ANNUAL REPORT 2014

NOK SPV

“EVERYTHING WE DO, WE DO TO MAKE LIFE IN WESTERN NORWAY EVEN BETTER”

Sparebanken Vest was created by and for the people of Western Norway. We know who we are and we know where we come from. Our heart beats for Western Norway, for the people who live there and the work they do. That’s our commitment. We are engaged in many different arenas, in many ways and using different tools suited to different target groups. From sponsoring local festivals, to supporting young sporting talents, to helping support education and young people’s upbringing, and, not least, by activating, sharing and facilitating local expertise, we can help to stimulate economic development in Western Norway.

The photos in the report show some of the initiatives Sparebanken Vest supports through funds for the public benefit.

Front cover, the new building in Jonsvollskvartalet. Photo: Arkitektgruppen CUBUS

Sparebanken Vest strives for an active and future-oriented focus on the environment, both internally and externally. Because of this, the report is made in electronic form only. The report is available on www.spv.no Contents

Key figures for the Group...... 5 Local identity through generations...... 7 Organizational model...... 9 Corporate Management...... 11 The Board of Directors...... 13 Board of Directors’ report ...... 15

Accounting and notes...... 31 Auditors Report ...... 100 Control Committee ...... 102 Responsibility Statement ...... 103 Group Key Figures ...... 104 Corporate governance ...... 113 Subsidiaries and Associated Companies ...... 122 Branch locations of 31st December 2014 ..... 114 ‘HJERTEBANK’ FOR WESTERN NORWAY

Hjertebank (Heartbeat) is when local communities show their support for important projects that make their communities a better place to live. Local communities vote for which projects they believe deserve funding, and we celebrate the winning projects with a party and concert. In 2014, Sparebanken Vest gathered hearts that beat for Bergen at USF Verftet to reward and celebrate five great projects that make Bergen an even better place to live. The projects were celebrated with some top class acts from Bergen: Pedro Carmona Alvarez, Aurora Aksnes, Razika and Datarock. (Photo: Tord Litleskare)

Sparebanken Vest Annual Report 2014 Page 4 Key figures for the Sparebanken Vest Group

Amounts in NOK millions 2014 2013 2012 2011 2010 INCOME STATEMENT Net interest and credit commission income 2 320 2 161 1 797 1 590 1 516 Net other operating income 910 768 861 603 635 Total operating expenses 1 470 1 428 1 228 1 335 1 224 Profit/loss before write-downs and tax expense 1 760 1 501 1 430 858 927

Net profit on tangible fixed assets 143 0 0 0 0 Write-downs and losses on loans and guarantees 410 280 147 126 127 Profit/loss before tax expense 1 493 1 221 1 283 732 800

BALANCE SHEET Assets under management 147 070 134 396 127 748 115 985 105 275

Net lending 118 643 112 024 106 789 99 304 88 465 Securities 22 627 18 889 17 790 13 970 14 829

Deposits 66 448 62 172 60 032 53 142 48 719 Subordinated loan capital 2 426 2 271 1 626 1 613 1 495 Equity 9 094 8 135 7 394 6 691 5 929

KEY FIGURES Net interest and credit commission income as % of primary capital 1,68 1,67 1,45 1,46 1,49 Pre-tax profit/loss as % of primary capital 1,08 0,94 1,04 0,67 0,79

Return on equity after tax 13,7 11,7 14,1 8,7 11,3

Loss percentage, loans 0,35 0,25 0,14 0,13 0,15

Change in net lending 5,9 4,9 7,5 12,3 7,5 Change in deposits 6,9 3,6 13,0 9,1 8,6

Net subordinated capital (NOK) 10 706 9 541 7 973 7 191 6 387 Capital adequacy 15,6 14,3 12,6 11,6 11,6 Core capital adequacy 13,6 13,2 12,3 10,8 10,8 Basel II fully implemented 17,9 18,1 16,6 15,6 15,0

Dividend per equity certificate (NOK) 4,00 3,00 2,50 2,00 3,50 Listed price per equity certificate at year end (NOK) 50,5 45,3 29,4 31,7 47,0 Direct return 7,9 6,6 8,5 6,3 7,5 Effective return per equity certificate in % 18,1 62,6 -1,0 -25,1 -3,9 Owner fraction after the distribution of dividend 19,5 20,5 21,2 21,5 18,1

See page 106 for a full overview of key figures and definitions

Sparebanken Vest Annual Report 2014 Page 5 BRATT MORO

Bratt Moro AS is an event, experience and development company in Sogndal. Its goal is to highlight the natural qualities of Sogn og Fjordane, and create sustainable activities in interaction with nature and the people who use it. Bratt Moro aims to create enthusiasm and be a driving force in making Sogndal the capital of mountaineering in Norge by investing in knowledge and creativity. Photo: Katrin Moe

Sparebanken Vest Annual Report 2014 Page 6 Local identity through generations

1823 Bergens Sparebank is established

1964 Alvøen Sparebank (1877) Herdla Sparebank (1899)

1970 Os Sparebank (1926) 1971 Alversund Sparebank (1910) Fjell Sparebank (1911) 1973 Odda Sparebank (1916) Haus Sparebank (1866) Hamre & Åsane Sparebank (1904) 1975 Lindås Sparebank (1865) Manger Sparebank (1889) Masfjorden Sparebank (1901)

1982 Austrheim & Fedje Sparebank (1911) 1983 Fjære Sparebank (1875) Bremnes & Moster Sparebank (1975) Bruvik Sparebank (1903) Eid sokn Sparebank (1842) 1986 Fitjar Sparebank (1865) Fusa Sparebank (1858) Hosanger new Sparebank (1928) Samnanger Sparebank (1874) 1989 Sparebanken Nordfjord (1852) Skånevik Sparebank (1863) Sogndal Sparebank (1842) Stord Sparebank (1862) Strandebarm Sparebank (1853) Sund & Austevoll Sparebank (1896) Vikøy Sparebank (1860)

2000 Acquisition of Vår Bank og Forsikring, Bergen

2006 Establishment Haugesund and Etne 2007 Acquisition of Fokus Banks’ business in Sogn & Fjordane 2008 Establishment Stavanger Establishment Sandnes 2009 Sauda Sparebank (1892) Establishment Hinna and Sola 2011 Sparebanken Hardanger (1846) 2012 Establishment Voss Establishment Nærbø

Sparebanken Vest Annual Report 2014 Page 7 KNARVIKMILA

The KnarvikMila run is more than just a sporting event. It is a week packed with cultural and sporting events, including conferences and sporting activities such as children’s races, youth races, nature trails and tarmac races over 5km, 10 km and a half marathon. The run, which is one of the biggest running events in Norway, was held for the 33rd time in 2014, and had 8,700 participants. (Photo: Erlend Spurkeland)

Sparebanken Vest Annual Report 2014 Page 8 Organizational model

MANAGING DIRECTOR

JAN ERIK KJERPESETH

CORPORATE COMMUNICATION AND HR

SIREN SUNDLAND

RISK MANAGEMENT LEGAL/CREDIT

EIRIK CHRISTENSEN PÅL PEDERSEN

RETAIL MARKET CORPORATE MARKET BUSINESS ECONOMY AND DEVELOPMENT AND FINANCE HALLGEIR ISDAHL RAGNHILD J. FRESVIK BUSINESS SUPPORT FRANK JOHANNESEN Regions Regions BJØRG MARIT EKNES Finances and accounting Savings and investments Insurance Business development Treasury Customer service SPV Markets Digital channels Investor Relations IT Sparebanken Vest Eiendomsmegler Vest Brage Finans Business support Lending Boligkreditt Norne Securities Business support Operations Sparebanken Vest Eiendomsforvaltning

Verd Boligkreditt

Sparebanken Vest Annual Report 2014 Page 9 BØMLO TEATER

Bømlo Teater is a voluntary organisation that aims to establish Bømlo as a theatre centre based on expertise, quality, breadth and engagement. Bømlo Teater aims to create a sustainable, open and inclusive organisation through good cooperation and healthy financial management. Bømlo Teater endeavours to promote, music, song, dance and drama performed by young people from Bømlo and the Sunnhordland area. The theatre has played an important, cultural role in the local community since it was launched in 1973. A group of amateurs of different ages and from different occupational backgrounds have taken on new challenges and reached new goals over the years. (Photo: Bømlo Teater)

Sparebanken Vest Annual Report 2014 Page 10 Corporate Management

Jan Erik Kjerpeseth (Born 1971) Managing Director since 31 October 2013. Joined the bank in 1999, previously filled the position of Deputy Managing Director. Chair of the board of Frende Liv, Frende Skade, Brage Finans, Bergen Chamber of Commerce and former board member of Nets. Graduate in marketing from the Norwegian School of Marketing and holds an MBA from Heriot-Watt University and an Executive MBA in Brand Management from the Norwegian School of Economics (NHH).

Hallgeir Isdahl (Born 1956) Director of Retail Market since 27 November 2013. Joined the bank in 2008 as chief economist, and then became Director of SPV Markets in October 2011. Chair of the board of Eiendomsmegler Vest and MADE AS. Has previously worked as CEO of Finansbanken in Bergen. Has also held a number of positions in DNB, including head of DNB›s Private Banking activities, chief economist and investment strategist in DnB Investor, head of discretionary management in DnB Luxembourg and chief analyst and portfolio manager for Realforvaltning AS. Economist by education from the University of Bergen.

Ragnhild Janbu Fresvik (Born 1980) Director of Corporate Market since 27 November 2013. Joined the bank in 2012. At Sparebanken Vest, she has been senior business developer, head of investor relations and CFO. She has wide-ranging consulting and finance experience from Boston Consulting Group in Oslo, and later as Investment Manager with the private equity company Borea Opportunity Management. Former board member of Tide ASA and Sparebanken Vest Boligkreditt. Master›s degree in business economics (siviløkonom) from the Norwegian School of Economics (NHH).

Bjørg Marit Eknes (Born 1969) Director of Business Support and Development since 27 November 2013. Has worked for Sparebanken Vest since 1997. Has wide-ranging management experience from various positions in Sparebanken Vest, and previously filled the position of managing director of Sparebanken Vest Eiendomsforvaltning AS. She has previously worked for Fana Sparebank and the insurance company KLP Forsikring. Board member of Bank ID Norge AS, deputy chair of Sparebanken Vest Eiendomsforvaltning AS and board member of Banksjef C.J. Eges Stipendielegat. Has a master›s degree in business economics (siviløkonom) from the Norwegian School of Economics (NHH), and an MBA from Bond University in Australia. Has completed the MBA Brand Management module at NHH, and the AFF Solstrand leadership programme.

Siren Sundland (Born 1971) Director of HR and Corporate Communication since 15 April 2009. Joined the bank in 2007. She has worked in the field of brand management and strategic communication for a number of companies in Western Norway. Wide-ranging experience from various professional environments, including Bergen Academy of Art and Design, the Norwegian Broadcasting Corporation (NRK) and the newspaper Bergens Tidende. Chair of the board of Den Nationale Scene and board member of Eiendomsmegler Vest and NHH’s Advisory Board. Has a cand.philol. degree from the University of Bergen, majoring in Nordic literature.

Frank Johannesen (Born 1959) Director of Economy and Finance since 27 November 2013. Joined the bank in 1985. Has a very wide- ranging banking background and has held various management positions in the bank. Has been Director of Risk Management in Sparebanken Vest since 2002. Has a law degree from the University of Bergen as well as an Executive MBA in Strategic Management from the Norwegian School of Economics (NHH). He has also completed the AFF Solstrand leadership programme.

Sparebanken Vest Annual Report 2014 Page 11 PERIFERIFESTIVAL AND CONFERENCE

Periferifestivalen is a festival for people who want to experience great music in a unique festival setting. Glesvær, the ‘peripheral’ home of Perifierifestivalen, is situated out at the ocean’s edge in the south west corner of the island of Sotra. The village, the sea and the backdrop of boathouses create a wonderful mood and atmosphere. The Periferi conference is organised by PeriferiUng, together with the Western Norway and Bergen chambers of commerce, and Sparebanken Vest. The conference is an arena for debating issues relating to the social, economic and cultural development of Hordaland and Western Norway. (Photo: Poul Iversen)

Sparebanken Vest Annual Report 2014 Page 12 The Board of Directors

Trygve Bruvik (Born 1952) – Chair and member of the board since April 2008. Currently manages a family- owned property and investment company. Former Managing Director/CEO of Vesta from 1994 to 2002. Holds directorships in G.C. Rieber AS (deputy chair) and several smaller companies. He has previously held the offices of chair of the main board of the Norwegian Financial Services Association and chair of the main board of the Norwegian Insurance Association. Has a degree in business economics from BI Norwegian Business School and an engineering degree from Bergen Engineering College.

Marit Solberg (Born 1956) – Deputy chair Member of the board since April 2008. Chief Operating Officer Farming of Marine Harvest ASA. Currently holds a directorship in the Norwegian Seafood Export Council AS. Graduate from the University of Bergen with a Master’s degree in microbiology.

Øyvind Atle Langedal (Born 1965) Member of the board since April 2007. Deputy Managing Director of Coast Center Base AS, Ågotnes. Has been CFO/ Deputy Managing Director of Coast Center Base AS since 1998. Has previous experience from Økonomipartner Bergen AS, Rieber Skinn AS and Jebsens Rederi AS. Currently chair of the board of Vardø Barents Base AS and Maritime Waste Management AS and member of the board of Sambygg AS, Kirkenesbase AS and Helgelandsbase Holding AS. Graduate of the Bank Academy and has studied economics and management at NHHK (continuing and further education at NHH).

Richard Rettedal (Born 1971) Member of the board since April 2008. Managing Director of Sekal AS. Former CFO of Skanem AS and head of finance and administration at Roxar. Worked for Roxar in Dubai for a prolonged period. Board member of Multi Markets AS. MBA with specialisation in finance from the University of Wisconsin – Madison, Florida International University and the University of Stavanger.

Birthe Kåfjord Lange (Born 1973) Member of the board since April 2012. Director of NHH Executive. Former PLD manager for Statoil ASA. Former member of the board of Bergen Private Gymnas AS, the board of the Norwegian School of Economics (NHH), the nomination committee of BOB and various other offices. Deputy member of the board of directors of NHH. She has a PhD and degree studies from the NHH and a cand.mag degree from the University of Bergen/Bergen University College.

Arild Bødal (Born 1965) Member of the board since April 2011. Founder and general manager of Septik24 AS since 2003. General manager/business developer in Isco AS from 1998 to 2003, general manager of Karstad Stryn from 1996 to 1998 and CFO of Karstad from 1989 to 1996. Chair of the board of Smartek AS, Miljøservice AS, Johny Birkeland Transport, HØST Valuable Waste AS, Fjord Invest Såkorn, Gode Busser Holding AS, Vidre AS and NSM Bygginvest AS. Qualified as an authorised accountant at BI Norwegian Business School, has a university college degree in business and administration, studied business economics at NKS and took part of a Master’s degree in business administration (MBA) at Heriot-Watt University. Has also taken various management development courses at BI Norwegian Business School, NHH and the Norwegian University of Science and Technology (NTNU).

Sivert Sørnes (Born 1956) Member of the board since April 2011. General manager of Sparebankstiftelsen Sauda. Managing director of Sauda Sparebank from 1995 to 2009. Previous experience as chief accountant in Elkem Sauda and CFO of Hardanger Energi AS. MSc in Business and Economics (siviløkonom) from BI Norwegian Business School.

Kristin Axelsen (Born 1966) Member of the board since April 2013 as an employee representative. Joined Sparebanken Vest in 2007. Has worked in banking since 1984. Authorised financial adviser. Bachelor’s degree in banking and finance from BI Norwegian Business School/the Bank Academy. Has served as vice chair of Ungt Entreprenørskap (Junior Achievement Young Enterprise) Hordaland.

Anne-Marit Hope (Born 1959) Member of the board since April 2010 as an employee representative. Chief employee representative for the Finance Sector Union of Norway. Joined Sparebanken Vest in 1977. Member of the board of the Hordaland branch of the Finance Sector Union of Norway. Qualified financial adviser from BI Norwegian Business School. Authorised financial adviser.

Sparebanken Vest Annual Report 2014 Page 13 FARGESPILL

Fargespill is an explosive and impressive show featuring around 80 children and young people from roughly 30 different countries, including Norway, who live in Bergen. An intimate musical meeting with young people’s stories, who they are and where they come from, told through music and dance from their respective countries. These musical gems are merged with urban youth culture and Norwegian music traditions in an impressive way. Fargespill has gained a solid reputation for melting hearts, and bringing tears and joy to audiences. Fargespill’s debut performance at Bergen International Festival in 2004 was a huge success. (Photo: Thor Brødreskift)

Sparebanken Vest Annual Report 2014 Page 14 Board of Directors’ report

Sparebanken Vest recorded a pre-tax profit Even though the global economy grew by a good 3% in 2014 of NOK 1,493 million (NOK 1,221 in 2014, growth in the industrialised countries is still mill.), and a return on equity of 13.7% moderate. The recovery after the financial crisis in (11.7%). The profit performance was the USA and the Eurozone continued to follow two positively influenced by an increase in net different tracks. In the USA, growth is back and has gained a foothold, while in Europe there is growing interest and credit commission, growth fear of deflation, and the European Central Bank has in commission income, an improvement started to implement quantitative easing measures. in financial income, including the sale of the bank’s shares in Nets Holding AS and The growth in activity in the Norwegian economy the sale of two of the bank’s properties is expected to be moderate this year. Sparebanken in Bergen, and an increased contribution Vest envisages GDP growth in mainland Norway of to profits from associated companies. just over 1%. A fall in oil investments was expected Increased write-downs on loans and already in spring 2014, and thereby the loss of guarantees had a negative effect on profits. an important growth impulse in the Norwegian economy. The oil price was more than halved during Operating expenses minus non-recurring the last half-year 2014. The low oil price will also expenses show a flat cost development for affect the activity level in mainland Norway, through the Group in 2014, and Sparebanken Vest lower earnings, lower corporate investments and an has a flat cost development in the parent increase in unemployment. bank during the period 2012—2014. The Board of Directors is satisfied with the profit A lower oil price and low interest rates increase the performance in 2014. probability of further interest rate cuts by Norges Bank in 2015.

Sparebanken Vest’s own index for Western Norway, Vestlandsindeks 1), shows that the negative trend from the third quarter was reinforced in the fourth quarter. It is especially the development as regards profitability and unemployment that have a negative effect on the index. The index is also significantly weaker for companies whose turnover is linked to the oil and gas industry.

This is underpinned by the weaker outlook for oil investments and oil prices, to which the Western Norway region is more vulnerable than the rest of the country. The oil service industry reports falling production and it expects to see a further fall, according to Norges Bank’s Regional Network.

The weakening of the Norwegian krone, on the other hand, improves the competitiveness of the traditional export industries, such as shipping and fisheries.

1) The Western Norway Index is a new quarterly index developed by Sparebanken Vest in cooperation with Respons Analyse to ‘gauge the temperature’ of business and industry in Western Norway. It was first launched on 15 February 2012.

Sparebanken Vest Annual Report 2014 Page 15 Exports are expected to increase somewhat, and by More than 80% of the lending volume in the more than the market growth of our trading partners, corporate market in Sparebanken Vest consists of as a result of the recent weakening of the exchange commitments of less than NOK 150 million, and it is rate for the Norwegian krone. well-diversified in terms of industries.

Adaptation to the new digital world and changed Sparebanken Vest meets all regulatory capital customer behaviour was further addressed in requirements by a satisfactory margin. Core Tier 1 2014. New digital services facilitate more efficient capital under the current capital adequacy regime processes, more automation of standardised was strengthened by one percentage point in services and rationalisation of the bank’s operations. 2014. The goal is a Core Tier 1 capital adequacy It was decided to close down nine branch offices ratio of 13.5% by 2016, since, in the bank’s view, and downsize staff by 55 full-time equivalents in the market expects Norwegian regional savings 2014. In 2015, Sparebanken Vest will capitalise banks to be capitalised on a par with the biggest on already established self-service platforms and institutions. When the bank has met the regulatory ensure better coordination between the digital capital requirements, the bank plans to increase platforms and the bank’s physical distribution its distribution percentage within the bounds of the system. The bank’s presence in Western Norway bank’s dividend policy, and to increase the amount will continue to be one of the bank’s most important of donations it distributes. competitive advantages, and it will be maintained and further developed. Overall, the bank’s operations were good in 2014, and a sound foundation has been laid for the Work on adapting the services offered at branch positive profit performance trend to continue in offices to customer needs has already started and 2015. will continue throughout 2015. THE BANK’S EQUITY CERTIFICATE Competition is strong in the market, and The price of the bank’s equity certificate (ticker: Sparebanken Vest expects it to remain so. The SVEG) showed a dividend-adjusted return of 18.1% bank twice reduced the interest rate on loans in 2014, while the equity certificate index at Oslo and deposits in 2014, and a further reduction Børs (OSEEX) showed a return of 16.3%. Around was announced at the beginning of 2015. Interest 8.4 million SVEG equity certificates were traded rates are expected to remain low this year, and the in 2014, which is on a par with previous years. pressure on net interest is expected to persist. The liquidity of the equity certificate has shown improvement in 2013 and 2014 compared with Sparebanken Vest’s target is a growth in lending of previous years. 7% in the retail market and 2.5% in the corporate market The growth target for the corporate market The Board of Directors’ goal is that, over time, reflects the bank’s strategy of prioritising the SME SVEG, will yield an attractive risk-adjusted return for segment and more selective growth among large investors. An investment in SVEG represents: customers. • Pure exposure to the Norwegian economy Cost development is good, and the bank is well • Exposure to Norway’s most attractive region with a on track to achieve an average annual cost growth sound customer basis and good growth of 2% in the parent bank from 2012 to 2015. • A solid retail market portfolio that dominates Rationalising the bank’s operations is one of four the overall risk situation and provides access to main priority areas for the bank. favourable funding • A big equity buffer with a large holding of primary A major restructuring of the corporate market capital port­folio was carried out in 2014, and the bank is • A distribution policy that provides flexibility for thereby in a better position to meet the somewhat self-financing even at attractive dividend levels more uncertain macroeconomic situation in Norway • A high direct return in 2015.

Sparebanken Vest Annual Report 2014 Page 16 The Investor Relations contact will be the bank’s The company has two subsidiaries, Frende liaison with capital market participants, including Skadeforsikring and Frende Livsforsikring, and a equity certificate holders, debt investors and groups total of 162 employees. Both companies made of analysts. a profit in 2014 and are characterised by strong growth and good profitability. The companies have The Board of Directors proposes that the Super­ around 163,000 customers in total. visory Board adopt a cash dividend of NOK 4.00 (3.00) per equity certificate for 2014, corresponding Sparebanken Sogn og Fjordane became a co-owner to a direct return of 7.8%. of Frende Holding in 2014. This will strengthen the insurance companies’ distribution system. Frende THE NATURE OF THE BUSINESS expects to see continued strong growth in the Sparebanken Vest is an independent, listed number of customers in 2015, as well as further financial services group that is engaged in strengthening of its distribution system. banking and financing activities in the counties of Hordaland, Rogaland and Sogn og Fjordane. The The securities company Norne Securities AS Group’s head office is in Bergen, and at the end of increased its turnover by 4% in 2014 compared 2014, the bank had 48 points of sale. In line with with 2013. The biggest improvement took place in decisions made in the second half-year 2014, the corporate finance, and Norne will focus even more number of branch offices will be reduced to 44 in on this business area in 2015. Throughout the year, the first half-year 2015. Norne has worked on finding structural solutions for the company. This work has now been concluded, The Group is involved in estate agency activities and it has been decided that, for the time being, the through Eiendomsmegler Vest AS, property company will be further developed on its own. management through Sparebanken Vest Eiendoms­ forvaltning AS, and home mortgages through A new chief executive who will lead the company Sparebanken Vest Boligkreditt AS. These three through the next phase started on 1 February 2014. limited liability companies are wholly owned by the Norne had more than 38,600 customers at the end parent bank. of 2014 and 38 employees.

Sparebanken Vest is also the largest owner in the The financing company Brage Finans AS had its securities company Norne Securities AS, with a fourth year of operation in 2014, and it had 29 holding of 47.6%, and it is the largest owner of employees and 2,250 customers at year end. In the insurance company Frende Holding AS, with 2014, the company carried out a bond issue in the a holding of 39.7%. These companies are jointly external market for the first time, issuing a total owned with 14 other savings banks. of four bonds during the course of the year. The shareholders strengthened the company’s capital The home mortgages company Verd Boligkreditt adequacy throughout 2014, through two share AS is jointly owned with eight independent issues in the total amount of NOK 130 million. savings banks, and it is run by Sparebanken Vest Brage is thereby well capitalised in relation to Boligkreditt AS. Sparebanken Vest owns 40% of meeting the capital adequacy requirements, and the the shares. Sparebanken Vest owns 49.9% of the company had a Core Tier 1 capital adequacy ratio of shares in the leasing company Brage Finans AS, 18.3% at year end 2014. a company that is jointly owned with nine other savings banks. Brage Finans has done very well in the market, and, according to industry statistics, it is the seventh The bank’s ownership interests in the associated biggest company in the country measured by new companies help to supplement the range of services sales to the leasing market. This positive trend is and products offered by the bank. expected to continue in 2015.

The insurance company Frende Holding AS STRATEGIC DIRECTION continued to make strong progress last year. Sparebanken Vest’s vision is for the bank to be a

Sparebanken Vest Annual Report 2014 Page 17 driving force for social and economic development in a new vision. Emphasis has also been placed on in Western Norway. a management development programme for the bank’s senior management aimed at strengthening In 2014, Sparebanken vest carried out an extensive the bank’s expertise and underpinning the new strategy process that resulted in a new vision strategy and vision. that highlights the savings bank’s distinctive nature: ‘Everything we do, we do to make life in The Board of Directors has appointed three Western Norway even better’. The bank adopted committees to assure the quality and efficiency of and implemented measures aimed at achieving its work. the company’s primary goals: a return on equity in excess of 11% and the achievement of the customer • The Risk Management and Audit Committee is promise: ‘Trust, simplicity and local commitment – charged with ensuring that Sparebanken Vest has because it makes a difference’. an independent and effective external and internal audit function, and financial and risk reporting/ Sparebanken Vest’s strategic ambition is to management that is in accordance with laws and strengthen and consolidate its market position in regulations. Western Norway, create profitable growth and be • The Credit Committee deals with credit matters one of the simplest and most forward-looking banks under the authorisation of the Board of Directors. in which to be a customer • The Compensation Committee is tasked with ensuring that the bank practises a competitive, CORPORATE GOVERNANCE but not leading, pay policy that is perceived as Sparebanken Vest’s principles and policy for motivating by the bank’s management with a corporate governance are based on the applicable view to implementing the adopted strategy and version of the Norwegian Code of Practice for achieving the goals set. Corporate Governance drawn up by the Norwegian Corporate Governance Board (NUES), as well as A full account of corporate governance in applicable regulations in the area. Sparebanken Vest is provided in a separate section of the annual report. Sparebanken Vest’s principles and policy are intended to ensure that its corporate governance STATEMENT CONCERNING THE ANNUAL is in accordance with generally accepted and ACCOUNTS recognised perceptions and standards, and in The annual accounts have been prepared on the compliance with laws and regulations. Moreover, basis of the going concern assumption and based the bank’s corporate governance shall ensure good on the accounts for 2014 as well as projections for cooperation between its different stakeholders, such three years thereafter. as owners of equity certificates, lenders, customers, employees, governing bodies, management and Sparebanken Vest’s consolidated and company society as a whole. In the Board of Directors’ view, accounts for 2014 have been prepared in the bank’s corporate governance is satisfactory and accordance with International Financial Reporting in compliance with its principles and policy. Standards (IFRS), the Financial Supervisory Authority of Norway’s Regulations relating to annual Fourteen board meetings and one board conference reports and accounts, and the Regulations relating were held in 2014. The Board of Directors’ main to the accounting treatment of loans and guarantees. focus has been on following up operations, strategy, In the company accounts, the bank exercises its risk and capital management, and on monitoring right to use a simplified form of IFRS. Consequently, markets and framework conditions. The Board dividend/group contributions from subsidiaries are of Directors has adopted an annual plan for its included in the basis for the parent bank’s dividend work, and it places great emphasis on ensuring in the same year as they are earned. that its members have the requisite knowledge and expertise. The bank’s management has carried out Changes in accounting principles implemented with an extensive strategy process in 2014 that resulted effect from 2014 are described in Note 1.

Sparebanken Vest Annual Report 2014 Page 18 The annual accounts have been prepared in The profit per equity certificate was NOK 7.66 accordance with applicable regulations. In the Board (6.13). The diluted profit is the same. of Directors’ view, they provide a true and fair view of the Group’s profit performance and financial position. The Group’s assets under management amounted to NOK 147.1 billion, an increase of NOK 12.7 billion PROFIT PERFORMANCE compared with 2013, while the parent bank’s assets Sparebanken Vest recorded a pre-tax profit of NOK under management alone amounted to NOK 104.4 1,493 million (NOK 1,221 mill.) in 2014, an improve- billion. ment of NOK 272 million compared with 2013. The profit after tax expense is up NOK 280 million. The INCOME parent bank recorded a pre-tax profit of NOK 1,226 Net interest and credit commission income million (NOK 973 mill.) in 2014, an improvement of Net interest income increased by NOK 159 million NOK 253 million compared with 2013. The profit from 2013 to 2014. The parent bank’s net interest after tax expense is up NOK 279 million. income increased by NOK 63 million. The increase can mainly be attributed to growth in accordance The profit performance for 2014 was positively with targets and reduced borrowing costs. A lower influenced by an improvement in the income money market interest rate and a tightening of the basis based on growth in accordance with targets, credit mark-ups on long-term financing reduced the reduced borrowing costs and stable net interest. In bank’s average financing costs by eight basis points a highly competitive market, the bank has made in 2014. Measured against average financing costs, active efforts to reprice both its lending and deposits lending margins increased by NOK 37 million of net portfolio. In addition, financial instruments made interest income, while deposit margins contributed a positive contribution to the Group with a net NOK 40 million. The development in margins must increase of NOK 106 million compared with 2013. be seen in conjunction with the strong competition, The growth in net commission income from payment the introduction of increased capital requirements transfers, insurance and investment products and the bank’s need to adjust its operations to meet continued in 2014, and increased from NOK 278 the new requirements. million in 2013 to NOK 400 million in 2014. The positive trend in associated companies continued in Net interest amounted to 1.68% (1.67%) of average 2014, with an increase in contribution to profits of assets under management for the Group, and to NOK 24 million. 1.59% (1.54%) for the parent bank.

The Group’s operating expenses amounted to Net lendings increased by NOK 6.6 billion to NOK 1,470 million in 2014, compared with NOK NOK 118.6 billion, corresponding to year-on-year 1,428 million in 2013. The operating expenses growth of 5.8%. The growth in lending breaks amounted to NOK 1,262 million for the parent down as NOK 6.2 billion, or 7.3%, in the retail bank, an increase of NOK 39 million. The increase market segment, and NOK 0.4 billion, or 1.4%, in can primarily be attributed to increased pension the corporate market segment. The parent bank’s expenses as a result of falling interest rates and net lending is virtually unchanged in 2014, and increased life expectancy, as well as an increase in the Group’s lending margin measured against the external fees. The underlying payroll expenses, on 3-month money market interest rate increased by the other hand, were NOK 13 million lower in 2014 an average of three basis points in 2014. than in 2013. Deposit volumes increased by NOK 4.3 billion, Write-downs on loans and losses on guarantees corresponding to 6.9%. The growth in deposits amounted to NOK 410 million (NOK 280 mill.) in the breaks down as NOK 2.9 billion, or 8%, in the retail Group, corresponding to 0.30% (0.22%) of gross market segment, and NOK 1.3 billion, or 5.2%, in lending and NOK 2 million more than in the parent the corporate market segment. Deposits in the bank. corporate market are influenced to some extent by large financial deposits after the New Year. The The Group’s return on equity was 13.7% (11.7%). deposit margin measured against the 3-month

Sparebanken Vest Annual Report 2014 Page 19 money market interest rate improved by an average Individual write-downs in the retail market segment of four basis points in 2014. increased from NOK 19 million in 2013 to NOK 30 million in 2014. Group write-downs increased Net other operating income from NOK 43 million in 2013 to NOK 48 million in Net other operating income increased to NOK 910 2014. This indicates that the risk in the retail market million from NOK 762 million in 2013. Net portfolio is low and stable. Of the retail market commission income amounted to NOK 400 million, portfolio, 95% comprises loans secured by residential compared with NOK 378 million in 2013. The mortgage with a low loan-to-asset-value ratio. increase of NOK 22 million can be attributed to increased income from payment transfers and Individual write-downs in the corporate market increased commission on insurance. segment increased from NOK 406 million in 2013 to NOK 473 million in 2014. Group write-downs are The income from Eiendomsmegler Vest’s estate down from NOK 407 million to NOK 290 million. agency activities amounted to NOK 182 million in Sparebanken Vest carried out several challenging 2014, compared with NOK 190 million in 2013. restructuring processes in the corporate market Total other operating income decreased by NOK 10 portfolio in 2014, with an increase in loss costs. million compared with the year before. The group write-downs reflect the risk in the portfolio and a somewhat more uncertain The net result from financial investments increased macroeconomic situation. by NOK 106 million from NOK 142 million in 2013 to NOK 248 million in 2014. The improvement is THE PARENT BANK’S ALLOCATION OF PROFIT primarily due to the sale of the bank’s shareholding The parent bank’s profit after tax amounted to NOK in Nets Holding AS. 1,121 million (NOK 842 mill.). Adjusted for changes in the reserve for unrealised gains, the basis for The contribution to profits from associated dividend is NOK 1,172 million. companies showed positive development in 2014, with a combined improvement of NOK 24 million. The percentage dividend for the allocation of profit in 2014 is 20.5%. The Board of Directors proposes OPERATING EXPENSES a cash dividend of NOK 4.00 (3.00) per equity The Group’s operating expenses amounted to NOK certificate for 2014. That means a total dividend 1,470 million in 2014, compared with NOK 1,428 payment of NOK 127 million (NOK 95.3 mill.), million in 2013. NOK 32 million relating to provisions which corresponds to a distribution percentage of in connection with downsizing and the closure 52.9% (51.6%). At the meeting of the Supervisory of branch offices announced in the third quarter Board on 18 March 2015, the Board of Directors will was charged to income in 2013. Payroll expenses recommend that the dividend for 2014 be paid as a for 2014 amounted to NOK 634 million. This is a cash dividend. reduction of NOK 13 million from 2013. The Board of Directors also proposes that NOK 50 The cost-income ratio (C/I) was 45.5% in 2014, million (NOK 40 mill.) be spent on donations for the compared with 48.8% in 2013. public benefit. That is equivalent to a distribution percentage of 5.4% (5.9%). The Group employed 813 full-time equivalents at the end of 2014, compared with 821 full-time After allocation of the profit for the year, the owner equivalents in 2013. The number of full-time fraction is 19.5%. equivalents in the parent bank has been reduced from 705 to 690. NOK 113 million will also be transferred to the equalisation reserve and NOK 882 million to the WRITE-DOWNS ON LOANS AND GUARANTEES bank’s primary capital. The proposed allocation of Write-downs on loans and losses on guarantees profit takes account of the need to increase financial amounted to NOK 410 million (NOK 280 mill.), strength in order to meet the new and more corresponding to 0.30% (0.22%) of gross lending. stringent capital requirements. The total retained

Sparebanken Vest Annual Report 2014 Page 20 profit is NOK 882 million in the parent bank and The risk in the corporate market portfolio is deemed amounts to 84.2% (83.9%). to be moderate, and the risk-adjusted return improved during the year. RISK AND CAPITAL MANAGEMENT Risk and capital management underpin the bank’s Defaults and other potential bad debt amounted strategic development and ambitions, and is one of to NOK 1,119 million (NOK 1,351 mill.) for the the Board of Directors’ key focus areas. Based on corporate market and NOK 237 million (NOK 226 quarterly reports, the Board evaluates the bank’s mill.) for the retail market. risk and capital situation in relation to adopted control parameters. The exposure lies within the The demanding restructuring processes in the bank’s defined risk profile. In the Board of Directors’ corporate market portfolio have led to an increase view, the bank’s guidelines and processes for risk in individual write-downs. An unchanged evaluation and capital management function well. of the remaining portfolio should thus have resulted in a reduction in group write-downs. As a result of The bank’s risk and capital tolerance is specified uncertainty in a demanding restructuring phase, through targets and parameters. Risk-adjusted however, the group write-downs from previous capital is calculated for all main areas. Through quarters in 2014 were largely maintained. the bank’s risk and capital assessments (ICAAP2), capital buffers and capital adequacy targets are set The bank has now completed the announced in order to safeguard the bank’s operations even restructuring of defaults and potential bad debt under stressed market conditions. commitments in the corporate portfolio. As a result of confirmed losses, the individual write-downs Credit risk were reduced by NOK 329 million in the fourth The risk in the bank’s retail market portfolio is quarter 2014. The group write-downs reflect the stable and low. A total of 95% of the loan portfolio risk in the portfolio and a somewhat more uncertain is secured by mortgages with a low loan-to-asset macroeconomic situation. The total percentage value ratio. The risk-adjusted return on the portfolio provided for in the portfolio is down from 1.0% to is good. 0.7%.

