POSITIONS VACANT
ANNUAL REPORT 2007 SPAREBANK 1 SR-BANK
One individual can make all the difference. A person leaves tracks. If that person is given the living and social conditions needed for growth and development, that person will be a resource in his or own right, irrespective of who or where he or she is. We already have accomplished and diligent employees. But we have room for more.
We have chosen the humans as our recurrent fi gure. Quite literally. Because we want more people to come to the region. More heads and more hands. Be it in Rogaland, in the Agder counties or in Hordaland. Our job is to facilitate a meaningful, forward moving society. We are a growing region. With a level of prosperity that is seldom to be found and that it is ethically correct and absolutely essential that we share with others. We are an open society. An inclusive society. A society with opportunities. A society where it is possible to make changes. A society characterised by diversity.
In 2008, Stavanger is a European Capital of Culture. This is the beginning of a completely new era. Because the most important part of being a Capital of Culture in 2008 is what happens in the years to come. In 2009, 2010, 2011 and 2012. At least! In promoting culture we should be able to mix business with pleasure. We believe in sustainable culture. Culture that leaves traces that are equally important in our everyday life as in times of great festivities. That is why we are one of the main sponsors of Stavanger 2008. Culture and people hand in glove. People and culture are one.
Now, there is a “Job vacancy”. Welcome to a part of Norway that gives inno- vation and creation of economic value a chance. A part of the country that is open to the world and that is ready and willing to accept all who want to contribute. Rogaland, the Agder counties and Hordaland together make up a region with power, courage and determination.
This is where we reside. This is where we live. This is what we want to share. Table of contents
Main fi gures and key fi gures 5 The CEO’s article 6 Group profi t before tax: The SpareBank 1 SR-Bank Group 8 NOK 1,256 million The fi nance group, organisational chart 11 Highlights in 2007 14 Annual report 16 The Board of Directors 26 Return on equity after tax: Human Capital 30 20.0 per cent (23.1 per cent) Corporate Market Division 34 Retail Market Division 37 Capital Markets Division 40 Social Audit 43 Subsidiaries 46 Corporate Governance 49 Net interest income: Risk and Capital Management 56 NOK 1,340 million Annual accounts 67 (NOK 1,128 million) Auditor´s report for 2007 126 Audit Committee´s Statement for 2007 126 Primary Capital Certifi cates 127 Key fi gures last 5 years 130 Overview of our offi ces 132 Net commission and other Contact information 133 income: NOK 895 million Governing bodies 134 (NOK 678 million)
Allocation to endowment fund: NOK 95 million (NOK 88 million)
Net yield on fi nancial investments: NOK 388 million (NOK 441 million) Growth in lending last 12 months: 19.8 per cent (25.7 per cent)
Growth in deposits last 12 months: 18.0 per cent (13.4 per cent) SpareBank 1 SR-Bank Page 5
Main fi gures
(NOK million) 2007 2006 2005
Net interest income 1 340 1 128 1 113 Net other operating income 1 283 1 119 925 Total operating expenses 1 357 1 178 1 012
Profi t before losses 1 266 1 069 1 026 Losses on loans and guarantees 10 -92 -70
Profi t from ordinary activities before tax 1 256 1 161 1 096
Key fi gures
2007 2006 2005
Total asset 31.12. (NOK million) 103 120 85 035 67 237 Net lending (NOK million) 87 861 77 059 61 480 Deposits from customers (NOK million) 50 214 42 547 37 530 Growth in loans (gross) including SpareBank 1 Boligkreditt 19,8% 25,7% 14% Growth in deposits 18% 13% 14%
Capital adequacy ratio 1) 10,00 10,56 11,84 Core capital ratio 1) 7,51 7,39 8,98 Net equity and subordinated loan capital 1) 6 874 6 223 5 338 Return on equity (%) 20,0 23,1 24,7 Cost percentage 51,7 52,4 49,7
No. of man-years 1 021 944 862 No. of offi ces 54 52 50
Market price at year-end 3) 66,25 68,41 83,25 Earnings per primary capital certifi cate 3) 7,85 7,78 7,75 Dividend per primary capital certifi cate 4,75 4,34 5,07 Effective yield on the primary capital certifi cate 3,19 -11,74 66,10 RISK amount as of 1.1 preceding year 1) 2) - - 1,79
Reference is made to page 129 for a complete list of key fi gures and defi nitions 1) Figures for 2006 and 2005 are calculated according to NGAAP 2) Due to an amendment in tax regulations the RISK amount has been eliminated from 2006 3) 2005 and 2006 have been restated due to the bonus issue and split carried out in 2007 CURRICULUM VITAE
NAME: Terje Vareberg TITLE: Chief Executive Offi cer RESIDENCE: Hinna FAVOURITE SPOT: Holiday cottage in Farsund LEISURE ACTIVITIES: Fishing and outdoor life
Farsund, Sørlandet
People who can, are willing to and dare
2007 was a very good year for SpareBank 1 SR-Bank group. Our customers’ satisfaction with our products and services was further reinforced, and the fi nancial results placed the bank among the best banks in Norway and the Nordic region. This gives us a good platform for further efforts that will benefi t the region.
