a cap on his floating interest rate over Annual Report 2004 a specified period. The reference rate which the buyer wishes to hedge may for example be NIBOR. At each due date NIBOR shows whether the reference rate is below or above the interest rate cap agreed by the buyer.

Settlement is such that if the short-term reference rate at a given due date is higher than the cap, the buyer will be paid the differende between the two rates. 47 Interest rate floor In contrast to a cap, the buyer of an interest rate floor will set a lower limit or minimum return for his high-floating investment. Settlement is the same as in the case of the cap, but with opposite signs.

Interest rate collar Agreement between a seller and buyer (borowwer) that combines a cap and a floor. The buyer secures a maximum and minimum borrowing rate. By combining a cap and a floor a fluctuation range is established for the interest rate. In reality the buyer of a collar buys a cap and sells a floor, thereby ensuring that the interest rate will remain within a pre-agreed corridor.

Interest rate futures Notes Agreements to purchase or sell a specific number of bonds at a future date. Contracts are setteled with the Norwegian Options Central. Agreements of this kind are often made to reduce the interest rate exposure attached to a bond portfolio.

The directors have set an overall limit for maximum interest rate risk in losses/gains at 1 percent parallel shift in the general interest rate level, and limit for total foreign currency exposure. Part of the interest rate risk covered in the balance sheet is hedged by interest rate swaps, FRAs and bond futures. The bank considers it has good control over, and well- balanced, interest rate and foreign currency exposure.

The interest rate and foreign exchange agreements are essentially contracted with high-quality financial institutuions, such that the bank regards the credit risk as minimal.

Contract amount Purchase Sale Average Forward exchange transaction 450 450 0 Interest rate swaps 13 872 13 872 88 FRAs 0 0 0 Currency put options 345 345 0 Currency call options 345 345 0 Interest Rate Cap/Floor 1 264 1 241 -8 16 276 16 253 80 Note 9 Other off-balance sheet commitments

Parent bank Group

2002 2003 2004 2004 2003 2002 Guarantee Commitments 426 434 389 Payment guarantees 389 434 426 460 209 473 Performance guarantees 473 209 460 3 2 1 Loan guarantees 1 2 3 6 5 5 Guarantees for taxes 5 5 6 10 50 50 Guarantees for the Savings Banks' Guarantee Fund 50 50 10 174 223 253 Other guarantee commitments 253 223 174 1 079 924 1 171 Total guarantee commitments 1 171 924 1 079 0 0 0 Of which counter-guaranteed by banks 0 0 0

Other Commitments 45 77 86 Letters of credit 86 77 45 2 887 1 930 2 430 Unutilised ordinary block credit 2 371 1 921 2 789 2 932 2 007 2 516 Total commitments 2 457 1 998 2 834 Annual Report 2004 Re foreign exchange see note 8. Assets pledged as security Bank buildings, other real property and 48 0 0 0 repossesed properties at book value 0 0 80 0 0 0 are pledged as security for mortage loans 0 0 176

2 303 2 180 2 196 Bearer bonds at book value 2 196 2 180 2 303 of this pledged as security for overnight 0 0 0 loans (D-loans) from Norges Bank 0 0 0 Bearer bonds at book value have not been furnished as security for guarantees in favour of the Savings Banks' Guarantee Fund.

Note 10 Distribution of guarantees by sector/industry Notes Parent bank Group

2002 2003 2004 2004 2003 2002 Sectors 995 778 1 035 Commercial sector 1 035 778 995 13 7 10 Private customers 10 7 13 62 88 75 Other sectors 75 88 62

1 069 873 1 120 Total (not incl. guarantee to Savings Bank's Guarantee Fund) 1 120 873 1 069

Industries 247 217 215 Commerce/hotels 215 217 247 17 9 7 Primary industries 7 9 17 0 0 0 Sea farming industries 0 0 0 183 155 79 Financing, real estate etc. 79 155 183 161 153 275 Building and constructions 275 153 161 265 135 267 Manufacturing 267 135 265 122 109 191 Transportation and services 191 109 122 995 778 1 035 Total 1 035 778 995

Geographical division see note 14. Note 11 Distribution of loans by sector/industry

Parent bank Group

2002 2003 2004 2004 2003 2002 Sectors 246 67 69 Public administration 89 93 270 11 627 11 133 11 411 Commercial sectors 12 246 11 865 12 281 17 958 20 005 21 485 Private customers 21 491 20 008 17 961 578 587 401 Other sectors 401 587 578 30 409 31 791 33 365 Total 34 226 32 553 31 089

Industries 1 271 1 268 1 246 Commerce/hotels 1 441 1 464 1 466 2 364 2 522 2 560 Primary industries 2 633 2 567 2 415 733 832 698 Sea farming industries 714 850 751 4 184 3 682 4 220 Property operation/business services 4 271 3 766 4 233 410 391 452 Building and construction 692 600 571 855 826 753 Manufacturing 918 933 938 1 810 1 612 1 482 Transportation 1 577 1 685 1 908 Annual Report 2004 11 627 11 133 11 411 Total 12 246 11 865 12 281

Geographical division see note 14.

Note 12 Distribution of losses on loans and guarantees by sector/industry

Parent bank Group

2002 2003 2004 2004 2003 2002 Sectors 249 258 53 Commercial sector 57 267 257 -11 8 13 Private customers 13 8 -11 6 0 15 Other sectors/foreign countries 15 0 6 Notes -26 -47 -1 General losses for the year -3 -46 -23 218 219 80 Total 82 229 229

Industries 18 11 4 Commerce/hotels 4 14 19 7 4 4 Primary industries 4 6 7 14 183 13 Sea farming industries 13 183 14 156 29 27 Property operation/business services 7 13 158 4 4 0 Building and construction 0 5 4 33 8 18 Manufacturing 18 9 36 18 20 8 Transportation and services 9 38 19 249 258 53 Total 55 267 257 Note 13 Distribution of customer deposits by sector/industry

Parent bank Group

2002 2003 2004 2004 2003 2002 Sectors 997 1 268 1 428 Commercial sector 1 428 1 268 997 7 043 7 043 7 488 Private customers 7 447 7 002 7 010 10 981 11 252 11 256 Other sectors/foreign countries 11 256 11 252 10 981 61 354 593 General losses for the year 593 354 61 19 082 19 917 20 765 Total 20 724 19 876 19 049

Industries 1 683 1 399 1 640 Commerce/hotels 1 640 1 399 1 683 1 183 1 189 1 134 Primary industries 1 134 1 189 1 183 55 34 38 Sea farming industries 38 34 55 1 793 1 885 2 176 Property operation/business services 2 135 1 844 1 760 380 379 402 Building and construction 402 379 380 426 404 313 Manufacturing 313 404 426 1 523 1 753 1 785 Transportation and services 1 785 1 753 1 523

Annual Report 2004 7 043 7 043 7 488 Total 7 447 7 002 7 010 5.39% 3.61% 1.38% Average interest rate customers 1.38% 3.61% 5.39% 4.27% 2.68% 2.61% Average interest rate financial institution 2.61% 2.68% 4.27%

Note 14 Geographical division of customer loans and guarantees

Parent bank Group

Loans Guarantees Per 31.12.2004 Loans Guarantees 16 492 638 Sør-Trøndelag 16 922 638 13 040 288 Nord-Trøndelag 13 280 288 415 14 Møre og Romsdal 435 14 320 2 Nordland 334 2 Notes 2 748 178 Other parts of Norway 2 905 178 350 0 Foreign 350 0 33 365 1 120 34 226 1 120 Loans are gross loans before specified loss provisions.

Note 15 Repossesed assets

Parent bank Group

2002 2003 2004 2004 2003 2002 0 1 0 Repossesed financial assets 0 1 0 0 0 0 Repossesed assets 0 6 0 0 1 0 Total repossesed assets 0 6 0 Note 16 Specification of business assets

Parent bank Group Machinery Buildings/ Machinery Buildings/ Equipm./Vehicles Properties Equipm./Vehicles Properties Original cost as of 01.01.04 incl. previously written up 346 86 365 121 Additions 34 0 39 0 Disposal at original cost 46 0 48 0 Total depreciation and write-downs 267 13 282 21 Book value as at 31.12.04 67 73 74 100 Depreciation and write-downs in the year 32 2 36 3 Expected economic lifetime for machinery/fixtures and means of transport is about 5 years, for EDB-equipment between 3 and 4 years, and for buildings about 50 years and 25 years respectively in towns and rural areas.