Figure 2 Write-downs In 2014, the bank has completed the restructuring of a number of commitments in default and 1,2 1400 potential bad debt commitments in the corporate 1,02 % 1200 market portfolio. Some of them have been 1,0 0,87 % transferred back to the bank’s ordinary portfolio, gs 0,79 % 1000 NOK) 0,76 % 0,70 %

0,8 s (M while other commitments have been terminated. s lendin 359 wn gros e-do

of 800

450418 383 it

0,6 d wr s as % Figure 1 Potential bad debt and commitments in default se li wn

600 ta 338 pi e-do Ca 0,4 Writ 400 2500 5 %

0,2 200

408479 624 830 501 2000 4 % 0,0 0 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Individual write-downsGroup write-downsWrite-downs as % of gross lendings

1500 3 % 1.3511.548 1.513 1.968

1.119 Market risk and operational risk 1000 2 % 1,64 % The bank’s interest rate and currency risk is 1,34 % 1,32 % 1,22 % 0,98 % managed within limits adopted by the Board of 500 1 % Directors and is considered to be low.

226233 263 251 237

0 0 % Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Retail Corporate% of total 2 Internal Capital Adequacy Assessment Process

Sparebanken Vest Annual Report 2014 Page 21 The bank is exposed to credit spread risk, primarily The total volume of covered bonds issued by through the management of interest-bearing Sparebanken Vest Boligkreditt AS amounted to securities in the bank’s liquidity portfolio, and to a approximately NOK 42.2 billion at the end of 2014. lesser extent through proprietary trading. Norges Bank reduced the key interest rate to 1.25% in December 2014. The money market interest rate The portfolio mainly consists of securities issued by (3-month NIBOR) was about 22 basis points above Norwegian banks, residential mortgage companies, the key interest rate in 2014. The corresponding municipalities, county authorities, the Norwegian figure in 2013 was 25 basis points. state and non-financial enterprises. The bank’s credit spread risk is at roughly the same level as at During 2014, there was a tightening of credit year end 2013. spreads (the interest rate mark-up on 3-month NIBOR) for the bank’s borrowing in the bond The bank’s total stock market exposure (excluding market. At the end of 2014, the credit spread for subsidiaries and associated companies) at the end five-year senior bond issues by Sparebanken Vest of the fourth quarter amounted to NOK 531 million was at a lower level than at the beginning of 2014 – (NOK 686 mill.). In its management, the bank a tightening from 85 to around 60 basis points. focuses on the total exposure and the concentration in companies and industries. The bank has stock At the end of 2014, the Group’s liquidity indicator market exposure through both companies listed on (6-month rolling average) was 104.6% (101.9%). Oslo Børs and unlisted companies. The deposits/loans ratio increased somewhat from last year at 56.0% (55.5%). At year end, the The identification, analysis and follow-up of Group’s net liquidity was approximately NOK 19.3 operational risk is addressed at the general level billion (NOK 16.5 billion). through management confirmations, continuous assessments and the registration of events. The Group has a well-diversified bond portfolio that is primarily invested in Norwegian issuers, including A project relating to emergency response and crisis covered bonds, bonds issued by municipalities and plans is now under way, including the establishment county authorities, bank bonds and bonds in large of recovery plans, which the Financial Supervisory Norwegian enterprises. Authority of Norway requires of all large banks. The total capital market financing amounted to NOK Liquidity and financing 64.5 billion (NOK 59.0 billion). The bank’s relative Sparebanken Vest’s liquidity has been managed proportion of covered bonds at the end of the within the control parameters again in 2014. The year was approximately 66% of the bank’s capital bank’s liquidity situation was satisfactory at the end market financing. The proportion of financing with a of 2014. remaining term to maturity of more than three years was approximately 43% at the end of the year. In 2014, as before, the bank pursued a strategy Rating that involves raising long-term financing by issuing covered bonds through the bank’s wholly owned Sparebanken Vest is rated by Moody’s and Fitch subsidiary Sparebanken Vest Boligkreditt AS. Ratings. The bank’s rating from Moody’s for long- term borrowing is A2 with a negative outlook. Fitch Sparebanken Vest Boligkreditt also carried out two confirmed all the bank’s ratings on 19 November public issues in 2014. The issues were carried out 2014, including the bank’s rating for long-term in EUR and NOK, respectively. The EUR issue was borrowings of A-, with a stable outlook. worth 536 million (corresponding to approx. NOK 4.8 billion). The NOK issue was worth NOK 2.7 Bonds issued by Sparebanken Vest Boligkreditt AS billion. Sparebanken Vest carried out ten private are rated by Moody’s and have an AAA rating, with placements under the bank’s EMTN programme a stable outlook. in 2014. Financing has been raised in EUR (451 million) and USD (15 million).

Sparebanken Vest Annual Report 2014 Page 22 Capital adequacy was 14.0% (14.2%) at the end of the year. The The bank’s Core Tier 1 capital adequacy ratio, taking overall capital adequacy ratio is 17.9% (18.1%). The into account the Basel I floor, is up 1.0 percentage calculation basis for both the retail market and the points from the fourth quarter 2013, at 12.2%. This corporate market increased during the year. For is due to changed deduction rules for calculating the retail market, this is the result of more stringent own funds, accumulated profits and moderate requirements concerning the banks’ housing loan growth in the calculation basis. The bank thus models and growth. For the corporate market, it meets the applicable combined minimum and buffer is due to an increase in the margin mark-up for requirement of at least 10% Core Tier 1 capital at estimated probability of default, exchange rate year end 2014. effects, the restructuring of commitments in default and growth in commitments. From 1 July 2015, a countercyclical capital buffer of 1 percentage point will be introduced, which will From the first quarter 2015, even more stringent increase the total requirement to 11%. Sparebanken requirements are being introduced for housing loan Vest thus already meets this requirement. The bank models, which will further increase the calculation wishes to meet regulatory minimum requirements basis pursuant to IRB. If the requirement had been through maximum use of hybrid capital (1.5%) introduced in the3) fourth quarter 2014, it would and supplementary capital (2%). As of the fourth have reduced the bank’s Core Tier 1 capital ratio by quarter, the level of hybrid capital was 1.4%, and approx. 0.9 percentage points. supplementary capital 2%. The overall capital adequacy is 15.6%. Figure 4 Capital adequacy, IRB

20 % 18,1 % 18,7 % 18,4 % The market and the authorities expect the regional 17,9 % 18 % 17,4 % savings banks to be capitalised on a par with the 1,4 % 2,4 % 2,5 % 1,3 % 2,3 % 16 % biggest institutions. After carrying out the bank’s 2,5 % 1,7 % 2,3 % 1,7 % 1,6 % ICAAP process in the fourth quarter 2014, the bank 14 % has increased its goal for the Core Tier 1 capital 12 % adequacy ratio to 13.5% by 2016. 10 % Figure 3 Capital adequacy, Basel I floor 8 % 18 % 14,2 % 13,8 % 14,6 % 14,2 % 14,0 % 6 % 15,6 % 16 % 12,7 % 12,7 % 12,7 % 12,714,8 % 12,714,8 % 14,3 % 14,3 % 2,0 % 4 % 14 % 1,1 % 1,0 % 1,9 % 2,0 % 1,4 % 2 % 12 % 2,0 % 2,0 % 1,4 % 1,4 % 0 % 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 10 % Total Capital 18,1 % 16,9 % 18,7 % 18,4 % 17,9 % Tier 2 Capital 1,4 % 1,2 % 2,4 % 2,5 % 2,3 % 8 % Add. Tier 1 Cap. 2,5 % 2,3 % 1,7 % 1,7 % 1,6 % Core Tier 1 Capital 14,2 % 13,4 % 14,6 % 14,2 % 14,0 % 6 % 11,2 % 11,3 % 11,5 % 11,4 % 12,2 %

4 %

2 % In ICAAP, the control and capital adequacy targets, pursuant to IRB, were also revised. The bank’s 0 % 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 capital adequacy ratio target for Core Tier 1 capital Total Capital 14,3 % 14,3 % 14,8 % 14,8 % 15,6 % Tier Capital 1,1 % 1,0 % 1,9 % 2,0 % 2,0 % for 2015, taking into account the Basel I floor, is Add. Tier 1 Cap. 2,0 % 2,0 % 1,4 % 1,4 % 1,4 % 9.5%, while its target level is 12.5%. Core Tier 1 Capital 11,2 % 11,3 % 11,5 % 11,4 % 12,2 %

Sparebanken Vest is still in the process of and in Pursuant to IRB, the bank’s Core Tier 1 capital dialogue with the Financial Supervisory Authority of adequacy ratio in 2014 was relatively stable and Norway for the use of advanced IRB for the cor­porate market portfolio. The data basis must now be im- 3 Internal Capital Adequacy Assessment Process (ICAAP) proved and the qualitative assessments linked to this.

Sparebanken Vest Annual Report 2014 Page 23 THE RETAIL MARKET contributed to greater efficiency and more forward- Sparebanken Vest has seen positive development looking customer services. Today, more than in the retail market throughout 2014. At the end of two-thirds of the bank’s loans to the retail market the year, the bank had 258,623 retail customers, have been confirmed by electronic signature. and has made great progress in prioritised customer The competition situation in the bank market was segments. characterised by intensified competition during autumn 2014, largely driven by the biggest banks. The number of retail customers has increased by This increased competition means stronger pressure around 1% during 2014, and there has been a 7.2% on the bank’s margins, which we assume will growth in lending activities, which is slightly higher continue during 2015 too. The further development than the general credit growth in the economy. of digital platforms to meet customers’ future Loans to retail customers constitute 73% of the expectations, the further development of other bank’s lending portfolio, corresponding to NOK income, and a strong cost focus will be prioritised 91 billion (NOK 84.8 bill.) at 31 December 2014. areas in the retail market segment in Sparebanken Deposits in the retail market have also grown by Vest. around 7%, and amounted to NOK 39.5 billion (NOK 36.6 bill.) at the end of the year. THE CORPORATE MARKET At the end of 2014, Sparebanken Vest had 9,007 Increased diversification of income has been an corporate customers, an increase of 431 on the important part of the bank’s strategy in recent years. year before. The year 2014 was characterised by Important business areas in this context have been moderate growth in lending and ended at 2.8%, insurance, and savings and investments. Both of roughly in line with Q2 growth for non-financial these areas have seen solid growth during 2014, enterprises. and make a significant contribution to other income. The bank’s own quarterly surveys show a high level The growth in lending in the corporate market will of customer satisfaction. This is expressed by the still be driven by a conscious policy of strengthening bank being perceived as easy to use, and that the bank’s capitalisation. At the end of 2014, gross our customers have a positive impression of our lending to the corporate market segment amounted advisers. to NOK 28.5 billion (NOK 28.0 bill.), which is equivalent to 27% of the bank’s loan commitments. In 2014, further adaptations have been made to our office network with the decision to close nine Deposits from the corporate market increased by branch offices. The trend of more use of digital 5.2% during 2014. This was despite the fact that banking and banking services has gained further the bank has worked systematically to reduce the ground. The change in customer behaviour is interest on deposits in the corporate market in line accelerating now through a marked decrease in with falling money market interest rates. At the end the use of offices and a strong growth in the use of of 2014, the deposits portfolio amounted to NOK online banking and mobile banking services. 26.9 billion (NOK 25.6 bill.).

Combined with intense competition and The year was characterised by further write-downs the pertaining pressure on margins, further of some large corporate commitments, especially in rationalisation and adjustment of expenses are shipping. The restructuring of these commitments required. This has led to a changed presence and led to a considerable reduction in the proportion of change in the provision of services at the bank’s defaults and other potential bad debt in the overall offices. The change in the provision of services portfolio in the corporate market. The bank has also is primarily linked to access to cash, but also to reduced its overall exposure in cyclical sectors by changed possibilities for manual transactions. more than NOK 600 million during 2014. Sparebanken Vest has placed emphasis on ensuring that this development is in line with the The risk profile in the portfolio in the corporate trends we see in customers’ use of the bank. The market has thus been significantly reduced, and the growth in self-service through digital platforms has bank expects the loss level in the corporate market

Sparebanken Vest Annual Report 2014 Page 24 to follow cyclical developments and the market in projects relating to the challenges posed by general to a greater extent in future. climate change. Sparebanken Vest’s corporate social responsibility is also reflected in the vision Sparebanken Vest is an important provider of ‘Everything we do, we do to make life in Western financing to business and industry in Western Norway even better’. Norway, especially small and medium-sized enterprises. The bank wishes to increase its Sparebanken Vest endeavours to demonstrate proportion of corporate commitments in the SME corporate social responsibility in all its activities. market relative to the large customer segment in the Equity investments and activities and donations for time ahead. the public benefit are therefore described in the Board of Directors’ report. EQUITY INVESTMENTS Sparebanken Vest’s equity investments are intended In 2013, the communication concept for the bank’s to make a positive contribution to the bank’s activities and donations for the public benefit was earnings by delivering a return on equity that is in changed. The name of the funds for the public accordance with the bank’s goals. benefit was changed from ‘Visjon Vest’ (‘Vision West’) to ‘VI’ (‘We’). It is about the values that the Equity investments amounted to NOK 531 million people of Western Norway manage together as (NOK 686 mill.) at 31 December 2014. This decrease owners of Sparebanken Vest, and the values that is primarily due to the sale of the bank’s shareholding are created jointly through voluntary work. And in Nets Holding AS. In addition, NOK 2,765 million last, but not least, the new name expresses the (NOK 2,767 mill.) was paid into subsidiaries as equity. overriding goal for corporate social responsibility NOK 650 million (NOK 601 mill.) was invested in Sparebanken Vest: Doing our utmost to create a in associated companies in which the bank has bigger ‘We’. holdings of between 20% and 50%. In 2014, ‘VI’ has been further developed in line with CORPORATE SOCIAL RESPONSIBILITY (CSR) the bank’s strategy and vision. There has been an increasing awareness in recent years that the business community has a ACTIVITIES AND DONATIONS FOR THE PUBLIC responsibility to society over and above making a BENEFIT profit. The special interest organisations Finance Pursuant to the Savings Banks Act, savings banks Norway (FNO) and the Norwegian Savings Banks may allocate part of their profit after tax and Association, and the Confederation of Norwegian dividend to projects for the public benefit. Enterprises (NHO), have all placed corporate social responsibility high on the agenda. Over several years, Sparebanken Vest has defined such activities as a strategic priority area. When CSR has always been an integral part of making awards to projects, the bank is concerned Sparebanken Vest’s business activities, among other that the projects that receive such grants produce things through its activities and donations for the a social return. The projects should contribute to public benefit. This work was strengthened in 2012 raising and sharing competence and stimulating by the implementation of a dedicated CRS strategy. interdisciplinary cooperation in Western Norway. It is The development of the strategy is based on best also a goal to create good customer relations and to practice in companies the bank wishes to compare motivate Sparebanken Vest’s employees. itself with, and a structure has been chosen that highlights how we work to achieve sustainable value Through its activities and donations for the public creation in three dimensions, namely financial value benefit, Sparebanken Vest gives high priority to creation, corporate social responsibility and climate climate issues in accordance with the Climate and environmental considerations. Recommendations (‘Klimaanbefalingen’) from the Norwegian Savings Banks Association. Through activities and donations for the public benefit, the bank cooperates on a number of In 2014, funds for the public benefit were

Sparebanken Vest Annual Report 2014 Page 25 awarded to defined categories in business and THE WORKING ENVIRONMENT social development, including research and The bank’s annual organisation survey was greatly competence, innovation, climate, culture-based simplified in 2014. Prioritised questions are businesses, children and young people, culture and based on research and best practice. The survey humanitarian causes. participation level is high, and the feedback shows that our employees enjoy their work. Employee The Board of Directors proposes to allocate NOK 50 satisfaction has remained at a high, stable level in million for such grants in 2015. The bank’s gift fund the organisation for a number of years, which the stands at NOK 175 million. Board of Directors is happy about. The feedback shows that the bank manages to make the most of EMPLOYEES each employee’s competence and that employees At 31 December 2014, the Group had 813 full-time have good opportunities to influence their work equivalents, 690 of whom were affiliated to the situation. The overall picture is one of a good and parent bank. The bank has undergone a restructuring stable working environment. and downsizing process over the past year that has affected the total number of employees. The Board In 2014, as before, the bank spent substantial of Directors is especially pleased that the downsizing resources on joint activities aimed at encouraging process has taken place in close cooperation with the and promoting team spirit in the organisation. The employee representatives and that it was carried out bank is still investing in various social activities for its according to plan. employees, including a company sports association, walking group, art club and a company orchestra. On the competence side, the bank has continued its work on the authorisation scheme for financial ETHICS advisers through systematic knowledge updating The bank’s Code of Ethics is of central importance for the bank’s advisers. In addition, the bank has to Sparebanken Vest and its employees. All the carried out competence-raising measures within bank’s employees have detailed knowledge about the approval scheme for general insurance in and an understanding of the rules, which are order to give the financial advisers an even broader reviewed both in the introduction programme for knowledge base. The bank has also rationalised and new employees and at the annual performance modernised its training channels by increasing the appraisal and development interviews. No breaches focus on, among other things, e-learning, webcast of the Code of Ethics were reported in 2014. and the use of video. Moreover, videoconferencing has become a common tool for holding meetings Sickness absence and inclusive workplace between employees across geographical distances. Overall sickness absence in Sparebanken Vest was 4.3% in 2014, which is slightly down from 4.6% Management and employee development are key in 2013. Of the total, 1.9% (1.8%) was long-term topics in work and organisational development. absence and 2.4% (2.8%) short-term absence. In 2014, there has been a particular focus on management development at all managerial levels. Through its participation in the Inclusive Workplace Various meetings have been held for 90 managers, (IA) Agreement, it is important for the bank to work focusing on strategy, change management and systematically on reducing and following up sickness performance management. The various topics absence. The bank adapts the work situation for are part of a more comprehensive management employees who need adaptation for various health- development programme, which will continue in related reasons and has a strong focus on reducing 2015. the percentage of employees on long-term sick leave. The bank’s target is to have a work attendance rate THE BOARD OF DIRECTORS of at least 96.5% in 2018. In addition to training Trygve Bruvik, Marit Solberg, Richard Rettedal and the bank’s managers in guidelines for follow-up of Birthe Kåfjord Lange were re-elected for two years people on sick leave, the annual health campaigns at the election in 2014. Anne-Marit Hope (employee for employees were conducted. By taking a proactive representative) was also re-elected for two years. role in cooperation with the corporate health service,

Sparebanken Vest Annual Report 2014 Page 26 the bank has offered its employees exercise, diet and that have an impact on the natural environment. health guidance. Through extending credit, the bank has an indirect The bank has also prepared a new, extensive opportunity to influence the natural environment. HSE plan and a calendar for the year to ensure This factor is therefore considered in connection continuity in HSE work. In 2014, Sparebanken with the bank’s credit assessments and is reported has also strengthened its collaboration with both on in a separate CSR report. the Norwegian Labour and Welfare Administration (NAV) and the corporate health service by means Sparebanken Vest reports on a number of closer dialogue. One of the results of this of parameters that together aim to create collaboration is a new sickness absence follow-up awareness among managers and employees project, and the bank has also offered work about environmentally conscious behaviour. This experience places via NAV. concerns requirements relating to reducing energy consumption, waste management, sorting waste HUMAN RIGHTS at source, HSE procedures and focusing on Sparebanken Vest supports and respects the the environment with respect to procurements, protection of international human rights. This is transport and travel. underpinned by the Group’s strategy to report on corporate social responsibility and policies and It is also the bank’s clear goal that the new requirements for suppliers and other partners. building in Jonsvollskvartalet that is scheduled for completion in 2015 shall successfully integrate good CORRUPTION architecture and environmentally friendly/energy- Sparebanken Vest has developed a set of efficient solutions. The intention is that the building procedures intended to identify corruption offences. shall achieve environmental certification, and that This applies to corruption in relation to employees, a separate environmental plan with main goals and customers and other partners. Internally, this is sub-goals will be implemented. specifically addressed in the Code of Ethics. In addition, laws and regulations serve as guidelines. OUTLOOK No matters that can be defined as corruption have The macroeconomic situation been reported in 2014. Even though the global economy grew by a good 3% in 2014, growth in the industrialised countries is GENDER EQUALITY still moderate. The recovery after the financial crisis Sparebanken Vest makes determined efforts to in the USA and the eurozone is still taking place at promote gender equality and prevent unequal two different speeds. In the USA, growth is back treatment and discrimination. The bank’s Board and has gained a foothold, while in Europe, there is of Directors consists of nine members. Four of growing fear of deflation, and the European Central the elected members are women. The corporate Bank has started to implement quantitative easing management team consists of six members, with an measures. equal number of men and women. The growth in the Norwegian economy is expected THE NATURAL ENVIRONMENT AND CLIMATE to be moderate this year. Sparebanken Vest CHANGE envisages GDP growth in mainland Norway of Sparebanken Vest does not use input factors just over 1% in 2015. A fall in oil investments was or production methods that directly pollute the expected already in spring 2014, and thereby natural environment. The bank endeavours to be the loss of an important growth impulse in the environmentally conscious in relation to its use of Norwegian economy. The oil price has been more paper, waste management and recycling. than halved since June. The low oil price will also affect activity in mainland Norway, through lower The bank has a broadly differentiated corporate income, lower corporate investments and some portfolio. Several enterprises to which the bank has increase in unemployment. Exports are expected to furnished loans are engaged in business activities increase somewhat, and by more than the market

Sparebanken Vest Annual Report 2014 Page 27 growth of our trading partners, as a result of the established self-service platforms and ensure better recent weakening of the exchange rate for the coordination between the digital platforms and the Norwegian krone. A lower oil price and low interest bank’s physical distribution system. The bank’s rates increase the probability of further interest rate presence in Western Norway will continue to be one cuts by Norges Bank in 2015. of its most important competitive advantages, and it will be maintained and further developed. Work Western Norway on adapting the services offered in branch offices Sparebanken Vest’s own index for Western Norway, to customer needs has already started and will Vestlandsindeks, shows that the negative trend continue for the rest of the year. from the third quarter was reinforced in the fourth quarter. It is especially the development as regards Competition is strong in the market, and profitability and unemployment that had a negative Sparebanken Vest expects it to remain so. The effect on the index. The index is also significantly bank reduced the interest rate on housing loans weaker for companies whose turnover is linked to twice during 2014, and a further reduction was the oil and gas industry. announced at the beginning of 2015. Interest rates are expected to remain low this year, and the This is underpinned by the weaker outlook for oil pressure on net interest is expected to persist. investments and oil prices, to which the Western Norway region is more vulnerable than the rest Demand for loans is good, and Sparebanken Vest of the country. The oil service industry reports has a target of 7% for lending growth in the retail falling production and it expects to see a further market. fall, according to Norges Bank’s Regional Network. The weakening of the Norwegian krone, on the In the corporate market, Sparebanken Vest’s other hand, improves the competitiveness of the lending growth target is 2.5%, which reflects the traditional export industries, such as shipping and bank’s chosen strategy of giving priority to the SME fisheries. segment and more selective growth among bigger customers. Sparebanken Vest does not have any oil companies, rig companies or operator companies among its Cost development is good, and the bank is well on customers. track to achieve an average cost growth of 2% in the parent bank from 2012 to 2015. Rationalising the Sparebanken Vest bank’s operations is one of four main goals the bank In 2014, Sparebanken Vest carried out an extensive has set itself if we are to succeed going forward. strategy process that resulted in a new vision that highlights the savings bank’s distinctive nature: A major restructuring of the corporate market ‘Everything we do, we do to make life in Western portfolio was carried out in 2014, and the bank is Norway even better’. The bank adopted and thereby in a better position to meet the somewhat implemented measures aimed at achieving the more uncertain macroeconomic situation in Norway company’s primary goals: a return on equity below in 2015. 11% and the achievement of the customer promise: ‘Trust, simplicity and local commitment – because it More than 80% of the lending volume in the makes a difference’. corporate market in Sparebanken Vest consists of commitments of less than NOK 150 million, and it is Adaptation to a digital world with changed customer well-diversified in terms of industries. behaviour was further addressed in 2014, with the announcement of the closure of nine branch offices The bank meets all regulatory capital requirements and staff downsizing by 55 full-time equivalents. by a satisfactory margin. The goal is a Core Tier 1 New digital services facilitate more efficient capital adequacy ratio of 13.5% by 2016, since, in processes, more automation of standardised the bank’s view, the market expects Norwegian services and rationalisation of the bank’s operations. regional savings banks to be capitalised on a par In 2015, Sparebanken Vest will capitalise on already with the biggest institutions. When the bank has met

Sparebanken Vest Annual Report 2014 Page 28 the regulatory capital requirements, it will increase wishes to thank the bank’s customers, equity its distribution percentage within the bounds of the certificate holders and other partners for their bank’s dividend policy. continued support for Sparebanken Vest in 2014.

The bank’s operations have been good in 2014, and The Board will work actively to continue this positive a sound foundation has been laid for the positive cooperation in the time ahead. profit performance trend to continue in 2015.

THANKS TO CUSTOMERS, BUSINESS ASSOCIATES, OFFICERS OF THE COMPANY, THE MANAGEMENT AND EMPLOYEES

The Board of Directors wishes to thank the bank’s employees and officers and various governing bodies for their great enthusiasm, good work effort and positive cooperation in 2014. The Board also

Bergen, 31 December 2014 / 18 February 2015 The Board of Directors of Sparebanken Vest

Trygve Bruvik Marit Solberg Richard Rettedal Chair of the Board Deputy Chair

Birthe Kåfjord Lange Arild Bødal Øyvind A. Langedal

Sivert Sørnes Anne Marit Hope Kristin Axelsen

Jan Erik Kjerpeseth Managing Director

Sparebanken Vest Annual Report 2014 Page 29 GLADMAT

Gladmat is a showcase for food production in Stavanger, gastronomy and food culture, an arena in which food lovers and food producers can get together. Gladmat is the leading food festival in Norway and the Nordic countries, and it aims to promote people’s interest in food and food culture. The festival was held for the 16th year in a row in 2014. It seeks to highlight niche products, produce and the latest food trends. It also looks for participants who represent local quality products with a unique history. The festival attracts up to 250,000 visitors in the space of four days, and receives a lot of regional and national attention. (Photo: Jonas Haarr Friestad)

Sparebanken Vest Annual Report 2014 Page 30 Accounting and notes

Income statement ...... 32 Statement of comprehensive income ...... 32 Balance sheet...... 33 Cash flow statement...... 35 Changes in equity...... 36 Note 1 Accounting principles...... 37 Note 2 Accounting estimates and discretionary assessments...... 41 Note 3 Segment information...... 42 Note 4 Classification of financial instruments...... 44 Note 5 Fair value of financial instruments valued at amortised cost ...... 46 Note 6 Valuation hierarchy for financial instruments at fair value...... 47 Note 7 Financial risk management ...... 48 Note 8 Risk classification of the credit portfolio ...... 50 Note 9 Loans broken down by type of receivable and geographical area ...... 52 Note 10 Commitments broken down by industry and the retail market ...... 53 Note 11 Capitalised write-downs of commitments ...... 55 Note 12 Development in losses and commitments in default ...... 56 Note 13 Secured debt ...... 58 Note 14 Loans to and receivables from credit institutions ...... 58 Note 15 Guarantees and secured debt ...... 59 Note 16 Certificates and bonds ...... 60 Note 17 Shareholdings in subsidiaries and associated companies ...... 61 Note 18 Market risk ...... 63 Note 19 Interest rate sensitivity ...... 64 Note 20 Currency positions ...... 65 Note 21 Financial derivatives ...... 66 Note 22 Shares ...... 67 Note 23 Liquidity risk/ remaining term to maturity ...... 70 Note 24 Net interest and credit commission income ...... 71 Note 25 Interest on individual balance sheet items ...... 72 Note 26 Net other operating income ...... 73 Note 27 Operating expenses ...... 74 Note 28 Pensions ...... 75 Note 29 Tax ...... 79 Note 30 Intangible assets ...... 81 Note 31 Tangible fixed assets...... 83 Note 32 Debt to credit institutions ...... 84 Note 33 Offsetting ...... 85 Note 34 Deposits from customers ...... 86 Note 35 Securitised debt ...... 87 Note 36 Subordinated loan capital and subordinated bond loans ...... 89 Note 37 Capital adequacy ...... 90 Note 38 The equity certificate ...... 92 Note 39 Transactions with related parties ...... 95 Note 40 Disputes ...... 99 Auditor’s Report ...... 100 Control Committee ...... 102 Responsibility Statement ...... 103 Group key figures – 5 years...... 104 Group key figures – per quarter for two years...... 108 Corporate governance ...... 113 Subsidiaries and Associated Companies ...... 122 Regional map...... 123

Sparebanken Vest Annual Report 2014 Page 31 Income statement

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2013 2014 Notes 2014 2013 3 636 3 594 Interest income and similar income 5 265 5 074 2 137 2 032 Interest expenses and similar expenses 2 945 2 913 1 499 1 562 Net interest and credit commission income 24 2 320 2 161

465 490 Commission income and income from banking services 490 465 86 89 Commission expenses and expenses relating to banking services 90 87 474 724 Income from shareholdings in subsidaries and associated companies 74 50 120 218 Net gain/(loss) on financial instruments 248 142 4 3 Other operating income 188 198 977 1 346 Net other operating income 26 910 768 2 476 2 908 Net operating income 3 230 2 929

961 974 Payroll and general administration expenses 28,39 1 131 1 108 97 100 Depreciation 30,31 109 112 165 188 Other operating expenses 230 208 1 223 1 262 Total operating expenses 27 1 470 1 428 1 253 1 646 Profit/loss before write-downs and tax expense 1 760 1 501

0 −12 Net profit on tangible fixed assets 143 0 280 408 Write-downs of loans and losses on guarantees 12 410 280 973 1 226 Profit/loss before tax expense 1 493 1 221

131 105 Tax expense 29 305 313 842 1 121 Profit/loss for the financial year 1 188 908

Majority share of the profit/loss for the period 1 188 908 Minority share of the profit/loss for the period 0 0

Allocations −95 −127 Dividend on equity certificates 24 51 Transferred to/from the reserve for unrealised gains −642 −882 Transferred to primary capital −89 −113 Transferred to the equalisation reserve −40 −50 Transferred to gift fund −842 −1 121 Total allocations

5,68 7,23 Equity certificates' share of profit/loss divided by the number of equity certificates 7,66 6,13 5,68 7,23 Diluted profit/loss per equity certificate 7,66 6,13

Statement of comprehensive income

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2013 2014 Notes 2014 2013 842 1 121 Profit/loss for the period 1 188 908 −76 −129 Estimate variance, pensions −133 −86 21 35 Tax effect of estimate variance, pensions 36 24 −3 0 Effect of change in tax rules 0 −3 −57 −94 Other profit/loss elements that will not be reclassified to profit or loss after tax −97 −65 0 0 Other profit/loss elements that will be reclassified to profit or loss after tax 0 0 −57 −94 Total other profit/loss elements in the period −97 −65 785 1 027 Total profit/loss for the period 1 091 843

Majority share of the total profit/loss for the period 1 091 843 Minority share of the total profit/loss for the period 0 0

Sparebanken Vest Annual Report 2014 Page 32 Balance sheet

PARENT BANK GROUP 31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Notes 2014 2013 Assets 328 2 209 Cash in and receivables from central banks 2 209 328 5 438 8 529 Loans to and receivables from credit institutions 14 1 556 1 318 67 407 67 006 Net lending 9,10,11,12,13 118 643 112 024 686 531 Shares at fair value through profit or loss 22 531 686 19 530 20 143 Certificates and bonds 16 16 525 15 440 740 1 290 Financial derivatives 21 5 571 2 763 2 767 2 765 Shareholdings in subsidaries 17 0 0 601 650 Shareholdings in associated companies 17 681 555 290 292 Other intangible assets 30 315 311 113 81 Tangible fixed assets 31 781 649 105 29 Prepaid expenses 29 107 631 882 Other assets 229 215 98 636 104 407 Total assets 147 070 134 396