SpareBank 1 SR-Bank’s object is to create value for the region international unrest, especially in the fi nancial markets. In our that we are a part of. We do this by further expanding our own open economy, negative trends abroad can quickly have an operations, by improving the services we offer to our clients, impact and weaken our competitive ability. In such positive and by taking part as a committed member of the local times it is particularly important to bear in mind that the foun- communities in which we operate. We are contributing to the dation on which we are to live in 10 to 20 years is being laid building of a robust and competitive region by improving our now. Many of the future jobs have not yet seen the light of day. customers’ profi tability and creating secure and profi table jobs The rapid development in technology and markets reminds for competent people in our own organisation. A society’s us of how important it is for future jobs to deliver products diversity is inextricably linked to the presence of companies and services with a high profi ciency content and with a great that nurture competence, innovation and creativity. deal of built-in ability to change. The future labour market will increasingly call for talents. This is a reminder of the The region’s vitality is closely linked to the diversity of its importance of long-term concentration on raising the level of business community. When structural changes in trade and competence in companies and on research and education. industry unilaterally result in companies’ head offi ces being relocated to another region, labour market diversity is gradually For many years, SpareBank 1 SR-Bank has been one of the reduced. Young, talented people seek a place to live and work country’s most profi table banks. But the make-up of the added that offers diversity and opportunities, and under such circum- value has radically changed over a few years in line with the stances we face the risk of these capable people leaving our changing demands and expectations of customers. We have region. SpareBank 1 SR-Bank has a very long-term goal for its been able to deal with these persistent adjustments with good operations. The group is dependent on the communities in results, partially because we recognise that competence is which we operate developing in a positive manner and having “fresh produce” that needs to be developed and renewed. qualities that make them attractive to live and to run businesses in. Much of the annual report deals with human capital in the As a savings bank we have both a fi nancial and a public benefi t organisation. This is because people are our most important objective. This implies that a signifi cant part of the added value resource. Products can always be copied, but our corporate from the group’s operations is channelled back to the local culture, our team building and ability to interact can never be communities: up to NOK 100 million per year over the last few copied. Some people call it competitive edge, but an edge of years, in the form of support for measures that are benefi cial this nature requires constant honing to the general public. These funds are used to strengthen the foundation for the region’s growth and development in the The good results in 2007 were created by employees who longer term. In this work we place a great deal of emphasis on thrive, have a high productivity level, are able to interact and mercantile expansion, culture, research and have a very low level of sick leave, only 3 per cent. Outstanding development and the context in which children results have again been achieved by people who can, are and adolescents grow up. willing to and dare.
We are now probably past the peak of the longest period of economic upswing we have seen for many years. Even though prospects for Terje Vareberg 2008 are also good, we are experiencing Chief Executive Offi cer SpareBank 1 SR-Bank Page 7 Lisbet K. Nærø Svein Ivar Førland Sveinung Hestnes Thor-Christian Haugland CFO Executive VP Executive VP Executive VP Business Support, IT Security Capital Market Communication and PR
THE GROUP The SpareBank As of 31 December 2007, SpareBank 1 SR-Bank had 1,078 employees. The group comprises SpareBank 1 SR-Bank, and the subsidiaries SpareBank 1 SR-Finans AS, EiendomsMegler 1 SR-Bank Group SR-Eiendom AS, SR-Investering AS, SR Forvaltning ASA and Vågen Eiendomsforvaltning AS.
THE BANK HISTORY The group’s market areas are Rogaland, Agder and Hordaland. On 1 October 1976, 22 savings banks in Rogaland merged to Currently, the bank has 54 branch offi ces and total assets of form the Norway’s fi rst regional savings bank, Sparebanken NOK 103 billion. The registered head offi ce is in Stavanger. Rogaland. At that time, this was the most comprehensive The customer-orientated activity is organised in three divisions merger that had been carried out among Norwegian savings – the Retail market division, the Corporate market division and banks. From the very beginning, the bank was the nation’s the Capital market division The bank provides products and second largest savings bank, with total assets of NOK 1.5 services in the fi elds of fi nancing, investments, money billion. The regional savings bank grew through active inter- transfers, pensions and life and non-life insurance. action with community and business development in Rogaland. This was in line with the bank’s roots that extend all the way RETAIL MARKET DIVISION back to 1839, when the oldest of the merged savings banks SpareBank 1 SR-Bank is the leading retail customer bank in was established in Egersund. The intention of the founders of Rogaland, with 195,516 customers. In addition to the retail the savings banks in the rural districts was to contribute to a customers the division also serves 8322 small business and positive development of the community by channelling value agricultural customers. created locally back into the local community. CORPORATE MARKET DIVISION In 1996 the bank was a co-founder of SpareBank 1 Alliance, SpareBank 1 SR-Bank has some 5700 customers in the business which is a banking and product alliance. By participating in sector and the public sector. About 40 per cent of all businesses the SpareBank 1 Alliance, the group is linked to and cooperates in the bank’s traditional market list SpareBank 1 SR-Bank as with the independent, locally anchored banks. In this way, we their main bank. In addition, there are 8322 small businesses can combine effi cient operations and economies of scale with and agricultural customers being served by the retail market the benefi t of being close to our customers and the market. In division. March 2007, the bank changed its name from Sparebanken Rogaland to SpareBank 1 SR-Bank. CAPITAL MARKET DIVISION SpareBank 1 SR-Bank established the Capital market division on 1 March 2007. The object of the Capital market division is to reinforce, further develop and establish products that generate earnings from activities other than traditional banking such as deposits and lending. The Capital market division is organised in four specialty areas: Trade/Sales/Operations, Corporate Finance, Saving/Investments and Asset Management. SpareBank 1 SR-Bank Page 9
Tore Medhus Terje Vareberg Executive VP CEO Corporate Market