Buildings and other real property (NOK thousand) In parent bank: Type of Book Area in square meters Place building value Own use Leased Vacant Total Remarks Annual Report 2004

Verdal Seminar resort 8 773 Trondheim Bank building 24 081 2 500 0 0 2 500 Incl. lot Heimdal Bank building 11 185 810 1 475 0 2 285 Incl. lot Heimdal Office building 4 404 0 823 0 823 Incl. lot 51 Trondheim Residence 102 0 32 0 32 Trondheim Office building 1 077 0 280 0 280 Incl. lot Malvik Bank building 2 397 473 0 0 473 Incl. lot Rennebu Bank building 3 782 842 850 0 1 692 Incl. lot Støren Bank building 3 257 718 227 100 1 045 Incl. lot Aure Bank building 2 971 651 239 75 965 Incl. lot Singsås Bank building 898 360 102 0 462 Incl. lot Rennebu Bank building 307 0 0 395 395 Incl. lot Other real estate Cabins etc. 7151 Total 70 385 Notes

Note 17 Purchases and disposals of machinery, equipment, vehicles, bank buildings and other property

(NOK 1000) 2004 2003 2002 2001 2000 Parent bank Machinery/equipment/ Additions 34 075 29 351 19 497 36 948 50 155 vehicles Disposal 537 935 541 446 673 Gain/loss 301 585 133 347 -126 Bank buildings and Additions 0 0 68 718 4 567 30 826 other property Disposal 16 1 529 0 40 620 0 Gain/loss 16 741 0 15 320 0 Group Machinery/equipment/ Additions 37 333 32 032 27 167 42 264 59 915 vehicles Disposal 775 1 107 541 446 883 Gain/loss 402 550 133 347 -126 Bank buildings and Additions0006 17230 826 other property Disposal 16 1 529 7 908 51 590 95 850 Gain/loss 16 741 2 375 19 135 17 872 Note 18 Bearer bonds and negotiable certificates Normal Book value/ Risk value market value Goverment issues 0% 600 607 Issued by Norwegian counties 20% 35 35 Issued by financial institutions 20% 1 614 1 615 Issued by others 100% 96 97 Total bearer bonds and certificates *) 2 345 2 355 Short-term investments in shares 43 Total short-term investments in securities 2 345 2 398 *) Of which in exchange-listed bonds 2 312 *) Holding of own bonds 116 All bonds and CDs in the bank's balance sheet as of 31.12.04 are in Norwegian kroner. The average effective interest rate is about 2.16%. The interest rate is calculated on the basis of interest income for the year and the average holdning through the year.

Note 19 Residual maturity

Annual Report 2004 Up to From 1 to 3 monthsfrom 1 year Over No Totalt Assets 1 month 3 months to 1 year to 5 years 5 years residual maturity Norwegian kroner: Cash and receivables from central banks 981 981 Loans to and receivables 52 from credit institutions 1 111 1 111 Loans to and receivables customers 2 409 395 2 255 7 999 19 612 -586 32 085 Bonds/CDs and other interest-bearing securities 200 354 350 1 337 71 0 2 312 Assets with no residual maturity 1 111 1 111 Foreign currencies: Cash and receivables from central banks 8 8 Loans to and receivables from credit institutions 220 220 Loans to and receivables customers 685 9 694 Assets with no residual maturity 72 72 Notes Total assets 4 625 749 2 615 9 336 19 684 1 587 38 596

Up to From 1 to 3 monthsfrom 1 year Over No Totalt Liabilities 1 month 3 months to 1 year to 5 years 5 years residual maturity Norwegian kroner: Debt to credit institutions 37 37 Deposits from and debt to customers 19 798 402 385 20 585 Debt created by issuance and securities 1 175 915 3 541 5 244 659 11 534 Other debt with no residual maturity 661 661 Subordinated debt 200 161 388 749 Equity capital 2 608 2 608 Foreign currencies: Debt to credit institutions 11 11 Deposits from and debt to customers 180 180 Debt incurred by issue of securities 1 426 205 1 631 Other debt with no residual maturity 1 1 Subordinated debt 597 597 Total liabilities and equity capital 21 201 1 517 3 541 7 215 1 851 3 270 38 596 Net liq. exposure, bal.sheet items -16 576 -768 -926 2 120 17 833 -1 683 *) Overdraft, operating credits and similar facilities are grouped under 1 month's residual maturity. Agreed/Probable timing of interest rate changes

Up to From 1 to 3 months from 1 year Over No Totalt Assets 1 month 3 months to 1 year to 5 years 5 years residual maturity Norwegian kroner: Cash and receivables from central banks 981 981 Loans to and receivables from credit institutions 1 111 1 111 Loans to and receivabl.customers 15 30 150 130 2 127 249 -586 32 085 Bonds/CDs and other interest-bearing securities 245 374 597 1 081 16 2 312 Assets with no residual maturity 1 111 1 111 Foreign currencies: Cash and receivables from central banks 8 8 Loans to and receivables from credit institutions 220 220 Loans to and receivabl.customers 34 651 9 694 Assets with no residual maturity 72 72 Total assets 1 625 31 175 735 3 208 265 1 587 38 596

Up to From 1 to 3 months from 1 year Over No Totalt Annual Report 2004 Liabilities 1 month 3 months to 1 year to 5 years 5 years residual maturity Norwegian kroner: Debt to credit institutions 37 37 Deposits from and debt to customers 40 20 501 44 20 585 Debt created by issuance and securities 1 025 1 715 3 941 4 444 410 11 534 53 Other debt with no residual maturity 661 661 Subordinated debt 200 549 749 Equity capital 2 608 2 608 Foreign currencies: Debt to credit institutions 11 11 Deposits from and debt to customers 180 180 Debt oncurred by issue of securities 135 81 1 415 1 631 Other debt with no residual maturity 1 1 Subordinated debt 144 453 597

Total liabilities and equity capital 1 249 22 596 4 066 6 553 863 3 270 38 596 Notes Net liq. exposure, bal.sheet items 377 8 579 -3 330 -3 345 -598 -1 683 The Board of Directors have set an overall limit for maximim interest rate risk in losses/gains at 1 per cent parallel shift in the general interest rate level, and a limit to total foreign currencies exposure. Part of the interest rate risk covered in the balance sheet is secured by interest rate swaps, FRAs and bond futures. The tables above do not include interest rate positions for off-balance sheet financial instruments.

Note 20 Shares, units and primary capital certificates

Parent bank Group Book value Market value Book value Market value Short-term investments in shares 97 97 97 97 Long-term investments in shares in other commpanies 273 273 in units in other companies 0 0 in shares in jointly-controlled activity 309 311 in shares in subsidiaries 164 0 Total share investments 843 682 Specification of items: Our Original Market value/ Stake holding cost booked value Short-term investments (%) (number) (NOK 1000) (NOK 1000) Parent bank:

Stock exchange listed companies: Global Geo Services 0.45 141 593 1 034 1 046 Statoil ASA 0.00 59 152 5 204 5 619 Sas AB 0.02 9 698 585 550 Petroleum Geo-Serv. 0.02 3 338 1 161 1 263 Ship Finance 0.00 359 54 47 Independent Oil Tool 0.05 29 834 460 57 Dnb Nor ASA 0.01 97 887 3 929 5 849 Schibsted ASA 0.01 6 797 877 1 169 Storebrand ASA 0.02 53 977 1 676 3 158 Nordic Semiconductor ASA 0.13 39 344 470 2 636 Software Innovation AS 0.19 28 475 1 066 601 Tandberg Television ASA 0.04 22 360 1 062 1 179 Farstad Shipping ASA 0.04 14 351 845 1 062 Smedvig ASA 0.02 11 067 987 1 129 Annual Report 2004 Orkla ASA 0.01 28 010 4 249 5 574 Det Norske Oljeselskap ASA 0.05 29 834 380 428 Norske Skog ASA 0.01 18 280 2 241 2 459 Kverneland ASA 0.09 10 552 846 839 54 Norsk Hydro ASA 0.01 17 290 4 025 8 247 Tandberg ASA 0.01 17 291 1 059 1 301 Tomra Systems ASA 0.03 51 353 1 959 1 710 Sparebanken Rogaland, Grunnfondsbevis 0,18 16 348 3 036 5 885 Sparebanken Nord-Norge, Grunnfondsbevis 0,24 15 750 2 588 4 363 Royal Caribbean Cruise Ltd. 0,00 9 229 2 369 3 078 Telenor ASA 0,01 95 898 3 937 5 274