Liabilities and equity 6 050 5 377 Debt to credit institutions 32 4 350 3 070 62 262 66 732 Deposits 33,34 66 448 62 172 18 174 18 536 Securitised debt 35 62 151 56 695 705 1 463 Financial derivatives 21 1 463 705 181 168 Accrued expenses and pre-paid income 187 197 167 282 Pension commitments 28 308 190 71 19 Deferred tax 29 63 117 17 2 Other provisions for commitments 2 17 157 138 Tax payable 29 334 330 2 271 2 426 Subordinated loan capital 36 2 426 2 271 534 363 Other liabilities 244 497 90 589 95 506 Total liabilities 137 976 126 261

794 794 Equity certificates 38 794 794 −2 0 Own equity certificates 0 −2 568 568 Share premium reserve 570 570 257 351 Equalisation reserve 478 352 1 617 1 713 Total equity certificate capital 1 842 1 714

6 095 6 904 Primary capital 6 953 6 134 175 175 Gift fund 175 175 14 14 Compensation fund 14 14 6 284 7 093 Total primary capital 7 142 6 323

146 95 Reserve for unrealised gains 0 0 0 0 Other equity 109 97 Minority interests 1 1

8 047 8 901 Total equity 9 094 8 135

98 636 104 407 Total liabilities and equity 147 070 134 396

Sparebanken Vest Annual Report 2014 Page 33 Bergen, 31. December 2014 / 18. February 2015 The Board of Directors Sparebanken Vest

Trygve Bruvik Marit Solberg Richard Rettedal Chair of the Board Deputy Chair of the Board

Birthe Kåfjord Lange Arild Bødal Øyvind A. Langedal

Sivert Sørnes Anne Marit Hope Kristin Axelsen

Jan Erik Kjerpeseth Managing Director

Sparebanken Vest Annual Report 2014 Page 34 Cash flow statement

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2013 2014 2014 2013 Cash flows from operations 3 570 3 600 Interest, commission and customer fees received 5 621 5 349 −1 553 −1 517 Interest, commission and customer fees paid −1 505 −1 535 529 598 Interest received on other investments 421 374 −702 −680 Interest paid on other borrowings −1 552 −1 503 −628 −547 Payments to other suppliers for goods and services −585 −649 −571 −620 Payments to employees, pension schemes, empl. Nat. Ins. contr., tax withholdings etc. −754 −691 −207 −158 Payment of taxes −338 −270 5 5 Dividend received for securities held for trading purposes 5 5 −204 −69 Payments made/received on purchase/sales of securities held for trading purposes −69 −204 239 612 Net cash flow from operations 1 244 876

Cash flows from investment activities 244 148 Payments made/received on loans to customers −6 872 −5 481 −822 −3 099 Payments made/received on receivables and tied-up loans to financial institutions −233 −431 23 31 Dividend received for securities not held for trading purposes 31 23 −1 297 Payments made/received on purch./sales of shares not held for trading purposes 298 −1 −524 −523 Payments made/received on purch./sales of other securities not held for trading purposes −1 028 160 264 474 Dividend/group contributions received from group companies 0 0 0 93 Payments received from investments in assoc. comp./subs. 89 0 −907 −65 Payments made relating to investments in assoc. comp./subs. −65 −67 2 2 Payments received from sales of operating assets etc. 256 3 −98 −84 Payments made on purchases of operating assets etc. −372 −271 −1 819 −2 726 Net cash flow from investment activities −7 896 −6 065

Cash flows from financing activities 2 158 4 464 Payments made/received on customer deposits 4 269 2 175 −111 −584 Payments made/received on deposits from Norges Bank and other financial institutions 1 357 −2 244 747 500 Payments received relating to subordinated loan capital (principal sum) 500 747 0 −360 Payments made relating to repayment of subordinated loan capital (principal sum) −360 0 7 199 6 699 Payments received on issuing bond debt 14 128 15 263 −8 852 −6 596 Payments made relating to bond debt −11 233 −11 192 −109 −128 Dividends paid / Donations for the public benefit −128 −109 1 032 3 995 Net cash flows from financing activities 8 533 4 640

−549 1 881 Net cash flow for the period 1 881 −549

−549 1 881 Net change in cash and cash equivalents 1 881 −549 877 328 Cash and cash equivalents at beginning of period 328 877 328 2 209 Cash and cash equivalents at end of period 2 209 328

Sparebanken Vest Annual Report 2014 Page 35 Changes in equity

Own Equity equity Share Equali­ Compen- certifi- certifi- premium sation Primary Gift sation Other Minority GROUP cates cates reserve reserve capital fund fund equity interests Total Equity at 31 Dec. 2012 794 −11 570 259 5 527 175 14 65 1 7 394

Profit/loss 2013 184 682 41 908 Statement of comprehensive income −12 −45 −8 −65 Purchase/sale of own equity certificates 9 6 15 Effect of change in tax rules −1 −1 Distributed dividend and donations −79 −35 −114 Equity at 31 Dec. 2013 794 −2 570 352 6 134 175 14 97 1 8 135

Profit/loss 2014 240 932 16 1 188 Statement of comprehensive income −19 −75 −3 −97 Purchase/sale of own equity certificates 2 2 4 Distributed dividend and donations −95 −40 −135 Equity at 31 Dec. 2014 794 0 570 478 6 953 175 14 109 1 9 094

Own Equity equity Share Equali­ Compen­- Reserve for certifi- certifi- premium sation Primary Gift sation unrealised PARENT BANK cates cates reserve reserve capital fund fund gains Total Equity at 31 Dec. 2012 794 −11 568 180 5 492 175 14 171 7 384

Profit/loss 2013 184 682 −24 842 Statement of comprehensive income −12 −45 −57 Purchase/sale of own equity certificates 9 6 15 Effect of change in tax rules −1 −1 Allocated dividend and donations −95 −40 −135 Equity at 31 Dec. 2013 794 −2 568 257 6 095 175 14 146 8 047

Profit/loss 2014 240 932 −51 1 121 Statement of comprehensive income −19 −75 −94 Purchase/sale of own equity certificates 2 2 4 Allocated dividend and donations −127 −50 −177 Equity at 31 Dec. 2014 794 0 568 351 6 904 175 14 95 8 901

Sparebanken Vest Annual Report 2014 Page 36 Note 1 Accounting principles

GENERAL INFORMATION Preparing annual accounts and using IFRS require the use of The consolidated accounts for Sparebanken Vest comprise the estimates. The application of the international standards also parent bank Sparebanken Vest and the wholly owned subsidiaries requires the management to make discretionary assessments. Eiendomsmegler Vest AS, Sparebanken Vest Eiendomsforvaltning Areas that to a great extent involve such discretionary estimates, AS with underlying subsidiaries, as well as Sparebanken Vest a high degree of complexity, or areas in which assumptions Boligkreditt AS and Jonsvollkvartalet AS. In addition, Frende and estimates have a material bearing on the parent bank or Holding AS, Norne Eierselskap AS, Verd Boligkreditt AS and Brage consolidated accounts, are described in Note 2. Finans AS are included as associated companies. See Note 17 for more details. CHANGES IN ACCOUNTING PRINCIPLES The Group applied the following new standards and amendments Unless otherwise specified, all amounts in the accounts and in 2014. notes to the accounts are stated in NOK million. The consolidated accounts have been prepared on the basis of the going concern IFRS 10 Consolidated Financial Statements assumption. As of 1 January 2014, IFRS 10 has replaced the parts of IAS 27 that concern consolidated accounts. IFRS 10 is based on a control Sparebanken Vest’s equity certificates are listed on Oslo Børs. The model that must be applied to all entities. The content of the term bank is located in the counties of Hordaland, Sogn og Fjordane ‘control’ has been changed somewhat in relation to IAS 27. The and Rogaland, and its head office is in Bergen. Its registered introduction of IFRS 10 has not resulted in additional consolidated address is Kaigaten 4, NO-5016 Bergen. entities in the consolidated accounts for 2014. For a more detailed description, see the section on the consolidation principles. The 2014 annual accounts for the Sparebanken Vest Group were considered and adopted at a board meeting on 18 February 2015. IFRS 12 Disclosure of Interests in Other Entities IFRS 12 replaces the disclosure requirements that previously The Supervisory Board is the bank’s supreme body. followed from IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associated Companies, BASIS FOR THE PREPARATION OF THE ANNUAL ACCOUNTS and IAS 31 Interests in Joint Ventures. Certain new disclosure The consolidated accounts have been prepared in accordance with requirements are also specified. The disclosure requirements International Financial Reporting Standards (IFRS) as adopted by are implemented in Note 17 Shareholdings in subsidiaries and the EU and published by the International Accounting Standards associated companies. Board (IASB), and which are mandatory from 31 December 2014. Amendments to IAS 32 Financial Instruments: Presentation The consolidated accounts are based on the principles of historical IAS 32 has been amended to clarify the application of its cost accounting. offsetting criteria for financial instruments. The new rules do not significantly change the offsetting of financial instruments in the Amortised cost is used for the valuation of financial assets and accounts. liabilities, with the exception of financial instruments at fair value through profit or loss (including financial derivatives) and financial Revised IAS 27 Separate Financial Statements and IAS 28 instruments designated for hedge accounting. Investments in Associates and Joint Ventures As a result of the publication of IFRS 10, 11 and 12, the Amortised cost is defined as the amount the instrument is initially International Accounting Standards Board (IASB) has revised measured at in the accounts (cost price) minus repayments IAS 27 and IAS 28. IAS 27 now only regulates separate financial of principal, with an addition or deduction for accumulated statements, while IAS 28 regulates both investments in associates amortisation of all differences between cost price and the nominal and joint ventures. amount, minus all write-downs. CONSOLIDATION PRINCIPLES Fair value is defined as the price that would be received to sell an The consolidated accounts include the parent bank, subsidiaries asset or paid to transfer a liability between independent market and associated companies, including underlying subsidiaries and participants on the measurement date. associated companies. The accounting principles are applied consistently to the recognition of shareholdings in subsidiaries (and associated companies) and are based on the same reporting For financial instruments designated for hedge accounting, the periods as for the parent company. hedging instruments are recognised at fair value and the hedged items at fair value for the hedged risks. Intercompany transactions and outstanding accounts, including intercompany profit and unrealised gains and losses, are The consolidated accounts have been prepared on the basis of eliminated when the consolidated accounts are prepared. uniform accounting principles for similar transactions and events under otherwise identical circumstances. Subsidiaries Subsidiaries are defined as companies in which the parent bank Sparebanken Vest’s company accounts have been prepared in has a controlling influence over the company’s operations (actual accordance with a simplified form of IFRS. The same principles control). A controlled company is one in which the investor has apply when using simplified IFRS for the company accounts as power over the investee, is exposed or has rights to variable under IFRS, with the exception of the recognition of dividends, returns from the investee, and has the power to control the group contributions and other distributions relating to the result for activities of the investee that materially affect the return. the financial year. In the company accounts, the proposed dividend and donations for distribution are recognised in the year that forms The control term means that a consolidation obligation must also the basis for the distribution. be considered for companies in which the bank does not have

Sparebanken Vest Annual Report 2014 Page 37 a majority shareholding. In addition, a consolidation obligation fair value through profit or loss. can arise in certain situations as a result of a loan, if the loan agreement entails such extensive rights that they could result in Fees that are direct payment for services rendered are taken to control. Such rights must be distinguished from ordinary rights income as the services are delivered. The accounting item ‘Net that the bank has to protect its loans. other operating income’ includes fees and commission from payment transfer, the issuing of guarantees, estate agency and Subsidiaries are included in the consolidated accounts from insurance sales. See Note 26 for further specification. the date on which actual control is transferred to the Group. Investments in subsidiaries are recognised in the company FINANCIAL ASSETS AND LIABILITIES accounts in accordance with the cost method. Financial assets and liabilities are valued and classified in accordance with IAS 39, and presented in accordance with IFRS Associated companies 7. Note 4 specifies the volume for each main group of financial An associated company is a unit in which the Group has instruments classified in the different measurement categories. considerable influence, but not a controlling interest. Considerable influence is deemed to exist if an enterprise directly or indirectly Recognition and derecognition (e.g. through subsidiaries) controls 20 per cent or more of the Financial assets and liabilities are recognised in the balance sheet voting rights in the enterprise invested in, unless it can clearly be when the Group becomes a party to the instrument’s contractual established that this is not the case. The opposite correspondingly terms. Financial assets and liabilities are derecognised when the applies, so that, if an enterprise directly or indirectly (e.g. through advantage or liability that follows from the contractual terms is subsidiaries) controls less than 20 per cent of the voting rights met, cancelled or expires. in the enterprise invested in, the enterprise is not deemed to have considerable influence unless it can clearly be established Financial instruments at fair value through profit or loss that the enterprise has such influence. The fact that an investor This category has two sub-categories: financial instruments held owns a significant holding or a majority holding does not, however, for trading purposes, and financial instruments initially classified preclude another enterprise from having considerable influence. for recognition at fair value through profit or loss. Investments in associated companies are recognised in the consolidated accounts in accordance with the equity method, and Financial instruments held for trading purposes in the company accounts in accordance with the cost method. On The bank has classified shares and bonds acquired for short-term the acquisition date, the investment is recognised at acquisition gain, or that are of such a nature that a sale would be considered cost. in the event of an attractive offer, in the category financial instruments held for trading purposes. Derivatives are also Business combinations classified in this category insofar as they are not designated for Business combinations are recognised in accordance with the hedging purposes. acquisition method. The consideration is measured at fair value on the acquisition date. Direct acquisition costs are expensed as they Derivatives are recognised in the balance sheet at fair value arise, with the exception of issue costs and expenses relating to when the derivative contract is entered into, and thereafter at the the raising of loans. current fair value. For more information about the scope and use of derivatives in the Group, see Note 21. Acquired assets and liabilities are recognised in the balance sheet at fair value in the Group’s opening balance. If the consideration Financial instruments classified for recognition at fair value through exceeds the value of identifiable assets and liabilities, the profit or loss difference is recognised as goodwill. For more details relating to Financial instruments classified for recognition at fair value how goodwill is treated for accounting purposes, see the separate through profit or loss are recognised at fair value excluding section under intangible assets. If the acquisition cost is lower transaction costs. Fair value is also used in subsequent valuations. than the value of identifiable assets and liabilities (badwill), the difference is recognised on the date of the transaction. Badwill Financial instruments are classified in this category if one of the is entered under the accounting line ‘Net gain/(loss) on financial following criteria is met: instruments’. • The classification eliminates or significantly reduces accrual Contingent considerations are classified as a commitment pursuant accounting differences for gains and losses on hedging to IAS 39 and recognised at fair value in subsequent periods. The instruments and hedged items in connection with financial adjustment of contingent considerations in subsequent periods is hedging. recognised in accordance with relevant standards. • The financial instruments are part of a portfolio that is managed SEGMENT INFORMATION and valued on the basis of fair value in accordance with a The Group’s activities are divided into the following segments: documented risk management or investment strategy. the Corporate Market (CM), the Retail Market (RM), Treasury and estate agency activities. Operating expenses are allocated Financial assets initially classified for recognition at fair value directly, with the exception of IT expenses, staff-related costs and through profit or loss include fixed-interest loans, investments depreciation. The classification is based on internal management in certificates and bonds, as well as shares. Financial liabilities reporting and resource allocation. at fixed interest rates are also assigned to this category. This includes debt to credit institutions, deposits, securitised debt and RECOGNITION OF INTEREST AND FEES subordinated loans and subordinated bonds at fixed interest rates. Interest income is taken to income using the effective interest rate method. This entails recognition of nominal interest income and Financial assets recognised at fair value through profit or loss are amortisation of establishment fees after the deduction of direct recognised at fair value on acquisition, and transaction costs are establishment costs, as they arise. The effective interest rate charged to income. Subsequent measurement is at fair value. The method is used for the recognition of interest for balance sheet fair value of listed investments is based on the market price on items valued at amortised cost and balance sheet items valued at the balance sheet date. In the case of unlisted securities where

Sparebanken Vest Annual Report 2014 Page 38 there is no active market, the Group applies valuation techniques relationship takes place when the hedging relationship is to determine fair value. The valuations are based on the last issue established. There is a clear, direct and documented connection price, traded prices known to the Group and discounted cash flows. between fluctuations in the value of the hedged item that are due In the case of securities in which there is no trading, the value is to the hedged risk and fluctuations in the value of the financial based on available accounting information, mainly in order to test derivatives. The hedging is documented with reference to the for the need for write-downs and any obvious excess values. Group’s risk management strategy, clear identification of the hedged item and the hedging instrument, a clear description of The fair value of fixed-interest loans is calculated by discounting the hedged risk and a description of why the hedging is expected cash flows, based on the market conditions on the balance sheet to be effective. The hedging instruments are valued at fair value date, in order to estimate the value that would be received if the and entered under ’Net gain/(loss) on financial instruments’ in the asset was traded between independent market participants. income statement.

The fair value of financial instrument liabilities is calculated by CURRENCY discounting the cash flow from the loans using the required rate The Group’s presentation currency is Norwegian kroner. It is also of return derived from the zero coupon curve. The credit spread the functional currency of the parent company, subsidiaries and on interest-bearing securities is changed on the basis of an overall associated companies. assessment that takes account of observed trading in the market, credit margin reports from various brokers, and internal evaluations. The bank’s receivables and liabilities in foreign currency are A change in the credit spread will affect the required rate of return translated at the exchange rate on the balance sheet date. in that the supplement added to the zero coupon curve will change. Currency items are largely hedged by matching them with corresponding items on the other side of the balance sheet, or by The buy-back of securities issued by the bank is netted against using derivatives. securities debt in the balance sheet. Income and expenses in foreign currency are translated into NOK Realised gains/losses and changes in the value of financial at the rates on the transaction date. instruments at fair value through profit or loss, including dividends, are presented in the accounts under ‘Net gain/(loss) on financial TANGIBLE FIXED ASSETS instruments’ in the period in which they arise. Tangible fixed assets are valued at historical cost and depreciated over the asset’s expected useful life. Financial instruments valued at amortised cost All of the Group’s properties are considered to be operating assets Lending and receivables at floating interest rates are valued at for own use, and the accounting treatment is in accordance with amortised cost. Lending and receivables are defined as non- IAS 16. The properties are initially valued at historical cost and derivative financial assets with fixed or determinable payments that depreciated over their expected useful life. Different elements are not traded in an active market. Lending is initially valued at with different useful lives must be differentiated and depreciated fair value with the addition of direct transaction costs. In periods separately. after the initial measurement, lending is valued at amortised cost based on the effective interest rate method. If there is objective Ordinary depreciation is based on the cost price, and assets are evidence of a decline in the value of individual loans or groups of depreciated on a straight-line basis over the useful life of the asset. loans, the loans are written down. The amount of the write-down The depreciation period and method are assessed every year to is calculated as the difference between the balance sheet value ensure that they are in accordance with the economic realities of and the current value of future expected cash flows, based on the the fixed assets in question. expected life of the loan. Write-downs are recognised in the period the objective evidence arises, and are classified as a loss expense. The ordinary depreciation for the year is included in operating expenses for the year. Interest income from loans is recognised under net interest also in cases where a write-down has been carried out. Interest income On derecognition, any gains or losses are recognised under ‘Net on written-down loans is recognised using the original effective profit on tangible fixed assets’. interest rate and on the basis of the written-down loan. Changes in a loan’s interest rate that reflect changes in the market interest INTANGIBLE ASSETS rate do not affect the value of the loan. Developed software Financial liabilities at floating interest rates are recognised in the Software development is recognised in the balance sheet and balance sheet at amortised cost. The liability is initially valued at classified as intangible assets when the value is deemed to fair value with the addition of direct transaction costs. In periods be material and the asset is expected to have lasting value. In after the initial measurement, the loan is valued at amortised cost connection with software development, the use of own resources based on the effective interest rate method. is capitalised insofar as expenses incurred can be measured in a reliable manner. Costs relating, among other things, to pre- Financial instruments designated for hedge accounting planning, implementation and training are expensed as they arise. The Group uses hedge accounting to achieve an accounting Capitalised software that has been developed by the bank is treatment that reflects how interest rate risk and currency risk are depreciated using the straight-line method over its expected useful managed for long-term borrowings relating to the housing credit life. Depreciation commences on the date the software is available company. This leads to a comparison in the income statement of for use in the company, so that software under development is gains and losses on bonds issued at fixed interest rates and/or recognised at cost price until the development is completed. foreign currency (hedged item) with gains and losses on pertaining interest rate and currency swaps (hedging instrument). This is Whether a write-down is necessary as a result of the expected recognised as fair value hedging. economic benefits being less than the balance sheet value is continuously assessed. A formal earmarking and documentation of the hedging

Sparebanken Vest Annual Report 2014 Page 39 Goodwill Defined contribution scheme Goodwill is the difference between the acquisition cost of a The defined benefit scheme was closed to new members in 2007 business and the fair value of the Group’s share of net identifiable and a voluntary transition to a defined contribution scheme was assets in the business on the acquisition date. Each goodwill item offered. The contributions are recognised in the accounts and in the balance sheet is allocated to cash flow generating units accrued as payroll expenses. See the note on the breakdown that benefit from the purchased asset. The choice of assessment between the two schemes. unit is made on the basis of whether it is possible to identify and separate cash flows relating to the business in question. Goodwill COMMITMENTS / PROVISIONS is tested annually for possible value depreciation and is recognised A provision has been made for commitments in accordance with in the balance sheet at acquisition cost minus write-downs. IAS 37. For a provision to be made, a commitment must exist The write-down test of capitalised goodwill is carried out by as a result of previous events, and it must be highly likely that discounting expected future cash flows from the assessment units. the commitment will have to be met. The provision has been calculated as the present value of future payments required to Acquired customer portfolio meet the commitment. The value of the customer portfolio is included in the cost price of acquisitions. The value is set as the future cash flow, without The proposed dividend and donations for distribution had not been taking into account the customer’s right to renewal. The customer formally decided on the balance sheet date and thus do not meet portfolio is depreciated using the straight-line method over the the criteria for being defined as a commitment under IAS 37. expected contract period. In the company accounts, dividends and donations are recognised in the financial year that forms the basis for the allocation. TAX Deferred tax and deferred tax assets are recognised in the balance POST BALANCE SHEET EVENTS sheet in accordance with IAS 12 Deferred Tax. Events that occur after the balance sheet date are disclosed in accordance with IAS 10. The information concerns events that are The tax expense in the income statement includes both the not recognised in the consolidated financial accounts, but whose tax payable for the period and the change in deferred tax. The nature makes them material to assessing the business. deferred tax/deferred tax asset is calculated at a rate of 27 per cent of net temporary differences between accounting and CASH FLOW STATEMENT tax values at the end of the financial year. Tax-increasing and The cash flow statement is broken down into cash flows from tax-reducing temporary differences that are reversed or can be operations, investment activities and financing activities. reversed in the same period are offset and entered net. Cash flows from operations are defined as current interest rates, The deferred tax asset is capitalised on the basis of expectations commission and fees related to lending, borrowings and deposits, of taxable income through earnings in future years. interest rates relating to liquidity, unpaid operating expenses and direct and indirect taxes paid. Liquidity flows relating to securities Tax payable in the balance sheet is the tax payable relating to the held for trading purposes are also classified here. profit for the year, tax payable on capital assets and tax payable on group contributions received. Investment activities are defined as cash flows from changes in the nominal lending volume, cash flows from securities PENSION COMMITMENTS transactions not held for trading purposes and investments in The Group has both defined benefit and defined contribution operating assets and real property. schemes. See Note 28 for more details. Cash flows relating to the volume of deposits, the raising and Defined benefit scheme repayment of subordinated loans and bond debt and equity are Pension commitments are calculated in accordance with IAS 19. defined as financing activities. Financial assumptions used to calculate the pension commitments are updated on the balance sheet date, including the discount EQUITY rate, which is based on market interest rates on the balance sheet Equity consists of equity certificate capital, primary capital, the date. Reference is made to Note 28 for further information and reserve for unrealised gains, other group equity and minority assessments relating to the financial and actuarial assumptions interests. used. The equity certificate capital includes paid-up capital linked The net pension commitment is calculated and entered as a long- to equity certificates, own holdings of equity certificates, the term liability in the accounts. Net pension commitments are the premium reserve and the equalisation reserve. The primary capital difference between the gross pension commitment, which is the includes paid-up and retained primary capital, the gift fund and present value of expected future pension benefits, and pension compensation fund. assets in the insurance fund and the pension premium fund. In the parent bank, the reserve for unrealised gains consists of the Pension expenses are divided into three components in the income increase in the value of financial instruments where the principles statement: pension earnings, net interest expenses and change in used for valuation pursuant to IFRS deviate from the principles set value. The earned pension entitlements and net interest expenses out in Norwegian GAAP. for the period are presented under ordinary profit/loss. The effect of deviations between estimated parameters and final parameters, Other group equity consists of retained equity in subsidiaries and and the return on the pension assets over and above the net associated companies after the establishment of the Group, and interest expense, are included in the statement of comprehensive the effect of equity eliminations in the consolidated accounts. income in the period in which they arise. When buying own equity certificates, the purchase price including The pension expense for the year is entered net in the income direct costs will be recognised as a reduction in equity. The statement under ‘Payroll and general administration expenses’. nominal value of own equity certificates is entered as a negative

Sparebanken Vest Annual Report 2014 Page 40 amount on a separate line under equity certificate capital. Any • IFRS 15 Revenue from Contracts with Customers. IASB and FASB purchase price in excess of the nominal value is deducted from have published a new, joint standard for revenue recognition, the bank’s primary capital. IFRS 15. The standard is expected to have a limited effect on the Group, and it will enter into force for the financial year starting 1 The profit for the year is allocated to the equity certificate owners January 2017. The standard has not been approved by the EU. and primary capital in proportion to the ratio between the equity • IFRS 9 Financial Instruments. IFRS 9 will replace the present certificate capital plus the premium reserve, and primary capital IAS 39. In IFRS 9, measurement is determined by the company’s plus the compensation fund. The part of the year’s profit that business model and the characteristics of the individual financial is allocated to equity certificate capital and not distributed as asset. A financial asset is measured at amortised cost if the dividend is allocated to the equalisation reserve. objective of the company’s business model is to hold the asset In the consolidated balance sheet, the proposed dividend and in order to receive the contractual cash flows, and the cash flows donations for distribution are classified as part of equity until the from the asset are solely payments of instalments and interest final resolutions have been adopted by the Supervisory Board. on the principal outstanding. The standard is expected to affect the Group’s accounts, particularly as a result of a new model UPCOMING AMENDMENTS TO STANDARDS AND for the recognition and measurement of losses on financial INTERPRETATIONS instruments at amortised cost. IFRS 9 applies with effect from Below is an overview of standards and amendments to existing accounting years that start on or after 1 January 2018. The EU standards that have not entered into force, and where the Group has not approved the standard. The Group has not completed its has not chosen early application. The matters discussed focus evaluation of the effects of IFRS 9. on amendments that are expected to have consequences for the Group’s future reporting.

Note 2 Accounting estimates and discretionary assessments

When preparing the annual accounts in accordance with IFRS, Commitments that are not identified by individual valuations or the group management has used estimates and assumptions that have been subject to an individual assessment, and for which that affect the amounts recognised for assets, liabilities, equity no individual write-down has been carried out, will be included and profit/loss. The estimates used are based on discretionary in the assessment unit for group write-downs. When assessing assessments and assumptions that were deemed to be realistic on the need for write-downs, the loans are broken down into groups the balance sheet date. New information and future events may with similar risk properties. The assessment is based on objective lead to significant changes in estimates with pertaining changes in indications of a fall in value having occurred on the balance sheet recognised amounts. The Group’s most important estimates and date that can be linked to the group. The calculation of the need assumptions are discussed below. for write-downs is based on the bank’s risk classification system, which is intended to identify impaired payment status based on Losses on loans and guarantees observable and registered data. Any impairment in the portfolio If there is objective evidence of one or more events having as a result of macroeconomic factors that have not been taken occurred since the initial recognition of the asset that are expected into account in the models shall be identified by a review of loss to entail a risk of reduced debt-servicing ability, an individual loss events at industry and geographical level. Based on qualitative assessment is carried out for the commitment. Objective events assessments performed by the customer divisions, necessary could be default of payment, illiquidity or other material financial adjustments are estimated for industry and geographical factors in problems on the part of the debtor. the bank’s risk classification system.

The bank’s loss assessments will be the result of a process that Fair value of financial instruments involves the business areas and important credit environments. The fair value of financial instruments that are not traded in an active market is determined using various valuation techniques. The amount of the write-down is determined based on an This is based on assumptions about what the market will use as assessment of the difference between the balance sheet value a basis for the valuation of corresponding financial instruments (loan principal + accrued interest at the date of valuation) and the and the information available on the balance sheet date. See the present value of future cash flows discounted on the basis of the notes on financial instruments and the statement on accounting effective interest rate over the useful life of the loan. Write-downs principles for a description of the techniques used. Considerable are classified as a loss expense in the income statement. discretion must be exercised in the valuation of financial instruments that are not traded in an active market. Estimates of future cash flows are based on experience data and discretion based on conditions that existed on the balance sheet For the volume of financial instruments classified at level 3 date. When estimating write-downs on individual customers, (subjective elements in the valuation), reference is made to Note both the current and expected future financial position is taken 6. It also provides information about sensitivity relating to the into account. For commitments in the corporate market, the parameters used in the calculations. market situation for the customer, the market conditions in the sector in question and general market conditions of significance Impairment of goodwill to the commitment are taken into account. The possibilities for For all assessment units, tests are carried out to test for possible restructuring, refinancing and recapitalisation are also assessed. impairment of goodwill. Write-down tests are performed when The overall assessment of these factors forms the basis for there is an indication of a fall in value, and at least once a year. estimating future cash flows. The discounting period is estimated on an individual basis or based on experience data about the The choice of assessment unit is made on the basis of whether period up until a solution is found to the conditions that have led it is possible to identify and separate cash flows relating to the to a fall in the value of the commitment. business in question. Future cash flows are based on historical

Sparebanken Vest Annual Report 2014 Page 41 results and, if relevant, they take into account expectations rate, future wage growth, pension adjustments, the expected of future conditions. The estimation of future cash flows will return on pension assets, plus demographic factors relating to therefore include assumptions and estimates relating to highly disability and mortality. Any changes in these assumptions will uncertain factors. affect the pension commitment and pension expense amounts recognised in the balance sheet. The required rate of return is based on a discretionary assessment of the required rate of return in the market for the type of business The assumptions are based on guidelines issued by the Norwegian the assessment unit involves. The required rate of return chosen Accounting Foundation, but they are considered in relation to shall seek to reflect the risk in the business being assessed and it the situation in the Group before being finally stipulated. Among shall be based on information available on the balance sheet date. other things, this applies to assessments of future wage growth, especially as a result of the existing defined benefit scheme being Reference is made to Note 30 for comments relating to the closed to new members and the fact that the average age of the individual assessment units. scheme’s members is relatively high.

Pension commitments Reference is made to Note 28 for further details on the Group’s The present value of pension commitments depends on financial pension commitments, including sensitivity calculations of and actuarial assumptions. Key assumptions include the discount material assumptions.

Note 3 Segment information

The management has considered which segments it is expedient Following restructuring in autumn 2013, the former Markets to report on in relation to management and control. The segments segment has been divided between the Corporate Market and the are divided into the Corporate Market, the Retail Market, Treasury Treasury function. In addition, support functions in the Corporate and estate agency activities. Operating expenses are allocated Market and Retail Market have been merged and placed in a joint directly, with the exception of IT expenses, staff-related costs and staff unit, which is therefore reported outside the segments. All depreciation. Net interest is allocated on the basis of internally historical figures have been revised in accordance with the new calculated intragroup interest based on 3-month NIBOR. segment structure.

Banking operations Estate Unallo- Corporate Retail agency cated by Market Market Treasury activities segment Total GROUP 2014 Income statement Net interest 783 1 493 42 2 0 2 320 Operating income 194 275 30 182 229 910 Operating expenses −126 −369 −14 −165 −796 −1 470 Net profit on tangible fixed assets 143 143 Loss −395 −15 0 0 0 −410 Pre-tax profit 456 1 384 58 19 −424 1 493 Tax expense −305 Profit/loss for the year 456 1 384 58 19 −424 1 188

Balance sheet Net lending 27 137 91 506 0 0 0 118 643 Deposits 20 596 41 162 4 690 0 0 66 448

2013 Income statement Net interest 702 1 389 68 2 0 2 161 Operating income 164 261 113 190 40 768 Operating expenses −125 −367 −14 −167 −755 −1 428 Loss −282 2 0 0 0 −280 Pre-tax profit 459 1 285 167 25 −715 1 221 Tax expense −313 Profit/loss for the year 459 1 285 167 25 −715 908

Balance sheet Net lending 26 480 85 544 0 0 0 112 024 Deposits 19 363 38 267 4 542 0 0 62 172

Sparebanken Vest Annual Report 2014 Page 42 Note 3 Segment information (contd.)

Banking operations

Corporate Retail Unallocated Market Market Treasury by segment Total PARENT BANK 2014 Income statement Net interest 780 819 −37 0 1 562 Operating income 194 275 30 847 1 346 Operating expenses −126 −369 −14 −753 −1 262 Net profit on tangible fixed assets −12 −12 Loss −395 −13 0 0 −408 Pre-tax profit 453 712 −21 82 1 226 Tax expense −105 Profit/loss for the year 453 712 −21 82 1 121

Balance sheet Net lending 27 346 39 660 0 0 67 006 Deposits 20 596 41 160 4 976 0 66 732

2013 Income statement Net interest 698 803 −2 0 1 499 Operating income 169 260 50 498 977 Operating expenses −125 −367 −11 −720 −1 223 Loss −279 −1 0 −280 Pre-tax profit 463 695 37 −222 973 Tax expense −131 Profit/loss for the year 463 695 37 −222 842

Balance sheet Net lending 26 618 40 789 0 0 67 407 Deposits 19 362 38 171 4 729 0 62 262

Sparebanken Vest Annual Report 2014 Page 43 Note 4 Classification of financial instruments

Financial instruments at fair value through profit or loss Financial instr. GROUP designated Valued Held for trading Recognised at for hedge at amortised 31 Dec. 2014 purposes fair value accounting 1) cost Total Assets Cash in and receivables from central banks 2 209 2 209 Loans to and receivables from credit institutions 1 556 1 556 Lending 9 847 108 796 118 643 Shares 155 376 531 Certificates and bonds 195 16 330 16 525 Financial derivatives 1 290 4 281 5 571 Total 1 640 26 553 4 281 112 561 145 035

Liabilities Debt to credit institutions 193 4 157 4 350 Deposits 36 66 412 66 448 Securitised debt 3 935 29 910 28 306 62 151 Financial derivatives 1 463 1 463 Subordinated loan capital 473 1 953 2 426 Total 1 463 4 637 29 910 100 828 136 838

31 Dec. 2013 Assets Cash in and receivables from central banks 328 328 Loans to and receivables from credit institutions 1 318 1 318 Lending 6 153 105 871 112 024 Shares 161 525 686 Certificates and bonds 291 15 149 15 440 Financial derivatives 740 2 023 2 763 Total 1 192 21 827 2 023 107 517 132 559

Liabilities Debt to credit institutions 181 2 889 3 070 Deposits 77 62 095 62 172 Securitised debt 4 967 22 886 28 842 56 695 Financial derivatives 705 705 Subordinated loan capital 822 1 449 2 271 Total 705 6 047 22 886 95 275 124 913

The Group has no financial instruments classified as held to maturity or available for sale.