EIENDOMSMEGLER 1 SR-EIENDOM AS VÅGEN EIENDOMSFORVALTNING AS EiendomsMegler 1 SR-Eiendom AS is our region’s In 2007, SpareBank 1 SR-Bank acquired Vågen market leader and the largest company in the nationwide Eiendomsforvaltning AS, which is the region’s largest commer- EiendomsMegler 1 chain. This chain is the second largest cial property manager. Management services are split into three chain of real estate agents in Norway. In 2007, the company main fi elds: business management services, technical operations sold almost 6000 properties from its 23 real estate offi ces in including caretaker services, and tenant follow-up. At year-end Rogaland, Agder and Hordaland. In addition to brokering the company was engaged in managing 48 properties with a housing, EiendomsMegler 1 SR-Eiendom AS has a separate total fl oor area of 227,000 square metres. department dealing with commercial property and project brokerage, a separate division dealing with the sale of new THE SPAREBANK 1 ALLIANCE homes in Spain and two departments dealing with sales of The purpose of the SpareBank 1 Alliance is to develop, units in housing cooperatives. procure and supply competitive fi nancial services and products and to exploit economies of scale in the form of SPAREBANK 1 SR-FINANS AS lower costs and/or higher quality, so that customers get the SpareBank 1 SR-Finans AS is Rogaland’s leading leasing best advice and the best services at competitive terms. The company with NOK 3.5 billion in total assets. At the end of member banks in the alliance work in part through common 2007, 32 people were employed by the company. Its main projects and in part through the jointly-owned holding products are leasing to trade and industry and car loans to company SpareBank 1 Gruppen AS. In addition to SpareBank 1 private customers. The leasing portfolio consists of a wide SR-Bank, SpareBank 1 Gruppen AS is owned by Sparebanken range of products and the company’s customers span Nord-Norge, Sparebanken Midt-Norge, and Sparebanken everything from self-employed people and small limited Hedmark, Samarbeidende Sparebanker AS (18 local savings companies to large conglomerates and groups. banks in Eastern Norway and North-western Norway) and the Norwegian Confederation of Trade Unions (LO) and affi liated SR-FORVALTNING ASA trade unions. SR-Forvaltning’s objective is to be a local alternative with a high level of expertise in fi nancial management. The company SpareBank 1 Gruppen AS owns all of the shares in SpareBank 1 manages portfolios for SpareBank 1 SR-Bank and SpareBank 1 Livsforsikring AS (life insurance), SpareBank 1 Skadeforsikring SR-Bank’s pension fund, and portfolios for about 3000 external AS (non-life insurance), Bank 1 Oslo AS, ODIN Forvaltning customers. The external customer base is made up of pension AS (asset management) and SpareBank 1 Medlemskort funds, public and private enterprises and affl uent private indi- (membership cards), The company also has stakes in Actor viduals. Total assets amount to approximately NOK 6.3 billion. Fordringsforvaltning AS (90 per cent) (receivables manage- The company has 11 employees. ment/collection), First Securities ASA (24.5 per cent) and SpareBank 1 Utvikling DA (17.74 per cent) (development). SR-INVESTERING AS SR-Investering AS was established on 25 November 2005 and has three employees. The company invests in private equity funds and companies with a need for capital for further growth or acquisitions. At the end of 2007, the company had invested in 33 companies and private equity funds. Arild L. Johannessen Rolf Aarsheim Frode Bø Executive VP Human Recources Executive VP Retail Market Executive VP Head of Risk Management and Compliance
THE OBJECT OF SPAREBANK 1 SR-BANK • Profi tability measured as return on equity that is among the SpareBank 1 SR-Bank’s object is to create values for the regions top third compared to other relevant listed fi nance companies that we are a part of. in the Nordic region
STRATEGY THE OBJECT CLAUSE: SpareBank 1 SR-Bank shall become a signifi cantly larger and “The object of the Savings Bank is to promote savings by broader group through strong organic growth and as a result receiving deposits from an unspecifi ed group of customers; to of innovation and strategic acquisitions. SpareBank 1 SR-Bank provide fi nancial services to the public, business community shall have the industry’s most attractive brand names and its and public sector; and to manage the funds controlled by the hallmark shall be: bank in a prudent manner in accordance with statutory rules that apply to savings banks. The savings bank can perform all • The leading fi nancial group in the region normal banking transactions and banking services in accordance with current legislation. • Highest recommendations from customers in prioritised customer groups and a high level of satisfaction among Furthermore, the savings bank can provide investment service customers who have complained within the terms of the concessions granted at any time. The savings bank can perform all normal banking transactions and • To be best at creating values together with the customer by banking services in accordance with current legislation.” satisfying the customers’ needs and prioritising resource consumption in relation to the group’s profi tability
• A clear and strong position in the savings and pension market VISION ”SPAREBANK 1 SR-BANK • An ability to attract, challenge and develop competent employees – the recommended bank“ SpareBank 1 SR-Bank Side 11
The SpareBank 1 SR-Bank group
SpareBank 1 SR-Bank
EiendomsMegler 1 SR-Forvaltning ASA SpareBank 1 SR-Forretningsservice AS SR-Eiendom AS 67% Gruppen AS 100% 100% 19,5%
SpareBank 1 SR-Investering AS SpareBank 1 Vågen SR-Finans AS 100% Boligkreditt AS Eiendomsforvaltning AS 100% 23,6% 100%
Organisational chart Supervisory board
External Auditor Audit Committee
Internal Auditor Board
CEO Terje Vareberg
Executive VP Executive VP Communication and PR Executive VP HR Corporate Market Capital Marked Thor-Christian Haugland Arild L. Johannessen Tore Medhus Sveinung Hestnes
Executive VP Executive VP Executive VP CFO Retail Market Business Support, Head of Risk Management Lisbet K. Nærø Rolf Aarsheim IT Secutiry And Compliance Svein Ivar Førland Frode Bø CURRICULUM VITAE
NAME: Hadia Tajik
TITLE AND PLACE OF WORK: Political adviser to Bjarne Håkon Hansen, Minister of Labour and Social Inclusion, with responsibility for all of the ministry’s activities. In February 2008 she was appointed political adviser to Prime Minister Jens Stoltenberg.
ORIGINALLY FROM: Bjørheimsbygd in Ryfylke.
Kielland’s statue, Stavanger MOVED TO PRESENT ABODE: Came to Stavanger in 2001 to start college. Got a job in Oslo in 2004 and now commute between Stavanger and Oslo. Hadia Tajik
“My mother and father are from Pakistan, they moved to Norway more than 30 years ago. After nine years in Stavanger they settled down in Bjørheimsbygd where I was born. I lived there for the fi rst 18 years of my life”.
AND THEN - A MOVE FROM THE COUNTRYSIDE TO WHAT DO YOU LOOK FORWARD TO MOST WHEN THE BIG CITY? YOU COME HOME? You could put it that way. My brother had already fl own the Stavanger town centre. The heart of the town. With all its life coop to read medicine in Bergen and my father had got a job in and variety, take for example Øvre Holmegaten that has gone the Stavanger region. So when I was to start at what is now the from being a boring back alley to a colourful, bubbling meeting University of Stavanger at Ullandhaug seven years ago, taking place with lots of cultural diversity. It’s brilliant! the rest of our bags and baggage and moving to Stavanger was a natural step. WHAT’S YOUR FAVOURITE PLACE IN TOWN? Kielland’s statue in the main square, Torvet. That’s because A COMPLETELY PAIN-FREE PROCESS? I admired Kielland as an author when I moved here from Well, it’s always a little sad. You leave behind your childhood Bjørheimsbygd. I felt I knew him at least. Kielland became a and lots of memories. At the time, it felt like an important sort of central point in my new life. turning point in my life. And the friendship continues. DID YOU KNOW WHAT YOU WERE GOING TO? WAS STAVANGER FAMILIAR TO YOU? Yes, I did and it was. I had taken trips to town over the years, with my family and later with friends. The petroleum capital has a strong pull on kids that age.