Unit funds: Odin Templeton Global Smb 0 47 567 5 168 5 447 Odin Franklin USA 0 25 869 2 047 2 032 Skagen Global Aksjefond 0 16 122 5 702 6 952 Notes Tgsf/Franklin European Fund 0 166 946 15 000 18 060 Total parent bank/group 74 013 97 015

Our Original Market value/ Stake holding cost booked value Jointly controlled activity Headquarter (%) (number) (NOK 1000) (NOK 1000) Parent bank: SpareBank 1 Gruppen AS Oslo 15.45 241 495 434 681 302 314 SpareBank 1 Utvikling DA Trondheim 7 000 7 000

Subsidiaries: Sparebank1 Bilplan AS Trondheim 26.7 11 002 1 998 2 878 Total Parent bank/Group 443 679 312 192 Book value corresponds to the bank's share of company's equity capital. Our Original Market value/ Stake holding cost booked value Long-term investments Headquarter (%) (number) (NOK 1000) (NOK 1000) Parent bank: Adresseavisen ASA 4.53 86 239 25 489 25 489 Angvik Investor As 10.00 15 000 15 002 15 002 Bachke & Co AS 0.80 4 815 6 6 BBS – Bankenes Betalingssentral AS 4.14 273 319 4 405 4 405 E.C. Dahls Eiendom AS 3.64 1 733 952 41 186 41 927 Energivekst AS 1.82 18 878 1 888 1 888 Eurotunnel Gbp 0.00 777 130 3 582 2 414 Föreningssparbanken 0.06 335 000 39 943 42 422 Hitra-Frøya Fastlandssamband AS 8.00 722 72 72 Kunnskapsparken Steinkjer AS 4.00 10 250 250 Marin Vekst ASA 2.29 25 000 2 500 2 500 Namdal Bomvegselskap AS 6.25 25 25 25 Namsos Hotell AS 27.78 500 176 176 Norway Royal Salmon AS 0.50 87 266 806 806 Offshore Union AS 9.49 775 775 388 Real Estate Central Europe AS 8.22 3 000 10 500 5 500 Romsdals Fellesbank ASA * 10.00 627 077 81 078 81 078 Annual Report 2004 S.W.I.F.T., Ordinære 11 11 11 Sentrumsgården As – Leksvik 35.28 2 115 2 115 2 115 Steinkjer Næringspark ASA 5.57 4 900 263 263 Steinkjer Næringsselskap AS 6.14 1 066 93 93 Støren Trelast AS 8.36 7 251 891 891 55 Såkorninvest Midt-Norge AS 13.51 81 749 8 584 5 989 Tangen Næringsbygg AS 3.45 250 250 250 Teller AS (formerly Visa Norge AS) 3.50 280 70 70 Torgkonserten AS 50.00 50 50 50 Trøndelag Vekst AS 12.78 84 354 12 272 10 058 Tæl AS 14.29 1 000 1 030 1 030 Viking Venture AS 19.33 186 878 16 911 16 911 Viking Venture II AS 6.94 25 000 2 500 2 500 West Fish-Aarsæther AS 39.21 475 333 6 503 6 503 NTE-Allianse Adcom AS 150 000 1 500 1 500 Various long-term shareholdings 117 0 Notes Total Parent bank 280 841 272 580 Various long-term shareholdings in subsidiaries 83 Total group 272 663

Change in long-term shareholdings in parent bank 2004 2003 2002 2001 Opening balance 01.01. 170 471 156 236 210 301 255 772 Additions in the year 115 390 39 864 32 018 31 112 Disposals in the year 1 541 32 848 60 050 62 034 Reversal 16 432 18 448 9 423 Write-down 4 693 11 229 16 609 14 549 Closing balance 31.12. 272 580 170 471 156 236 210 301

* Sparebanken Midt-Norge has undertaken to pay the difference between the cost price in the accounts abd the offer price of NOK 171 for other shareholders, assuming the bank is given permission to acquire Romsdals Fellesbank ASA. Our Original Market value/ stake holding cost Booked value Shares in subsidaries Headquarters (%) (number) (NOK 1000) (NOK 1000) Midt-Norge Fonds AS Trondheim 100.00 100 100 83 SpareBank 1 Finans Midt-Norge AS Trondheim 100.00 5 500 55 000 104 018 Midt-Norge Regnskap AS Trondheim 100.00 20 1 000 4 099 Eiendomsmegler 1 Midt-Norge AS Trondheim 100.00 3 500 10 990 25 026 Gaden & Larsen Eiendom AS Trondheim 100.00 152 462 0 1 720 Allegro Finans ASA Trondheim 90.10 5 406 9 615 28 610 Total parent bank's shares in subsidiaries 76 705 163 557

The book value in the bank's wholly-owned subsidiaries corresponds to the companies' equity capital according to the equity method.

Stake Book Profit in the Participations in general partnerships (%) value accounts Owned by the bank: ANS Malm Servicebygg 9.70 71 54 ANS Sparebankbygg Namdal 1.43 326 40

Annual Report 2004 Total 397 94 Participations below 20% are reported using the cost method.

56 Note 21 Subordinated debt and bond debt

Parent bank Group 2002 2003 2004 Maturity 2004 2003 2002 750 2003 750 800 900 2004 900 800 775 1 300 2 691 2005 2 691 1 300 775 705 1 030 1 580 2006 1 580 1 030 705 1 598 2 129 2 187 2007 2 187 2 129 1 598 Notes 150 470 2008 470 150 550 2009 550 250 2010 250 275 365 409 2011 409 365 275 4 902 5 874 8 138 Bond debt and other long term debt 8 138 5 874 4 902 6.29% 4.61% 2.22% Average interest rate 2.22% 4.61% 6.29% 2.57% 2.60% Average interest rate (EUR) 2.60% 2.57% 0 1 590 1 697 Debt in foreign currencies 1 697 1 590 0 45 85 60 Own holding for trading 60 85 45 45 81 62 Market value own holding for trading 62 81 45

In the case of substantial amounts premiums are taken to income and discounts are expensed systematically as an adjustment of current interest rate expenses up to the bonds' maturity. The average interest rate on bond debt is calculated on the basis of the interest expense in the period/average book value. Corresponding interest rate for negotiable sertifikate is 2.68%. Parent bank Group

2002 2003 2004 Maturity subordinated debt 2004 2003 2002 350 0 0 2008 3 month Nibor + margin (Call option 2003) 0 0 350 150 150 0 2009 3 month Nibor + margin (Call option 2004) 0 150 150 200 200 200 2010 fixed rate of interest 8% (Call option 2005) 200 200 200 200 200 200 2010 3 month Nibor + margin 200 200 200 162 162 2013 fixed rate of interest 7.2 (Call option 2008) 162 162 189 189 2013 3 month Nibor + margin (Call option 2008) 189 189 227 227 227 Perpentual 3 month Libor + margin (USD 25 mill.) 227 227 227 527 527 Hybrid equity 30 years Libor+margin (USD 75 mill.) 527 527 -12 -12 -10 – Discount perpentual subordinated debt -10 -12 -12 -51 -57 -72 – Perpentual subordinated debt -72 -57 -51 -25 -74 – Hybrid equity currency agio -74 -25 1 064 1 559 1 347 Subordinated debt 1 347 1 559 1 064 7.32% 6.16% 5.50% Average interest rate NOK 5.50% 6.16% 7.32% 0 0 4.92% Average interest rate USD 4.92% 0 0 The capital with accrued interest in the above loans ranks behind all other debt of the bank except repayment of and return on primary capital contributions. The interest rate is calculated on the basis of interest costs for the year and the

average holdning through the year. Annual Report 2004 Discount on the subordinated loan is the difference between nominal value and book value. This discount is accrued over the lifetime of the loan.

Note 22 Disputes 57

In connection with its participation in a syndicated loan to Finance Credit Norge AS, the bank has started legal proceedings against the company's auditor for an amount of NOK 150 million. In addition, the Group is a party in legal disputes of a financial scale regarded as insignificant for the Group's financial position. Provision for losses has been made in those cases where there is deemed to be a basis for doing so.