1) The Group uses hedge accounting to manage interest rate risk and currency risk for long-term financial liabilities relating to the housing credit company. For financial liabilities designated for hedge accounting, the hedged risks are valued at fair value, while the rest is valued at amortised cost. The hedging derivatives are valued at fair value.

Sparebanken Vest Annual Report 2014 Page 44 Note 4 Classification of financial instruments (contd.)

Financial instruments at fair value through profit or loss

PARENT BANK Held for trading Recognised at Valued at 31 Dec. 2014 purposes fair value amortised cost Total Assets Cash in and receivables from central banks 2 209 2 209 Loans to and receivables from credit institutions 8 529 8 529 Lending 9 847 57 159 67 006 Shares 155 376 531 Certificates and bonds 195 19 948 20 143 Financial derivatives 1 290 1 290 Total 1 640 30 171 67 897 99 708

Liabilities Debt to credit institutions 193 5 184 5 377 Deposits 36 66 696 66 732 Securitised debt 3 935 14 601 18 536 Financial derivatives 1 463 1 463 Subordinated loan capital 473 1 953 2 426 Total 1 463 4 637 88 434 94 534

31 Dec. 2013 Assets Cash in and receivables from central banks 328 328 Loans to and receivables from credit institutions 5 438 5 438 Lending 6 153 61 254 67 407 Shares 161 525 686 Certificates and bonds 291 19 239 19 530 Financial derivatives 740 740 Total 1 192 25 917 67 020 94 129

Liabilities Debt to credit institutions 181 5 869 6 050 Deposits 75 62 187 62 262 Securitised debt 4 968 13 206 18 174 Financial derivatives 705 705 Subordinated loan capital 822 1 449 2 271 Total 705 6 046 82 711 89 462

The bank has no financial instruments classified as held to maturity, earmarked for hedging purposes or available for sale.

Sparebanken Vest Annual Report 2014 Page 45 Note 5 Fair value of financial instruments valued at amortised cost

31 Dec. 2014 31 Dec. 2013

GROUP Balance Fair Balance Fair Notes sheet value value sheet value value Cash in and receivables from central banks 2 209 2 209 328 328 Loans to and receivables from credit institutions 14 1 556 1 556 1 318 1 318 Loans to customers 9 108 796 108 784 105 871 105 845 Total assets valued at amortised cost 112 561 112 549 107 517 107 491

Debt to credit institutions 32 4 157 4 342 2 889 2 950 Customer deposits 66 412 66 413 62 095 62 095 Securitised debt 35 28 306 29 155 28 842 29 349 Subordinated loan capital 36 1 953 2 000 1 449 1 509 Total liabilities valued at amortised cost 100 828 101 910 95 275 95 903

Securities debt designated for hedge accounting 29 910 29 901 22 886 22 805

PARENT BANK

Cash in and receivables from central banks 2 209 2 209 328 328 Loans to and receivables from credit institutions 14 8 529 8 529 5 438 5 438 Loans to customers 9 57 159 57 147 61 254 61 228 Total assets valued at amortised cost 67 897 67 885 67 020 66 994

Debt to credit institutions 32 5 184 5 369 5 869 5 930 Customer deposits 66 696 66 697 62 187 62 187 Securitised debt 35 14 601 15 321 13 206 13 613 Subordinated loan capital 36 1 953 2 000 1 449 1 509 Total liabilities valued at amortised cost 88 434 89 387 82 711 83 239

Securities debt designated for hedge accounting 0 0 0 0

Valuation of financial instruments valued at amortised cost It is mainly lending, deposits and borrowing at floating interest rates that are valued at amortised cost. Fair value assessments are made on the basis of the instruments’ properties and value on the balance sheet date. There will always be uncertainty associated with valuation at fair value.

Loans to and receivables from credit institutions Mainly consists of short-term receivables with floating interest rates. This means that the fair value is virtually the same as the amortised cost on the balance sheet date.

Loans to customers Only loans with a fixed mark-up on NIBOR are subject to valuation in this group. For all other loans, the deviations between fair value and amortised cost are non-material, as any changes in value are reflected in the portfolio’s individual and group write-downs.

Customer deposits The Group believes that amortised cost provides a good indication of the fair value of customer deposits.

Debt to credit institutions, securitised debt and subordinated loans Fair value is calculated on the basis of a theoretical market value valuation based on interest rate and spread curves.

Sparebanken Vest Annual Report 2014 Page 46 Note 6 Valuation hierarchy for financial instruments at fair value

GROUP AND PARENT BANK valuation methods maximise the use of observable data where available and, as far as possible, are not based on the Group’s Fair value valuation own estimates. If all the material data required to determine the fair value of an instrument are observable data, the instrument Level 1 is included in level 2. Instruments included in level 2 comprise Financial instruments traded in active markets are classified as certain equity instruments on the OTC list, other certificates and level 1. A market is deemed to be active if the market prices bonds, financial derivatives and all financial commitments valued are easily and regularly available from a stock exchange, broker, at fair value. industry group, pricing service or regulatory authority, and these prices represent actual and regularly occurring market transactions Level 3 at arm’s length. The market price used for financial assets is the If one or more data items are not based on observable market applicable purchase price, while the applicable sales price is information, the instrument is included in level 3. Non-listed used for financial commitments. Instruments included in level 1 equity instruments, certain equity instruments on the OTC list and comprise listed shares, investments in unit trusts and treasury loans to customers valued at fair value are classified as level 3. certificates.

Level 2 The fair value of financial instruments that are not traded in an active market is determined by using valuation methods. These

31 Dec. 2014 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 9 9 847 9 847 Shares at fair value through profit or loss 22 197 51 283 531 Certificates and bonds 16 16 525 16 525 Financial derivatives 21 1 290 1 290 Financial derivatives earmarked for hedge accounting 21 4 281 4 281 Total 197 22 147 10 130 32 474

Liabilities Debt to credit institutions 32 193 193 Deposits from and debt to customers 33 36 36 Securitised debt 35 3 935 3 935 Financial derivatives 21 1 463 1 463 Subordinated loan capital 36 473 473 Total 6 100 6 100

Loans to customers Shares Financial instruments valued at level 3 at 1 Jan. 2014 6 153 450 Additions/acquisitions 4 820 31 Sales −1 301 −153 This year's value adjustment 175 −41 Reclassification between levels 2 and 3 0 −4 Financial instruments valued at level 3 at 31 Dec. 2014 9 847 283

An increase in the discount rate of 10 basis points for loans valued at fair value will lead to a reduction in value of NOK 31 million.

Sparebanken Vest Annual Report 2014 Page 47 Note 6 Valuation hierarchy for financial instruments at fair value (contd.)

31 Dec. 2013 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 9 6 153 6 153 Shares at fair value through profit or loss 22 209 27 450 686 Certificates and bonds 16 15 440 15 440 Financial derivatives 21 740 740 Financial derivatives earmarked for hedge accounting 21 2 023 2 023 Total 209 18 230 6 603 25 042

Liabilities Debt to credit institutions 32 181 181 Deposits from and debt to customers 33 77 77 Securitised debt 35 4 967 4 967 Financial derivatives 21 705 705 Financial derivatives earmarked for hedge accounting 21 0 0 Subordinated loan capital 36 822 822 Total 6 752 6 752

Loans to customers Shares Financial instruments valued at level 3 at 1 Jan. 2013 501 Additions/acquisitions 36 Sales −42 This year's value adjustment −45 Reclassification between levels 2 and 31) 6 153 0 Financial instruments valued at level 3 31 Dec. 2013 6 153 450

The parent bank and the Group have different holdings of loans, certificates and bonds, as well as financial derivatives designated for hedge accounting valued at fair value. All of these differences are related to level 2 and are described in the relevant notes referred to.

1) The whole portfolio of loans to customers recognised at fair value has been reclassified from level 2 to level 3 as of 31 Dec. 2013.

Note 7 Financial risk management

Risk and capital management The Board of Directors of Sparebanken Vest is responsible for Good risk and capital management is a key strategic instrument in stipulating the bank’s overall risk tolerance. The Board shall also Sparebanken Vest’s value creation process. Good risk and capital ensure that the bank has sufficient own funds in relation to the management contributes to profitability and satisfactory rating for stipulated risk tolerance and the bank’s operations and that it is the bank and ensures good access to the capital market. sufficiently capitalised in relation to regulatory requirements. The Board also defines the bank’s targets and limits in all risk areas, Sparebanken Vest has established its own risk strategies that including adopting guidelines for the bank’s risk and capital specify control parameters for the individual risk areas. These management. Reporting in relation to targets and limits takes place strategies are reviewed at least once a year in connection with quarterly to the Board of Directors. the bank’s overall planning process. The control parameters are intended to help to ensure the bank’s profitability, financial The Board’s Credit Committee deals with credit matters within the strength and liquidity in the short and long term. bounds of the authorisations granted by the Board of Directors.

The Board of Directors delegates authority to the Managing Director The Risk Management and Audit Committee is charged with within each of the risk areas. Decision support and portfolio ensuring that Sparebanken Vest has an independent and effective management systems have been established for both the retail external and internal audit function, and financial and risk reporting market and the corporate market. that is in accordance with laws and regulations. The committee shall also support the Board of Directors in connection with its Organisation and responsibility management and supervisory responsibility relating to capital need, Responsibility for, and performance of, the bank’s risk and capital the capital adequacy target and risk profile, and management and management and control is divided between the bank’s Board of control schemes, including risk management, internal control and Directors, management and business units. internal audits.

Sparebanken Vest Annual Report 2014 Page 48 The Managing Director is responsible for the bank’s overall risk and Operational risk is the risk of losses as a result of inadequate capital management, including ensuring that the bank has good internal processes or systems or of a failure in such processes or models and frameworks for management and control at all times. systems, human error or external events. Normally, unless the matter is considered by the bank’s Board of Directors, all decisions relating to risk and capital management are Other risk areas: made by the Managing Director in consultation with other members Strategic risk is defined as the current or future risk relating to of the bank’s management. profits and capital due to changes in framework conditions for business and adverse business decisions, incorrect implementation The risk management unit in Finance and Risk Management of decisions or an inability to respond to changes in framework attends to important functions relating to management, control, conditions for business. reporting and analysis. Finance and Risk Management is also responsible for the bank’s models and frameworks for risk and Strategic risk is managed and dealt with through the bank’s capital management. strategy processes, and the strategy is evaluated annually. The business strategy sets the parameters for the bank’s risk strategies, The Validation Committee, which is chaired by the Managing while the assessment and management of risk guide the business Director, deals with both model validation and validation relating strategy. to the application of the bank’s credit systems and regulations. The bank uses internal measurement methods (IRB) to calculate Insurance risk / pension risk The associated company Frende is capital in relation to credit risk. Validation is a cornerstone of the exposed to insurance risk. Sparebanken Vest is affected by this risk IRB system that is intended to ensure that the system is adapted to through its holding in the company. For more detailed information the portfolios to which it is applied. An annual validation report is about shareholdings in Frende, see Note 17. prepared for the Board of Directors. Pension commitments are considered a risk related to life The Credit Committee, which is chaired by the Managing Director, insurance companies’ interest guarantee and meeting of pension deals with major commitments and matters of an unusual nature. commitments. The risk relating to the bank’s capitalised pension Major commitments that involve risk are reviewed quarterly by the commitment (the bank’s defined benefit scheme for employees) Credit Committee. rests with the life insurance company DNB Livsforsikring.

All managers in Sparebanken Vest are responsible for managing Economic capital risk and ensuring good internal control in their own areas of In addition to calculating regulatory capital, the bank also estimates responsibility in accordance with the risk profile adopted by its internal capital need (economic capital). It differs from the the bank. In order to ensure good financial and administrative regulatory capital in that it is based solely on a business economics management, all managers must have the requisite knowledge perspective and has fewer limitations in relation to which methods about material risk factors within their own areas. are applied. Economic capital is used in the bank’s day-to-day management and forms the basis for commercial decisions. The role of the internal audit function is to monitor the bank’s overall risk and capital management and internal control on behalf For credit risk purposes, Sparebanken Vest uses internal systems to of the Board of Directors. The internal audit function is also tasked estimate economic capital. Expected losses and economic capital with checking whether procedures and guidelines are complied with are calculated on the basis of the following three components: and with assessing whether the bank’s models for risk and capital probability of default, exposure and loss given default. The bank management provide a correct picture of the bank’s overall risk and operates with a confidence level of 99.9% for a timeframe of one capital situation. The internal audit function prepares an annual year, which corresponds to an A rating. The same model has been internal control report that also contains assessments of the bank’s implemented for pricing the bank’s commitments. IRB system and capitalisation process (ICAAP). The bank also calculates economic capital for the concentration Risk areas in the credit portfolio. For the concentration risk resulting from The bank’s risk and capital management mainly relates to four risk large individual commitments, this capital is calculated using areas: a simulation model. For industry/sector concentration, a more template-based amount is calculated based on the size and Credit risk is the risk of losses if the bank’s customers / cyclicality of the industry or sector. counterparties are unable to meet their commitments relating to loans, credit facilities, guarantees and similar. For a more detailed For market risk purposes, economic capital is determined using description of credit risk, see Notes 8 to 17. stress tests for stock market, interest rate, currency and credit spread risk, respectively. Market risk is defined as the risk of losses on open positions in financial instruments as a result of changes in market variables For liquidity risk purposes, economic capital is calculated using a and/or market conditions within a specified timeframe. This model that consists of four weighted variables: includes stock market, interest rate, currency and credit spread - Maturity structure of own borrowings risk. For a more detailed description of market risk, see Note 18. - Market price of own bonds (spread) - Rating Liquidity risk consists of two elements – refinancing risk and - Diversification of funding sources. price risk. By refinancing risk is meant the risk of not being able to refinance debt and not being able to finance an increase in For operational risk, regulatory capital is also used for the bank’s assets. By price risk is meant the risk of not being able to refinance internal economic capital. Economic capital is also estimated for commitments without incurring considerable extra costs in the business risk purposes. The latter is regarded as a ‘residual risk’ form of unusually expensive financing or a fall in the price of assets and includes strategic risk. For business risk, the capital need is that must be realised. For a more detailed description of liquidity calculated on the basis of a comparison (with certain adjustment risk, see Note 23. factors) with other banks. The capital need for owner risk is based on invested capital in associated companies.

Sparebanken Vest Annual Report 2014 Page 49 Note 8 Risk classification of the credit portfolio

Credit risk iii) Loss given default (LGD) indicates the loss ratio on a Credit risk is the risk of losses if the bank’s customers fail to meet commitment in default expressed as a percentage of EAD. For the their commitments to the Group. retail market (RM), it is calculated on the basis of internal models. The type and value of loan security and the probability of recovery Credit risk arises through loans, credit facilities, guarantees, are key parameters in calculating the loss ratio. In addition to documentary credit and various derivative transactions with retail calculating the expected loss ratio, adjustments are made for market and corporate market customers. Credit risk relating to periods of economic downturn by calculating a ‘downturn LGD’. derivative transactions is quantified using conversion factors that The latter is used for capital adequacy purposes. Where the bank depend on the contract type and term to maturity. uses the basic IRB method for the corporate market, LGD rates from the Capital Adequacy Regulations are used. Sparebanken Risk classification of loans and guarantees Vest is currently in the process of applying for the use of advanced The measurement of credit risk is based on the following main IRB for the corporate market portfolio. For economic capital, LGD components: i) probability of default (PD), ii) expected exposure is calculated using internal models (IRBA) for both the retail and at default (EAD) and iii) loss given default (LGD). corporate markets. i) Probability of default (PD) is defined as the probability of a The scorecard models combine internal and external data to customer defaulting on a loan within the next 12 months. A predict statistical relationships. The results are interpreted and default can be default of payment in excess of 90 days or other form the basis for logical key figures, and they have a central concrete circumstances (‘unlikeliness to pay’, cf. Basel II) that place in the management of credit risk. A risk classification of affect the customer’s ability to service the debt. The probability of all commitments is carried out every month in which data from default is calculated using statistical models (scorecards) based internal and external sources are retrieved automatically. There is on logistic regression. Eleven risk classes from A to K are used in also manual follow-up of corporate commitments. The frequency order to group the credit portfolio in Sparebanken Vest by debt- of these reviews depends on the size of and risk associated with servicing ability. the commitment. ii) Expected exposure at default (EAD) is an estimated amount that shows the expected exposure in relation to the customer at the time of default. EAD is estimated as the expected utilisation of credit plus the expected utilisation of unutilised drawing rights (CF).

Risk classes based on probability of default

Risk class From and incl. Up to A 0,00 % 0,10 % B 0,10 % 0,25 % C 0,25 % 0,50 % D 0,50 % 0,90 % E 0,90 % 1,50 % F 1,50 % 2,75 % G 2,75 % 5,00 % H 5,00 % 10,00 % I 10,00 % 25,00 % J 25,00 % 99,99 % K 100,00 % 100,00 %

Sparebanken Vest Annual Report 2014 Page 50 Note 8 Risk classification of the credit portfolio (contd.)

PARENT BANK GROUP Individual Individual Loans broken down by risk class Commitments 1) write-downs 2) Commitments 1) write-downs 2) 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 2014 2013 2014 2013 2014 2013 2014 2013 Corporate market A-D 14 093 14 932 0 0 14 622 15 429 0 0 E-H 20 042 18 844 0 0 20 223 19 007 0 0 I-J 1 011 1 465 0 0 1 026 1 480 0 0 K 1 119 1 349 474 406 1 119 1 351 474 406 Corporate market total 36 265 36 590 474 406 36 990 37 268 474 406

Retail market A-D 38 446 40 789 0 0 92 330 88 001 0 0 E-H 5 092 3 981 0 0 7 628 5 471 0 0 I-J 607 429 0 0 747 523 0 0 K 191 191 28 19 237 226 29 19 Retail market total 44 336 45 390 28 19 100 942 94 221 29 19 Total 2) 80 601 81 980 502 425 137 932 131 489 503 425

1) The definition of a customer’s commitment in connection with calculating risk classification will deviate somewhat from the definition of credit exposure pursuant to IFRS in a few areas. Credit risk relating to derivative transactions is not included in Note 10, but is presented in other notes. Total commitments in Note 8 will therefore not be completely reconcilable with commitments as defined in Note 10.

2) All individual write-downs on loans and guarantees are allocated to the highest risk class.

Sparebanken Vest Annual Report 2014 Page 51 Note 9 Loans broken down by type of receivable and geographical area

MORBANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Loans broken down by type of receivable 2014 2013 9 399 7 816 Overdraft facilities 23 594 25 168 1 472 1 196 Building loans 1 196 1 472 51 092 48 856 Instalment loans 84 693 79 890 177 149 Accrued interest 176 230 −30 −24 Amortisation (fees etc.) −24 −30 62 109 57 993 Gross loans to and receivables from customers at amortised cost 109 635 106 730 5 915 9 432 Loans to and receivables from customers at fair value 9 432 5 915 8 10 Accrued interest 10 8 230 405 Adjustment to fair value 405 230 6 153 9 847 Gross loans to and receivables from customers at fair value 9 847 6 153 68 262 67 840 Gross loans to and receivables from customers 119 482 112 883 −408 −500 Individual write-downs on loans −501 −408 −447 −334 Group write-downs, loans −338 −450 67 407 67 006 Net loans to and receivables from customers 118 643 112 024

Loans to customers recognised at fair value 6 963 6 153 Balance sheet value at 1 Jan. 6 153 8 156 −830 3 519 Net additions/disposals 3 519 −2 023 20 175 Value change in period 175 20 6 153 9 847 Book value at 31 Dec. 9 847 6 153

The net gain/(loss) on loans recognised at fair value is included in the item net gain/(loss), financial instruments recognised at fair value (Note 26).

GROUP

31 Dec. 2013 31 Dec. 2014 Proportion Individual Gross Loans broken down by Gross Individual Proportion net lending write-downs lending geographical area lending write-downs net lending 70,7 337 79 909 Hordaland 84 127 389 70,4 8,5 9 9 580 Sogn og Fjordane 9 943 8 8,4 14,3 8 16 042 Rogaland 18 615 8 15,6 6,2 4 7 024 Rest of Norway 6 486 46 5,4 99,8 358 112 555 Total, Norway 119 171 451 99,8 0,2 50 328 Abroad 311 50 0,2 100,0 408 112 883 Total, geographical areas 119 482 501 100,0

PARENT BANK

31 Dec. 2013 31 Dec. 2014 Proportion Individual Gross Loans broken down by Gross Individual Proportion net lending write-downs lending geographical area lending write-downs net lending 65,9 337 45 042 Hordaland 44 422 388 65,4 10,4 9 7 070 Sogn og Fjordane 7 083 8 10,5 16,2 8 10 972 Rogaland 11 969 8 17,8 7,2 4 4 878 Rest of Norway 4 082 46 6,0 99,6 358 67 962 Total, Norway 67 556 450 99,7 0,4 50 300 Abroad 284 50 0,3 100,0 408 68 262 Total, geographical areas 67 840 500 100,0

Sparebanken Vest Annual Report 2014 Page 52 Note 10 Commitments broken down by industry and the retail market

Defaults and Unused credit Total other potential Individual 2014 Lending facilities Guarantees commitment 1) bad debt write-downs GROUP Primary industries 2 784 131 8 2 923 1 0 Manufacturing and mining 994 422 230 1 646 19 2 Power and water supply 1 157 159 24 1 340 13 3 Building and construction industry 3 455 946 660 5 061 32 11 Commerce 1 262 526 137 1 925 11 8 International shipping and transport 4 947 192 682 5 821 662 371 Hotels and restaurants 351 26 8 385 3 0 Property management 10 720 473 150 11 343 177 27 Service sector 2 645 511 207 3 363 79 51 Public administration 13 0 0 13 0 0 Abroad (other) 125 0 0 125 78 0 Total business and industry 28 453 3 386 2 106 33 945 1 075 473 Retail customers 91 029 10 992 14 102 035 249 30 Total gross commitments 119 482 14 378 2 120 135 980 1 324 503 - Individual write-downs −501 −2 −503 - Group write-downs −338 0 −338 Total net commitments 118 643 14 378 2 118 135 139

PARENT BANK Primary industries 2 726 131 8 2 865 1 0 Manufacturing and mining 974 422 230 1 626 19 2 Power and water supply 1 157 159 24 1 340 13 3 Building and construction industry 3 297 946 660 4 903 32 11 Commerce 1 216 526 137 1 879 11 8 International shipping and transport 4 805 192 682 5 679 662 371 Hotels and restaurants 351 26 8 385 3 0 Property management 11 260 473 180 11 913 177 27 Service sector 2 441 511 207 3 159 79 51 Public administration 13 0 0 13 0 0 Abroad (other) 125 0 0 0 78 0 Total business and industry 28 365 3 386 2 136 33 762 1 075 473 Retail customers 39 475 5 789 14 45 278 218 29 Total gross commitments 67 840 9 175 2 150 79 040 1 293 502 - Individual write-downs −500 −2 −502 - Group write-downs −334 0 −334 Total net commitments 67 006 9 175 2 148 78 204

Sparebanken Vest Annual Report 2014 Page 53 Note 10 Commitments broken down by industry and the retail market (contd.)

Unused Defaults and credit Total commit- other potential Individual 2013 Lending facilities Guarantees ment 1) bad debt write-downs GROUP Primary industries 2 731 496 8 3 235 6 0 Manufacturing and mining 1 634 401 207 2 242 2 0 Building and construction, power and water supply 2 696 612 473 3 781 0 0 Commerce, hospitality 1 678 542 165 2 385 52 10 International shipping and pipeline transport 3 272 70 613 3 955 967 281 Other transport, post and telecommunications 1 480 258 250 1 988 40 12 Property management 12 068 1 313 466 13 847 90 44 Insurance and finance 744 215 108 1 067 7 9 Service sector 1 579 242 113 1 934 27 0 Municipal/public sector 6 0 0 6 6 0 Abroad (other) 160 0 0 160 53 50 Total business and industry 28 048 4 149 2 403 34 600 1 250 406 Retail customers 84 834 9 647 16 94 497 224 19 Total gross commitments 112 883 13 796 2 419 129 097 1 474 425 - Individual write-downs −408 −17 −425 - Group write-downs −450 0 −450 Total net commitments 112 024 13 796 2 402 128 222

PARENT BANK Primary industries 2 684 496 8 3 188 6 0 Manufacturing and mining 1 612 396 207 2 215 2 0 Building and construction, power and water supply 2 540 610 473 3 623 0 0 Commerce, hospitality 1 614 526 165 2 305 52 10 International shipping and pipeline transport 3 272 64 613 3 949 967 281 Other transport, post and telecommunications 1 332 258 250 1 840 40 12 Property management 12 380 1 298 496 14 174 90 44 Insurance and finance 696 213 108 1 017 7 9 Service sector 1 462 225 113 1 800 27 0 Municipal/public sector 6 0 0 6 6 0 Abroad (other) 159 0 0 0 53 50 Total business and industry 27 757 4 086 2 433 34 117 1 250 406 Retail customers 40 505 5 089 16 45 610 202 19 Total gross commitments 68 262 9 175 2 449 79 727 1 452 425 - Individual write-downs −408 −17 −425 - Group write-downs −447 0 −447 Total net commitments 67 407 9 175 2 432 78 855

1) The definition of a customer’s commitment in connection with calculating risk classification will deviate somewhat from the definition of credit exposure pursuant to IFRS in some areas. Credit risk relating to derivative transactions is not included in Note 10, but is presented in other notes. Total commitments in Note 8 will therefore not be completely reconcilable with commitments as defined in Note 10.

Sparebanken Vest Annual Report 2014 Page 54 Note 11 Capitalised write-downs of commitments

Changes in individual and group write-downs and provision for bad debt relating to guarantees for the period.

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Individual write-downs of loans 2014 2013 273 408 Individual write-downs of loans as of 1 Jan. 408 273 −64 −436 Reversal of write-downs as a result of confirmations in the period −436 −64 89 199 Increased write-down of loans previously written down 199 89 133 357 Write-downs of loans not previously written down 358 133 −23 −28 Reversal of individual write-downs in the period −28 −23 408 500 Individual write-downs of loans 501 408

Group write-downs 391 447 Write-downs of groups of loans at 1 Jan. (nominal values) 450 394 56 −113 Change in group write-downs in the period −112 56 447 334 Write-downs of groups of loans 338 450 855 834 Total write-downs of loan commitments 839 858

Provision for bad debt rel. to guarantees 19 17 Provision for bad debt to cover losses on guarantees at 1 Jan. 17 19 −2 −15 Changes in write-downs on guarantees in the period −15 −2 17 2 Spesifiserte tapsavsetninger til dekning av tap på garantier 2 17

All commitments that are to be subject to individual assessment shall be assessed in order to determine whether there is objective evidence showing that a loss event has occurred and whether the loss event has reduced the estimated future cash flows from the loan.

If there is objective evidence of impairment, the loss on the loan is calculated as the difference between the balance sheet value (balance + accrued interest on the valuation date) and the present value of future cash flows. When estimating future cash flows, account shall only be taken of the credit loss caused by loss events that have occurred. The estimation of future cash flows from a loan shall also take into account security that is taken over and sold, including costs in this connection.

Confirmation of the loss write-down (booked against the customer’s commitment) takes place when all security has been realised and it is certain that the bank will receive no further payments on the loan. The claim on the customer remains and will be followed up, unless it has been agreed with the customer that the loan is to be written off.

Sparebanken Vest Annual Report 2014 Page 55 Note 12 Development in losses and commitments in default

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Losses on loans, guarantees etc. 2014 2013 135 93 Changes in individual write-downs for the period 94 135 52 439 Confirmed losses in the period with previous individual write-down 439 52 56 16 Confirmed losses in the period without previous individual write-down 16 56 −16 −12 Recoveries in previously confirmed write-downs −12 −16 227 536 Net effect on profit/loss from individual write-downs 537 227 56 −113 Change in group write-downs in the period −112 56 282 423 Losses on loans in the period 425 283

0 0 Confirmed losses on guarantees 0 0 −2 −15 Changes in write-downs on guarantees in the period −15 −2 −2 −15 Confirmed losses on guarantees in the period −15 −2

280 408 Total write-downs of loans and guarantees 410 280

The Group’s net loss expense in 2014 corresponded to 0.35 % of average gross loans of NOK 115,550 million.

Expected losses for the next 12 months are expected to be approx. 0.15 %, compared with the long-term average, which is estimated at 0.25 % of the commitment.

Defaults and other potential bad debt The table shows the recognised defaults and other potential bad debt, where the total reported is based on definitions pursuant to the Basel regulations.

PARENT BANK GROUP 31 Dec. 2014 31 Dec. 2014 Retail Corporate Retail Corporate Market Market Total Market Market Total 212 133 345 Loans in default more than 90 days 243 133 376 6 942 948 Other potential bad debt 6 942 948 218 1 075 1 293 Total defaults and potential bad debt 249 1 075 1 324 −29 −471 −500 - Individual write-downs on loans −30 −471 −501 189 604 793 Net defaults and potential bad debt 219 604 823

PARENT BANK GROUP 31 Dec. 2013 31 Dec. 2013 Retail Corporate Retail Corporate Market Market Total Market Market Total 191 169 360 Loans in default more than 90 days 213 169 382 11 1 081 1 092 Other potential bad debt 11 1 081 1 092 202 1 250 1 452 Total defaults and potential bad debt 224 1 250 1 474 −19 −389 −408 - Individual write-downs on loans −19 −389 −408 183 861 1 044 Net defaults and potential bad debt 205 861 1 066

Sparebanken Vest Annual Report 2014 Page 56 Note 12 Development in losses and commitments in default (contd.)

Breakdown of defaults of payment by No. of days The table shows the book value of loans registered in default, where the amount in default exceeds NOK 1,000 in one of the commitment’s accounts and is not due to payment delays.

PARENT BANK GROUP 31 Dec. 2014 31 Dec. 2014 Retail Corporate Retail Corporate Market Market Total Market Market Total 571 218 789 Up to 30 days 742 218 960 174 118 292 31 - 60 days 212 118 330 42 16 58 61 - 90 days 46 16 62 212 133 345 More than 90 days 243 133 376 999 485 1 484 Gross loans in default 1 243 485 1 728 308 198 506 Of which loans with a write-down 318 198 516 691 287 978 Of which loans without a write-down 925 287 1 212

PARENT BANK GROUP 31 Dec. 2013 31 Dec. 2013 Retail Corporate Retail Corporate Market Market Total Market Market Total 601 712 1 313 Up to 30 days 746 712 1 458 170 28 198 31–60 days 195 28 223 31 27 58 61–90 days 32 27 59 191 169 360 More than 90 days 213 169 382 993 936 1 929 Gross loans in default 1 186 936 2 122 320 207 527 Of which loans with a write-down 320 207 527 673 729 1 402 Of which loans without a write-down 866 729 1 595

Sparebanken Vest Annual Report 2014 Page 57 Note 13 Secured debt

Gross loans are largely secured by mortgages. Security in the retail market mostly consists of real property. In the corporate market, the majority of assets furnished as security consists of tangible fixed assets.

The table below shows the percentage breakdown of commitments relating to different levels of secured debt. For example, the line 0–50 % denotes that the commitments are worth less than 50 % of the value of the asset furnished as security, while 100 % means that the loan amount exceeds the value of the asset furnished as security.