DID YOU SETTLE DOWN EASILY? It was astonishingly easy. When we came to Stavanger the surroundings felt so natural. The town as such and the people who live here inspire ease of mind. And it’s important to feel at home wherever you are at any given time. As Salman Rushdie put it “We don’t have roots, we have feet”. That is also important to me in my commuting situation
Pulpit Rock SpareBank 1 SR-Bank Side 13 Føniks
IRB-approval
In February, SpareBank 1 SR-Bank was one of the fi rst fi ve banks in the Nordic region to gain IRB (Internal Rating Based) approval. This approval is closely linked to the new European regulations for calculating the minimum capi- This is the drawing of our planned tal requirements for credit risk. These regula- Slagkraft “Slagkraft” is SpareBank building that was presented in tions will allow for better management of 1 SR-Bank’s largest re- September. The Forus building, the risk the banks assume and more effi cient organisation programme. towers with its 100 meters and use of capital, says Frode Bø, Executive Vice The purpose is to achieve will be the third tallest building in President, Risk Management and Compliance. even sharper focus on Norway. Half of the group’s the customer, improve 1,000 employees will be earnings and to enjoy working in Føniks. continual improvement. In 2007, we were very busy working on the new management structure, among other things.
Structure financing
Emission
NOK 548 million public pre-emptive issue NOK 36 million private placement among employees Structure fi nancing is the fi nancing of corporate Total issue NOK 584 million acquisitions, but also other types of fi nanc- Manager, FIRST securities ASA, March 2007 ing where the underlying transaction calls for complex fi nancing structures. A separate department for such operations was established in February. Structured fi nancing has, among other, helped in the refi nancing of Hitec Industries Portfolio KS. The picture shows Remora’s HiLoad DP vessel docking with a tanker.
Highlights SpareBank 1 SR-Bank Page 15
With the acquisition of Vågen Eiendoms- forvaltning AS in May we expanded the group’s services and can assume new and exciting assignments. PRO-school The group has recog- nised an increasing need for services relating to account- ing, administration and management of properties. In September, PRO-School, SpareBank 1 SR-Bank’s training school opened an arena for professional network build-up and competence gathering. Vågen Eiendomsforvaltning More than 200 managers of small and medium-sized businesses have attended the SpareBank 1 SR-Bank has established a new investment company together school already. with customers. Related to Hitec Vision Private Capital capital acquisition for We are really looking forward its fund V, SpareBank 1 SR-Bank and several of its strategic customers has to the continuation!! formed a new investment company. The only object of the company is to invest in Hitec Vision Private Equity V.
125 billion NOK in new Feeder-fond
MIFID
The Markets in Financial Markets Directive (MiFiD) came into force on November 1.The regulations state that advice given to customers on capital investments must be documented and can later be tested. MiFiD makes stringent demands on the bank.
Capital market
SR-Bank Næringsutvikling is seeking good business con- cepts. SpareBank 1 SR-Bank The group has enjoyed a tremendous has invested NOK 36 million development in its sales of savings of the endowment fund in and investment products. four regional foundations. The Capital market was established The fi rst companies received in 2007 to give customers an even seed capital from the founda- broader range in this area. The tions in December. division is lead by Sveinung Hestnes. Industrial development
Highlights Annual Report 2007
In 2007, SpareBank 1 SR-Bank group achieved a profi t before tax of NOK 1,256 million. This is NOK 95 million better than in 2006. Profi t after tax amounted to NOK 994 million, an improvement of NOK 80 million compared to 2006. The improvement is mainly due to higher net interest income and commission income. Return on equity after tax was 20.0 per cent in 2007, 3.1 percentage points lower than in 2006.The Board of Directors is very satisfi ed with the results for 2007.
The group recorded a 19.8 per cent growth in lending (includ- million to the savings bank’s reserve. To fi nance future growth ing loans transferred to SpareBank 1 Boligkreditt AS), and an the Board also proposes a private placement (share dividend) 18.0 per cent growth in deposits. Deposits in terms of gross with the primary capital certifi cate holders. lending reached 57.0 per cent at the end of the year compared to 55.0 per cent at the end of 2006. The annual accounts for SpareBank 1 SR-Bank group and the parent bank have been prepared in accordance with IFRS In 2007, net interest income totalled NOK 1,340 million, a rise regulations. of NOK 212 million compared to the preceding year. The interest margin measured as net interest income in terms of average THE NATURE OF THE OPERATIONS total assets was 1.42 per cent in 2007, a decline from 2006 The SpareBank 1 SR-Bank group comprises the parent bank, when it was 1.52 percent. SpareBank 1 SR-Bank, and the subsidiaries: SpareBank 1 SR-Finans AS, EiendomsMegler 1 SR-Eiendom AS, Net commission and other income aggregated NOK 895 million SR-Investering AS, SR-Forvaltning ASA and Vågen in 2007, up 32.0 per cent compared to 2006. In particular, Eiendomsforvaltning AS. commission income from savings and investment products contributed to the growth in income in 2007. Net yield on SpareBank 1 SR-Bank’s registered head offi ce is in Stavanger. fi nancial investments fell by NOK 53 million to NOK 388 The bank has 54 offi ces in the counties of Rogaland, Vest- million in 2007. Other income (excluding capital gains on Agder, Aust-Agder and Hordaland. The group’s primary activi- securities, dividends and income from ownership interests) ties are sales and brokering of fi nancial products and services accounted for 42.2 per cent of total income in 2007, compared as well as investments activities covered by the concessions to 40.3 per cent in 2006. given at any time and leasing and real estate brokering.