Note 23 Contractual commitments

The bank has entered into rental agreements with a yearly cost of NOK 35.8 million (prices as at 01.01.2005) relating to business premises incl. agreements concerning “In-Store Banks” with parties other than subsidiaries. The agreements Notes are of varying duration, but most are renegotiable in the peiod 2005–2006. A total of NOK 1.5 million has been set aside for unutilised premises to cover future rental exprenses.

Note 24 Primary capital certificate holders

The bank holds PCC capital of NOK 768.5 million distributed on 7,685,075 PCCs with face value of NOK 100 per PCC. As at 1 January 2005 the risk amount is provisionally estimated to NOK +9.02 per PCC. Market value at 31.12.2004 was NOK 275.00. The largest PCC holders as at 31 December 2004 Number Share FöreningsSparbanken 747 875 9.73% J P Morgan Chase Bank 324 496 4.22% Romern AS 196 562 2.56% Institusjonen Fritt Ord 175 462 2.28% IK Lykke, T. Lykke, B.Finans, IK Lykke Finans 145 800 1.90% Tveteraas Invest AS 81 243 1.06% Sparebanken Midt-Norge 75 229 0.98% Sparebanken Rogaland 71 012 0.92% Terje Roll Danielsen 69 812 0.91% Meieribrukets pensjonskasse 68 125 0.89% Ringerikes Sparebank 64 625 0.84% Haugaland Kraft AS 62 220 0.81% Otto B. Morcken 57 500 0.75% Heglund Holding 55 000 0.72% Adresseavisens Pensjonskasse 53 125 0.69% Johan Wullum 52 500 0.68% Sparebankstiftelsen DNB NOR 49 050 0.64% Tonsenhagen Forretningssentrum AS 38 875 0.51% Rigmor Bringedal 38 289 0.50% Horten Hus As 37 500 0.49% Others 5 220 775 67.93% Total issued PCCs 7 685 075 100.00% Annual Report 2004 PCCs owned by elected officers as at 31 December 2004 No. of PCCs Members/alternates of the Board of Directors: Anne-Brit Skjetne 312 Terje Roll Danielsen 69 812 58 Members/alternates of the Supervisory Board: Anne Marie Møller 1 000 Anne Torill Ramberg 312 Arne Lorentsen 30 000 Arnhild Bjørshol 500 Asbjørn Jakobsen 241 Birgit Stafne 187 Bjørn Arild Gram 187 Endre Lysø 31 Erik Solberg 3 945

Notes Erik Tronstad 81 Finn Kløven 777 Hans Munkeby 1 600 Helge Ryvarden 1 422 Johan Brobakke 1 250 Kari Hanna Gunnes 477 Kari Nyborg 125 Karl Ove Bjørnstad 3 500 Kjell Hagan 62 Knut Solberg 50 Kristin Ressem 125 Lars Forseth 625 Lars Sjømo 25 000 Leif Singstad 3 750 Michael Momyr 50 Nils Sverre Bye 722 Oddbjørn Kulseth 312 Per Ivar Mohrsen 312 Ragnhild Mørch 496 Randi Aune 125 Sverre Petter Berg 1 550 Terje Skjønhals 1 727 Thorbjørn Røsæg 371 No. of PCCs

Tone Valmot 250 Tor E. Stigum 18 750 Tor Helge Hansen 112 Tore Foss 20 000 Tore Hertzenberg- Nafstad 1 250 Vera Kommisar 2 750 Widar Slemdal Andersen 250

Head office Administration: Finn Haugan 6 250 Kjell Fordal 6 371 (incl. family) Ståle Svenning 1 250 Marvin Wiseth 1 375 Tore Haarberg 2 500 Liv Malvik 906 Rune Haglund 950

Note 25 Capital

Parent bank Group 2002 2003 2004 Specification of basis of measurement 2004 2003 2002 Annual Report 2004 11 11 13 Risk category 10% 13 11 11 749 563 460 Risk category 20% 482 587 779 7 836 8 773 9 681 Risk category 50% 9 692 8 787 7 861 16 088 15 537 15 589 Risk category 100 % 15 479 15 383 15 846 59 24 684 24 885 25 743 Total assets off the trading portfolio 25 665 24 768 24 496 524 485 609 Total off-trading-portfolio and off-balance-sheet 609 485 524 Total measurement base, forex risk and items 1 407 234 302 included in trading portfolio 302 234 1 407 – Less ineligible items: 252 257 363 Capital in other financial institutions 65 0 0 Required capital adequacy reserve in respect of 0 0 0 SpareBank 1 Gruppen AS 345 305 310 873 673 586 Loss provisions 604 698 895 25 489 24 674 25 705 Basis of measurement of capital 25 562 24 483 25 222

Eligible capital Notes 613 617 771 Subscribed capital 771 617 613 958 1 040 1 180 The bank's reserves 1 180 1 040 958 6 0 0 Gift fund 0 0 6 472 482 400 Equalisation fund 400 482 472 57 438 454 Other equity capital 452 381 57 2 106 2 578 2 806 Total core capital 2 803 2 520 2 106 44 34 14 – Deduction for intangible assets (deferred tax benefit) 30 42 57 2 062 2 544 2 792 Total core capital 2 773 2 478 2 049 1 064 1 178 873 Subordinate debt 876 1 235 1 064 0 0 0 Reduction past 5 years 0 0 0 1 064 1 178 873 Net supplementary capital 876 1 235 1 064 – Less ineligible share of capital in other 252 257 363 financial institutions 65 0 0 0 0 0 – Required capital adequacy reserve 345 305 310 2 873 3 465 3 302 Net capital 3 239 3 408 2 802

11.27 14.04 12.85 Capital adequacy in % 12.67 13.92 11.11 8.09 10.31 10.86 Core capital adequacy in % 10.85 10.12 8.12 Note 26 Subsidiaries and associated companies

The main balance sheet and profit items between the parent bank and subsidiaries are shown in the accounting items below 2004 2003 2002 2001 2000 Loan to credit intitutions 822 713 718 Overdraft, operating and working credits 0 33 70 100 179 Repayment loans 24 47 52 48 1 Loans and deposits from credit institutions 803 760 817 642 586 Deposits from and debt to customers 42 33 23 641 494 Interest etc., on loans to and claims on customers 9 8 7 9 11 Interest etc., on loans to and claims on credit institutions 21 33 50 42 27 Interest on deposits and debt to customers 2 8 4 7 4 Interest and similar expenses on debt to credit institutions 28 33 53 44 34 Guarantees furnished for the companies 35 35 35 10 10 Other operating income 20 4 other operating expenses 20 1 Interest between the parent bank and subsidiaries follows ordinary customer terms or the interbank rate. Rentals/reimbursement of operating expenses have been paid in the amount of 2 2 3 6 12 Rentals are generally based on ordinary market conditions.

Annual Report 2004 Stake Annual Net equity Main figures from subsidiaries' accounts in % profit/loss Assets Liabilities capital Consolidated subsidiaries: SpareBank 1 Finans Midt-Norge AS 100 12 905 801 104 60 Midt-Norge Regnskap AS 100 1 11 7 4 EiendomsMegler 1 Midt-Norge AS 100 6 53 28 25 Gaden & Larsen Eiendom AS 100 1 26 25 2 Midt-Norge Fonds AS 100 0 2 2 0 Allegro Finans ASA 90 16 41 15 27