PARENT BANK GROUP 31 Dec. 2014 31 Dec. 2014 Retail Corporate Retail Corporate Market Market Total Security level Market Market Total 15,5 % 34,5 % 23,1 % 0 % - 50 % 23,5 % 34,5 % 26,2 % 21,8 % 29,2 % 24,8 % 50 % - 75 % 43,5 % 29,2 % 40,0 % 35,6 % 13,0 % 26,5 % 75 % - 90 % 19,0 % 13,0 % 17,5 % 14,6 % 3,1 % 10,0 % 90 % - 100 % 7,3 % 3,1 % 6,3 % 8,6 % 13,2 % 10,4 % 100 % - 4,8 % 13,2 % 6,8 % 1,6 % 0,0 % 1,0 % Other security 0,8 % 0,0 % 0,6 % 2,3 % 7,0 % 4,2 % Unsecured 1,1 % 7,0 % 2,6 % 100,0 % 100,0 % 100,0 % Total 100,0 % 100,0 % 100,0 %

31 Dec. 2013 31 Dec. 2013 Retail Corporate Retail Corporate Market Market Total Security level Market Market Total 19,0 % 29,6 % 23,4 % 0 % - 50 % 25,8 % 29,6 % 26,8 % 28,4 % 27,5 % 28,0 % 50 % - 75 % 43,9 % 27,5 % 39,5 % 31,4 % 10,8 % 22,9 % 75 % - 90 % 18,3 % 10,8 % 16,3 % 9,8 % 3,3 % 7,1 % 90 % - 100 % 5,4 % 3,3 % 4,8 % 6,9 % 22,2 % 13,2 % 100 % - 4,2 % 22,2 % 9,1 % 2,2 % 0,0 % 1,3 % Other security 1,2 % 0,0 % 0,9 % 2,3 % 6,6 % 4,1 % Unsecured 1,2 % 6,6 % 2,6 % 100,0 % 100,0 % 100,0 % Total 100,0 % 100,0 % 100,0 %

Note 14 Loans to and receivables from credit institutions

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 2014 2013 831 592 No agreed term to maturity or period of notice 592 818 4 607 7 937 With an agreed term to maturity or period of notice 964 500 5 438 8 529 Loans to and receivables from credit institutions 1 556 1 318

Geographical areas 4 900 7 993 Hordaland 1 020 780 0 6 Sogn og Fjordane 6 0 40 22 Rogaland 22 0 0 230 Rest of Norway 230 40 498 278 Abroad 278 498 5 438 8 529 Total, geographical areas 1 556 1 318

Sparebanken Vest Annual Report 2014 Page 58 Note 15 Guarantees and secured debt

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Breakdown by guarantee type 2014 2013 1 070 924 Payment guarantees 924 1 070 916 865 Contract guarantees 865 916 21 0 Loan guarantees 0 21 1 1 Guarantees for taxes 1 1 441 360 Other guarantee liabilities 330 411 2 449 2 150 Guarantee liabilities in relation to customers 2 120 2 419 36 498 39 622 Intercompany liquidity facility 0 0 38 947 41 772 Total guarantee liabilities 2 120 2 419

Secured debt 11 582 11 492 Nominal value of bonds deposited in Norges Bank 11 492 11 582 11 582 11 492 Total secured debt 11 492 11 582

Sparebanken Vest Annual Report 2014 Page 59 Note 16 Certificates and bonds

GROUP 31 Dec. 2014 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 227 5 779 6 057 37 % Covered bonds 167 7 654 7 727 47 % Municipalities and county authorities 41 2 369 2 415 15 % Enterprises etc. 25 333 326 2 % Certificates and bonds 460 16 135 16 525 100 %

Listed/unlisted Av. interest rate Listed 1,65 % 10 184 10 509 64 % Unlisted 1,87 % 5 842 6 016 36 % Certificates and bonds 1) 2) 16 026 16 525 100 %

31 Dec. 2013 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 194 5 329 5 450 35 % Covered bonds 209 8 359 8 430 55 % Municipalities and county authorities 23 1 098 1 110 7 % Enterprises etc. 26 447 450 3 % Certificates and bonds 452 15 233 15 440 100 %

Listed/unlisted Av. interest rate Listed 2,28 % 13 777 13 953 90 % Unlisted 2,07 % 1 456 1 487 10 % Certificates and bonds 1) 2) 15 233 15 440 100 %

PARENT BANK 31 Dec. 2014 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 227 5 780 6 057 30 % Covered bonds 498 11 239 11 345 56 % Municipalities and county authorities 41 2 368 2 415 12 % Enterprises etc. 25 333 326 2 % Certificates and bonds 791 19 720 20 143 100 %

Listed/unlisted Av. interest rate Listed 1,76 % 13 878 14 237 71 % Unlisted 1,87 % 5 482 5 906 29 % Certificates and bonds 1) 2) 19 360 20 143 100 %

31 Dec. 2013 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 194 5 329 5 450 28 % Covered bonds 282 12 425 12 520 64 % Municipalities and county authorities 23 1 098 1 110 6 % Enterprises etc. 26 447 450 2 % Certificates and bonds 525 19 299 19 530 100 %

Listed/unlisted Av. interest rate Listed 2,17 % 17 873 18 068 93 % Unlisted 2,21 % 1 426 1 462 7 % Certificates and bonds 1) 2) 19 299 19 530 100 % 1) Includes NOK 52.2 (56.4) million in subordinated loans in the Group and NOK 953.5 (56.4) million in the parent bank. 2) Of which NOK 1,450 (1,049) million is foreign. The average interest rate is calculated by identifying the discount rate that gives a calculated value equal to the market value.

Sparebanken Vest Annual Report 2014 Page 60 Note 17 Shareholdings in subsidiaries and associated companies

Balance sheet value Balance sheet value Subsidiaries in sub-group in parent bank Number of Holding 31 Dec. 31 Dec. 31 Dec. 31 Dec. (balance sheet value, parent bank) shares (%) 2014 2013 2014 2013 Sparebanken Vest Boligkreditt AS 2 500 000 100 2 500 2 500 Sparebanken Vest Eiendomsforvaltning AS 1 100 15 15 Sparebanken Vest Eiendom Dale AS 1 100 1 1 Sparebanken Vest Eiendom Kaigaten AS 0 0 0 6 Sparebanken Vest Eiendom Lonevåg AS 1 100 1 1 Sparebanken Vest Eiendom Nedre Korskirkealmenning AS 0 0 0 21 Sparebanken Vest Eiendom Nordfjordeid AS 1 100 1 1 Sparebanken Vest Eiendom Norheimsund AS 1 100 2 2 Sparebanken Vest Eiendom Sogndal AS 1 100 2 2 Sparebanken Vest Eiendom Stord AS 1 100 3 3 Sparebanken Vest Eiendom Sauda AS 1 100 2 2 Eiendomsmegler Vest AS 1 200 100 53 53 Kyte Næringsmegling AS 1 350 90 7 7 Herland Eiendom AS 157 75 10 9 Kyrkjebøkvartalet AS 0 0 0 2 Jonsvollskvartalet AS 100 100 197 197 Vestlandskonferansen AS 100 100 Total group companies in parent bank 2 765 2 767

Associated companies (balance sheet value) Number of Holding 31 Dec. 31 Dec. Associated companies (balance sheet value, parent bank) shares (%) 2014 2013 Frende Holding AS 2 684 911 39,72 323 323 Norne Eierselskap AS 87 512 964 49,00 18 34 Verd Boligkreditt AS 90 000 40,00 90 90 Brage Finans AS 24 950 000 49,90 220 155 Total shares in associated companies 650 601

Sparebanken Vest sold 336,578 shares in Frende Holding AS on 31 December 2013.

Frende Holding AS Norne Eier- Verd Bolig- Brage Associated companies (balance sheet value, group) 2014 Group selskap AS kreditt AS Finans AS Total Balance sheet value at beginning of period 284 20 104 148 555 Capital increase 0 0 0 65 65 Dividend 0 0 −13 0 −13 Share of profit/loss 60 −4 11 7 74 Balance sheet value at end of period 343 15 101 220 681

Frende Holding AS Norne Eier- Verd Bolig- Brage Associated companies (balance sheet value, group) 2013 Group selskap AS kreditt AS Finans AS Total Balance sheet value at beginning of period 278 22 66 108 473 Sales −35 0 0 0 −35 Capital increase 0 0 30 37 67 Share of profit/loss 41 −2 9 3 50 Balance sheet value at end of period 284 20 104 148 555

Sparebanken Vest Annual Report 2014 Page 61 Note 17 Shareholdings in subsidiaries and associated companies (contd.)

Associated companies (company information) Frende Holding AS Norne Eier- Verd Bolig- Brage Associated companies (company information – 2013 1)) Group selskap AS kreditt AS Finans AS Total Cash and cash equivalents 43 1 145 91 280 Other current assets 439 0 394 20 853 Fixed assets 3 583 38 4 566 1 847 10 034 Total assets 4 065 39 5 105 1 958 11 167 Short-term financial liabilities 0 0 531 0 531 Other short-term liabilities 107 3 24 22 156 Long-term financial liabilities 3 318 0 4 291 1 640 9 249 Other long-term liabilities 14 0 0 0 14 Equity 626 36 259 296 1 217 Total assets and liabilities 4 065 39 5 105 1 958 11 167

Operating income 480 0 36 50 566 Depreciation −18 0 0 −2 −20 Other operating expenses −384 −3 −7 −39 −433 Interest income 37 0 0 0 37 Interest expenses −19 −16 0 0 −35 Tax expense −17 0 −8 −3 −28 Total profit/loss after tax 79 −19 21 6 87

Dividend received from associated company 0 0 0 0 0

1) Last official accounts 31 Dec. 2013.

Frende Holding AS is a holding company that owns 100% of the shares in Frende Livsforsikring AS and Frende Skadeforsikring AS. The company was formed in June 2007.

In 2008, Sparebanken Vest formed the securities company Norne Securities AS together with Fondsfinans and 13 independent savings banks. The securities company was established through the holding company Norne Eierselskap AS, of which Sparebanken Vest owns 49 %. Norne Eierselskap AS owns 97.1 % of Norne Securities AS, while Must Invest AS owns 2.9 %.

Verd Boligkreditt AS was formed in 2009 as a collaboration between Sparebanken Vest and eight independent savings banks with the object of financing housing loans by issuing covered bonds. The company is managed by Sparebanken Vest. The bank will not transfer its own loan portfolios to Verd Boligkreditt AS. Sparebanken Vest has an ownership interest of 40 %. The remaining 60 % is owned by the other eight savings banks in proportion to their assets under management.

Brage Finans AS was formed at the end of 2010 as a collaboration between Sparebanken Vest and nine independent savings banks. The company offers customised financing products with the main emphasis on the leasing of all types of operating equipment, plus loans secured by the purchased object. Sparebanken Vest owns 49.9 % of the shares in the company.

Sparebanken Vest Annual Report 2014 Page 62 Note 18 Market risk

Sparebanken Vest defines market risk as the risk of a loss on a financial instrument as a result of changes in market variables and/ or market conditions within a specified timeframe. Market risk arises as a result of the bank holding open positions in various financial instruments. It can be subdivided into the following main groups:

• Interest rate risk: The risk of a loss as the result of changes in the interest rate markets (see Note 19) • Stock market risk: The risk of a loss as the result of changes in share prices (see Note 22) • Currency risk: The risk of a loss as the result of changes in exchange rates (see Note 20) • Credit spread risk: The risk of a loss as the result of changes in credit spreads (see Note 16)

The management of market risk is enshrined in the bank’s market risk strategy and market risk policy. The market risk strategy, which is adopted by the Board of Directors, sets out overriding guidelines for the bank’s activities in the capital markets, and the risk is managed through defined position limits in each risk area. The bank’s market risk policy, which is adopted by the Managing Director, further specifies and delegates limits and authorisations.

Sparebanken Vest’s investments shall be justified on the basis of the banking operations’ needs or the goal of increasing other earnings in the bank. Sparebanken Vest continuously measures and monitors the market risk to which the bank is exposed. The bank largely uses traditional control targets and limits, but supplements them with stress tests in order to assess market risk

Note 19 shows the sensitivity of the bank’s interest rate risk to a parallel shift in the yield curve. The sensitivity of the bank’s exchange rate risk is shown in Note 20. The sensitivity of the bank’s stock market risk to a percentage fall in all share prices is shown in Note 22. Note 16 shows the sensitivity of the bank’s credit spread risk. The method used is taken from the Financial Supervisory Authority of Norway’s module for market and credit risk in insurance.

The bank expresses market risk as risk-adjusted capital allocated to each investment mandate within the adopted parameters for each individual risk area. The timeframe is one year, and the calculations do not take into account the correlation between the defined portfolios. Therefore, no diversification effect is calculated between the types of risks.

Total economic capital relating to market risk can be summed up as follows: 31. Dec. 2014 31. Dec. 2013 Market risk 1 105 1 096

Sparebanken Vest Annual Report 2014 Page 63 Note 19 Interest rate sensitivity

Interest rate risk is the risk of losses as a result of changes in the interest rate. Sparebanken Vest incurs interest rate risk through ordinary banking operations (borrowing and lending) and by actively taking market positions. Sparebanken Vest also has holdings of bonds and certificates, mainly in order to meet the bank’s liquidity requirements

In managing its interest rate exposure, the bank takes account of the fact that different maturities can develop differently (yield curve shift).

Bonds issued at a fixed interest rate account for part of the bank’s borrowings in the bond market. In order to reduce the interest rate risk, the bank has entered into interest swap agreements. These interest swap agreements are valued at fair value in the consolidated balance sheet. In order to give a balanced picture in the consolidated balance sheet, bonds issued at a fixed interest rate by the parent bank are classified as recognised at fair value. The interest risk associated with the bank’s fixed-interest loans to customers is reduced through interest swap agreements. In order to give a balanced picture in the consolidated balance sheet, fixed-interest loans to customers are classified as recognised at fair value.

The changes in value in the tables assume a parallel shift in the yield curve for all durations. The changes are calculated by taking into account the average remaining term to maturity of the positions, positions on the balance sheet date and the assumed change in the interest rate.

The tables below show the financial consequences of a 1 % interest rate increase for the Group and the parent bank’s balance sheet total broken down by time intervals and balance sheet items. By balance sheet total is meant all balance sheet items that entail an interest rate risk as well as contract amounts of derivatives.

Interest rate sensitivity by period

0–3 3–12 From 1 to 3 From 3 to 5 More than GROUP months months years years 5 years Total 31 Dec. 2014 Change in value, balance sheet total −22,9 2,6 28,3 −20,9 13,5 0,6 31 Dec. 2013 Change in value, balance sheet total −17,5 0,7 4,3 −19,2 10,4 −21,3

0–3 3–12 From 1 to 3 From 3 to 5 More than PARENT BANK months months years years 5 years Total 31 Dec. 2014 Change in value, balance sheet total −8,6 2,6 28,3 −20,9 13,5 14,9 31 Dec. 2013 Change in value, balance sheet total −9,6 0,7 4,3 −19,2 10,4 −13,4

Interest rate sensitivity broken down by balance sheet items

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Balance sheet 2014 2013 −151,7 −278,7 Fixed-interest loans −278,7 −151,7 −100,4 −95,4 Other loans −155,4 −151,3 −95,7 −126,3 Bonds/certificates −126,5 −96,0 −2,8 −5,6 Other −10,4 −5,7 −350,6 −506,0 Total assets −571,0 −404,7 0,3 0,4 Fixed-interest deposits 0,4 0,3 99,5 106,7 Other customer deposits 106,7 99,5 141,5 132,5 Bonds/certificates 183,2 187,6 1,7 1,8 Other borrowings 1,8 1,7 243,0 241,4 Total liabilities 292,1 289,1 94,4 279,5 Derivatives 279,5 94,4 −13,4 14,9 Total 0,6 −21,3

Sparebanken Vest Annual Report 2014 Page 64 Note 20 Currency positions

The table shows Sparebanken Vest’s net currency exposure at 31 December including financial derivatives as defined by Norges Bank. An institution’s open net positions in each individual foreign currency cannot amount to more than 15 % of the institution’s own funds. The total net currency position (including positions in NOK) cannot amount to more than 30 % of the institution’s own funds.

Currency USD EUR GBP CHF DKK SEK OTHER Aggregate Net currency exposure at 31 Dec. 2014 25 54 1 5 −19 −20 6 52 Effect on profit and equity of change in exchange rates of 5 % 1 3 0 0 −1 −1 0 3 Net currency exposure at 31 Dec. 2013 11 25 3 11 167 −3 11 225 Effect on profit and equity of change in exchange rates of 5 % 1 1 0 1 8 0 1 11

Sparebanken Vest Annual Report 2014 Page 65 Note 21 Financial derivatives

Sparebanken Vest uses financial derivatives to manage interest rate and currency risk. Financial derivatives are agreements entered into with financial institutions or customers to stipulate interest terms, exchange rates and the value of equity instruments for specific periods.

Method of valuation and accounting principles All derivatives are valued at fair value and exchange rate gains/losses are classified as net gain/(loss) on financial instruments. Interest from derivatives entered into to manage the interest rate risk attached to the bank’s ordinary portfolios is classified as interest income and recognised as an adjustment of the bank’s other interest income/ interest expenses.

Sparebanken Vest has used the following financial derivatives during the year:

Forward currency contracts These are agreements to purchase or sell specific amounts of currency at an agreed exchange rate on a future date.

Interest rate agreements • Forward Rate Agreements (FRA) stipulate a rate of interest on a nominal amount for an interest period to begin at a future date. • Interest swaps are agreements to swap interest rate terms (fixed for floating) for a specific amount over a fixed period of time. • Interest rate options (call) entitle the buyer to receive from the seller the difference between the market rate and the agreed interest rate, if the market rate is higher than the agreed interest rate, for a specific amount over a fixed period. • Interest rate options (put) entitle the buyer to receive from the seller the difference between the market rate and the agreed interest rate, if the market rate is lower than the agreed interest rate, for a specific amount over a fixed period.

Interest rate and currency derivatives • Cross-currency interest rate swaps where the swap agreement concerns both interest rate and currency conditions.

Portfolio guarantee The bank participates in a guarantee arrangement against risk relating to the volatility of the value of Eksportfinans’ liquidity portfolio. The bank’s share is NOK 50 million.

The table below shows the nominal value of financial derivatives broken down by the type of derivative in addition to positive and negative market values. Positive market values are recognised in the balance sheet as assets, while negative market values are recognised as liabilities.

31 Dec. 2014 31 Dec. 2013 Nominal Positive Negative Nominal Positive Negative value market value market value value market value market value FRA 0 0 0 19 000 3 4 Interest swap agreements 32 046 909 1 156 33 710 636 623 Options/Cap/Floor/Collar/Swaption 80 0 2 1 704 1 3 Total interest rate instruments 32 126 909 1 158 54 414 640 630

Interest rate derivatives designated for hedging purposes 13 692 1 062 0 13 192 825 0 Interest rate and currency derivatives designated for hedging purposes 21 936 3 219 0 17 423 1 198 0 Total derivatives designated for hedging purposes 35 628 4 281 0 30 615 2 023 0

Portfolio guarantee 50 2 0 50 2 0

Interest rate and currency derivatives 1 150 71 103 Instalments 6 188 308 202 3 627 98 75 Total interest rate and currency-related contracts 7 338 379 305 3 627 98 75

Total OTC derivatives 75 092 5 571 1 463 88 706 2 763 705

See Note 18 for a description of the bank’s market risk management. See Notes 19 and 20 for a further description of the bank’s interest rate and currency management.

The parent bank’s exposure to derivatives corresponds to that of the Group with the exception of interest rate and currency derivatives designated for hedge accounting, which only concern the subsidiary Sparebanken Vest Boligkreditt AS.

Sparebanken Vest Annual Report 2014 Page 66 Note 22 Shares

Shares are classified at fair value through profit or loss 31 Dec. 31 Dec. Cost price 2014 2013 Shares at fair value through profit or loss are divided between the following portfolios Trading portfolio (listed) 127 155 161 Recognised at fair value 502 375 525 Shares at fair value through profit or loss 531 686 Valuation method Listed 181 186 Investments priced by the investment management company 26 15 Shares valued on the basis of the OTC list 51 37 The companies' own valuation based on EVCA 1) 47 72 Shares valued on the basis of other valuation techniques 2) 226 376 Shares at fair value through profit or loss 531 686

1) The bank’s investments in venture shares are mainly mutual fund investments (or participation in investment companies). Some of the funds/companies prepare price assessments on the basis of the underlying portfolio value, which is used for valuation purposes.

2) Value assessments are based on the last issue price, traded prices known to us and/or available accounting information if the share has not been traded. Obvious excess values are accounted for through a value adjustment, while smaller items are written down where necessary.

The committed amount relating to share investments for 2013 amounted to NOK 44 million, NOK 30 million of which was paid-up. The Group has committed itself to paying further equity relating to the following ordinary share investments and venture investments in 2014.

Comm. amount Paid up Fjord Invest Sørvest AS 14 8 Borea Opportunity AS 50 36 Contango Ventures 5 5 Sarsia Seed AS 26 18 Vekstfondet AS 5 3 Committed amounts relating to share investments 100 70

Sparebanken Vest Annual Report 2014 Page 67 Note 22 Shares (contd. I)

Specification of shares, units and funds as of 31 Dec. 2014 Balance sheet Balance sheet value in NOK 1,000 Number of shares Holding (%) value Norwegian companies Amundsen Brands AS 391 833 14,3 % 3 918 Austevoll Seafood ASA 70 000 0,0 % 3 255 Bank Axept AS 3 471 0,0 % 1 736 Beat.No AS B-aksjer 412 500 6,7 % 2 970 Bergen Live AS 317 3,3 % 1 585 Bergensavisen Konsern AS 315 840 9,8 % 6 317 Borea Opportunity II AS 22 500 4,4 % 6 525 Borgestad, A-aksjer 32 500 1,0 % 2 348 Christian Michelsen Research AS 1 400 5,0 % 6 300 Contango Ventures II 5 057 4,4 % 2 038 Creacon Intern. Holding AS, A-aksjer 2 995 7,1 % 1 797 Creacon Intern. Holding, C-aksjer 1 317 7,1 % 2 436 Det Norske Oljeselskap ASA 60 000 0,0 % 2 392 DnB ASA 125 000 0,0 % 13 838 DNO International 160 000 0,0 % 2 557 Eiendomskreditt AS 286 285 9,3 % 30 060 Eksportfinans AS 2 638 1,0 % 67 256 Epsis AS 20 202 6,7 % 3 030 Ez Systems AS 601 359 12,3 % 6 014 Filmfondet Fuzz AS 4 460 831 16,3 % 4 461 Fjordinvest Sørvest AS 8 450 647 17,3 % 5 915 Gjensidige Forsikring AS 35 000 0,0 % 4 270 Hammertech AS, B-Aksjer 5 333 8,6 % 1 600 Holberg Eeg AS 1 898 8,7 % 1 845 Hordaland Maritime Miljøselskap AS 3 333 7,5 % 4 000 Icon Capital III AS 18 184 9,1 % 5 000 K.F.S. Egenkapitalbevis 4 140 8,3 % 4 140 Marine Harvest 115 000 0,0 % 11 834 Nordic Nanovector AS 70 000 0,7 % 1 960 Norsk Hydro ASA 250 000 0,0 % 10 645 Norsk Innovasjonskapital II AS 2 760 13,6 % 12 420 Norwegian Air Shuttle ASA 10 000 0,0 % 2 762 Novel Diagnostics AS 1 250 512 11,8 % 6 628 Opera Software ASA 50 000 0,0 % 4 750 Opra Technologies ASA 2 500 000 3,7 % 3 000 Oslo Børs VPS Holding ASA 585 000 1,4 % 44 460 Osmolife AS 24 250 000 9,6 % 2 425 Rec Solar ASA 33 924 0,1 % 3 460 Sarsia Development AS 201 851 11,6 % 6 601 Sarsia Seed AS 4 538 402 11,8 % 4 538 Schibsted 14 000 0,0 % 6 632 Sea-Hawk Navigation AS 92 875 19,8 % 6 966 Sorbwater Technology AS 113 637 14,2 % 15 909 Sparebank1 Næringskreditt 52 909 0,6 % 6 614 Sparebanken Møre, Grunnfondsbevis 15 000 0,2 % 3 240 Sparebanken Nord-Norge 70 000 0,1 % 2 793 Telenor ASA 80 000 0,0 % 12 120 Telio Holding 40 000 0,2 % 1 700 Tide ASA 2 175 600 9,6 % 31 981 Voss Veksel- og Landmandsbank 189 980 10,0 % 22 608 Wellis AS 84 421 3,7 % 12 663 Yara International ASA 30 000 0,0 % 10 014 Other Norwegian companies 42 473 488 796

Sparebanken Vest Annual Report 2014 Page 68 Note 22 Shares (contd. II)

Specification of shares, units and funds as of 31 Dec. 2014 Balance sheet Balance sheet value in NOK 1,000 Number of shares Holding (%) value Foreign companies Avance GAS Holding Ltd 33 188 0,1 % 3 418 Dht Holdings Inc 51 800 0,1 % 2 795 Frontline 2012 Ltd 75 000 0,0 % 3 000 Scorpio Tankers 30 000 0,0 % 1 888 Other foreign companies 4 780 15 882

Shares in unit trusts Borea Global Equities 4 797 10 141 Fondsfinans Farmasi-Bioteknologi 75 1 976 Holberg Global 43 000 7 689 Holberg Rurik 40 660 6 263 26 069

Total investments in shares, units and funds 530 747

Sparebanken Vest Annual Report 2014 Page 69 Note 23 Liquidity risk/ remaining term to maturity

Liquidity risk is the risk of the bank being unable to service its debt as it falls due or being unable to finance an increase in assets. The bank’s liquidity risk is assessed on the basis of an evaluation of the bank’s balance sheet structure, including the bank’s dependence on financing from sources other than its customers, and the additional costs involved in raising long-term funds from the capital market. Sparebanken Vest manages its liquidity risk in accordance with a number of targets and parameters. The most important of these are structural liquidity (time without access to financing from the capital market), liquidity indicator (stable financing with maturity more than one year hence in relation to illiquid assets) and deposits/loan ratio (deposits in relation to lending).

In the following table, bond debt and deposits are included at nominal value and placed in the time band for final maturity. The earliest time band (0– 1 month) includes sight deposits, loan approvals and unused credit.

GROUP From 1 to 5 More than 5 Residual time to maturity at 31 Dec. 2014 0–1 month 1–3 months 3–12 months years years Total Debt to credit institutions 3 484 0 0 337 515 4 336 Interest disbursements 0 0 18 67 33 118

Customer deposits 65 469 919 31 17 0 66 436 Interest disbursements 4 8 0 0 0 12

Securitised debt 172 1 693 7 708 47 749 2 925 60 247 Interest disbursements 98 248 906 2 520 402 4 174

Loan approvals and unused credit facilities 14 378 0 0 0 0 14 378

Subordinated loan capital and subordinated bonds 0 0 0 0 2 350 2 350 Interest disbursements 1) 0 14 98 479 2 357 2 948

Total disbursements 83 605 2 882 8 761 51 169 8 582 154 999

Financial derivatives Outgoing contractual cash flows 2 609 3 663 6 563 19 964 1 271 34 070 Incoming contractual cash flows 2 703 3 678 7 167 22 429 1 479 37 456

1) Interest disbursements are included for subordinated bonds up to 2040, 2042 and 2099.

GROUP From 1 to 5 More than 5 Residual time to maturity at 31 Dec. 2013 0–1 month 1–3 months 3–12 months years years Total Debt to credit institutions 1 344 0 992 138 582 3 056 Interest disbursements 0 0 10 62 72 144

Customer deposits 61 033 827 298 4 0 62 162 Interest disbursements 4 8 1 0 0 13

Securitised debt 130 2 809 4 746 45 301 2 400 55 386 Interest disbursements 48 270 960 2 858 481 4 617

Loan approvals and unused credit facilities 13 796 0 0 0 0 13 796

Subordinated loan capital and subordinated bonds 0 0 0 0 2 228 2 228 Interest disbursements1) 0 10 114 528 2 929 3 581

Total disbursements 76 355 3 924 7 121 48 891 8 692 144 983

Financial derivatives Outgoing contractual cash flows −643 −3 930 −1 764 −20 084 −832 −27 253 Incoming contractual cash flows 651 3 758 1 830 21 517 1 082 28 838

1) Interest disbursements are included for subordinated bonds up to 2034, 2040 and 2042.

Sparebanken Vest Annual Report 2014 Page 70 Note 24 Net interest and credit commission income

PARENT BANK GROUP

2013 2014 2014 2013 94 91 Interest and similar income from loans to and receivables from credit institutions 20 10 Interest and similar income from loans to and receivables from customers 2 861 2 744 - valued at amortised cost 4 587 4 458 236 273 - valued at fair value 273 237 Interest and similar income from certificates, bonds and other 445 485 interest-bearing securities 385 369 3 636 3 594 Interest income and similar income 5 265 5 074

Interest and similar expenses on debt to credit institutions 99 89 - valued at amortised cost 43 69 8 8 - valued at fair value 8 8 Interest and similar expenses on deposits from and debt to customers 1 384 1 380 - valued at amortised cost 1 366 1 366 5 1 - valued at fair value 1 5 Interest and similar expenses on issued securities 349 297 - valued at amortised cost 648 708 154 89 - valued at fair value 89 154 - designated for hedge accounting 611 456 Interest and similar expenses on subordinated loan capital 25 82 - valued at amortised cost 82 24 57 25 - valued at fair value 25 57 5 15 Other interest expenses and similar expenses 1) 26 15 51 46 Fee to the Saving Banks› Guarantee Fund 46 51 2 137 2 032 Interest expenses and similar expenses 2 945 2 913 1 499 1 562 Net interest and credit commission income 2 320 2 161

1) Interest from derivatives entered into to manage the interest rate risk associated with the bank’s ordinary portfolios is classified as interest income and recognised as an adjustment of the bank’s other interest income / interest expenses.

Sparebanken Vest Annual Report 2014 Page 71 Note 25 Interest on individual balance sheet items

Average interest rate as Average percentage 1) volume GROUP 2014 2013 2014 2013 Assets Loans to and receivables from credit institutions 1,09 0,53 1 769 1 845 Loans to customers 4,23 4,31 114 596 108 844 Certificates and bonds 2,39 2,45 16 340 14 961

Liabilities Debt to credit institutions 1,84 1,71 2 743 4 624 Customer deposits 2,16 2,26 63 265 60 739 Securities debt 2,29 2,48 59 093 53 023

PARENT BANK Assets Loans to and receivables from credit institutions 1,85 1,72 4 918 5 479 Loans to customers 4,46 4,51 67 656 68 602 Certificates and bonds 2,47 2,45 19 635 18 165

Liabilities Debt to credit institutions 1,73 1,77 5 578 6 023 Customer deposits 2,18 2,28 63 465 60 830 Securities debt 2,30 2,56 16 759 19 706

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

Sparebanken Vest Annual Report 2014 Page 72 Note 26 Net other operating income

PARENT BANK GROUP

2013 2014 2014 2013 38 44 Guarantee commission 44 38 271 274 Fees from payment transfers/interbank fee credit 274 271 156 172 Other commission and fees 172 156 465 490 Commission income and income from banking services 490 465

46 47 Fees, payment transfers 46 46 16 17 Fees payment transfers/interbank fees 17 16 24 25 Other commission and fees 27 25 86 89 Commission expenses and expenses relating to banking services 90 87

474 710 Income from shareholdings in group companies 14 Income from shareholdings in associated companies 74 50 474 724 Income from shareholdings in group companies and associated companies 74 50

28 37 Dividend 37 28 35 0 Gain/(loss) on the sale of shareholdings in associated companies 0 40 0 −16 Write-downs, associated companies 0 0 3 93 Gain/(loss) on certificates and bonds 108 20 −12 152 Gain/(loss) on shares 150 −12 −189 −162 Gain/(loss) on financial derivatives −162 −189 34 26 Gain/(loss) on currency 28 34 Net gain/(loss) on financial instruments, recognised at fair value2) 20 175 - lending 175 20 1 0 - deposits 0 1 12 1 - debt to credit institutions 1 12 47 −56 - securitised debt −56 47 136 −18 - subordinated loan capital −18 136 0 −7 - gain/loss on change in credit spread, own liabilities −7 0 Net gain/(loss) on financial instruments, recognised at amortised cost 5 −7 - securitised debt −8 5 Net gain/(loss) on financial instruments relating to hedge accounting - derivatives earmarked for hedge accounting 2 192 1 817 - securitised debt, hedged -2 192 -1 817 120 218 Net gain/(loss) on financial instruments1) 248 142

Brokerage commission 182 190 4 3 Other operating income 6 8 4 3 Other operating income 188 198 977 1346 Net other operating income 910 768

1) Of which trading portfolio: 5 5 Dividend 5 5 33 3 Gain/(loss) on shares 3 33 5 1 Gain/(loss) on financial derivatives 1 5 13 8 Gain/(loss) on currency 8 13

2) See Notes 9, 32, 33, 35 and 36

Sparebanken Vest Annual Report 2014 Page 73 Note 27 Operating expenses

PARENT BANK GROUP

2013 2014 2014 2013 533 519 Payroll expenses including empl. Nat. Ins. contributions 634 647 52 64 Pensions 1) 71 58 48 51 Other personnel expenses 64 58 45 63 External fees 67 50 217 216 ICT expenses 228 225 66 61 Marketing 67 70 961 974 Payroll and general administration expenses 1 131 1 108

97 100 Depreciation 109 112

114 134 Operating expenses, premises 93 86 20 20 Wealth tax 20 20 31 34 Other operating expenses 117 102 165 188 Andre driftskostnader 230 208 1 223 1 262 Total operating expenses 1 470 1 428

1) See Note 28

The average number of employees measured in full-time equivalents in 2014 was 700 (724) in the parent bank and 818 (841) in the Group.

Fee for elected auditor (NOK 1,000)

PARENT BANK GROUP

2013 2014 2014 2013 1 197 842 Audit fee 1 291 1 841 122 109 Attestation services 392 432 125 0 Tax advice 58 237 0 226 Other services 624 470 1 444 1 177 Total fees 2 365 2 980

Sparebanken Vest Annual Report 2014 Page 74 Note 28 Pensions

Pursuant to the Act relating to Mandatory Occupational Pensions, the Sparebanken Vest Group is required to have an occupational pension scheme, and the Group’s pension scheme meets the requirements of the Act. The pension scheme includes:

1. A company pension scheme with a life insurance company. The full retirement pension corresponds to almost 70 % of the final salary based on the present National Insurance basic amount (G), limited to a maximum of 12G. The scheme covers 934 (parent bank 878) persons, 491 of whom (parent bank 483) receive pensions under the scheme. The scheme includes disability benefits. The defined benefit scheme was closed to new members in 2007.

2. A defined contribution scheme covering 431 (parent bank 364) employees. All new employees become part of the defined contribution scheme.

3. An early retirement pension (AFP) scheme with supplementary benefits for people from 62 to 67 years of age. Pensions are currently being paid to 12 (parent bank 11) persons under the scheme. The scheme is unsecured and is covered through operations.

4. A scheme for senior executive personnel covering 10 (parent bank 9) employees, with the option of retiring at the age of 65. The Managing Director is entitled to, and, should the Board of Directors so desire, obliged to, take early retirement at the age of 60.

The pension benefits correspond to 70 % of the final salary up to the age of 67. The Managing Director and employees who can retire at the age of 65 have an additional agreement that ensures 66 % of pay in excess of 12 times the National Insurance basic amount from the age of 67. Under other early retirement schemes than AFP, employees are removed from the company pension scheme but will be compensated from the ordinary retirement age for the reduction in pension entitlements. The scheme for senior executive personnel is unsecured and is covered through operations.

Financial assumptions used to calculate pension expenses and commitments

Costs Commitments Percentage 2014 2013 31/12-14 31/12-13 Discount rate 3,80 3,80 2,30 3,80 Annual wage growth 3,20 3,50 2,45 3,20 Annual pension adjustment 0,40 0,20 0,00 0,40 Regulation of Nat. Insurance basic amount 3,25 3,25 2,50 3,25 Turnover (over/under 40 years) 0–8.00 0–8.00 0-8,00 0-8,00 Tendency to take early retirement under AFP 50,00 50,00 50,00 50,00 Tariff K2013 K2005 K2013 K2013

Sparebanken Vest introduced a new mortality basis (K2013) on 31 December 2013. The new mortality tariffs are based on a dynamic mortality basis, unlike the former K2005 table that was introduced in 2008. A dynamic mortality basis means that life expectancy is expected to increase (reduced mortality) for each cohort.