The group’s operating costs totalled NOK 1,357 million in THE GROUP’S DEVELOPMENT 2007. This is 15.2 per cent more than in the preceding year. In 2007, SpareBank 1 SR-Bank recorded good progress in the This growth in costs can primarily be attributed to recruitment, group’s business areas. The group has further cemented its salary increases and measures to raise the level of competence. position as market leader in Rogaland in the retail and the The group’s cost percentage was 51.7 in 2007 compared to corporate markets, as well as real estate brokering. At the same 52.4 in 2006. time the group reinforced its position in Agder and Hordaland. With a 29 per cent growth in lending in the Agder counties The group recorded net losses of NOK 10 million in 2007, and a 20 per cent growth in Hordaland, SpareBank 1 SR-Bank compared to net recoveries of NOK 92 million in 2006. Gross continued to glean markets shares in 2007. non-performing commitments were reduced by NOK 19 million in 2007 and at year-end totalled NOK 92 million (0.10 per cent The group’s subsidiaries and its participation in the SpareBank of gross loans). 1 Alliance have made signifi cant contributions to SpareBank 1 SR-Bank’s earnings. The level of activity and the return has The Board proposes that of the profi t available for distribution been very high in the real estate brokering company, the fi nan- in the parent company, NOK 716 million, NOK 337 million be cing company, the investment company and the asset manage- allocated to dividends (NOK 4.75 per primary capital certifi cate), ment company. NOK 63 million be allocated to the dividend equalisation reserve, NOK 95 million to the endowment fund and NOK 221 Sharper focus on cooperation and coordination between the retail market, the corporate market, the subsidiaries and the bank’s specialised departments SR-Markets, structured fi nance, cash management and insurance is an important reason for the good results in 2007. The group established a separate capital market division in 2007, including a new department for corporate fi nance activities. In the spring of 2007, SpareBank 1 SR-Bank acquired the property management company Vågen Eiendomsforvaltning AS. SpareBank 1 SR-Bank Page 17
More intense competition has resulted in a further decline in number of companies in the country are budgeting sales growth the interest margin, but pressure declined in 2007 and during in 2008 and plan further staff increases. Nevertheless, estimates the course of the year the group managed to turn the negative for 2008 indicate lower growth than in 2007. trend. The group’s high lending growth shows that there is still a great deal of activity in the group’s market areas. The Hordaland expects growth to continue as well, but expectations group has succeeded in increasing income from areas other are not as high as they were a year ago. Many of the companies than traditional interest-related products. Earnings from sales have staff vacancies because of recruitment problems, especially of savings and investment products in particular grew apace in in the building and construction fi eld and mechanical industry. 2007, but income from traditional money transfer activities also developed well. This gave the group a wider income base and Agder expects stable development in demand and production in strengthened the competitive situation in relation to further the near future. Many of the companies have reached capacity interest margin pressure. The turbulence in the international production limits and are reporting that they are experiencing fi nance markets had a limited impact on the results for 2007. diffi culties in satisfying higher demands. All trades and SpareBank 1 SR-Bank holds no credit derivatives, nor is it industries have increased the amount of labour employed, exposed to the US sub-prime market. The group has effectively although in the municipal sector this growth was moderate. implemented new risk management systems. The Board is satisfi ed with the loan portfolio quality and risk management is All in all, prospects in the group’s market areas appear good for considered to be good. 2008. The region’s ability to attract labour will be an important element in the future progress. The high rate of growth seen in The Board believes that it is important to the business com- the last few years is expected to be moderate in 2008. munity that SpareBank 1 SR-Bank, as a sound, locally-based fi nancial group, can supply the capital necessary for growth PROFITS and development in the group’s market areas. During 2007, four business development foundations were established: SR-Næringsutvikling in Dalane/Lister, Haugalandet, Southern Norway and the Stavanger region respectively. The object of the foundations is to contribute to business development that is benefi cial to society at large by providing fi nancial assistance and investments in businesses and business-promoting activities.
Profitt before tax and return on equit SpareBank 1 SR-Bank assumes a comprehensive social res- NOK milliol n y ponsibility by supporting local initiatives in the fi elds of 1 400 % 1 200 30. culture, sport and education. This is accomplished by making 0 0 1 000 active use of the bank’s endowment fund for public benefi t. In 25.0 800 2007, a total of NOK 61 million was allocated from this fund. 600 20.0 400 15.0 DEVELOPMENTS IN THE GROUP’S MARKET AREAS 200 5.0 The Norwegian economy has enjoyed a period of buoyancy - for four years now and this has resulted in a historically high activity 2003 200 4 - 2005 20060 2 level. Moderate import prices, together with higher export 007 Profit /loss before tax prices, signifi cantly increased Norway’s disposable income, Return on equity and Norwegian households saw their purchasing power rise. Companies have enjoyed better profi tability and increased investment ability. There are signs of bottlenecks in the labour market. On a national basis, unemployment is at a record low level and we must look back 30 years to fi nd similar fi gures. However, the fi nance market unrest at the end of 2007 gives grounds for expecting lower economic growth nationally and NET INTEREST INCOME regionally in the time to come. In 2007, the group had net interest and commission income of NOK 1,340 million (1.42 per cent of average total assets), which In the group’s market areas, the population is growing fastest is NOK 212 million higher than in 2006. The interest margin in Rogaland and around the major cities. In 2007, Rogaland was reduced by 10 basis points from 2006. Pressure on the recorded the highest population growth in the country, with a interest margin persisted in 2007, but, from an earnings rise of 1.7 per cent. Hordaland recorded a population growth of 0.9 per cent growth, while the corresponding fi gures for Vest-Agder and Aust-Agder were 0.8 per cent and 0.6 per cent respectively. In Rogaland, the full-time unemployment rate was 1.0% at end of 2007, and in Hordaland and the Agder coun- ties it was between 1.4% and 1.7%. Rogaland is the country’s most expansive county, based on part on the extensive petro- leum activity and the offshore supply industry. A considerable point of view, the negative impact of this was offset by a rise in NOK 231 million in 2007, strong fi nancial income contributed lending and deposit volumes and the stronger deposit margin. to good profi t developments in the life insurance company, the Furthermore, higher market interest rates generated a higher non-life company and the fund management company ODIN return on equity. Forvaltning AS. Of the net change in the value of fi nancial assets assessed at fair value in 2007, NOK 57 million refers to securities and NOK 85 million refers to gains on foreign exchange and interest rate instruments.