For the share capital of the above companies, see also Note 20. All consolidated subsidiaries are headquartered in Trondheim. Midt-Norge Fonds AS, Trondheim The company is run as a service enterprise with emphasis on parts of the bank's cleaning activity. SpareBank 1 Finans Midt-Norge AS, Trondheim Notes This company's business area is financial leasing. The initial share capital was written down by NOK21.5 million in 1994. In 1997 and 2001 additional share capital was added by the parent bank, bringing the total share capital to NOK55 million at 31.12.2002. Midt-Norge Regnskap AS, Trondheim This company's business area is accountancy for businesses and self-employed persons, and it operates in the parent bank's business district. EiendomsMegler 1 Midt-Norge AS, Trondheim This company is a pure estate agency business in Trøndelag, with branches in Trondheim, Stjørdal, Levanger, Steinkjer, and Namsos. The parent bank added NOK 9 million to the company's share capital in 2000. Gaden & Larsen Eiendom AS, Trondheim This company's business area is hiring out business premises in Trondheim. Allegro Finans AS, Trondheim This company provides discretionary management of investor portfolios of financial instruments. Jointly controlled activity – SpareBank 1 Gruppen AS, Oslo Our bank owns the company SpareBanken 1 Gruppen AS in conjunction with SpareBank 1 Nord-Norge, SpareBank 1 SR-Bank and Samarbeidende Sparebanker AS each party owns 15.46% of the shares in the company, Sparebanken Vest owns 8.67%, The Swedish FöreningsSparbanken AB (plc) owns 19.5%, and the Norwegian Federation of Trade Unions and affiliated unions own 10%. The ownership share is to be regarded as participation in jointly controlled activity, and is accounted for by the equity method in the bank’s accounts. Company's Ownership Share of share capital share voting Company name NOK million rights SpareBank 1 Gruppen AS 1 562 15.46% 15.46%

Jointly-controlled activity comprises the parent company SpareBank 1 Gruppen AS, SpareBank 1 Livsforsikring AS, SpareBank 1 Skadeforsikring AS, SpareBank 1 Fondsforsikring AS, Bank 1 Oslo AS, Sparebankutvikling AS, Odin Forvaltning ASA, SpareBank 1 Medlemskort AS. Sparebank 1 Gruppen AS also owns 33.33% of the brokerage First Securities AS and 20% of Sparebank 1 Utvikling DA. The subsidiaries operate in the fields of banking, insurance, stockbroking and fund management. All transactions between the bank and subsidiaries in SpareBank 1 Gruppen are carried out on commercial terms. Internal payments between the bank and SpareBank 1 Gruppen AS that are not related to sales and portfolio advice are based on the full-cost principle. 2004 2003 Results (NOK million) 100% 15.46% * 100% 14% Profit after tax 285 109 Goodwill- and added value write-downs -132 -134 Other elimination -4 -10 Minority interest -0 -0 Profit for the year 149 23 -35 -5

* 15.46% represents SpareBank 1 Midt-Norge‘s stake in SpareBank 1 Gruppen AS in 2004. Annual Report 2004

Note 27 Tax calculations

Parent bank Group 61 2002 2003 2004 Negative temporaray differences related to: 2004 2003 2002 57 -16 -35 Current assets/short-term debt -46 -26 47 21 41 28 Capital assets 71 69 22 40 53 18 Long-term debt 17 50 53 40 44 39 Pension commitments 49 51 43 158 121 50 91 144 165 0 0 0 Tax loss carry-forward 8 10 11 158 121 50 Basis for deferred tax advantage 99 153 206 44 34 14 Assessed deferred tax advantage (28%) 28 43 58

0 0 0 Reduction in deferred tax advantage 0 0 0 Notes 44 34 14 = Deferred tax advantage (balance sheet item) 28 43 58

2002 2003 2004 Taxes for 2004: 2004 2003 2002 234 281 502 Profit before tax 551 316 245 18 -18 -26 Permanent differences -26 -17 18 0 Group contribution -2 0 0 15 -46 -68 Change in temporary differences -48 -28 34 267 218 407 Tax base for the year 476 272 297 75 61 114 28% tax of the tax base 133 79 83 4 4 3 0.3% tax on the net capital wealth 3 4 4 -4 -1 0 Dividend payment deduction 0 -1 -4 74 64 117 Payable tax 136 82 83 -4 5 -7 Allocated previous years -7 5 -4 -4 34 20 Change, deferred tax 15 3 -9 66 103 130 Tax burden for the year 144 89 70 31 0 0 Net group contribution Note 28 Equity capital Total Owners, Savings equity capital Premium Equalisation bank's Other funds contribution fund fund fund and gift fund Recorded by the parent bank as of 1 Jan 2004 2 196 607 10 482 1 040 57 Result for the year 430 0 0 430 Bonus issue - 154 0 -154 0 0 Bonus issue of own PCCs (NOK 100 per PCC) - -2 0 2 0 0 Own PCCs sold 3 2 0 2 0 0 Correction of equity capital against associated companies 1) -11 0 0 0 0 -11 Correction of equity capital in subsidiaries 2) -10 0 0 0 0 -10 Transfer to equalisation fund - 0 0 69 -69 0 Set aside to dividend on PCCs -152 0 0 0 -152 0 Set aside for gift purposes -69 0 0 0 -69 0 Equity as of 31 December 2004 2 387 761 10 400 1 180 36 Recorded by the parent bank as of 31 Dec 2004 2 387 761 10 400 1 180 36 Recorded by the group as of 31 Dec 2004 2 387 761 10 400 1 180 36

1) Correction on the basis of equity capital in SpareBank 1 Gruppen 2) Correction of the difference between the cost price of the company and equity capital in Gaden & Larsen AS on the takeover date

PCC capital history Change in Total PCC Year Change PCC capital capital No. of PCCs

Annual Report 2004 1991 Placing 525 525 5 250 000 1992 Placing 75 600 6 000 000 2000 Employee placing 5 605 6 053 099 2001 Employee placing 5 610 6 099 432 2002 Employee placing 5 614 6 148 060 2004 Bonus issue 154 768 7 685 075 62 Number Nominal Booked Own PCCs (no.) value value Premium value Own PCCs opening balance 75 372 8 9 16 Purchase 19 857 2 -2 Sale 20 000 2 -1 Gain/loss against equalisation fund -1 own PCCs closing balance 75 229 8 5 13 Change 143 0 4 4 Nominal value reduces the paid-in capital due to the bank’s holding of its own primary capital certificates, and premium reduces the equalisation fund. Notes

Note 29 Other assets/liabilities

Parent bank Group 2002 2003 2004 Other assets 2004 2003 2002 2 2 2 Tenants' rentals 2 2 2 14 14 14 Capital contributions, pension fund 14 14 14 0 4 4 Receivables from subsidiaries 0 0 0 5 0 28 Receivables from securities 28 0 5 14 63 36 Debtors 84 110 112 35 83 83 Total other assets 128 126 133 Other liabilities 56 67 76 Drawing debt 76 67 56 62 64 117 Payable and accrued tax 136 76 78 0 0 26 Debt from securities 26 0 0 72 24 0 Group contributions 0 0 0 46 109 153 Dividend 153 109 46 57 71 174 Suppliers and other creditors 184 86 70 294 335 546 Total other liabilities 576 339 250 Cash Flow Statement

Morbank Konsern 2002 2003 2004 2004 2003 2002

74 301 559 Profit before tax 574 311 77 -50 -2 0 -/+ Gains/Loss on sale of fixed assets 0 -1 -50 54 29 45 + Depreciations and write-downs on fixed assets 50 35 62 218 219 80 Losses on loans and guarantees 81 229 229

-70 -69 -110 - Payable tax -129 -79 -66 -46 -109 -152 - Dividend -152 -109 -46

181 370 422 Net cash increase from ordinary opertions 425 385 207

559 30 110 Decrease/(increase) other receivables 97 77 472 21 -170 47 Increase/(decrease) short term debt 80 -135 -8 -10 3 -5 Increase/(decrease) pension cost commitments -2 5 -8 -6 5 24 Increase/(decrease) other debt 24 5 -6

565 -132 176 Net cash changes in profit and loss accounts 200 -48 451

-1 787 -1 802 -1 741 Decrease/(increase) loans to customers -1 848 -1 888 -1 938 -648 534 -27 Decrease/(increase) loans credit institutions 39 559 -556 Annual Report 2004 1 169 835 848 Increase/(decrease) deposits and debt to customers 849 827 1 178 55 -1 017 -1 066 Increase/(decrease) debt to credit institutions -1 066 -1 017 55 -370 -139 169 Increase/(decrease) in short term investments 169 -139 -369

-835 -1 351 -1 220 A) NET CASH FLOW FROM OPERATIONS -1 235 -1 320 -972 63 -88 -29 -34 Increase in tangible fixed assets -38 -32 -96

1 2 0 Reductions in tangible fixed assets 0 3 79 21 237 -159 Net investments in long-term shares and partnerships -139 208 87

-66 210 -192 B) NET CASH FLOW FROM INVESTMENTS -177 179 71

-49 496 -213 Increase/(decrease) in subordinated loan capital -213 496 -49 -2 5 -17 Increase/(decrease) in equity -17 5 5 1 593 583 1 804 Increase/(decrease) in other long term loans 1 804 583 1 593

1 541 1 084 1 574 C) NET CASH FLOW FROM FINANCAL ACTIVITIES 1 574 1 083 1 549

641 -57 163 A) + B) + C) NET CHANGES IN CASH AND CASH EQUIVALENTS 163 -57 648

243 884 827 Cash and cash equivalents at 01.01 827 884 243 Flow Statement Cash 884 827 989 Cash and cash equivalents at 31.12 989 827 884

-641 57 -163 Net changes in cash and cash equivalents -163 57 -641 Annual Report 2004

64 Auditor‘s report REPORT OF THE CONTROL COMMITTEE

The Control Committee had 8 meetings in 2004. At these meetings the committee reviewed the minutes of the main board’s proceedings and associated documents. The Committee is satisfied with the reporting and replies made by the bank’s internal auditor and the bank’s administration. In 2004 the Committee held meetings with the bank’s corporate management, external auditor, directors and the chairman of the Supervisory Board. The Control Committee has had continual exchange of information with the bank’s internal auditor. At the meetings with the Committee the bank’s administration gave information on matters which it considered merited closer attention.