Investment of pension assets Percentage 2014 2013 Bonds 48 57 Shares 11 9 Money market etc. 27 19 Property 14 15

The value-adjusted return on the pension assets is estimated at 5.0 % for 2014. The value-adjusted return for 2013 was 4.5 %.

The expected premium for 2015 amounts to NOK 40 million (parent bank NOK 35 mill.).

The expected return on the pension assets is calculated by assessing the expected return on the assets that are included in the current investment strategy.

Sparebanken Vest Annual Report 2014 Page 75 Note 28 Pensions (contd. I)

GROUP 2014 2013 Pension expenses Secured Unsecured Total Secured Unsecured Total Pension earnings for the year 27 4 31 25 4 29 Net interest expense 4 1 6 2 1 3 Administration expenses 1 0 1 1 0 1 Recognised plan change 0 4 4 0 0 0 Net pension expense 32 9 41 27 5 33 Employer’s National Insurance contributions 4 1 5 4 1 4 Recognised pension expense 36 10 46 31 6 37 Recognised premiums paid to the defined contribution scheme, incl. AFP 25 21 Total pension expenses 71 58

2014 2013 Estimate variances relating to gross pension commitments recognised through comprehensive income 125 98 Estimate variances relating to pension assets recognised through comprehensive income −16 −27 Employer’s National Insurance contributions 16 10 Administration expenses 8 6 Total pensions recognised through comprehensive income 133 86

31 Dec. 2014 31 Dec. 2013 Pension commitments Secured Unsecured Total Secured Unsecured Total Present value of earned pension commitments 1 199 28 1 227 1 045 26 1 071 Fair value of pension assets −958 0 −958 −905 0 −905 Net pension commitments 242 28 270 140 26 166 Employer’s National Insurance contributions 35 4 39 20 4 24 Capitalised pension commitments 276 32 308 160 30 190

Change in pension commitments during the year 2014 2013 Pension commitments at 1 Jan. 1 071 958 Pension earnings for the year 31 29 Interest expense on pension commitments 40 36 Plan change 4 0 Estimate variance as a result of demographic assumptions 0 120 Estimate variance as a result of financial assumptions 171 −1 Estimate variance as a result of other variables −46 −21 Pension payments −43 −50 Pension commitments at 31 Dec. 1 227 1 071

Change in pension assets during the year Pension assets (market value) at 1 Jan. 905 839 Interest income on pension assets 35 33 Estimate variances relating to pension assets 11 7 Return on pension assets excl. interest income 5 21 Premiums paid/ to premium fund 45 39 Administration expenses −8 −6 Pension payments −34 −28 Pension assets (market value) at 31 Dec. 958 905

Sparebanken Vest Annual Report 2014 Page 76 Note 28 Pensions (contd. II)

Regulation of Nat. Insurance basic Sensitivity Discount rate Wage growth amount Pension regulation Consequences of: Comm. Exp. Comm. Exp. Comm. Exp. Comm. Exp. Increase in assumptions of 0.5 % −82 −1 47 4 −12 −1 71 4 Reduction in assumptions of 0.5 % 94 1 −35 −3 12 1

The sensitivity shows the change in gross pension commitments and gross pension expenses in the event of the referred changes in assumptions.

PARENT BANK 2014 2013 Pension expenses Secured Unsecured Total Secured Unsecured Total Pension earnings for the year 24 3 27 22 3 26 Net interest expense 4 1 5 2 1 3 Administration expenses 1 0 1 1 0 1 Recognised plan change 0 4 4 0 0 0 Net pension expense 29 8 37 25 5 29 Employer’s National Insurance contributions 4 1 5 3 1 4 Recognised pension expense 32 10 42 28 5 33 Recognised premiums paid to the defined contribution scheme, incl. AFP 22 19 Total pension expenses 64 52

2014 2013 Estimate variances relating to gross pension commitments recognised through comprehensive income 120 86 Estimate variances relating to pension assets recognised through comprehensive income -13 -25 Employer’s National Insurance contributions 16 9 Administration expenses 7 6 Total pensions recognised through comprehensive income 129 76

31 Dec. 2014 31 Dec. 2013 Pension commitments Secured Unsecured Total Secured Unsecured Total Present value of earned pension commitments 1 130 24 1 154 985 22 1 008 Fair value of pension assets −907 −907 −861 −861 Net pension commitments 222 24 247 124 22 146 Employer’s National Insurance contributions 32 3 35 18 3 21 Capitalised pension commitments 254 28 282 142 26 167

Sparebanken Vest Annual Report 2014 Page 77 Note 28 Pensions (contd. III)

Change in pension commitments during the year 2014 2013 Pension commitments at 1 Jan. 1 008 917 Pension earnings for the year 27 26 Interest expense on pension commitments 38 34 Plan change 4 0 Estimate variance as a result of demographic assumptions 0 111 Estimate variance as a result of financial assumptions 164 −1 Estimate variance as a result of other variables −45 −25 Pension payments −42 −56 Pension commitments at 31 Dec. 1 154 1 008

Change in pension assets during the year 2014 2013 Pension assets (market value) at 1 Jan. 861 809 Interest income on pension assets 33 31 Estimate variances relating to pension assets 10 6 Return on pension assets excl. interest income 3 19 Premiums paid/ to premium fund 41 34 Administration expenses −7 −6 Pension payments −34 −32 Pension assets (market value) at 31 Dec. 907 861

Regulation of Nat. Insurance basic Sensitivity Discount rate Wage growth amount Pension regulation Consequences of: Comm. Exp. Comm. Exp. Comm. Exp. Comm. Exp. Increase in assumptions of 0.5 % −77 −1 44 3 −11 −1 66 3 Reduction in assumptions of 0.5 % 88 1 −33 −3 11 1

The sensitivity shows the change in gross pension commitments and gross pension expenses in the event of the referred changes in assumptions.

Sparebanken Vest Annual Report 2014 Page 78 Note 29 Tax

PARENT BANK GROUP

2013 2014 Tax expense for the year 2014 2013 138 119 Tax payable 1) 314 311 0 1 Paid withholding tax and correction of previous years' tax assessment 1 0 −6 0 Effect of change in tax rules 0 −8 −1 −15 Change in deferred tax −11 9 131 105 Tax expense for the year 305 313 1) Tax payable in the balance sheet also includes wealth tax in the amount of NOK 20 million

973 1 226 Profit/loss before tax expense 1 493 1 221 27% tax on: 272 331 Pre-tax profit/loss for accounting purposes 403 342 0 0 Share of profit/loss from associated company −20 −14 6 5 Expensed wealth tax, non-deductible 5 6 −164 −273 Non-taxable income −123 −32 22 39 Non-deductible expenses 35 18 0 1 Paid withholding tax 1 0 −6 0 Effect of change in tax rules 0 −8 1 1 Insufficient/(excess) provision for tax payable 4 1 131 105 Tax expense 305 313

14 % 9 % Effective tax rate 20 % 26 %

Change in capitalised deferred tax: 85 71 Capitalised deferred tax (tax asset) at 1 Jan. 117 83 −1 −15 Recognised in the period −11 9 11 −3 Correction of deferred tax previous year −7 53 −6 0 Effect of change in tax rules 0 −8 −21 −35 Tax on pension expenses through comprehensive income −36 −24 3 0 Effect of change in tax rules through comprehensive income 0 3 71 19 Capitalised deferred tax (tax asset) at 31 Dec. 63 117

Sparebanken Vest Annual Report 2014 Page 79 Note 29 Tax (contd.)

Deferred tax and the deferred tax asset in the balance sheet relate to the following temporary differences

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Deferred tax asset 2014 2013 0 11 Tangible fixed assets 11 0 48 99 Financial instruments 99 19 45 76 Pension commitments 83 52 17 19 Other liabilities 20 17 0 0 Tax loss carryforward 2 0 110 206 Total deferred tax asset 214 88

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Deferred tax 2014 2013 0 0 Profit and loss account 1 1 0 0 Tangible fixed assets 0 1 17 18 Goodwill 18 17 0 7 Other intangible assets 7 7 165 200 Financial instruments 252 179 182 225 Total deferred tax 278 205

71 19 Net deferred tax (tax asset) 63 117

Deferred tax in the income statement relates to the following temporary differences

2013 2014 Deferred tax recognised 2014 2013 0 0 Profit and loss account 0 0 0 −4 Tangible fixed assets −5 −4 1 1 Goodwill and other intangible assets 1 1 −4 −14 Financial instruments −7 9 9 4 Pension commitments 4 9 −7 −2 Other liabilities −2 −6 0 0 Tax loss carryforward −2 0 −1 −15 Total change in deferred tax −11 9

Sparebanken Vest Annual Report 2014 Page 80 Note 30 Intangible assets

PARENT BANK GROUP

Excess Excess value value Software customer Software customer and licences portfolio Goodwill Total and licences portfolio Goodwill Total At 31 Dec. 2012 330 167 109 606 Acquisition cost 336 167 130 633 245 75 0 320 Accumulated depreciation 249 75 0 324 85 92 109 286 Balance sheet value at 31 Dec. 2012 87 92 130 309

The 2013 financial year 85 92 109 286 Balance sheet value at 1 Jan. 2013 87 92 130 309 67 0 0 67 Additions during the year 67 0 0 67 51 14 0 65 Depreciation during the year 51 14 0 65 102 78 109 290 Balance sheet value at 31 Dec. 2013 103 78 130 311

At 31 Dec. 2013 397 167 109 673 Acquisition cost 403 167 130 700 296 89 0 385 Accumulated depreciation 300 89 0 389 102 78 109 290 Balance sheet value at 31 Dec. 2013 103 78 130 311

The 2014 financial year 102 78 109 290 Balance sheet value at 1 Jan. 2014 103 78 130 311 75 0 0 75 Additions during the year 76 0 0 76 58 14 0 72 Depreciation during the year 58 14 0 72 119 64 109 292 Balance sheet value at 31 Dec. 2014 121 64 130 315

At 31 December 2014 472 167 109 748 Acquisition cost 479 167 130 776 354 103 0 457 Accumulated depreciation 358 103 0 461 119 64 109 292 Balance sheet value at 31 Dec. 2014 121 64 130 315

Software/licences are depreciated on a straight-line basis over their expected useful life, which is estimated to be three years.

Excess value in the customer portfolio is depreciated over the expected contract period, which is estimated to be 12 years.

Sparebanken Vest Annual Report 2014 Page 81 Note 30 Intangible assets (contd.)

Goodwill The individual goodwill items in the balance sheet of the Sparebanken Vest parent bank and Group are allocated to cash flow-generating units that benefit from the purchased asset. The choice of assessment unit is based on whether it is possible to identify and separate cash flows relating to the business in question. The table below shows the different assessment units and the balance sheet value of goodwill in each unit.

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 Assessment unit Grounds for the choice of assessment unit 2014 2013 Goodwill from the acquisition of Fokus Bank in Retail and corporate market Sogn og Fjordane is included in the total activity 82 82 Region Sogn og Fjordane of Region Sogn og Fjordane. 82 82 Goodwill from the acquisition of Sauda Retail and corporate market Sparebank is included in the total activity of 27 27 Region Sunnhordland Region Sunnhordland. 27 27 Kyte Næringsmegling AS has continued as a separate subsidiary of the Eiendomsmegler Vest 0 0 Kyte Næringsmegling AS Group and is a natural assessment unit. 8 8 Ottesen & Dreyer 0 0 Eiendomsmegler Vest AS (part of Eiendomsmegler Vest AS) 6 6 Herland Eiendom AS has continued as a separate subsidiary of the Eiendomsmegler Vest Group and 0 0 Herland Eiendom AS is a natural assessment unit. 7 7 109 109 Total goodwill 130 130

Impairment test The impairment test of capitalised goodwill is carried out by discounting expected future cash flows from the assessment units. The cash flows are based on historical results from each assessment unit. The discount factor is based on an assessment of what the required rate of return is in the market for the type of activity that is included in the assessment unit. The required rate of return reflects the risks associated with the activity. The impairment test are performed on cash flows after tax. The tests have not uncovered any need to write down goodwill in the parent bank or Group as of 31 Dec. 2014.

Key assumptions for the impairment test

Required rate of return Assessment unit after tax Retail and corporate market Region Sogn og Fjordane 11,00 % Retail and corporate market Region Sunnhordland 11,00 % Kyte Næringsmegling AS 12,50 % Eiendomsmegler Vest AS (Ottesen & Dreyer) 12,50 % Herland Eiendom AS 12,50 %

Sparebanken Vest Annual Report 2014 Page 82 Note 31 Tangible fixed assets

PARENT BANK GROUP

Machinery, Machinery, fixtures and fixtures and means of Land and means of Land and transport buildings Total transport buildings Total At 31 Dec. 2012 592 9 601 Acquisition cost 622 544 1 166 485 0 485 Accumulated depreciation 505 142 647 Accumulated write-downs 0 25 25 107 9 116 Balance sheet value at 31 Dec. 2012 117 377 494

The 2013 financial year 107 9 116 Balance sheet value at 1 Jan. 2013 117 377 494 31 0 31 Additions during the year 32 172 204 1 1 2 Disposals during the year 2 1 3 32 0 32 Depreciation during the year 36 11 47 0 0 0 Write-downs during the year 0 0 0 105 8 113 Balance sheet value at 31 Dec. 2013 112 537 649

At 31 Dec. 2013 622 8 630 Acquisition cost 652 715 1 367 517 0 517 Accumulated depreciation 541 153 694 Accumulated write-downs 0 25 25 105 8 113 Balance sheet value at 31 Dec. 2013 112 537 649

The 2014 financial year 105 8 113 Balance sheet value at 1 Jan. 2014 112 537 649 9 0 9 Additions during the year 14 277 291 14 0 14 Disposals during the year 14 108 122 27 0 27 Depreciation during the year 0 0 0 0 0 0 Write-downs during the year 31 6 37 73 8 81 Balance sheet value at 31 Dec. 2014 81 700 781

At 31 December 2014 448 8 625 Acquisition cost 652 884 1 536 375 0 544 Accumulated depreciation 541 153 694 Accumulated write-downs 31 31 62 73 8 81 Balance sheet value at 31 Dec. 2014 81 700 781

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

Sparebanken Vest Annual Report 2014 Page 83 Note 32 Debt to credit institutions

Debt to credit institutions is classified as valued at amortised cost or recognised at fair value.

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 2014 2013 3 226 1 460 No agreed term to maturity 3 484 970 2 643 3 724 With agreed term to maturity 1) 673 1 919 5 869 5 184 Valued at amortised cost 4 157 2 889

181 193 With agreed term to maturity 193 181 181 193 Recognised at fair value 193 181

6 050 5 377 Debt to credit institutions 4 350 3 070

31 Dec. 31 Dec. 2013 1 Jan.–31 Dec. 14 2014 Balance Additions/ Change Balance Recognised at fair value sheet value disposals in value sheet value Cost value of debt in currency 165 165 Change in exchange rate 3 13 16 Value adjustment, interest rate 18 −4 14 Value adjustment, credit spread −6 3 −3 180 12 192

Accrued interest 1 1 Recognised at fair value 181 193

Nominal value of currency EUR 20 20

The net gain/(loss) on debt recognised at fair value is included in the item net gain/(loss) on financial instruments recognised at fair value (Note 26).

1) Includes repurchase agreement (scheme whereby government securities are swapped for covered bonds). At 31 Dec. 2013, their book value amounted to NOK 1,476 million. They were settled in June 2014.

Repurchase agreements (Repo) involve a transfer of assets whereby the bank retains the risk and the return, and therefore do not meet the requirements for derecognition. The transferred asset is recognised in its entirety with a cross entry to a financial commitment for the consideration received.

Sparebanken Vest Annual Report 2014 Page 84 Note 33 Offsetting

Parent bank As a result of ISDA agreements entered into between the parent bank and most financial counterparties concerning derivative transactions, the right to offset applies if the counterparty defaults on its obligations. In addition, CSA agreements have been entered into with the most important financial counterparties.

Sparebanken Vest Boligkreditt AS Sparebanken Vest Boligkreditt also uses ISDA agreements with external counterparties in connection with entering into derivative agreements The agreements confer a right to offset in each currency, but not between currencies. The company has also entered into additional agreements (CSA) for weekly margin requirements for security that also apply to each currency. The agreements are unilateral, which means that only the counterparty must furnish security when the market value fluctuates. The counterparty shall furnish security when the market value exceeds a limit (in each currency) that depends on the counterparty’s rating. A higher rating leads to a higher market value limit for when the counterparty must furnish security. The CSA agreement contains rating clauses that mean that the counterparty must furnish additional security if the rating falls below defined rating triggers. If the rating falls below a pre-defined level, the derivatives shall be novated to another counterparty for the counterparty’s own account.

Gross Amount offset Balance Netting Other Amount after balance in the balance sheet agree- security/ possible net GROUP sheet value sheet 1) value ments 1) collateral settlement 31 Dec. 2014 Loans to and receivables from credit institutions 1 556 0 1 556 0 924 632 Financial derivatives – assets 5 571 0 5 571 343 3 145 2 083 Debt to credit institutions 4 350 0 4 350 0 3 145 1 205 Financial derivatives – liabilities 1 463 0 1 463 343 924 196

31 Dec. 2013 Loans to and receivables from credit institutions 1 318 0 1 318 0 318 1 000 Financial derivatives – assets 2 763 0 2 763 270 724 1 769 Debt to credit institutions 3 070 0 3 070 0 724 2 346 Financial derivatives – liabilities 705 0 705 270 318 117

Gross Amount offset Balance Netting Other Amount after balance in the balance sheet agree- security/ possible net PARENT BANK sheet value sheet 1) value ments 1) collateral settlement 31 Dec. 2014 Loans to and receivables from credit institutions 8 529 0 8 529 0 924 7 605 Financial derivatives – assets 1 290 0 1 290 343 0 947 Debt to credit institutions 5 377 0 5 377 0 0 5 377 Financial derivatives – liabilities 1 463 0 1 463 343 924 196

31 Dec. 2013 Loans to and receivables from credit institutions 5 438 0 5 438 0 318 5 120 Financial derivatives – assets 740 0 740 270 0 470 Debt to credit institutions 6 050 0 6 050 0 0 6 050 Financial derivatives – liabilities 705 0 705 270 318 117

1) Netting agreements are not offset in the balance sheet because the transactions are normally not settled on a net basis.

Sparebanken Vest Annual Report 2014 Page 85 Note 34 Deposits from customers

Breakdown of deposits from and debt to customers.

PARENT BANK GROUP

31 Dec. 2013 31 Dec. 2014 31 Dec. 2014 31 Dec. 2013 NOK % NOK % Breakdown of term to maturity NOK % NOK % 36 620 58,8 41 074 61,6 No agreed term to maturity 40 790 61,4 36 530 58,8 25 642 41,2 25 658 38,4 With agreed term to maturity 25 658 38,6 25 642 41,2 62 262 100,0 66 732 100,0 Total deposits from customers 66 448 100,0 62 172 100,0

31 Dec. 2013 31 Dec. 2014 31 Dec. 2014 31 Dec. 2013 NOK % NOK % Breakdown by industry NOK % NOK % 1 641 2,6 1 604 2,4 Primary industries 1 604 2,4 1 641 2,6 1 975 3,2 1 998 3,0 Manufacturing and mining 1 998 3,0 1 975 3,2 728 1,2 1 223 1,8 Power and water supply 1 223 1,8 728 1,2 1 925 3,1 2 269 3,4 Building and construction industry 2 269 3,4 1 925 3,1 1 744 2,8 1 852 2,8 Commerce 1 852 2,8 1 744 2,8 1 453 2,3 1 996 3,0 International shipping and transport 1 996 3,0 1 453 2,3 243 0,4 221 0,3 Hotels and restaurants 221 0,3 243 0,4 3 437 5,5 3 696 5,5 Property management 3 411 5,1 3 347 5,4 9 994 16,1 9 998 15,0 Service sector 9 999 15,0 9 994 16,1 2 205 3,5 2 107 3,2 Public administration 2 107 3,2 2 205 3,5 312 0,5 220 0,3 Abroad (other) 220 0,3 312 0,5 25 657 41,2 27 184 40,7 Total business and industry 26 900 40,5 25 567 41,1 36 605 58,8 39 548 59,3 Retail customers 39 548 59,5 36 605 58,9 62 262 100,0 66 732 100,0 Total corporate and retail customers 66 448 100,0 62 172 100,0

Geographical breakdown 46 172 74,2 49 387 74,0 Hordaland 49 103 73,9 46 082 74,1 6 332 10,2 6 332 9,5 Sogn og Fjordane 6 332 9,5 6 332 10,2 4 980 8,0 5 492 8,2 Rogaland 5 492 8,3 4 980 8,0 4 049 6,5 4 841 7,3 Rest of Norway 4 841 7,3 4 049 6,5 61 533 98,8 66 052 99,0 Total, Norway 65 768 99,0 61 443 98,8 729 1,2 680 1,0 Abroad 680 1,0 729 1,2 62 262 100,0 66 732 100,0 Total geographical breakdown 66 448 100,0 62 172 100,0

Under the Act on Guarantee Schemes for Banks and Public Administration etc. of Financial Institutions (the Guarantee Schemes Act), all savings banks are required to be members of the Savings Banks’ Guarantee Fund. The Fund is obliged to cover losses incurred by a depositor on deposits with a member institution in an amount not exceeding NOK 2 million of the total deposit. By deposit is meant any credit balance with the bank in an account registered by name, as well as commitments under certificates of deposit registered by name. The fee payable to the Savings Banks’ Guarantee Fund is determined in accordance with the provisions of the Guarantee Schemes Act.

Sparebanken Vest Annual Report 2014 Page 86 Note 35 Securitised debt

Securitised debt is classified as valued at amortised cost, designated for hedge accounting or recognised at fair value.

31 Dec. GROUP 2014 31 Dec. 2013 Balance Balance sheet Valued at amortised cost Nominal value sheet value value NOK 22 014 22 040 24 640 EUR 546 4 923 3 056 USD 40 297 152 SEK 1 000 964 954 Accrued interest 82 40 28 306 28 842 Designated for hedge accounting NOK 3 900 4 395 2 277 EUR 2 675 24 731 19 932 SEK 350 338 335 Accrued interest 446 342 29 910 22 886 Recognised at fair value NOK 3 197 3 202 4 331 EUR 55 496 419 Value adjustment, interest rate and exchange rate 104 43 Value adjustment, credit spread – opening balance 50 54 Value adjustment, credit spread – this period 3 −4 Accrued interest 80 124 3 935 4 967 Securitised debt 62 151 56 695

Matured/ Change in Other Balance sheet Issued redeemed exchange rate changes Balance sheet Change in securities debt 31 Dec. 2013 2014 2014 2014 2014 31 Dec. 2014 Certificates, nominal value 500 −500 0 Bonds, nominal value 54 886 14 127 −10 864 2 098 60 247 Value adjustments 1 309 595 1 904 Total securities 56 695 14 127 −11 364 2 098 595 62 151

The net gain/(loss) on securitised debt recognised at fair value is included in the item Net gain/(loss) on financial instruments recognised at fair value (Note 26).

Sparebanken Vest Annual Report 2014 Page 87 Note 35 Securitised debt (contd.)

Classified for recognition at fair value or designated for Valued at amortised cost hedging Total Maturity date securities debt NOK Currency NOK Currency 2015 2 436 1 424 700 5 013 9 573 2016 5 138 2 765 4 510 12 413 2017 6 530 2 440 5 456 14 426 2018 4 610 1 443 850 5 141 12 044 2019 3 300 550 507 4 510 8 867 2020 500 500 2021 1 100 234 1 334 2022 500 500 2024 90 90 2027 500 500 Total securities debt, nominal value 60 247

31 Dec. 31 Dec. PARENT BANK 2014 2013 Nominal Balance Balance Valued at amortised cost value sheet value sheet value NOK 8 352 8 383 9 003 EUR 546 4 923 3 057 USD 40 297 152 SEK 1 000 964 954 Accrued interest 34 40 14 601 13 206 Recognised at fair value NOK 3 197 3 359 4 425 EUR 55 496 419 Accrued interest 80 124 3 935 4 968 Securitised debt 18 536 18 174

Sparebanken Vest Annual Report 2014 Page 88 Note 36 Subordinated loan capital and subordinated bond loans

Balance sheet value 31 Dec. 31 Dec. Year of issue Nominal value Interest Redemption right 2014 2013 Ordinary subordinated loans 2012 Subordinated loan NOK 375 mill 3-month NIBOR + 3,50ˍ% Call option 9/2-2017 376 375 2013 Subordinated loan NOK 500 mill 3-month NIBOR + 1,85 % Call option 10/10-2018 501 497 2014 Subordinated loan NOK 500 mill 3-month NIBOR + 1,50 % Call option 27/6-19 500 0

Subordinated bond loans 2004 Subordinated bond loan USD 60 mill Fixed interest 7.30 % call opsjon 30/4-14 0 372 2010 Subordinated bond loans NOK 400 mill Fixed interest 8.05 % call opsjon 19/5-20 473 450 2012 Subordinated bond loans NOK 325 mill 3-month NIBOR + 5,0 % call opsjon 9/2-17 325 328 2013 Subordinated bond loans NOK 250 mill 3-month NIBOR + 3,65 % call opsjon 10/10-18 251 249 Subordinated loan capital 2 426 2 271

The subordinated bonds are included in their entirety in the bank’s core capital.

Change in subordinated loans and 31 Dec. Matured/ Other 31 Dec. subordinated bond loans 2013 Issued redeemed changes 2014 Ordinary subordinated loan capital, nominal value 875 500 1 375 Subordinated bond loans, nominal value 1 341 −366 975 Value adjustments 55 21 76 Total subordinated loans and subordinated bond loans 2 271 500 −366 21 2 426

31 Dec. 31 Dec. 2014 2013 Nominal Balance Balance Valued at amortised cost value sheet value sheet value NOK 1 950 1 940 1 439 Accrued interest 13 10 1 953 1 449

Recognised at fair value 2014 2013 NOK 400 395 395 USD 60 0 365 Value adjustment, interest rate and exchange rate 55 43 Value adjustment, credit spread – opening balance 4 6 Value adjustment, credit spread – this period −1 −10 Accrued interest 20 23 473 822 Subordinated loan capital 2 426 2 271

Effective rate of interest for subordinated loans recognised at fair value in 2014: 5.17 % (2013: 7.44 %)

The net gain/(loss) on subordinated loan capital recognised at fair value is included in the item Net gain/(loss) on financial instruments recognised at fair value (Note 26).

Sparebanken Vest Annual Report 2014 Page 89 Note 37 Capital adequacy

Risk and capital management Banking operations entail risk in many areas, and good risk and capital management is a key strategic instrument in Sparebanken Vest’s value creation. For further information about risk and capital management, see Note 7 and the Group’s Pillar III document. The latter is available on Sparebanken Vest’s website.

For regulatory capital purposes, the transitional arrangement between the Basel I and Basel II regulations still applies. It stipulates that the risk-weighted volume cannot be reduced to less than 80 % of the corresponding figure calculated pursuant to the Basel I regulations. As such, the Basel I regulations still represent a ‘floor’ for minimum requirements for own funds.

Calculation of economic capital and regulatory capital The bank’s capital assessment is based on a quantification of economic capital for the individual risk areas. Stress tests simulate the effects of situations that are unlikely to arise, but that could result in large unexpected losses for the bank. Qualitative assessments supplement the quantitative assessments.

In 2007, Sparebanken Vest was given permission by the Financial Supervisory Authority of Norway to use internal methods to calculate credit risk (IRB) and has since met the regulatory requirements for this approval. One condition for IRB approval is that the IRB system and its use are validated at least once a year. In Sparebanken Vest, the results of the validation are considered by the bank’s Validation Committee. An annual validation report is submitted to the Board of Directors for consideration. The internal audit function regularly audits the system and its use, including compliance with the Capital Adequacy Regulations. The IRB system is audited at least once a year, and a report is submitted to the Board of Directors for consideration. The parameters and processes used by the bank to manage and control the IRB system follow from its credit strategy, policy and procedures.

When calculating capital in relation to credit risk, all of the bank’s customers who are covered by the IRB system shall be scored using the bank’s internal score models. The bank also calculates values for Loss Given Default (LGD) for retail market customers and small corporate customers. For corporate customers, LGD rates set out in the Capital Adequacy Regulations are used. The bank has prepared models for own estimates of LGD also for CM, and the bank is in the process of applying for their approval (AIRB). The bank does not use external rating, nor does it have self-determined risk parameters beyond those that are used to set the basis for the calculation of and the amount of expected losses. The value of any security furnished is taken into account when calculating LGD and in the scoring of retail market customers.

The bank classifies all commitments covered by the IRB system every month. Quantification of the risk parameters takes place in the same operation, and they are also updated each month. In the retail market, the value of furnished security is updated annually or when a new commitment starts. In the corporate market, the value of furnished security is updated as part of the procedure for monitoring commitments. The bank applies the definition of default used in the Capital Adequacy Regulations, which is when an account has been overdrawn for 90 days or more for amounts of NOK 1,000 or more. Default can also be deemed to exist based on an ‘unlikeliness to pay’ criterion, such as insolvency, if information to this effect is received.

Sparebanken Vest uses a template-based method for operational risk, while market risk is calculated using the standard method.

Sparebanken Vest Annual Report 2014 Page 90 Note 37 Capital adequacy (contd.)

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2013 2014 2014 2013 Weighted calculation basis 21 753 21 167 Enterprise – SME 21 271 21 850 2 925 2 829 Enterprise – Specialised 2 829 2 925 3 425 3 871 Enterprise – Other 3 871 3 425 189 152 Mass market with secured by property – SME 268 250 5 455 6 498 Mass market with secured by property – not SME 1) 13 366 8 967 74 68 Mass market – Other SMEs 68 74 1 757 2 548 Mass market – Other not-SMEs 2 579 1 757 3 594 3 129 Equity positions IRB 0 0 39 172 40 262 Total credit risk, IRB 44 252 39 248

775 714 Position risk, debt instruments 714 772 325 310 Position risk, equity instruments 310 322 225 0 Currency risk 0 229 3 538 3 704 Operational risk 5 680 4 884 12 525 14 824 Commitment pursuant to the standard method 7 736 7 197 0 279 Risk of credit valuation adjustment for counterparty (CVA) 1 087 0 −38 0 Other deductions 0 −33 56 522 60 093 Total weighted calculation basis before correction to transitional arrangement 59 779 52 620

0 0 Correction to transitional arrangement 8 784 14 000 56 522 60 093 Weighted calculation basis pursuant to the transitional arrangement 68 563 66 620

Own funds 794 794 Equity certificates 794 794 −2 0 - Own equity certificates 0 −2 568 568 Share premium reserve 570 570 6 095 6 904 Primary capital 6 953 6 134 14 14 Compensation fund 14 14 175 175 Gift fund 175 175 257 351 Equalisation reserve 478 352 146 95 Other equity / Reserve for unrealised gains 109 97 0 0 Minority interests 1 1 8 047 8 901 Total book equity 9 094 8 135

−289 −267 Deferred tax asset, goodwill and other intangible assets −344 −387 0 0 Unrealised gains on tangible fixed assets 0 −11 1 331 966 Subordinated bonds 966 1 331 29 34 Value adjustment, own liabilities 34 29 −137 −181 Deduction for expected losses IRB and own funds fin. inst. −236 −148 0 0 Deduction for provision for dividend/gifts −177 −135 8 981 9 453 Total core capital 9 337 8 814

870 1 369 Perpetual own funds 1 369 870 0 0 Addition for 45% net unrealised gain on tangible fixed assets 0 5 −137 0 Deduction for expected losses IRB and own funds fin. inst.2) 0 −148 733 1 369 Total supplementary capital 1 369 727

9 714 10 822 Net own funds 10 706 9 541

13,5 % 14,1 % Core capital excluding subordinated bonds 12,2 % 11,2 % 2,4 % 1,6 % Subordinated bonds 1,4 % 2,0 % 1,3 % 2,3 % Supplementary capital 2,0 % 1,1 % 17,2 % 18,0 % Capital adequacy, transitional arrangement 15,6 % 14,3 %

13,5 % 14,1 % Core capital excluding subordinated bonds 14,0 % 14,2 % 2,4 % 1,6 % Subordinated bonds 1,6 % 2,5 % 1,3 % 2,3 % Supplementary capital 2,3 % 1,4 % 17,2 % 18,0 % Capital adequacy, Basel II fully implemented 17,9 % 18,1 % 1) Increase in calculation basis compared with 2013 mainly due to lower LGD limit stipulated by the Financial Supervisory Authority of Norway. 2) Deduction for expected losses entered in its entirety against core capital in 2014, compared with 50/50% distribution between core capital and supplementary capital in 2013

Sparebanken Vest Annual Report 2014 Page 91 Note 38 The equity certificate

The equity certificate capital at 31 Dec. 2014 consisted of 31,761,290 equity certificates, each with a nominal value of NOK 25.

Owner fraction 31 Dec. 31 Dec. Figures for parent bank (NOK 1,000) 2014 2013 Equity certificates 794 032 794 032 Own equity certificates −149 −2 241 Share premium reserve 568 467 568 467 Equalisation reserve 350 422 256 680 Total equity certificate capital (A) 1 712 772 1 616 938

Primary capital 6 903 672 6 094 438 Compensation fund 14 378 14 378 Gift fund 175 000 175 000 Total primary capital (B) 7 093 050 6 283 816

Reserve for unrealised gains 95 471 146 454 Equity 8 901 293 8 047 208

Owner fraction after the distribution of dividend (A/(A+ B)) 19,5 % 20,5 %

Weighted owner fraction 20,5 % 21,3 %

Dividend per equity certificate 4,00 3,00

Total dividend on 31,761,290 equity certificates (NOK 1,000) 127 045 95 284

Own equity certificates When buying own equity certificates, the purchase price including direct costs will be recognised as a deduction from equity. The nominal value of the bank’s own equity certificates is recognised as a negative amount on a separate line under equity certificate capital. Any purchase price in excess of the nominal value is deducted from primary capital.