Other income (excluding capital gains on securities, dividends and income from ownership interests) accounted for 42.2 per cent of total income in 2007, compared to 40.3 per cent in 2006. gin e and interest mar interest incom Net % OPERATING EXPENSES 2,50 NOKNO million
3 The group’s operating expenses amounted to NOK 1,357
00 1 2,12
1 5 2.00 2,03
2 million in 2007. This is NOK 179 million (15.2 per cent) 1,76 1,
52 1,42 1,5 1.50 higher than in 2006. This rise in expenses is mainly related to 00 1 0 1.00 recruitment and the generally high level of activity. The group’s 0.50 expense to income ratio was 51.7 in 2007, compared to 52.4 500 in 2006. -
- 2 007 2003 2004 2005 2006 arging n Interest m come NOK millio Net interest in
Operating expenses NOKN m illion 1 500
1,78
1,711 % ,6
1 0 1,60 At the end of 2007 the bank had transferred NOK 5.0 billion 00 5 1,59 4 2.00 44 in housing mortgage loans to SpareBank 1 Boligkreditt AS. 1,44 Income from these loans is recorded as commission income 500 1.50 and totalled NOK 8 million in 2007. 1.00 - 2003 0.5 2004 2005 0 Operating expen 2 OTHER INCOME 006 2007 - ses N OK mi Net commission income totalled NOK 594 million in 2007, a llionio % of avera rise of NOK 158 million (36.2 per cent) compared with 2006. It ge assets was commission income from savings and investment products in particular that contributed to this improvement. In 2007, these totalled NOK 217 million, up NOK 81 million (59.6 per cent) on 2006. NOK 43 million of this increase came from the increase in the sales of property projects.
Other operating income totalled NOK 301 million in 2007, a rise Personnel expenses aggregated NOK 751 million in 2007, up of NOK 59 million (24.4 per cent) compared to 2006. The group’s 18.5 per cent on the preceding year. At the end of 2007 the real estate broking contributed earnings of NOK 275 million in group employed 1,021 man-years, an increase of 77 man-years 2007. Other income also includes gains of NOK 22 million on from the end of 2006. the sales of buildings in 2007 (NOK 19 million in 2006). Other operating expenses totalled NOK 606 million in 2007, The net yield on fi nancial investments was NOK 388 million which is NOK 62 million (11.4 per cent) higher than in 2006. in 2007, down by NOK 53 million compared to the preceding The increase is due inter alia to assignment costs relating to year. Income from ownership interests aggregated NOK 234 real estate brokering and fees paid to external consultants. million, the net change in value of fi nancial assets at fair value was NOK 142 million and dividends totalled NOK 12 million. LOSSES AND DEFAULTS In SpareBank 1 Gruppen AS, where our share of the profi t was In 2007 the group recorded net losses of NOK 10 million compared to net recoveries of NOK 92 million in 2006. The corporate market had net losses of NOK 25 million and the retail market net recoveries of NOK 15 million. Gross defaults at the end of 2007 totalled NOK 92 million, which is NOK 19 million lower than at the end of 2006 and represented 0.10 per cent of gross lending at 31 December 2007. Total write-downs amounted to NOK 229 million at the end of 2007. SpareBank 1 SR-Bank Page 19
The deposit-to-loan ratio was 57.0 per cent at year-end, a rise ts % from 55.0 per cent at 31 December 2006. defaul Gross 1.00 0.80 illioi n NOKNO m 0.60 400
0
350 7 0.4
0
7
0,87 0
300 1
0,10 0
0,37 0
0,14 0.20
0,2 250 0,21 200 - Gross len 150 ding, NOK m m retail and corporate markets 100 007 illion 50 60 000 - 4 2005 2006 2 200 lending 2003 % of gross 50 0000 85
664
defaults 90 8 53 Gross 64 40 000 56 0 48 8 3 41 8 33 3 30 000 373 264 95
1 336 21
20 696 000 36 9 222
9 28 8 15 5 10 000 171 1 19 9
- 2003 200 04 2005 2 Retail m 0060 2007 arket BALANCE SHEET Corporate ma rket As of 31 December 2007 the group had total assets amounting to NOK 103.1 billion, a rise of NOK 18.1 billion from the end of 2006.
Growth in lending was 19.8 per cent in 2007 and total lending was NOK 93.1 billion as of 31 December 2007. Retail market lending increased by NOK 7.2 billion or 14.8 per cent. This includes housing loans of approximately NOK 5.0 billion that RETAIL MARKET DIVISION were transferred to SpareBank 1 Boligkreditt AS. Lending to The retail market recorded a growth in income in 2007 of the corporate market and the public sector increased by 28.3 NOK 96 million, made up of a rise in other income of NOK per cent in 2007. The distribution between loans to the retail 106 million and a reduction in net interest income of NOK market and the corporate market/public sector was 60.2 per 10 million. Developments were particularly satisfying in the cent and 39.8 per cent respectively. savings and investment segment. As regards other income, money transfers enjoyed a positive development with higher volumes in 2007.