The Control Committee verified that the statutory requirements as to qualified collateral security for loans to officers are satisfied.

The Control Committee has examined the annual report and accounts for 2004. Where the annual accounts are concerned it should in particular be mentioned that the legal requirements and constraints imposed on shares and units, real properties, maximum loans per customer, credit to municipalities/ county municipalites, liquidity requirements and capital adequacy, are complied with.

The Control Committee is of the view that it has discharged its duties in conformity with the Savings Annual Report 2004 Banks Act and the existing instructions in 2004. The bank’s activities were carried out in conformity with the Savings Banks Act, the bank’s Articles of Association and other provisions with which the bank has undertaken to comply. 65 The Control Committee has not in the course of its work brought to light significant flaws or deficiencies related to the operation of the bank.

The Control Committee recommends that the Supervisory Board pass the following resolution:

“ The profit and loss account and the balance sheet are hereby adopted as the bank’s financial statement for 2004.”

Trondheim, 1 March 2005 Control Committee of SPAREBANKEN MIDT-NORGE Report of the Control committee Report of the Control Here when you need us.

Bindal YTRE Leka NAMDAL Røyrvik

Vikna Nærøy Namsskogan

Fosnes Høylandet

Grong MIDTRE Namsos INDRE NAMDAL Flatanger Overhalla Lierne NAMDAL

Annual Report 2004 Snåsa Osen Namdalseid

FOSEN Steinkjer STEINKJER Verran Åfjord Inderøy

Verdal SØNDRE Mosvik 66 Bjugn INNHERRED Levanger Ørland Rissa Leksvik YTRE Agdenes Frosta SØR-TRØNDELAG Hitra Stjørdal Meråker Malvik STJØRDAL Snillfjord TRONDHEIM

Skaun Klæbu Aure Hemne Orkdal Selbu Melhus Tydal Bruhagen Meldal Averøy Midtre Gauldal Holtålen GAULDAL Elnesvågen Eide Batnfjordsøra Rennebu MØRE OG ROMSDAL Hjelset Molde Røros Sunndalsøra Oppdal TRONDHEIM Vestnes Åndalsnes MIDTBY TRONDHEIM TRONDHEIM ØST VEST

ORKLADAL Here when yoy need us. PK DISTRIBUSJON Financial summary

Profit and loss account (group) 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Interest income 1 596 2 249 2 707 2 617 2 261 1 912 1 591 1 268 1 379 1 374 1 318 Interest expenses 732 1 385 1 811 1 790 1 475 1 145 884 592 700 680 608 Net interest and credit comission income 864 864 896 827 785 767 707 676 679 694 711 Net dividend and gain/loss on securities 67 75 -53 59 20 86 15 2 21 32 -20 Income holdings in associated controlled comp. 23 -5 -168 -58 -9 830000 Other operating income 443 332 282 272 244 194 168 161 162 143 148 Salaries, fees and other personnel costs 379 368 331 334 323 286 253 248 263 235 225 Other operating expenses 350 365 350 333 312 274 270 239 295 269 258 Operating profit before losses, gains and write-downs 667 534 277 433 406 495 369 352 304 365 355 Gains and write-downs on disposals of fixed assets -12 6 30 23 69 50 0 13 48 -4 9 Losses on loans and guarantees 81 229 229 138 130 106 38 -1 34 33 25 Operating profit 574 311 77 319 344 438 331 366 318 328 340 Taxes 144 89 70 106 95 107 87 99 89 99 74 Profit of the year 430 222 7 213 249 331 244 267 229 229 266 Dividend 152 109 46 109 103 102 96 96 90 90 78

Result as a percentage of average total assets Interest income 4.32% 6.10% 7.93% 8.24% 8.11% 7.97% 7.31% 6.42% 7.47% 8.25% 8.53% Interest expenses 1.98% 3.76% 5.30% 5.64% 5.29% 4.78% 4.06% 3.00% 3.79% 4.08% 3.93% Net interest and credit comission income 2.34% 2.34% 2.63% 2.61% 2.82% 3.20% 3.25% 3.42% 3.68% 4.17% 4.60% Other operating income 1.38% 1.11% 0.18% 1.04% 0.92% 1.20% 0.85% 0.83% 0.99% 1.05% 0.83% Salaries, fees and other personnel costs 1.03% 1.00% 0.97% 1.05% 1.16% 1.19% 1.16% 1.26% 1.43% 1.41% 1.46% Other operating expenses 0.95% 0.99% 1.03% 1.05% 1.12% 1.14% 1.24% 1.21% 1.60% 1.62% 1.67%

Operating profit before losses, gains Annual Report 2004 and write-downs 1.80% 1.45% 0.81% 1.36% 1.45% 2.06% 1.70% 1.78% 1.65% 2.19% 2.30% Gains and write-downs on disposals of fixed assets -0.03% 0.02% 0.09% 0.07% 0.25% 0.21% 0.00% 0.07% 0.26% -0.02% 0.06% Losses on loans and guarantees 0.22% 0.62% 0.67% 0.44% 0.45% 0.44% 0.17% 0.00% 0.18% 0.20% 0.16% Operating profit 1.55% 0.84% 0.23% 1.00% 1.23% 1.83% 1.52% 1.85% 1.72% 1.97% 2.20% Taxes 0.39% 0.24% 0.21% 0.33% 0.34% 0.45% 0.40% 0.50% 0.48% 0.59% 0.48% 67 Net profit 1.16% 0.60% 0.02% 0.67% 0.89% 0.96% 0.68% 0.87% 0.75% 0.83% 1.21% Dividend 0.41% 0.30% 0.13% 0.34% 0.37% 0.43% 0.44% 0.49% 0.49% 0.54% 0.50%

Group Cash and loans to and claims on credit instit. 1 541 1 417 2 033 1 021 1 857 1 272 585 453 528 393 785 CDs, bonds and other interest-bearing securities 2 312 2 481 2 342 1 868 1 796 1 752 1 612 1 255 1 441 1 964 1 557 Loans before loss provisions 34 226 32 553 31 089 29 278 26 611 22 957 20 144 18 558 16 859 15 299 13 839 - Specified loan loss provisions 290 380 531 417 434 448 509 545 633 711 774 - Unspecified loan loss provisions 314 318 364 388 353 302 256 229 204 173 170 Other assets 1 137 1 123 1 422 1 923 1 452 1 138 1 003 795 638 567 505 Total assets 38 612 36 876 35 991 33 286 30 929 26 369 22 579 20 287 18 629 17 339 15 742 Debt to credit institutions 48 1 114 2 131 2 093 1 453 1 378 1 257 933 1 727 1 526 1 635 Deposits from and debt to customers 20 725 19 876 19 049 17 871 17 287 15 238 13 636 13 387 12 830 12 128 11 385 Debt created by issuance of securities 13 165 11 361 10 778 9 185 8 292 6 634 5 076 3 083 1 719 1 520 756 Other debt and accrued expences etc. 941 769 863 877 934 735 607 1 021 677 625 562 Subordinated debt 1 347 1 560 1 064 1 113 900 500 350 350 389 389 389 Financial summary Total equity 2 387 2 196 2 106 2 147 2 055 1 884 1 654 1 513 1 287 1 151 1 015 Total liabilities and equity 38 612 36 876 35 991 33 286 30 929 26 369 22 579 20 287 18 629 17 339 15 742