2014 2013 Number of own equity certificates at 1 Jan. 89 620 424 108 Equity certificates purchased 52 254 0 Equity certificates sold 135 913 334 488

Number of own equity certificates at 31 Dec. 5 961 89 620

Effective return per equity certificate 2014 2013 Listed price at 31 Dec. 50,50 45,30 Dividend paid during the year 3,00 2,50 Listed price at 1 Jan. 45,30 29,40 Effective return in NOK 8,20 18,40 Effective return as a percentage 18,10 62,59

Sparebanken Vest Annual Report 2014 Page 92 Note 38 Equity certificates (contd. I)

Proportion of The twenty largest owners of ECs No of ECs EC capital % SPAREBANKSTIFTINGA HARDANGER 8 604 394 27,09 SPARBANKSTIFTELSEN SAUDA 2 636 442 8,30 PARETO AS 2 380 632 7,50 MP PENSJON 1 450 000 4,78 BERGEN KOMMUNALE PENSJONSKASSE 1 450 000 4,57 VPF NORDEA NORGE VERDI C/O JPMORGAN EUROPE 1 165 035 3,67 WIMOH INVEST 1 085 078 3,42 HERFO FINANS AS 614 137 1,93 FONDSFINANS SPAR 500 000 1,57 SPAR SHIPPING AS 400 000 1,26 VPF NORDEA KAPITAL C/O JPMORGAN EUROPE 331 144 1,04 VERDIPAPIRFONDET EIKA AS 325 769 1,03 SPAREBANKSTIFTELSEN HELGELAND 266 737 0,84 VERDIPAPIRFONDET OMEGA INVEST 237 000 0,75 FUSA KRAFTLAG 231 720 0,73 TROVÅG AS 230 000 0,72 HOLBERG NORGE VERDIPAPIRFONDET 212 255 0,67 SKUDENES & AAKRA SPAREBANK 175 053 0,55 VPF NORDEA AVKASTNING C/O JPMORGAN EUROPE 168 111 0,53 HUSTADLITT AS 166 197 0,52 Total 22 629 704 71,47

Sparebanken Vest Annual Report 2014 Page 93 Note 38 Equity certificates (contd. II)

Equity certificates owned by the Managing Director, executive personnel, members of the Board of Directors, members of the Supervisory Board and Control Committee, and persons closely related to the aforementioned, as defined in Section 7-26 of the Accounting Act and Section 8-20 of the Supplementary Regulations to the Act.

No of ECs Erling Syvertsen, Chair of the Supervisory Board 25 433 Svein Ove Lid, member of the Supervisory Board 2 000 Ove Ellingsen, member of the Supervisory Board 4 000 Jon Askeland, member of the Supervisory Board 200 Lisbeth Ormevik, member of the Supervisory Board 1 942 Bodil Digranes, member of the Supervisory Board 1 719 Kirsten Guldbrandsen, member of the Supervisory Board 1 098 Anne Grethe Grøttvedt, member of the Supervisory Board 1 625 Liv Erstad, member of the Supervisory Board 990 Wenche W Anglevik, member of the Supervisory Board 523 Solfrid Hagen, member of the Supervisory Board 493 Kjell Gunnar Lilleøren, member of the Supervisory Board 1 703 Jens Petter Helland, member of the Supervisory Board 1 487 Unni Grethe B Våge, member of the Supervisory Board 1 600 Eirik A Hjelle, member of the Supervisory Board 147 Jostein Lid, member of the Supervisory Board 288 Trond Mohn, member of the Supervisory Board 22 856 Eivind Lunde, member of the Supervisory Board 10 108 Siri Birkeland, member of the Supervisory Board 242 Jan Øvrebø, member of the Supervisory Board 5 535 Anne Maria Langeland, member of the Supervisory Board 2 689 Trygve Bruvik, Chair of the Board of Directors 54 750 Marit Solberg, Deputy Chair of the Board of Directors 14 322 Anne Marit Hope, member of the Board of Directors 2 100 Øyvind Atle Langedal, member of the Board of Directors 3 193 Kristin Axelsen, member of the Board of Directors 1 155 Sivert Sørnes, board member 2 475 Fredrik Skaarer Fjose, deputy member 1 173 Inger Johanne Thraning Westad, deputy member 424 Jan Erik Kjerpeseth, Managing Director 13 829 Ragnhild Janbu Fresvik, Director – Corporate Market 4 197 Hallgeir Isdahl, Director – Retail Market 3 678 Frank Johannesen, Director – Finance and Risk 6 355 Bjørg Marit Eknes, Director – Business Support and Development 5 245 Siren Sundland – Director of HR and Corporate Communication 8 855 208 429

Breakdown by number Volume intervals No of ECs Percentage No of owners Percentage 1 - 100 17 370 0,05 305 9,68 101 - 1 000 703 638 2,22 1 594 50,57 1 001 - 5 000 2 081 804 6,55 929 29,47 5 001 - 10 000 1 056 675 3,33 148 4,70 10 001 - 9 000 000 27 901 803 87,85 176 5,58 Total 31 761 290 100,00 3 152 100,00

Sparebanken Vest Annual Report 2014 Page 94 Note 39 Transactions with related parties

The information provided is in accordance with IAS 24 Related Party Disclosures.

Sparebanken Vest defines subsidiaries, associated companies, board members and the corporate management as related parties in relation to this accounting standard. Information about remuneration of the Supervisory Board and the Control Committee is provided pursuant to the requirements of the Accounting Act.

Shareholdings in group companies and associated companies are specified in Note 17. Transactions with related parties are conducted in accordance with generally accepted business terms and principles.

Sub- Associated Key Intragroup transactions 2014 (NOK 1,000) sidiaries companies personnel Income statement Interest from loans to customers 96 884 23 918 Interest from interest-bearing securities (issued by the housing credit company) 107 253 7 817 Interest and similar expenses on deposits from customers −62 959 −14 672 Commission income received relating to distribution 101 662 Gain/(loss) on financial instruments −14 038 Group dividend/contributions received 710 893 Pay, pension and fees to executive personnel and officers of the company 18 751 Rent −114 868 Management fees 47 327 Fees received for the sale of services 7 119 4 473 Fees paid for the purchase of services −5 688

Balance sheet Shares in subsidiaries, associated companies: - Capital increases 64 870 Group contributions/dividend receivable 710 893 Net loans transferred to the housing credit company, present year 7 248 812 Loans transferred to the housing credit company, accumulated 52 191 957 Loans to related parties as of 31 Dec. 7 784 528 716 306 Deposits from related parties 4 458 253 323 552 Holding of covered bonds issued by Sparebanken Vest Boligkreditt AS 3 035 785 302 283 Holding of subordinated loans issued by Sparebanken Vest Boligkreditt AS 900 318 31 942

Sparebanken Vest Annual Report 2014 Page 95 Note 39 Transactions with related parties (contd.)

Sub- Associated Key Intragroup transactions 2013 (NOK 1,000) sidiaries companies personnel Income statement Interest from loans to customers 106 161 17 886 Interest from interest-bearing securities (issued by the housing credit company) 82 391 12 631 Interest and similar expenses on deposits from customers −49 108 −7 032 Commission income received relating to distribution 81 702 Gain/(loss) on financial instruments −17 962 Group dividend/contributions received 474 193 Pay, pension and fees to executive personnel and officers of the company 48 113 Rent −109 794 Management fees 42 872 Fees received for the sale of services 5 962 4 066 Fees paid for the purchase of services −9 668

Balance sheet Shares in subsidiaries, associated companies: - Capital increases 840 000 67 425 Group contributions/dividend receivable 474 193 Net loans transferred to the housing credit company, present year 5 765 150 Loans transferred to the housing credit company, accumulated 44 943 013 Loans to related parties as of 31 Dec. 4 443 435 156 633 Deposits from related parties 3 786 160 306 271 Holding of covered bonds issued by Sparebanken Vest Boligkreditt AS 3 510 009 444 573 Holding of subordinated loans issued by Sparebanken Vest Boligkreditt AS 901 228

Subsidiaries mainly refer to Eiendomsmegler Vest AS, Sparebanken Vest Boligkreditt and Sparebanken Vest Eiendomsforvaltning AS. Internal transactions with the estate agency company are limited and mainly consist of interest on deposits and loans with associated balance sheet items.

Sparebanken Vest Eiendomsforvaltning manages the Group’s properties and receives rent from the parent company. Sparebanken Vest Boligkreditt AS is a wholly owned company that manages housing loans financed by the issuing of covered bonds. Sparebanken Vest sells loans to the company, which in turn finances its activities by issuing covered bonds. Sparebanken Vest owns part of the bonds issued by the housing credit company and receives interest income on these bonds. In addition, the subsidiary has both deposits and liabilities in relation to the parent company on which interest is calculated in accordance with the arm’s length principle. Sparebanken Vest Boligkreditt pays management fees for transferred loans and buys administrative services from Sparebanken Vest. Associated companies comprise Frende Forsikring, Norne Securities, Brage Finans and Verd Boligkreditt. Sparebanken Vest sells general and life insurance through Frende Forsikring on a commission basis. Leasing products are sold through Brage Finans in a corresponding manner.

Loans transferred to Sparebanken Vest Boligkreditt are specified above. The contractual relationship between the parent bank and Sparebanken Vest Boligkreditt AS indicates that the parent bank has no further involvement in transferred housing loans, since all credit risk relating to the loans has been transferred to the housing credit company. These loans have a floating interest rate subject to a requirement for the furnishing of security within 75 % of the objects’ value. There will therefore be no material deviations between the balance sheet value and the fair value of the loans in question. The housing credit company has a drawing right in the parent bank with a credit limit of NOK 7 billion and a rolling liquidity facility relating to bonds that reach maturity in the next 12 months. The latter is exclusively an intercompany agreement between the parent bank and the housing credit company. The realisation of such a facility will provide access to issued bonds and non-transferred assets (loans).

Sparebanken Vest Annual Report 2014 Page 96 Note 39 Transactions with related parties (contd. I)

Salaries and other remuneration of executive personnel (figures in NOK 1,000)

Executive personnel are defined as members of the corporate management team. The information includes agreed annual salary, total taxable remuneration, the proportion of the overall remuneration that relates to bonuses, and calculated, earned pension rights. Earned pension comprises earned pension rights for the year in the bank’s company pension scheme and earned pension in the scheme for the remuneration of executive personnel. See Note 28 ‘Pensions’ for a description of the pension schemes.

Agreed sala- Salaries and ries as of payments Bonus Total remu- Pension 2014 – Members of the corporate management team as of 31 Dec. 31 Dec. in kind paid neration expense Jan Erik Kjerpeseth – Managing Director 2 625 2 817 514 3 331 990 Frank Johannesen – Director Finance and Risk Management 1 560 1 808 317 2 125 581 Ragnhild Janbu Fresvik – Director Corporate Market 1 384 1 304 85 1 389 128 Hallgeir Isdahl – Director Retail Market 1 622 1 844 296 2 140 441 Siren Sundland – Director of HR and Corporate Communication 1 404 1 614 297 1 911 437 Bjørg Marit Eknes – Director Business Support and Development 1 404 1 639 149 1 788 394 Total 9 999 11 026 1 658 12 684 2 971

Agreed sala- Salaries and ries as of payments Bonus Total remu- Pension 2013 – Members of the corporate management team as of 31 Dec. 31 Dec. in kind paid neration expense Jan Erik Kjerpeseth – Managing Director 2 500 2 470 261 2 731 476 Frank Johannesen – Director Finance and Risk Management 1 500 1 604 169 1 773 494 Ragnhild Janbu Fresvik – Director Corporate Market 1 080 1 020 72 1 092 66 Hallgeir Isdahl – Director Retail Market 1 560 1 693 176 1 869 386 Siren Sundland – Director of HR and Corporate Communication 1 350 1 478 163 1 641 354 Bjørg Marit Eknes – Director Business Support and Development 1 350 1 472 114 1 586 436 Total 9 340 9 737 955 10 692 2 212

Distributed Remaining salaries and Expensed commit- payments in Bonus severance ments as of Pension 2013 – Resigned executive personnel kind paid pay 31 Dec. expense Stein Klakegg – former Managing Director 23 945 349 17 527 11 296 2 290 Henning Nordgulen – former Director Corporate Market 2 938 221 3 561 2 346 532 Kate Henriksen – former Director Retail Market 1 905 176 3 448 3 326 618 Totalt 28 788 746 24 536 16 968 3 440

On the recommendation of the Compensation Committee, the Board of Directors sets the salary of the Managing Director and the Deputy Managing Director. The Managing Director determines the remuneration of other executive personnel after consultation with the Compensation Committee.

A provision of NOK 1 (5) million has been made for the 2014 financial year for bonuses to be distributed among executive and key personnel following a more thorough assessment.

If members of the corporate management resign their positions at the bank’s request, they are entitled to severance pay corresponding to one year’s salary in addition to their ordinary salary during the period of notice (six months). Severance pay is only paid if the employee leaves his/her position at the bank’s request and complies with non-competition provisions. If the employee resigns at his/her own initiative, he/she is not entitled to severance pay. With respect to the Managing Director, a mutual period of notice of six months applies. The Board of Directors can decide to terminate the employment relationship earlier without a reduction in salary. If the bank terminates the employment relationship, salary and additional benefits are paid for 18 months from the expiry of the period of notice with a deduction for any external salary received during the period.

Sparebanken Vest Annual Report 2014 Page 97 Note 39 Transactions with related parties (contd. II)

Remuneration of officers of the company (in whole NOK) 2014 2013

Directors’ Additional Total remu- Total remu- Styret fee fee neration neration Trygve Bruvik Chair of the Board of Directors 360 000 43 000 403 000 406 000 Marit Solberg Deputy Chair of the Board 180 000 9 000 189 000 198 000 Richard Rettedal 150 000 30 000 180 000 210 000 Øyvind A Langedal 150 000 36 000 186 000 210 000 Sivert Sørnes 150 000 62 000 212 000 220 000 Birthe Kåfjord Lange 150 000 9 000 159 000 162 000 Arild Bødal 150 000 29 000 179 000 169 000 Anne Marit Hope 150 000 0 150 000 150 000 Kristin Axelsen 150 000 0 150 000 106 000 Tone Mattsson 0 0 0 50 000 Arnulf Ingvaldsen Deputy member 25 000 18 000 43 000 43 000 Bernt Bergheim Deputy member 25 000 36 000 61 000 119 000 Fredrik Skaarer Fjose Deputy member 0 9 000 9 000 9 000 Kjell Sævdal 0 0 0 18 000 Inger Johanne W Thraning Deputy member 0 9 000 9 000 9 000 Total 1 640 000 290 000 1 930 000 2 079 000

Directors’ fees and additional fees for participating in committees are decided by the Supervisory Board.

Remuneration of the parent bank’s Supervisory Board amounted to NOK 181,869 (132,500). Meeting fees of NOK 594,000 (569,500).

2014 2013

Additional Total remu- Total remu- Control Committee Remuneration fee neration neration Tom W Horne Chair 125 000 0 125 000 131 000 Berte-Elen R Konow Deputy chair 63 333 0 63 333 0 Kjell Steinsbø 31 667 0 31 667 107 000 Magni Haugland 85 000 0 85 000 85 000 Charlotte H. Lem 85 000 0 85 000 85 000 Total 390 000 0 390 000 408 000

Sparebanken Vest Annual Report 2014 Page 98 Note 39 Transactions with related parties (contd. III)

Loans and security furnished to executive personnel, employees and officers of the company (NOK 1,000)

PARENT BANK GROUP Loans and security furnished to the Managing Director (NOK 1,000) 2014 2013 2014 2013 Man. Dir. Jan Erik Kjerpeseth 1 3 290 6 563 6 790 Loans are furnished on standard terms for employees

Loans and security furnished to officers of the company (NOK 1,000), parent bank Board of Directors Øyvind A Langedal, board member 0 0 1 823 2 068 Sivert Sørnes, board member 1 3 1 3 Arnulf Ingvaldsen, deputy board member 1 0 125 241 Kristin Axelsen, employee representative (from April 2013) 9 20 2 480 2 196 Anne Marit Hope, employee representative 0 1 909 959 Fredrik Skaarer Fjose, deputy employee representative 3 446 2 209 3 446 2 209 Inger Johanne Thraning, deputy employee repr. (from April 2013) 47 21 887 893 Loans are furnished on standard customer terms, with the exception of loans to employee representatives 3 504 2 254 9 671 8 569

Chair of the Supervisory Board Erling Syvertsen 1 143 390 1 143 390 Loans are furnished on standard customer terms

Total loans and furnishing of security to employees (NOK 1,000) 1) 521 585 521 552 1 316 091 1 479 043

Total loans and furnishing of security to other members of the Supervisory Board and Control Committee (NOK 1,000) Supervisory Board 2) 9 780 12 700 24 212 23 291 Control Committee 0 0 0 0

1).Excluding the Managing Director and employee representatives. 2).Excluding the Chair of the Supervisory Board and employee representatives.

The cost of subsidising the interest rate on loans to employees is not recognised as an operating expense and affects the bank’s net interest. Loans to employees are subsidised by a 20 % discount on standard customer terms.

Note 40 Disputes

As of 31 December 2014, Sparebanken Vest was not involved in any lawsuits or legal disputes of material financial significance to the Group’s activities. There are at all times various claims against the bank relating to its activities. Provision for bad debt has been made where it has been deemed necessary.

Sparebanken Vest Annual Report 2014 Page 99 Sparebanken Vest Annual Report 2014 Page 100 Sparebanken Vest Annual Report 2014 Page 101

THE SUPERVISORY BOARD OF SPAREBANKEN VEST

Statement from the Control Committee for 2014

The Control Committee has carried out the control activities deemed necessary to ensure compliance with the guidelines and orders laid down for the committee in the Savings Bank Act, and in the instructions adopted for the Control Committee.

The committee has been in contact with both the internal and external auditors. In the course of its work, the committee has held meetings with the Chair of the Supervisory Board, the Chair of the Board of Directors, the Managing Director and the directors of different business units.

The committee has not found the bank’s activities to be in breach of the Savings Bank Act, the Financial Institutions Act, the Securities Trading Act, the bank’s Articles of Association, the decisions of the Supervisory Board or other relevant provisions.

In the committee’s view, the Board of Directors’ assessment of the bank’s financial situation, as stated in the annual report, is accurate.

In the committee’s opinion, the annual accounts have been prepared in accordance with the provisions of the Savings Bank Act and of the requirements of the Financial Supervisory Authority of Norway. The committee recommends the Supervisory Board to adopt the Board of Directors’ proposed income statement and balance sheet as Sparebanken Vest and the group’s accounts for 2014.

Bergen, 18 February 2015

Tom W. Horne Berte-Elen Konow

Magni Haugland Charlotte Hartvigsen Lem

Sparebanken Vest Annual Report 2014 Page 102 Sparebanken Vest Annual Report 2014 Page 103 Group key figures – 5 years

PROFIT DEVELOPMENT 2014 2013 2012 2011 2010 Interest income and similar income 5 265 5 074 4 944 4 390 3 947 Interest expenses and similar expenses 2 945 2 913 3 147 2 800 2 431 Net interest and credit commission income 2 320 2 161 1 797 1 590 1 516

Commission income and income from banking services 490 465 444 417 382 Commission expenses and expenses relating to banking services 90 87 98 82 85 Net banking services 400 378 346 335 297 Income from shareholdings in associated companies 74 50 34 −50 −42 Net gain/(loss) on financial instruments 248 142 276 124 212 Other operating income 188 198 205 194 168 Net other operating income 910 768 861 603 635 Net operating income 3 230 2 929 2 658 2 193 2 151

Payroll and general administration expenses 1 131 1 108 886 1 058 962 Depreciation 109 112 114 107 98 Other operating expenses 230 208 228 170 164 Total operating expenses 1 470 1 428 1 228 1 335 1 224 Profit/loss before write-downs and tax expense 1 760 1 501 1 430 858 927

Net profit on tangible fixed assets 143 0 0 0 0 Write-downs of loans and losses on guarantees 410 280 147 126 127 Profit/loss before tax expense 1 493 1 221 1 283 732 800

Tax expense 305 313 353 184 189 Profit/loss for the financial year 1 188 908 931 548 611

Majority share of the profit/loss for the period 1 188 908 931 548 611 Minority share of the profit/loss for the period 0 0 0 0 0

Sparebanken Vest Annual Report 2014 Page 104 Group key figures – 5 years (contd. I)

31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. BALANCE SHEET DEVELOPMENT 2014 2013 2012 2011 2010 Assets Cash in and receivables from central banks 2 209 328 877 668 361 Loans to and receivables from credit institutions 1 556 1 318 878 481 368 Net lending 118 643 112 024 106 789 99 304 88 465 Shares at fair value through profit or loss 531 686 709 738 714 Certificates and bonds 16 525 15 440 15 152 11 537 13 406 Financial derivatives 5 571 2 763 1 929 1 695 709 Shareholdings in associated companies 681 555 473 349 326 Deferred tax asset 0 0 0 0 2 Other intangible assets 315 311 309 330 323 Tangible fixed assets 781 649 494 496 469 Prepaid expenses 29 107 31 56 50 Other assets 229 215 107 331 82 Total assets 147 070 134 396 127 748 115 985 105 275

Liabilities and equity Debt to credit institutions 4 350 3 070 5 430 7 971 10 529 Deposits 66 448 62 172 60 032 53 142 48 719 Securitised debt 62 151 56 695 50 753 44 606 37 064 Financial derivatives 1 463 705 1 475 1 089 795 Accrued expenses and pre-paid income 187 197 182 116 134 Pension commitments 308 190 136 187 147 Deferred tax 63 117 83 109 0 Other provisions for commitments 2 17 22 28 24 Tax payable 334 330 323 113 126 Subordinated loan capital 2 426 2 271 1 626 1 613 1 495 Other liabilities 244 497 292 320 313 Total liabilities 137 976 126 261 120 354 109 294 99 346

Equity certificates 794 794 794 765 539 Own equity certificates 0 −2 −11 −12 −10 Share premium reserve 570 570 570 564 467 Equalisation reserve 478 352 259 176 144 Total equity certificate capital 1 842 1 714 1 612 1 493 1 140

Primary capital 6 953 6 134 5 527 5 078 4 637 Gift fund 175 175 175 175 175 Compensation fund 14 14 14 14 14 Total primary capital 7 142 6 323 5 716 5 267 4 826

Reserve for unrealised gains 0 0 0 0 0 Other equity 109 97 65 −70 −38 Minority interests 1 1 1 1 1

Total equity 9 094 8 135 7 394 6 691 5 929

Total liabilities and equity 147 070 134 396 127 748 115 985 105 275

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) 138 502 129 289 123 903 109 260 101 725

Sparebanken Vest Annual Report 2014 Page 105 Group key figures – 5 years (contd. II)

PROFIT/LOSS AS % OF PRIMARY CAPITAL 2014 2013 2012 2011 2010 Interest income and similar income 3,80 3,92 3,99 4,02 3,88 Interest expenses and similar expenses 2,13 2,25 2,54 2,56 2,39 Net interest and credit commission income 1,68 1,67 1,45 1,46 1,49

Commission income and income from banking services 0,35 0,36 0,36 0,38 0,38 Commission expenses and expenses relating to banking services 0,06 0,07 0,08 0,08 0,08 Net banking services 0,29 0,29 0,28 0,31 0,29 Income from shareholdings in associated companies 0,05 0,04 0,03 −0,05 −0,04 Net gain/(loss) on financial instruments 0,18 0,11 0,22 0,11 0,21 Other operating income 0,14 0,15 0,17 0,18 0,17 Net other operating income 0,66 0,59 0,69 0,55 0,62 Net operating income 2,33 2,27 2,15 2,01 2,11

Payroll and general administration expenses 0,82 0,86 0,72 0,97 0,95 Depreciation 0,08 0,09 0,09 0,10 0,10 Other operating expenses 0,17 0,16 0,18 0,16 0,16 Total operating expenses 1,06 1,10 0,99 1,22 1,20 Profit/loss before write-downs and tax expense 1,27 1,16 1,15 0,79 0,91

Net profit on tangible fixed assets 0,10 0,00 0,00 0,00 0,00 Write-downs of loans and losses on guarantees 0,30 0,22 0,12 0,12 0,12 Profit/loss before tax expense 1,08 0,94 1,04 0,67 0,79

Tax expense 0,22 0,24 0,28 0,17 0,19 Profit/loss for the financial year 0,86 0,70 0,75 0,50 0,60

Majority share of the total profit/loss for the period 0,86 0,70 0,75 0,50 0,60 Minority share of the total profit/loss for the period 0,00 0,00 0,00 0,00 0,00

OTHER KEY FIGURES

Return on assets, earnings and capital structure (percentage) 1. Return on equity after tax 13,7 11,7 14,1 8,7 11,3 2. Return on total assets before losses and tax 1,4 1,2 1,2 0,8 0,9 3. Net return on total assets 0,9 0,7 0,8 0,5 0,6 4. Total operating expenses as percentage of net operating income (cost-income) 45,5 48,8 46,2 60,9 56,9 5. Deposits/loans ratio 56,0 55,5 56,2 53,5 55,1

Balance sheet development (percentage) 6. Change in net lending 5,9 4,9 7,5 12,3 7,5 7. Change in certificates and bonds 7,0 1,9 31,3 −13,9 13,5 8. Change in deposits 6,9 3,6 13,0 9,1 8,6 9. Change in assets under management 9,4 5,2 10,1 10,2 7,8

Defaults, provisions and losses on loans 10. Loss percentage, loans 0,35 0,25 0,14 0,13 0,15 11. Gross defaults as percentage 0,31 0,34 0,40 0,40 0,49 12. Net defaults as percentage 0,24 0,25 0,32 0,33 0,38 13. Percentage provided for, defaulted loans 24,7 28,0 20,2 17,4 22,6

Capital adequacy 14. Net own funds 10 706 9 541 7 973 7 191 6 387 15. Calculation basis 68 563 66 620 63 300 62 200 54 862 16. Capital adequacy 15,6 14,3 12,6 11,6 11,6 17. Core capital adequacy 13,6 13,2 12,3 10,8 10,8

Sparebanken Vest Annual Report 2014 Page 106 Group key figures – 5 years (contd. III)

Equity certificates (parent bank) 2014 2013 2012 2011 2010 18. Equity certificate capital (NOK mill.) 794 794 794 765 539 19. Dividend per equity certificate (NOK) 4,00 3,00 2,50 2,00 3,50 20. Listed price at 31 Dec. 50,50 45,30 29,40 31,70 47,00 21. Owner fraction after the distribution of dividend 19,50 20,50 21,20 21,50 18,13 22. Share of profit per equity certificate (NOK) 7,66 6,13 6,57 4,55 5,86 23. Diluted profit per equity certificate (NOK) 7,66 6,13 6,57 4,55 5,86 24. Effective return per equity certificate 18,10 62,59 −0,95 −25,11 −3,92 25. Direct return 7,92 6,62 8,50 6,31 7,45 26. Dividend provision as a percentage of the equity certificates' share of the profit 52,22 48,94 38,05 43,94 59,68

Personnel figures at 31 Dec. Number of employees 855 864 926 920 873 Number of full-time equivalents 813 821 881 886 838

Distribution network Points of sale 48 54 64 68 63

Definitions: 1. Profit/loss for the financial year as a percentage of average equity through the year. 2. Operating profit/loss before losses and tax as a percentage of average assets under management. 3. Profit/loss on ordinary operations after tax as a percentage of average assets under management. 5. Deposits from and debt to customers as a percentage of loans to and receivables from customers. 6. Change in net lending at 31 Dec. as a percentage of net lending the year before. 7. Change in securities at 31 Dec. as a percentage of securities the year before. 8. Change in deposits at 31 Dec. as a percentage of deposits the year before. 10. Losses on loans and guarantees etc. as a percentage of gross lending at 31 Dec. 11. Gross defaults as a percentage of gross lending. 12. Loans in default with deductions for individual write-downs on such loans, as a percentage of net lending. 13. Individual write-downs on loans in default as a percentage of the gross volume of such loans. 21. Equity certificate capital as a percentage of the parent bank's equity as of 31 Dec. 22. Equity certificates' share of profit/loss divided by the number of equity certificates 24. Dividend paid plus change in exchange rate 1 Jan.–31 Dec., as a percentage of the listed price at 1 Jan. 25. Provision for dividend as a percentage of the listed price at year end.

Sparebanken Vest Annual Report 2014 Page 107 Group key figures – per quarter for two years

31 Dec. 30 Sept. 30 June 31 March 31 Dec. 30 Sept. 30 June 31 March PROFIT DEVELOPMENT (accumulated) 2014 2014 2014 2014 2013 2013 2013 2013 Interest income and similar income 5 265 3 946 2 621 1 299 5 074 3 766 2 462 1 186 Interest expenses and similar expenses 2 945 2 229 1 480 733 2 913 2 185 1 454 727 Net interest and credit commission income 2 320 1 717 1 141 566 2 161 1 581 1 008 459

Commission income and income from banking services 490 353 229 114 465 340 212 110 Commission expenses and expenses relating to banking services 90 62 41 21 87 63 41 20 Net banking services 400 291 188 93 378 277 171 90 Income from shareholdings in associated companies 74 62 48 18 50 41 21 9 Net gain/(loss) on financial instruments 248 270 241 221 142 98 76 44 Other operating income 188 143 97 39 198 156 110 47 Net other operating income 910 766 574 371 768 572 378 190 Net operating income 3 230 2 483 1 715 937 2 929 2 153 1 386 649

Payroll and general administration expenses 1 131 846 565 280 1 108 836 562 277 Depreciation 109 83 56 29 112 82 54 27 Other operating expenses 230 175 108 55 208 169 113 50 Total operating expenses 1 470 1 104 729 364 1 428 1 087 729 354 Profit/loss before write-downs and tax expense 1 760 1 379 986 573 1 501 1 066 657 295

Net profit on tangible fixed assets 143 143 143 0 0 0 0 0 Write-downs of loans and losses on guarantees 410 385 170 47 280 91 52 22 Profit/loss before tax expense 1 493 1 137 959 526 1 221 975 605 273

Tax expense 305 227 187 114 313 264 168 77 Profit/loss for the period 1 188 910 772 412 908 711 437 196

Majority share of the profit/loss for the period 1 188 910 772 412 908 711 437 196 Minority share of the profit/loss for the period 0 0 0 0 0 0 0 0

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) 138 502 137 717 136 559 137 170 129 289 128 786 127 340 126 244

PROFIT/LOSS AS % OF PRIMARY CAPITAL

Interest income and similar income 3,80 3,83 3,87 3,84 3,92 3,91 3,90 3,81 Interest expenses and similar expenses 2,13 2,16 2,19 2,17 2,25 2,27 2,30 2,34 Net interest and credit commission income 1,68 1,67 1,68 1,67 1,67 1,64 1,60 1,47

Commission income and income from banking services 0,35 0,34 0,34 0,34 0,36 0,35 0,34 0,35 Commission expenses and expenses relating to banking services 0,06 0,06 0,06 0,06 0,07 0,07 0,06 0,06 Net banking services 0,29 0,28 0,28 0,27 0,29 0,29 0,27 0,29 Income from shareholdings in associated companies 0,05 0,06 0,07 0,05 0,04 0,04 0,03 0,03 Net gain/(loss) on financial instruments 0,18 0,26 0,36 0,65 0,11 0,10 0,12 0,14 Other operating income 0,14 0,14 0,14 0,12 0,15 0,16 0,17 0,15 Net other operating income 0,66 0,74 0,85 1,10 0,59 0,59 0,60 0,61 Net operating income 2,33 2,41 2,53 2,77 2,27 2,24 2,19 2,08

Payroll and general administration expenses 0,82 0,82 0,83 0,83 0,86 0,87 0,89 0,89 Depreciation 0,08 0,08 0,08 0,09 0,09 0,09 0,09 0,09 Other operating expenses 0,17 0,17 0,16 0,16 0,16 0,18 0,18 0,16 Total operating expenses 1,06 1,07 1,08 1,08 1,10 1,13 1,15 1,14 Profit/loss before write-downs and tax expense 1,27 1,34 1,46 1,69 1,16 1,11 1,04 0,95

Net profit on tangible fixed assets 0,10 0,14 0,21 0,00 0,00 0,00 0,00 0,00 Write-downs of loans and losses on guarantees 0,30 0,37 0,25 0,14 0,22 0,09 0,08 0,07 Profit/loss before tax expense 1,08 1,10 1,42 1,56 0,94 1,01 0,96 0,88

Tax expense 0,22 0,22 0,28 0,34 0,24 0,27 0,27 0,25 Profit/loss for the period 0,86 0,88 1,14 1,22 0,70 0,74 0,69 0,63

Majority share of the profit/loss for the period 0,86 0,88 1,14 1,22 0,70 0,74 0,69 0,63 Minority share of the profit/loss for the period 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

Sparebanken Vest Annual Report 2014 Page 108 Key figures – per quarter for two years (contd. I)

PROFIT DEVELOPMENT PER QUARTER (isolated) Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Interest income and similar income 1 319 1 325 1 322 1 299 1 308 1 304 1 276 1 186 Interest expenses and similar expenses 716 749 747 733 728 731 727 727 Net interest and credit commission income 603 576 575 566 580 573 549 459

Commission income and income from banking services 137 124 115 114 125 128 102 110 Commission expenses and expenses relating to banking services 28 21 20 21 24 22 21 20 Net banking services 109 103 95 93 101 106 81 90 Income from shareholdings in associated companies 12 14 30 18 9 20 12 9 Net gain/(loss) on financial instruments −22 29 20 221 44 22 32 44 Other operating income 45 46 58 39 42 46 63 47 Net other operating income 144 192 203 371 196 194 188 190 Net operating income 747 768 778 937 776 767 737 649

Payroll and general administration expenses 285 281 285 280 272 274 285 277 Depreciation 26 27 27 29 30 28 27 27 Other operating expenses 55 67 53 55 39 56 63 50 Total operating expenses 366 375 365 364 341 358 375 354 Profit/loss before write-downs and tax expense 381 393 413 573 435 409 362 295

Net profit on tangible fixed assets 0 0 143 0 0 0 0 0 Write-downs of loans and losses on guarantees 25 215 123 47 189 39 30 22 Profit/loss before tax expense 356 178 433 526 246 370 332 273

Tax expense 78 40 73 114 49 96 91 77 Profit/loss for the period 278 138 360 412 197 274 241 196

Majority share of the profit/loss for the period 278 138 360 412 197 274 241 196 Minority share of the profit/loss for the period 0 0 0 0 0 0 0 0

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) (isolated) 142 308 138 465 136 596 137 170 134 402 131 760 127 960 126 244

PROFIT/LOSS AS % OF PRIMARY CAPITAL (isolated)

Interest income and similar income 3,68 3,80 3,88 3,84 3,86 3,93 4,00 3,81 Interest expenses and similar expenses 2,00 2,15 2,19 2,17 2,15 2,20 2,28 2,34 Net interest and credit commission income 1,68 1,65 1,69 1,67 1,71 1,73 1,72 1,47