Growthw lendi corporate ng gro % markets wth, retail and 50,0 45,0 40,00 35,0 30,03 25,0 Deposit-to-l 20,0 44,7 oan ratio 15,0 % 10,5 11,711 7 62.0 5,0 11,911 9 16,016 0 28,328 3 61.0 - 60.0 -5,0 10,610 6 12,42,4 15,7 59.0 -0,7 14,814 58.0 200303 57.0 200 56.0 4 2005 2 55.0 Retail m 006 2007 54.0 arket 53.0 52.0 Corporate market 2003 2004 2005 2 006 2007
Total deposits were NOK 50.2 billion at the end of 2007, up 18.0 per cent from the end of the preceding year. The growth in the retail and corporate/public sector market was 11.8 per cent and 23.1 per cent respectively. The growth in lending remained relatively high toward the SpareBank 1 SR-Finans AS offers expertise and products in end of 2007 despite prices in the housing market levelling off. the fi elds of leasing and car fi nancing. In addition to the bank’s The interest margin is still under pressure as a result of tough market area in Rogaland, Agder and Hordaland, the company competition and rising money market rates. has distribution agreements with 12 banks affi liated with the SpareBank 1 Alliance (Samarbeidende Sparebanker AS). Total Capacity is still being built up and new players are entering the assets rose by 29.3 per cent in 2007 to NOK 3.5 billion. Profi t market. This will further increase competition in 2008. Even before tax was NOK 43.5 million. though the stock market unrest at the beginning of the year is expected to reduce income from savings and investments in the Management of customers’ and the bank’s securities port- shorter term, we expect the general activity in our market area folios are organised in the company SR-Forvaltning ASA. The to continue at a high level and to offer good business opportu- company manages securities for private individuals, nities in 2008 as well. companies, pension funds and the bank and its pension fund. Assets under management rose by 12 per cent in 2007, reaching CORPORATE MARKET DIVISION NOK 6.3 billion. Profi t before tax was NOK 54.4 million. The total income in the Corporate market division rose by NOK 177 million in 2007, by way of a rise in net interest income of The investment company SR-Investering AS was established NOK 141 million and a rise in other income of NOK 36 million. in December 2005. The object of the company is to contribute to long-term value added by investing in trade and industry Volume growth in both loans and deposits is still high even in the group’s market area. The company mainly invests in though the growth rate is on the decline. This refl ects the high private equity funds and companies needing capital for further market activity and the good liquidity enjoyed by the group’s growth or acquisitions. At the end of 2007, the company had corporate customers. investments and commitments totalling NOK 309 million in 33 companies and private equity funds. Profi t after tax amounted Competition has been tough in all markets and this situation is to NOK 51.6 million in 2007. expected to persist. The protracted period of strong economic expansion characterises trade and industry in the region and In 2007, SpareBank 1 SR-Bank acquired Vågen some of the trades and industries are feeling the consequences Eiendomsforvaltning AS, which is the region’s largest in the form of a shortage of resources. The portfolio quality commercial property manager. Management services are split remains good with losses and defaults at extremely low levels. into three main fi elds: business management services, technical Expectations of lower economic growth give grounds for operations including caretaker services, and tenant follow-up. reasonably assuming that the future level of loss and defaults At year-end the company was engaged in managing 48 proper- will be more normal. ties with a total fl oor area of 277,000 square metres. The value of the property portfolio is estimated at NOK 4.4 billion. Profi t SUBSIDIARIES before tax was NOK 1.5 million in 2007. Through their products and services, the subsidiaries allow the group to offer a broader range to customers and give the bank SPAREBANK 1 BOLIGKREDITT AS an enhanced earnings basis. Through interaction and joint SpareBank 1 Boligkreditt AS operates as a mortgage company marketing, the group is a total supplier of fi nancial services and under a licence issued by Kredittilsynet (The Financial products. Supervisory Authority of Norway). It is owned by savings banks that are part of the SpareBank 1 Alliance. The mortgage EiendomsMegler 1 SR-Eiendom AS is the leading real estate company was established on 18 August 2005 and has its agent in Rogaland, with a market share and market position offi ces in Stavanger. similar to that of the bank. In addition, over the last few years the company has gleaned substantial market shares in the The primary object of the mortgage company is to ensure Agder counties, especially in Lyngdal, Mandal and Kristiansand. owners stable and long-term fi nancing on competitive terms. The Act and regulations that allow mortgage companies to Together with the bank, EiendomsMegler 1 SR-Eiendom AS issue bonds with pre-emptive rights were adopted in June 2007. established a new offi ce in Bergen in 2006 and the development The mortgage company fl oated its fi rst international bond issue is in line with plans that were adopted prior to the establish- in September. At the end of the year the mortgage company ment. EiendomsMegler 1 SR-Eiendom AS is active in residen- had made loans totalling approximately NOK 14 billion, of tial and commercial real estate and project brokering and sold which about NOK 5 billion was transferred from SpareBank 1 in excess of 6,000 properties worth a total of NOK 14.3 billion SR-Bank. Volume is expected to grow sharply in 2008 as well. in 2007. Total revenues were NOK 274.5 million and the profi t At the end of 2007 the mortgage company had approximately before tax was NOK 36.8 million. NOK 1 billion in equity and SpareBank 1 SR-Bank’s ownership stake was 23.6%.
SPAREBANK 1 ALLIANCE IN 2007 The object of SpareBank 1 Alliance is to acquire and deliver competitive fi nancial services and products and to exploit economies of scale in the form of lower costs and/or higher quality, so that private individuals and companies experience local roots, expertise and a simpler everyday life. SpareBank 1 SR-Bank Page 21
The SpareBank 1 banks manage the alliance cooperation and the primary capital certifi cate holders, the customers and other development of the product companies through the jointly- groups are safeguarded. Governance of the group’s activities owned holding company SpareBank 1 Gruppen AS. SpareBank shall ensure prudent asset management and greater assurance 1 Gruppen AS is owned by SpareBank 1 SR-Bank, SpareBank 1 that the communicated goals and strategies are attained and Nord-Norge, SpareBank 1 Midt-Norge, Sparebanken Hedmark, realised. Samarbeidende Sparebanker AS (20 savings banks in Eastern and North-western Norway), and the Norwegian Confederation SpareBank 1 SR-Bank’s corporate governance principles rest on of Trade Unions (LO) and affi liated trade unions. three main pillars: openness, predictability and transparency.
SpareBank 1 Gruppen AS owns 100 per cent of the shares in The group’s prime corporate governance principles are as SpareBank 1 Livsforsikring AS, SpareBank 1 Skadeforsikring follows: AS, Bank 1 Oslo AS, ODIN Forvaltning AS, SpareBank 1 • Value creation for primary capital certifi cate holders and Medlemskort AS and Actor Fordringsforvaltning AS (90 per other stakeholders cent). It has also ownership interests in First Securities ASA • A structure that ensures goal-orientated and independent (24.5 per cent) and SpareBank 1 Utvikling DA (17.74 per cent) management and control • Systems that ensure measurability and accountability SpareBank 1 Gruppen also has administrative responsibility for • Effective risk management bank cooperation in the SpareBank 1 Alliance in which tech- • Well set-out, readily understandable and timely information nology, brands, competence, common processes/application of • Equal treatment of primary capital certifi cate holders and a best practice and procurement are key elements. The alliance balanced relationship to other interest groups is also engaged in development work through three expertise • Compliance with legislation, regulations and centres for Learning (in Tromsø), for Payments (in Trondheim) ethical standards. and for Credit models (in Stavanger). The group’s corporate governance is based on the Norwegian SpareBank 1 Gruppen has enjoyed very satisfactory develop- Code of Practice for Corporate Governance. A more detailed ment with a return that exceeds the requirements set by the description of corporate governance is found in a separate owners. section of the annual report.