Key figures Total assets 38 612 36 876 35 991 33 286 30 929 26 369 22 579 20 287 18 629 17 340 15 742 Average total assets 36 965 36 862 34 140 31 763 27 883 23 976 21 775 19 750 18 450 16 650 15 450 Loans to and claims on customers (net) 33 622 31 855 30 194 28 473 25 824 22 206 19 379 17 789 16 021 14 415 12 894 Deposits from and debt to customers 20 725 19 876 19 049 17 871 17 287 15 238 13 636 13 387 12 830 12 128 11 385 Ordinary lending financed by ordinary deposits 62% 62% 63% 63% 67% 69% 70% 75% 80% 84% 80% Primary capital 2 773 2 474 2 049 2 079 1 920 1 867 1 634 1 476 1 287 1 151 1 015 Core capital 3 239 3 407 2 802 2 842 2 460 2 160 1 968 1 804 1 597 1 556 1 484 Risk weighted volume 25 562 24 483 25 223 23 554 23 019 19 736 17 462 15 223 13 008 11 384 10 219 Capital ratio 12.67% 13.92% 11.11% 12.07% 10.69% 10.94% 11.27% 11.85% 12.28% 13.67% 14.52% Of which core capital ratio 10.85% 10.10% 8.12% 8.83% 8.34% 9.46% 9.36% 9.70% 9.89% 10.11% 9.93% Cost/income ratio 53% 58% 71% 61% 61% 53% 59% 58% 65% 58% 58% Losses on loans 0.2% 0.7% 0.7% 0.5% 0.5% 0.5% 0.2% 0.0% 0.2% 0.2% 0.2% Return of equity after tax 18.7% 10.2% 0.4% 10.1% 12.6% 18.2% 14.9% 18.8% 18.1% 20.3% 26.1% PCC price (NOK) 275 191 123 127 120 146 115 159 148 Growth in lending (gross) 5.1% 11.2% 6.2% 10.0% 16.0% 14.0% 8.5% 10.1% 10.2% 10.5% 4.7% Growth in deposits 4.3% 11.2% 6.6% 3.4% 13.4% 11.7% 1.9% 4.3% 5.8% 6.5% 0.2% Primary capital certificates

Primary capital SpareBank 1 Midt-Norge’s policy is to pay a competitive At the end of 2004, SpareBank 1 Midt-Norge had a primary cash dividend. Variations may occur in the relative distribu- capital of NOK 761 million (excluding the bank’s own tion between cash dividends and equalisation reserve if holding of NOK 8 million) divided among 7,685,080 primary there is a need to give priority to development of the bank’s capital certificates with a nominal value of NOK 100 each. equity capital. In the settlement for 2004, the primary capital owners will receive a share of the profit of NOK 29 per In 2004 a bonus issue was carried out on the basis of one certificate. The cash dividend is NOK 20 per certificate. new PCC for four old PCCs by way of a transfer from the dividend equalisation fund, altogether totalling NOK 152 Investor policy million. Of the profit for the year of NOK 430 million, NOK 69 million has been added to the equalisation fund. As The bank places great emphasis on ensuring that correct, of 31 December 2004 the equalisation fund was reduced by relevant and timely information about the bank’s progress Annual Report 2004 NOK 82 million, net, to NOK 400 million (less the bank’s and results generates confidence in the bank on the invest- own holding of NOK 5 million). ment market. Information is communicated to the market with the aid of quarterly investor presentations, the bank’s The equity premium fund remains unchanged and stood at website, press releases and accounting reports to the NOK 10 million as at 31 December 2004. 68 owners. In addition, regular presentations are provided to international partners, lenders and investors, usually in Dividend policy London. The financial goals of SpareBank 1 Midt-Norge’s operations are to achieve results that yield a good, stable return on total Information on the Internet equity. SpareBank 1 Midt-Norge’s position is that profits Information on SpareBank 1 Midt-Norge of interest to should be distributed between the primary capital certificate investors, the press and brokers is posted on the Internet. owners and the reserves of the bank in a way that reflects their respective shares of the bank’s equity capital. SpareBank 1 Midt-Norge’s home page can be found at: www.smn.no

Other links to financial information can be found at: www.huginonline.no Primary capital certificates

Price trend 2002–2004

300

250

200

150

100 27.03.02 28.06.02 27.09.02 31.12.02 28.03.03 27.06.03 26.09.03 31.12.03 31.03.04 30.06.04 30.09.04 31.12.04 KEY FIGURES 2004 2003 2002 Financial calendar for 2005 1st quarter: 29 April 2005 Market price...... 275 192 116 Total issued PCCs...... 7.685.075 7.685.075 7.685.075 2nd quarter: 9 August 2005 Primary capital (NOK million) ...... 761 607 603 3rd quarter: 26 October 2005 Equalisation fund NOK million) ...... 400 482 472 Premium fund (NOK million)...... 10 10 10 4th quarter: 1 February 2006 Dividend per PPC (NOK) ...... 20 14,4 6,0 Direct yield 1) ...... 7.3% 7.5% 6.5% Effective yield 2) ...... 53.6% 66.9% -13.6% Book value per primary capital Ownership certificate 3) ...... 174 159 150 Earnings per primary capital SpareBank 1 Midt-Norge’s goal is that the primary capital certificate 4) ...... 29.0 15.5 4.4 certificate should be liquid and evenly distributed amongst Profit ratio per primary capital certificate 5) ...... 55.9 28.9 7.9 owners representing customers, regional investors as well Price/Earnings ratio (ratio of market as Norwegian and foreign institutions. price to earnings per PCC)...... 9.5 12.4 26.5 Price/Book Value ratio (ratio of market In 2004 the bank sold its holding of 20,000 PCCs, but price to book value per PCC) ...... 1.58 1.21 0.77 Payout ratio, net 6)...... 69% 93% 137% because of the bonus issue the net holding is reduced by Payout ratio, gross 7) ...... 36% 62% 76% 146 PCCs leaving the bank with a total holding of 75,229 PCC-holder fraction 8) ...... 49.8% 51.4% 53.1% RISK amount...... 9.02 1.47 -2.07 PCCs at year-end. Key figures adjusted for the effect of bonus issue. During 2004, the number of owners increased by 1,399 to 5,695. 1) Dividend in percentage of market price at year-end. 2) Price increase through the year plus disbursed dividend as percentage of market The share of primary capital certificates owned by investors price at the beginning of the year. in South and North Trøndelag stands at 29% (27%); other 3) Book equity (after deduction for own PCCs) multiplied by PCC-holder

fraction divided by the number of PCCs (less own PCCs) including Annual Report 2004 Norwegian investors own 53% (57%) and foreign owners cash dividend. 18% (16%). 4) The primary capital certificates' share of profit after tax. 5) Profit after tax per certificate. 6) Dividend per certificate at a per cent of profit per certificate. Risk adjustment 7) Dividend per certificate as a per cent of the profit ratio per certificate. 69 To avoid double taxation of the bank and the owners, the tax- 8) The primary capital, equalization reserve and premium fund as a per cent related original value for Norwegian owners is adjusted of the parent bank's equity capital at the end of the year (excluding deduction for own certificates and valuation difference fund). annually. This adjustment follows the RISK rules (RISK = Adjustment of Original Value by Taxable Capital). The RISK amount for 2004 is NOK 9.02, as compared with NOK 1.47 in 2002.

Movements in the market price of the bank’s primary capital certificate in 2004 At year-end the market price of SpareBank 1 Midt-Norge’s primary capital certificate stood at NOK 275 per certificate. At the end of 2003, the price was NOK 192. The effective yield on the certificate was 7.3%. Primary capital certificates

Trading statistics 2000–2004

1 000 000

800 000

600 000

400 000

200 000

0 des02 sep01 jan03 jun04 feb04 jun03 jul03 aug03 jan01 aug01 mai01 jun01 jul01 sep04 jun02 mar02 des04 nov02 sep03 apr04 mar04 feb02 mai04 apr01 des03 jan04 apr03 jul02 sep02 okt02 feb01 mar01 okt04 mai02 okt01 feb03 nov04 okt03 des00 nov03 jul04 jan02 mai03 mar03 aug04 nov01 des01 aug02 apr02 Group management Annual Report 2004

From left: Rune Haglund, Kjell Fordal, Tore Haarberg, Reidar Stokke, Liv Malvik, Finn Haugan, Marvin Wiseth and Ståle Svenning.