Commission income and income from banking services 0,38 0,36 0,34 0,34 0,37 0,39 0,32 0,35 Commission expenses and expenses relating to banking services 0,08 0,06 0,06 0,06 0,07 0,07 0,07 0,06 Net banking services 0,30 0,30 0,28 0,27 0,30 0,32 0,25 0,29 Income from shareholdings in associated companies 0,03 0,04 0,09 0,05 0,03 0,06 0,04 0,03 Net gain/(loss) on financial instruments −0,06 0,08 0,06 0,65 0,13 0,07 0,10 0,14 Other operating income 0,13 0,13 0,17 0,12 0,12 0,14 0,20 0,15 Net other operating income 0,40 0,55 0,60 1,10 0,58 0,58 0,59 0,61 Net operating income 2,08 2,20 2,28 2,77 2,29 2,31 2,31 2,08

Payroll and general administration expenses 0,79 0,81 0,84 0,83 0,80 0,83 0,89 0,89 Depreciation 0,07 0,08 0,08 0,09 0,09 0,08 0,08 0,09 Other operating expenses 0,15 0,19 0,16 0,16 0,12 0,17 0,20 0,16 Total operating expenses 1,02 1,07 1,07 1,08 1,01 1,08 1,18 1,14 Profit/loss before write-downs and tax expense 1,06 1,13 1,21 1,69 1,28 1,23 1,13 0,95

Net profit on tangible fixed assets 0,00 0,00 0,42 0,00 0,00 0,00 0,00 0,00 Write-downs of loans and losses on guarantees 0,07 0,62 0,36 0,14 0,56 0,12 0,09 0,07 Profit/loss before tax expense 0,99 0,51 1,27 1,56 0,73 1,11 1,04 0,88

Tax expense 0,22 0,11 0,21 0,34 0,14 0,29 0,29 0,25 Profit/loss for the period 0,78 0,40 1,06 1,22 0,58 0,83 0,76 0,63

Majority share of the profit/loss for the period 0,78 0,40 1,06 1,22 0,58 0,83 0,76 0,63 Minority share of the profit/loss for the period 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

Sparebanken Vest Annual Report 2014 Page 109 Key figures – per quarter for two years (contd. II)

31 Dec. 30 Sept. 30 June 31 March 31 Dec. 30 Sept. 30 June 31 March BALANCE SHEET DEVELOPMENT 2014 2014 2014 2014 2013 2013 2013 2013 Assets Cash in and receivables from central banks 2 209 468 2 220 700 328 336 784 306 Loans to and receivables from credit institutions 1 556 1 861 1 870 1 707 1 318 1 706 1 432 1 090 Net lending 118 643 115 815 115 234 113 116 112 024 110 298 109 680 108 082 Shares at fair value through profit or loss 531 533 887 872 686 681 649 680 Certificates and bonds 16 525 15 785 15 932 16 692 15 440 16 379 15 412 13 637 Financial derivatives 5 571 2 358 2 814 2 540 2 763 1 991 1 480 1 729 Shareholdings in associated companies 681 669 655 601 555 552 519 482 Other intangible assets 315 316 308 308 311 306 308 311 Tangible fixed assets 781 720 634 678 649 562 530 507 Prepaid expenses 29 25 68 18 107 36 49 42 Other assets 229 314 681 744 215 345 152 197 Total assets 147 070 138 864 141 303 137 976 134 396 133 192 130 995 127 063

Liabilities and equity Debt to credit institutions 4 350 2 380 3 049 4 729 3 070 3 822 3 436 5 321 Deposits 66 448 64 267 64 179 61 939 62 172 60 915 62 995 58 745 Securitised debt 62 151 58 841 60 853 58 114 56 695 56 957 53 452 51 277 Financial derivatives 1 463 859 792 795 705 656 768 1 326 Accrued expenses and pre-paid income 187 179 167 180 197 239 200 192 Pension commitments 308 259 187 191 190 137 138 138 Deferred tax 63 51 87 117 117 80 71 86 Other provisions for commitments 2 21 27 21 17 22 31 31 Tax payable 334 346 284 307 330 341 250 346 Subordinated loan capital 2 426 2 398 2 389 2 279 2 271 1 512 1 501 1 539 Other liabilities 244 402 514 893 497 509 425 588 Total liabilities 137 976 130 003 132 528 129 565 126 261 125 190 123 267 119 589

Equity certificates 794 794 794 794 794 794 794 794 Own equity certificates 0 0 0 −2 −2 −3 −3 −11 Share premium reserve 570 570 570 570 570 570 570 570 Equalisation reserve 478 246 257 257 352 180 180 180 Total equity certificate capital 1 842 1 610 1 621 1 619 1 714 1 541 1 541 1 533

Primary capital 6 953 6 055 6 096 6 095 6 134 5 497 5 497 5 492 Gift fund 175 175 175 175 175 175 175 175 Compensation fund 14 14 14 14 14 14 14 14 Total primary capital 7 142 6 244 6 285 6 284 6 323 5 686 5 686 5 681

Other equity 109 1 006 868 507 97 774 500 259 Minority interests 1 1 1 1 1 1 1 1

Total equity 9 094 8 861 8 775 8 411 8 135 8 002 7 728 7 474

Total liabilities and equity 147 070 138 864 141 303 137 976 134 396 133 192 130 995 127 063

Sparebanken Vest Annual Report 2014 Page 110 Key figures – per quarter for two years (contd. III)

Return on assets, earnings and capital structure 31 Dec. 30 Sept. 30 June 31 March 31 Dec. 30 Sept. 30 June 31 March (percentage) 2014 2014 2014 2014 2013 2013 2013 2013 Return on equity after tax 12,2 6,2 16,8 19,8 9,8 14,0 12,7 10,4 Return on total assets before losses and tax 1,1 1,1 1,6 1,7 1,3 1,2 1,1 0,9 Net return on total assets 0,8 0,4 1,1 1,2 0,6 0,8 0,8 0,6 Total operating expenses as % of net operating income, accumulated (cost-income) 45,5 44,5 42,5 38,8 48,8 50,5 52,6 54,5 Total operating expenses as % of net operating income, isolated in the quarter (cost-income) 49,0 48,8 46,9 38,8 43,9 46,7 50,9 54,5 Total operating expenses as % of net operating income, corrected for exchange rate gain/loss, acc. (cost-income) 49,3 49,9 49,5 50,8 51,2 52,9 55,6 58,5 Deposits/loans ratio 56,0 55,5 55,7 54,8 55,5 55,2 57,4 54,4

Financial strength (percentage) Capital adequacy, transitional arrangement 15,6 14,2 14,2 14,0 14,3 12,2 12,2 12,2

Personnel Number of full-time equivalents 813 819 808 830 821 838 844 860

Owner fraction Equity certificate capital's share of profit/loss divided by (the) number of equity certificates 1,79 0,89 2,32 2,66 1,33 4,99 3,10 1,40 Diluted profit per equity certificate 1,79 0,89 2,32 2,66 1,33 4,99 3,10 1,40 Owner fraction 20,5 20,5 20,5 20,5 21,3 21,3 21,3 21,2 Book equity per equity certificate 58,7 57,2 56,6 54,4 54,7 53,9 52,0 50,6

Sparebanken Vest Annual Report 2014 Page 111 DYRK SMART

Dyrk Smart is a project under the auspices of the fruit cooperatives Hardanger Fjordfrukt, Ullensvang Fruktlager and Nå Fruktlager, whose goal is to give the fruit growers of Hardanger a ‹kick-start› in new cultivation methods. These methods produce more and better fruit from less land, and they are environmentally friendly and very well suited for use in the Hardanger region. The cultivation methods are very suitable for organic cultivation, and they also generate significantly higher income than traditional fruit growing. The main goal is to secure the future of the fruit-growing industry in Hardanger through activities that aim to increase the production of high-quality fruit, prevent good fruit-growing areas from being taken out of production and inspire young people to become fruit producers.

Sparebanken Vest Annual Report 2014 Page 112 Corporate governance

Sparebanken Vest has drawn up a corporate The bank’s policy is specified in various governing governance policy that has been approved documents that apply to Sparebanken Vest’s by the Board of Directors. It aims to ensure activities. They include the bank’s Articles of that the Group’s corporate governance is Association, its strategies, including its corporate in accordance with generally accepted and social responsibility strategy, rules of procedure for the Board of Directors, the framework for recognised perceptions and standards, and management and control, ethical guidelines and in compliance with laws and regulations. procedures for suitability, insider trading and The policy describes the general principles proprietary trading. The governing documents are that apply. The goal is to ensure good based, among other things, on the current version cooperation between the bank’s different of the Norwegian Code of Practice for Corporate stakeholders, such as holders of equity Governance and applicable regulations in the area. certificates, lenders, customers, employees, Sparebanken Vest continuously makes adaptations to governing bodies, management and society meet new recommendations, and in November 2014, as a whole. The policy describes how minor changes were made to the recommendations that Sparebanken Vest complies with. the bank is managed and controlled in order to create value for the bank and its The same principles for corporate governance apply stakeholders. in relation to Sparebanken Vest’s subsidiaries and associated companies.

The Articles of Association and the corporate governance policy are available on the bank’s website www.spv.no. In accordance with section 1 of the Norwegian Code of Practice, a report on the bank’s compliance with the Code of Practice follows below. The report shall also meet the disclosure requirements set out in the Norwegian Accounting Act Section 3-3b.

THE BUSINESS Sparebanken Vest is a financial services group consisting of the parent bank and the subsidiaries Eiendomsmegler Vest AS, Sparebanken Vest Boligkreditt AS, Sparebanken Vest Eiendomsforvaltning AS, Kyrkjebøkvartalet AS, Jonsvollskvartalet AS and Vestlandskonferansen AS. Unless otherwise stated, references to the bank and/or Sparebanken Vest in this text concern the Sparebanken Vest Group.

Pursuant to its Articles of Association, Sparebanken Vest’s object is to deliver financial services to the public, business and industry and the public sector in Western Norway. The business shall be run at a satisfactory profit and with acceptable risk.

1) www.nues.no

Sparebanken Vest Annual Report 2014 Page 113 The Board of Directors’ report contains a description equity certificate holders’ share of the profit is divided of the bank’s goals and strategies. The strategic between a cash dividend and the equalisation basis is evaluated at least once a year by the Board reserve. Sparebanken Vest endeavours to distribute and the management, and the bank’s plans are an attractive cash dividend to the equity certificate adjusted and adapted continuously. The market is holders. Sparebanken Vest’s financial goal for its updated about the bank’s strategic agenda through business is to achieve an annual return on equity the presentation of quarterly reports. of more than 11 per cent. The development of the bank’s equity situation and its financial strength are Sparebanken Vest has a customer-oriented emphasised when allocating profit. organisation that focuses on the Retail Market and the Corporate Market as business areas. The The Board of Directors is authorised by the business areas are supplemented by support and Supervisory Board to acquire and pledge as security staff functions. The bank’s organisational structure own equity certificates for a total nominal value of is dynamic, and it is assessed on the basis of NOK 100 million within the limits set out in laws and changed needs and framework conditions. regulations. The total holding of equity certificates that the bank owns and/or has a charge created EQUITY AND DIVIDENDS by agreement on cannot exceed 10 per cent of the Sparebanken Vest is an independent institution. equity certificate capital stipulated in the Articles The infusion of external capital takes place through of Association. The minimum amount that can the issuing of equity certificates and subordinated be paid for the equity certificates is NOK 1 and bonds. Sparebanken Vest’s equity certificate capital the maximum amount is NOK 150. This limit also amounted to NOK 1,712 million at 31 December applies to any charge created by agreement, which 2014, divided between 31.8 million equity means that the claim the charge is intended to certificates. secure must not exceed the amount that follows from these limitations. Holders of equity certificates shall have a predictable framework with respect to equal treatment, the The acquisition of equity certificates takes place return on their investment and influence on how through purchases in the securities market via the bank is run. The stock exchange listing of the Oslo Børs, and disposals take place through sales equity certificates ensures that the bank accepts and in the same market, or as private placements complies with the market conditions that prevail at with employees within the limits provided for in all times in the market for equity certificates, and it applicable laws and regulations. The authorisation is means that the bank accumulates historical data that valid for 18 months from the date of the Supervisory can help it to utilise the stock market as a source of Board’s resolution or until such time as the Financial equity if the need should arise. Supervisory Authority of Norway revokes the authorisation. The Board of Directors evaluates the bank’s capital situation at least once a year. The most recent Equal treatment of equity certificate holders and evaluation was carried out in the fourth quarter transactions with related parties 2014. The regulatory regime relating to capital adequacy (CRD IV2) has been adopted in the EU Sparebanken Vest has one class of equity and will be implemented in Norway through the certificates. It is a goal that equity certificate holders EEA Agreement. The bank continually assesses shall be ensured equal treatment and the same its capital adequacy in relation to regulatory possibility to exert influence in Sparebanken Vest. In requirements. order to safeguard the interests of owners of small holdings, the bank’s Articles of Association contain Sparebanken Vest’s profit for the year is divided a limitation on voting rights that means that, at an between equity certificate capital and retained election meeting for equity certificate holders, no earnings in proportion to the owner fraction. The one may vote for equity certificates that represent more than 15 per cent of the total number of equity 2) Capital Requirement Directive certificates issued by Sparebanken Vest.

Sparebanken Vest Annual Report 2014 Page 114 The owner fraction at year end 2014 is 20.5 per of Association and the decisions of the Supervisory cent. The biggest owner is Sparebankstiftelsen Board. Hardanger, which represents 27.1 per cent of the equity certificate capital. In 2014, Sparebanken The bank’s Articles of Association are in accordance Vest’s second-biggest owner, Sparebankstiftelsen with the Financial Supervisory Authority of Norway’s Sauda, sold 531,799 equity certificates. The normal articles of association for savings banks bank’s 20 biggest owners own 70.3 per cent of the that have issued negotiable equity certificates. equity certificate capital. At 31 December 2014, Pursuant to the Savings Bank Act and the Sparebanken Vest held 5,961 of its own equity Financial Institutions Act, this means that the certificates and has thus sold 83,659 certificates rules concerning the composition of and election compared with the same period the year before. of members to the Supervisory Board shall be stipulated in the Articles of Association. The The rules of procedure for the Board of Directors Supervisory Board has 48 members, 12 of whom contain provisions relating to ethics and are elected by the equity certificate holders in impartiality. The bank’s ethical guidelines apply accordance with detailed provisions set out in the to both officers of the Company and employees. Articles of Association. Equity certificate holders’ Among other things, they contain guidelines for right to attend meetings of the Supervisory Board is customer relations, benefits/gifts, the duty of thus limited compared with Chapter 5 of the Public confidentiality, participation in other business Limited Liability Companies Act. activities and transactions with related parties. As a rule, transactions, including the purchase/sale of Decisions are reached by ordinary majority decision. assets and services, shall not take place between Amendments to the Articles of Association require a Sparebanken Vest, its employees and its equity majority of two-thirds of those present, and at least certificate holders and officers, nor with their related 24 members must vote in favour of the proposal. parties. Moreover, proposed amendments to the Articles of Association must have been presented to the Provisions have been included in the rules of Supervisory Board at a previous meeting. Notices procedure for the Board of Directors that emphasise of and the conducting of ordinary meetings of the board members’ duty to exercise due care in Supervisory Board shall be in accordance with the relation to ethical conduct, impartiality and integrity. provisions of the Savings Bank Act and the Financial Moreover, board members must inform the Chair Institutions Act. Notices of and minutes of meetings of the Board if they become aware of a possible of the Supervisory Board are sent to Oslo Børs and conflict of interest. are made available on the bank’s website.

FREE NEGOTIABILITY Pursuant to the Articles of Association, an annual Sparebanken Vest’s equity certificate is listed meeting of the Supervisory Board shall be convened on Oslo Børs and it is freely negotiable. The only before the end of March every year for consideration limitation on ownership is a statutory requirement of the annual accounts, annual report, auditor’s that currently states that the acquisition of a report and statement from the Control Committee. qualified proportion of the equity certificate capital This meeting also considers proposals for dividend (10 per cent or more) requires the consent of the on the bank’s equity certificate and the allocation Ministry of Finance (authorisation granted to the of donations/provisions to the gift fund. A meeting Financial Supervisory Authority of Norway). of the Supervisory Board is held before the end of April every year to elect members to the Board Supervisory Board and Control Committee of Directors, the Control Committee etc. Separate The bank’s supreme body is the Supervisory Board, elections are held among employees, equity which is composed of equity certificate holders, certificate holders and customers to elect members customers, employees and representatives of the to the Supervisory Board. Public representatives authorities. The Supervisory Board is tasked with are appointed by the City of Bergen and the county ensuring that the bank acts in accordance with its councils of Sogn og Fjordane, Hordaland and object and in compliance with the law, its Articles Rogaland.

Sparebanken Vest Annual Report 2014 Page 115 The Supervisory Board has elected a Nomination THE BOARD OF DIRECTORS: COMPOSITION AND Committee, which nominates candidates to the INDEPENDENCE Board of Directors and the Control Committee as Pursuant to Sparebanken Vest’s Articles of well as members of the Supervisory Board to be Association, the Board of Directors shall consist of elected by depositors. Separate elections are held nine members and four deputy members elected for the Chair and Deputy Chair of the Supervisory for a term of two years and one year, respectively. Board. The Control Committee, which is also elected The Chair and Deputy Chair are elected by the by the Supervisory Board, is tasked with supervising Supervisory Board in separate elections. At present, and controlling the work of the Board of Directors four of the full members of the Board of Directors and the bank’s management. Pursuant to the are women. A presentation of the members of Articles of Association, the Control Committee shall Sparebanken Vest’s Board of Directors is available have four members and two deputy members. on the bank’s website.

The Board of Directors, Managing Director, The rules of procedure for the Board of Directors members of the bank’s management and specialists of Sparebanken Vest contain guidelines for the also attend meetings of the Supervisory Board as composition of the Board and terms of office. required. Important criteria for members of the Board and its composition are qualifications, gender, capacity and NOMINATION COMMITTEES independence. The composition of the Board shall Pursuant to the Articles of Association, the be such that it is capable of acting independently main Nomination Committee in Sparebanken of special interests and the bank’s management. Vest shall consist of seven members elected The Board’s overall competence shall be regularly by the Supervisory Board, and it shall include assessed in relation to the challenges facing the representatives of all groups represented on the bank. The Nomination Committee shall be informed Supervisory Board, plus an independent member about the results of the assessment. Pursuant to the who is elected from among former members of rules of procedure for the Board of Directors, board the Board of Directors (preferably a former Chair members can own equity certificates in the bank. or Deputy Chair). Grounds must be stated for the Nomination Committee’s recommendations, THE WORK OF THE BOARD OF DIRECTORS which should contain relevant information about The Board of Directors of Sparebanken Vest holds the candidates, including information about their 12 to 14 regular meetings every year, as well as competence, capacity and independence. The meetings in connection with strategy work. In recommendation shall also contain a description addition, the Board organises thematic days with a of the committee’s work. The Nomination view to developing its expertise. Rules of procedure Committee presents its proposals at a meeting of have been drawn up and adopted for the Board, the Supervisory Board. Separate rules of procedure with a pertaining calendar for the Board’s work. have been adopted for the Nomination Committee. The Board places particular emphasis on work on Remuneration of the Nomination Committee is the annual rolling strategy plan. The Board also decided by the Supervisory Board. considers whether the bank’s capital situation and risk situation are commercially acceptable and The Nomination Committee submits proposals to the within the statutory limits. Supervisory Board for the remuneration of officers of the Company. No members of the Board of In cooperation with the Chair of the Board, Directors or representatives of the management are the Managing Director prepares matters for members of the Nomination Committee. consideration by the Board. The Board of Directors has adopted job instructions for the Managing There is a separate nomination committee for elec- Director. tions by equity certificate holders. This committee prepares elections by equity certificate holders to The Board of Directors has overall responsibility for the Supervisory Board. The committee has three the management of Sparebanken Vest and for over- members elected by the equity certificate holders. seeing the day-to-day management and the bank’s

Sparebanken Vest Annual Report 2014 Page 116 activities. The Board’s management responsibility The bank’s overriding goals follow from its strategic includes responsibility for organising the bank in an business basis. The target rate of return governs the adequate manner, responsibility for adopting plans bank’s activities and specification of sub-goals. The and budgets, responsibility for keeping informed focus is on maintaining the bank’s competitiveness in about the bank’s financial position and for ensuring the short and long term. Sparebanken Vest’s market that the business, asset management and accounts and business goals must be balanced against the are subject to adequate control. bank’s ability and willingness to take risk. Risk and capital adequacy assessments are an integral part of The Board of Directors shall act in accordance the bank’s strategic and business processes. with the bank’s object as set out in its Articles of Association, and it shall comply with the guidelines The bank’s risk management is related to four main and framework conditions stipulated by public areas: bodies, the Financial Supervisory Authority of • Credit risk Norway, the Supervisory Board and the Control • Market risk Committee. • Liquidity risk • Operational risk The Board of Directors has appointed three committees as part of its work: The Board of Directors of Sparebanken Vest • The Risk Management and Audit Committee is requires the bank to be well-capitalised. A review charged with ensuring that Sparebanken Vest has of the bank’s most important risk areas and capital an independent and effective external and internal adequacy assessments (ICAAP[1]) are carried out audit function, and financial and risk reporting at least once a year and considered by the Board that is in accordance with laws and regulations. of Directors. The bank’s capital strategy must be The Risk Management and Audit Committee based on the actual risk to which the business is in Sparebanken Vest reviews the quarterly exposed, supplemented by the effect of various management reports before they are considered by stress scenarios. the bank’s Board of Directors. • The Board’s Credit Committee, which deals with In 2007, the Financial Supervisory Authority of credit matters under the authorisation of the Board Norway gave Sparebanken Vest its approval for the of Directors. use of internal measurement methods (IRB[2]) to • The Compensation Committee, which is tasked calculate capital in relation to credit risk. The bank with ensuring that the bank has a competitive, has since met the regulatory requirements for this but not leading, pay policy that is seen as approval. The parameters and processes used by motivating by the bank’s management in relation to the bank to manage and control the IRB system implementing the adopted strategy and achieving follow from its credit strategy, policy and procedures. the goals set. Sparebanken Vest is currently in the process of applying for the use of advanced IRB for the The bank’s internal auditor is subject to the Board’s corporate market portfolio. authority and is entitled to attend board meetings. An annual report is submitted to the Board on Responsibility for implementing the bank’s risk and internal control, the Capital Adequacy Regulations capital management and control is divided between and the Securities Trading Act. The Board of the bank’s Board of Directors, management and Directors approves the internal audit function’s business units. annual plan and resource needs. The Board is also responsible for ensuring that RISK MANAGEMENT AND INTERNAL CONTROL the bank has sufficient own funds in relation to Good risk and capital management have a central the desired risk and the bank’s operations, and role in Sparebanken Vest’s long-term value creation. for ensuring that it is sufficiently capitalised in relation to regulatory requirements. The Board also defines the bank’s targets and limits in all risk areas, [1] Internal Capital Adequacy Assessment Process [2] Internal Ratings-Based including adopting guidelines for the bank’s risk

Sparebanken Vest Annual Report 2014 Page 117 and capital management. Reporting to the Board of financial reporting is also included in the quarterly Directors in relation to targets and limits takes place management report to the management and Board. quarterly. The finance department under Finance and Risk The Managing Director is responsible for the bank’s Management is responsible for financial reporting, overall risk management, including the development internal financial management, direct and indirect of good models and frameworks for management taxes, and internal control of financial reporting. and control. This includes responsibility for quarterly financial reporting in accordance with applicable legislation, The risk management unit in Finance and Risk accounting standards and the accounting principles Management attends to important functions relating adopted for the Group. A template has been to management, control, reporting and analysis. developed for group reporting, which is intended to Finance and Risk Management is also responsible ensure the completeness of the reporting basis and for the bank’s models and frameworks for risk and the consistent application of principles. capital management. The Risk Management and Audit Committee is The bank’s overriding compliance function is charged with ensuring that Sparebanken Vest has organised under Risk Management. Legal/Credit an independent and effective external and internal has overall responsibility for legal matters, and the audit function, and financial and risk reporting that managers of the various units are responsible for is in accordance with laws and regulations. It is ensuring that the business is run in accordance with also the Committee’s task to support the Board of applicable regulations. The securities business has Directors in connection with its management and its own Compliance function, as required by laws supervisory responsibility relating to capital need, and regulations. the capital adequacy target and risk profile and management and control schemes, including risk The Validation Committee, which is chaired by the management, internal control and internal audits. In Managing Director, deals with model validation and addition to reviewing accounts and risk reports, the validation relating to the application of the bank’s corporate management team carries out monthly credit systems. The Managing Director’s Credit reviews of operating reports seen in relation to the Committee deals with major commitments and budget for the banking operations, and briefs the matters of an unusual nature. Board of Directors.

All managers in Sparebanken Vest are responsible The bank’s Code of Ethics include a duty on the for managing risk and ensuring good internal control part of employees to report matters that warrant in their areas of responsibility in accordance with criticism, including breaches of internal guidelines, the bank’s adopted risk profile. laws and regulations, and a procedure for how such notification is to be given. Sparebanken Vest has established a policy for internal control (IC policy) that defines goals for Sparebanken Vest’s business is subject to the and the organisation and implementation of its supervision of the Financial Supervisory Authority work on internal control. The policy also includes of Norway. In addition to supervisory visits, the reporting on the status of the bank’s risk situation Financial Supervisory Authority reviews the bank’s and the quality of internal control, as well as follow- annual and interim accounts, management reports up of risk reduction measures. The main elements and capital adequacy assessments. The Board are the annual reviews of risk and internal control, of Directors and the management endeavour to and the registration of events and continuous risk maintain an open and constructive dialogue with the assessment. The elements are described in the Financial Supervisory Authority. bank’s risk strategy and in the IC policy, which has been considered by the bank’s Board of Directors. A more detailed description of the bank’s risk and Follow-up of identified risk areas and any material capital management is available on the bank’s deviations found in the internal control of the bank’s website.

Sparebanken Vest Annual Report 2014 Page 118 REMUNERATION OF THE BOARD OF DIRECTORS about the bank’s remuneration arrangements is also Directors’ fees are decided by the Supervisory available on the bank’s website. Board on the recommendation of the Nomination Committee. The remuneration is not performance- INFORMATION AND COMMUNICATION based, and options are not issued to members of The Board of Directors of Sparebanken Vest the Board of Directors. has adopted separate guidelines for financial information. They are intended to ensure that the As a rule, board members or companies to financial markets receive correct, relevant and which they are affiliated shall not take on specific timely information about the bank’s development assignments for the bank in addition to their office and results. Information is given to the market as board member. Any additional fees are subject through quarterly open investor presentations, stock to approval by the Supervisory Board. In urgent exchange announcements and press releases, the matters, however, the chairs of the Supervisory bank’s website and accounting reports. Board and the Nomination Committee may jointly make decisions concerning additional fees. An A financial calendar is available on the bank’s overview of the remuneration of the Board of website that, among other things, announces the Directors is provided in a note to the annual dates of quarterly presentations. The website accounts. also contains an activity calendar that includes information about elections by depositors to the REMUNERATION OF EXECUTIVE PERSONNEL ETC. bank’s Supervisory Board. The remuneration of the Managing Director and internal auditor is decided by the bank’s Board of All price-sensitive information will be made available Directors, while the remuneration of other executive and disclosed simultaneously to the securities personnel is decided by the Managing Director market/market participants, media and on the on the basis of principles adopted by the Board company’s website. Quarterly and annual reports of Directors and following consultation with the are made available in both Norwegian and English. Compensation Committee. In addition to the annual accounts, the Sparebanken The Board of Directors’ declaration on executive Vest Group prepares quarterly financial reports. The pay shall be included in a case document to the annual accounts are audited by an external auditor. Supervisory Board. The Managing Director can grant additional remuneration to employees based Regular presentations are also held for international on the results achieved and work performance. partners, lenders and investors, and the bank is Such additional remuneration is also intended to rated by two international rating agencies. Meetings ensure the bank’s attractiveness in the employment with investors and analysts should be avoided market, while at the same time not being a risk from the end of a quarter until the disclosure of driver. There are no option schemes for the the financial results. Presentations made by the Managing Director and executive personnel. corporate management team are available at www. spv.no The bank has adopted guidelines for remuneration arrangements. In accordance with the regulations TAKEOVERS and the Code of Practice for Corporate Governance, Sparebanken Vest is an independent institution that they include provisions that set a ceiling on the cannot be taken over by others through acquisition. performance-based remuneration of executive In the case of acquisitions on the bank’s part, personnel etc., and a requirement that 50 per cent emphasis is placed on satisfactorily safeguarding of such remuneration shall be paid in the form of the interests of all stakeholders. Good information equity certificates in the bank, allocated over a and equal treatment of shareholders/owners are period of three years. paramount. It is a goal that such acquisitions shall have as little negative effect as possible on day-to- Executive personnel’s pay and benefits are day operations. described in the notes to the accounts. Information

Sparebanken Vest Annual Report 2014 Page 119 FØRDE TRADITIONAL AND WORLD MUSIC FESTIVAL

Førde Traditional and World Music Festival is the biggest multicultural music event in Norway. The festival presents ethnic music from around the world, and festival goers get a chance to sample incredibly diverse music, culture and traditions. The festival offers a varied programme of concerts, courses, exhibitions, activities for children and trips. The programme aims to attract a young and inquisitive audience. Many music traditions and musicians have been presented for the first time in Norway from the festival stage in Førde. The festival also features well-known and much-loved folk music traditions. The festival places particular emphasis on showcasing young musicians and new productions. The festival was held for the first time in 1990. (Photo: Arve Ullebø)

Sparebanken Vest Annual Report 2014 Page 120 AUDITOR The relationship with the auditor is regulated in a The external auditor is elected by the Supervisory letter of assignment, which, among other things, Board. The auditor submits an annual auditor’s describes the parties’ responsibilities, how the report to the Supervisory Board and holds an annual auditor’s fee is stipulated and how other services are meeting with the Board of Directors at which the to be agreed and paid. ‘Management Letter’ is presented and commented on. The letter contains an assessment of the bank’s The external and internal auditors hold quarterly internal control, including areas in which the internal meetings with the Board’s Risk Management and control should be improved. The auditor holds an Audit Committee. If necessary, the Managing annual meeting with the Control Committee at which Director is present during the consideration of the auditor’s report is reviewed and the Board of certain matters. The minutes of the meetings of the Directors’ report and annual accounts with notes are Board’s Risk Management and Audit Committee are commented on. presented to the Board of Directors.

OVERVIEW OF GOVERNING AND CONTROL BODIES IN SPAREBANKEN VEST

GOVERNING BODIES CONTROL BODIES

SUPERVISORY BOARD EXTERNAL AUDITOR

NOMINATION CONTROL COMMITTEE COMMITTEE

BOARD OF DIRECTORS

BOARD INTERNAL AUDITOR COMMITTEES

MANAGING DIRECTOR

Sparebanken Vest Annual Report 2014 Page 121 Subsidiaries and Associated Companies

Since 2006, Sparebanken Vest has worked systematically on strategic offshoots and this has resulted in the formation of several new companies in different areas of financial services and products.

FRENDE FORSIKRING consists of the sister companies Frende Livsforsikring and Frende Skadeforsikring. The company was formed in 2007 and its head office is in Bergen. Sparebanken Vest has an ownership interest of 39,7% in the parent company Frende Holding AS. The remaining shareholding is owned by fourteen other independent savings banks. www.frende.no

NORNE SECURITIES AS was formed in 2008. It has established three business areas: online brokering, stockbroking and corporate finance. The company’s head office is in Bergen and Sparebanken Vest is the biggest owner with 47,6%. The remaining shareholding is owned by thirteen other independent savings banks. www.norne.no

BRAGE FINANS AS is a financing company that was formed in 2010. Its head office is in Bergen. In addition to Sparebanken Vest, which is the biggest owner with an ownership interest of 49.9%, Brage Finans is owned by nine other independent savings banks. The company offers customised financing products with the main emphasis on the leasing of all types of operating equipment, plus loans secured by the purchased object. www.brage.no

VERD BOLIGKREDITT AS is a housing credit company that is owned by Sparebanken Vest holding 40% and eight independent savings banks. Verd Boligkreditt became fully operational in 2010 and is licensed as a credit company with the right to issue covered bonds. The company is run by Sparebanken Vest Boligkreditt AS. www.verdboligkreditt.no

SPAREBANKEN VEST BOLIGKREDITT AS is wholly owned by Sparebanken Vest. It was formed in 2008 for the purpose of managing loans and issuing covered bonds. www.spv.no/boligkreditt

EIENDOMSMEGLER VEST is wholly owned by Sparebanken Vest and it is a leading regional player in the real estate market in Western Norway. Kyte Næringsmegling AS and Herland Eiendom are also part of the company. www.emvest.no

SPAREBANKEN VEST EIENDOMSFORVALTNING AS is a wholly owned subsidiary of Sparebanken Vest. It is responsible for realising/developing and managing/operating all of the group’s buildings and premises. Formed in 1939. Sparebanken Vest Eiendomsforvaltning AS is responsible for managing/operating all of the EIENDOMSFORVALTNING group’s rented premises including contract signing/administration, maintenance/restoration, electricity/cleaning and other operating expenses relating to the premises (around 70 locations covering a total of 45,000 m3).

The company also rents out premises to external tenants. The company has ten subsidiaries (‘single-purpose’ companies).

Sparebanken Vest Annual Report 2014 Page 122 Branch locations of 31st December 2014

Måløy

Region Selje Eid Sogn og Måløy Fjordane Stryn Nordfjordeid Florø Førde Sogndal Florø Førde

Sogndal Region Mastrevik Nord Vest Manger Hordaland Lonevåg Knarvik

Knarvik Askøy Dale Region Arna Rong Voss Hardanger/ Kleppestø Bergen Bjørkheim Midthordland/ Ågotnes Ulvik Voss Sotra Os Straume Eidfjord Skogsvåg Kinsarvik Storebø Norheimsund Odda Odda Eikelandsosen

Stord Husnes

Region Fitjar Sunnhordland / Husnes Haugalandet Bremnes Kaigaten Region Sauda Leirvik Haugesund Korskirkeallmenningen Bergen Sveio Sletten Haugesund Åsane Sæbøvik Arna Skånevik Loddefjord Etne Oasen Sauda Lagunen Sand Os Stavanger Sandnes Region Stavanger Klepp Rogaland Hinna Sola Sandnes Nærbø

Sparebanken Vest Annual Report 2014 Page 123 Kaigaten 4 | NO-5016 Bergen | Tel. 05555 | www.spv.no