Board of Directors

CEO Finn Haugan

Internal Audit Legal Affairs

Group management Ernst & Young Rune Haglund

Communications Marvin Wiseth

Economics/Finance/ Corporate Market Retail Market Business Operations Operations/Development Division Division Ståle Svenning Kjell Fordal Liv Malvik Deputy CEO Tore Haarberg

From 01.03.05 Reidar Stokke Domifile Number of PCC Domifile Number of PCC

Supervisory Board Rigmor Finnland Røros 0 Chair: Per Ivar Maudal Trondheim 0 Linda Iversen Rissa 0 Deputy Chair: Åshild Vang Sakshaug 0 Arnhild Bjørshol Trondheim 500 Arnt Svensson Trondheim 0 PCC holders Ingjer Ofstad By Trondheim 0 Lars Erik Kvist Stockholm 0 Jan Gunnar Kvam Trondheim 0 Per Gunnar Rymer Oslo 0 Kristin Ressem Trondheim 125 Trond Mohn 0 Terje Vareberg Stavanger 0 CONTROL COMMITTEE Alf Erevik 0 Rolf Røkke, formann Trondheim 0 Svein Garberg Oslo 0 Oddbjørn Torvik Levanger 0 Hans Olav Karde Tromsø 0 Åke Brandslett Hommelvik 0 Erik Sture Larre Oslo 0 Eldbjørn Berg Skogn 0 Vidar Slemdal Andersen Oslo 250 Per Ivar Maudal Trondheim 0 BOARD OF DIRECTORS Arne Lorentzen Trondheim 30 000 Members Lars Sjømo Trondheim 25 000 Per Axel Koch, leder Trondheim 0 Tor E. Stigum Trondheim 18 750 Eli Arnstad, nestleder Skatval 0 Leif Singstad Trondheim 3 750 Kjell Eriksen Trondheim 0 Kjell Arnesen Grønli 0 Terje Roll Danielsen Trondheim 69 812 Trond Brekke Trondheim 0 Christel Borge Oslo 0 Sverre Petter Berg Oslo 1 550 Egill Vatne jr. Salsnes 0 Harry Rishaug Trondheim 0 Anne-Brit Skjetne Levanger 312 Johan Brobakke Trondheim 1 250 Venche Johnsen, ansatterepr. Trondheim 0 Tone Valmot Trondheim 250 Finn Haugan Trondheim 6 250

Vera Komissar Trondheim 2 750 Annual Report 2004 Eirik Tronstad 81 Alternates Berit Tiller Trondheim 43 Depositors Kjell Flønes Trondheim 0 Nils Martin Williksen Rørvik 0 Randi Segtnan Verdal 0 71 Bjarne Håkon Hanssen Namsos 0 Jan Gunnar Kvam Trondheim 0 Per Ivar Mohrsen Steinkjer 312 Tore Haarberg Trondheim 2 500 Åshild Vang Sakshaug 0 Alf Daniel Moen Stjørdal 0 ELECTION COMMITTEE Kari Hanna Gunnes Stamnan 477 Michael Momyr Trondheim 50 Arnfinn Aasen Leksvik 0 Erik Sture Larre Oslo 0 Anne-Kathrine Slungård Trondheim 0 Oddbjørn Kulseth Sjørdal 312 Åke Brandslett Malvik 0 Liv Thun Steinkjer 0 Michael Momyr Trondheim 50 GROUP MANAGEMENT Public appointees Finn Haugan Trondheim 6 250 Endre Lysø Namsos 31 Tore Haarberg Trondheim 2 500

Liv Thun Steinkjer 0 Marvin Wiseth Trondheim 1 375 Governing bodies Bjørn Arild Gram Steinkjer 187 Kjell Fordal Trondheim 6 371 Else Hansvik Storsul Austafjord 0 Ståle Svenning Trondheim 1 250 Hans Martin Storø Nærøy 0 Liv Malvik Trondheim 906 Tore O. Sandvik Trondhein 0 Rune Haglund Trondheim 950 Hallgeir Grøntvedt Kråkvåg 0 Jon Bakken Flaknan 0 Geirmund Lykke Trondheim 0 Yngve Brox Trondheim 0

Employees Irene Leirvik Kolvereid 0 Sigvald Hatland Overhalla 0 Anne Torill Ramberg Steinkjer 312 Thorbjørn Røsæg Steinkjer 371 Kari Nyborg Levanger 125 Randi Aune Levanger 125 Oddbjørn Kulseth Stjørdal 312 Romsdals Fellesbank ASA in brief

History: Main figures for 2004: Romsdals Fellesbank was founded in 1927 in the aftermath • Result after losses and tax: NOK 73.1 million (48.8 million) of the banking crisis of the 1920s. The initiative-takers and • Net interest income: NOK 176.5 million (166.9 million) early management of the bank had a clear vision of creating a bank with a local footing and local owners. Seventy-three • Net interest income as per cent of average total assets: years on, the bank holds the same goals. At the end of 2004 2.54% (2.48%)

the bank had 5,463 shareholders, of whom 78.7% were in • Other income: NOK 46.0 million (46.6 million) Møre and Romsdal county. • Operating expenses as per cent of income: 54.7% At the time of its 50th jubilee in 1977 the bank’s assets total- (51.2%). Operating expenses as per cent of average led NOK 400 million; the billion mark was passed in 1983, total assets: 1.75% (1.57%) two billions in 1987 and at the end of 2004 it had total assets Annual Report 2004 of NOK 7.5 billion. • Confirmed and specified losses: NOK 6.1 million (41.4 million)

Presence: • Total assets up 10.9% to NOK 7.5 billion A local commercial bank with its head office in Molde and • Growth in lending to retail market: 17.7%, no change 72 divisional offices in Vestnes, Rauma, Eide, Averøy, Fræna for corporate market and Sunndal. The bank has branches in Roseby, Skjevik and Gjemnes. • Customer deposits up 5.0% to NOK 4.3 billion

• Total capital ratio: 14.9% (15.1%). Tier 1 ratio: 11.0% Business idea: (11.0%) Romsdals Fellesbank is a local commercial bank serving Møre and Romsdal county. Within the framework of legislation in force, it can engage in all business and services that are customary or natural for banks to engage in. The bank’s business idea is to be perceived as a bank with a local identity that caters to the financial service needs of all customer categories in Møre and Romsdal. Romsdals Fellesbank ASA Romsdals Fellesbank Annual Report 2004

73 SpareBank 1 Midt-Norge is a strong brand name, and we are working continually to strengthen the values behind the brand.

One of our key promises to our customers is that choosing our bank will bring benefits in the long run.

This promise rests on our broad product range, our accessibility, our knowledge of the market, and our highly skilled advisers.

Good advice – that, above all, is our most important offering to our customers.

We bring up issues of current interest with the customer, we Annual Report 2004 carefully assess every individual’s situation and needs, and we recommend solutions which will serve the long-term interests of 74 each customer.

The bank’s role as a prudent adviser is rooted in its social commitment and in the fellowship we have with our customers – together these give us our hallmark as a local bank.

We believe this role also ensures us sound, long-term profitability. Marketing

Maintaining a high media profile is a key part of the bank’s marketing strategy. This is to uphold and enhance the bank’s market position, to create preference and to encourage customers to contact the bank.

In line with our commitment to prudent counselling, we are keen to communicate with our customers about important current issues.

This is why two key initiatives in 2004 targeted pensions and mortgages for first-time buyers.

Pensions, in particular, pose a fundamental challenge to both individuals and businesses. Through the bank’s communication initiatives, we put the issue on the map, and we provided information and encouraged our customers to contact us for pensions advice. At SpareBank 1 Midt-Norge we see it as crucial to maintain an active dialogue with our customers, so that the bank is experienced as a dynamic and enterprising adviser.

This dialogue ensures that our customers are kept up to date with relevant services and products, so as to have the greatest possible financial freedom and security

By segmenting our customer base, we are able to send the most relevant information to each customer – something which contributes to our image as a serious, enterprising bank which can always provide the right solution. Annual Report 2004

75 Marketing Tel 07300 www.smn.no [email protected]