ACCOUNTING PRINCIPLES RISK MANAGEMENT IN SPAREBANK 1 SR-BANK SpareBank 1 SR-Bank prepares its consolidated accounts in The group’s risk management shall support the strategic accordance with the IFRS regulations. With effect from the fi rst development and the fulfi lment of the group’s objectives. quarter of 2007, the bank’s parent company accounts can also Furthermore, risk management shall ensure fi nancial stability be presented in accordance with the IFRS regulations. Please and prudent asset management. This shall be achieved through: refer to a separate note to the accounts that deals with the implementation of IFRS in the parent bank’s accounts. • A strong organisational culture that is characterised by a high awareness of risk management As of 31 December 2007 the IFRS consolidated accounts show • A good understanding of which risks drive earnings a profi t after tax of NOK 994 million, while the IFRS parent • Striving toward an optimal application of capital within the company accounts show a profi t after tax of NOK 716 million. adopted business strategy Most of the items are treated in the same way in the parent • Avoiding unexpected isolated events that can seriously company’s accounts and the consolidated accounts, but with damage the group’s fi nancial situation one major difference. In the consolidated accounts, profi ts • Exploiting synergies and diversifi cation effects. attributable to subsidiaries and associated companies are included in accordance with the equity method. This is the The group has a moderate risk profi le. Its goal is to maintain same practice that was used earlier in both the parent company the current international rating in order to ensure ample long- and consolidated accounts in accordance with NGAAP. Use term funding from the capital markets. The size of the group’s of the equity method is, however, not permitted in the IFRS risk-adjusted capital shall be in line with this ambition. parent company accounts. Under IFRS, these ownership interests must be assessed at cost. During the course of the year The risk profi le is described in the group’s overall risk strategy dividends paid by the bank’s subsidiaries and SpareBank 1 and defi ned through target fi gures for: Gruppen have been taken to income in the parent company’s accounts. It is the parent company’s profi t at 31 December 2007 • Rating: SpareBank 1 SR-Bank is rated by the rating agencies that forms the basis for the allocation of profi t for the year. Moody’s Investors Service, Fitch Rating and DBRS. Reference is made to Note 2 to the accounts for a more detailed • Return on risk-adjusted capital: Return on risk-adjusted description of the accounting policies applied in the parent company and consolidated accounts.
CORPORATE GOVERNANCE IN SPAREBANK 1 SR-BANK Corporate governance in SpareBank 1 SR-Bank comprises the goals and paramount principles according to which the bank is managed and controlled in order to ensure that the interests of capital shall be one of the most important strategic targets in The Board reviews and adopts limits at least once a year. The the internal management of SpareBank 1 SR-Bank. This entails group has conservative limits for market risk, well within the that the different business areas are allocated capital in maximum limits set by the authorities. accordance with the estimated risk inherent in the activity and that their returns are continually monitored. Liquidity risk Liquidity risk is the risk the group bears of not being able to • Anticipated losses: Describes the losses which statistically refi nance its liabilities or not being able to fi nance growth in must be expected over a 12-month period. assets without signifi cant extra costs. Management of the bank’s • Risk-adjusted capital (fi nancial capital): Describes how much fi nancing structure is based on an overall liquidity strategy that capital the group believes it needs to cover the real risk that the is reviewed and adopted at least once a year by the Board. The group has assumed. liquidity strategy refl ects the group’s moderate risk profi le. The • Regulatory capital demands: The demands relating to capital liquidity strategy includes a contingency plan for dealing with adequacy that are established by the authorities. the liquidity situation in periods of fi nancial market unrest.
Risk strategies are adopted by the Board and are reviewed at The liquidity risk is reduced as funding is arranged from least annually or when special circumstances so indicate. The different markets, funding sources, instruments and maturity group’s risk exposure and risk development are followed up periods. at management level through period reports to senior manage- ment and the Board. The group’s most important source of funding is customer deposits. The deposit-to-loan ratio at the end of 2007 was 57.0 Credit risk per cent compared to 55.0 per cent at the end of 2006. Credit risk is defi ned as the risk of loss due to customers or other counterparties not having the ability or the will to fulfi l Despite the fi nancial market unrest, the group’s liquidity their obligations to the bank. situation at 31 December 2007 was satisfactory. The group increased its liquid assets through bonds deposited with Norges In line with the group’s high ambitions for risk manage- Bank during the year. In the spring of 2007, legislation for ment, SpareBank 1 SR-Bank has received approval from bonds with pre-emptive rights was passed. Through the Kredittilsynet (The Financial Supervisory Authority of partly-owned subsidiary SpareBank 1 Boligkreditt AS the group Norway) to use an internal rating based approach for credit risk was able to reduce its liquidity risk signifi cantly. In 2007, the with effect from 2007. For SpareBank 1 SR-Bank this means group transferred about NOK 5 billion in housing loans, and that the regulatory minimum requirement for capital adequacy this had a corresponding positive impact on liquidity. Of the for credit risk will be based on the group’s internal risk group’s total funding volume of NOK 41.5 billion at the end of assessments with effect from 2007. This makes the statutory the year, NOK 11,2 billion or 27 per cent is scheduled for minimum capital adequacy requirement more risk sensitive, so refi nancing in 2008. This is divided evenly between international that the requirement corresponds more closely to the risk and domestic funding sources. in-herent in the underlying portfolios. The effect of imple- menting the new rules will have a positive impact on capital Operational risk adequacy but the full impact will fi rst be seen in 2010. Operational risk can be defi ned as the risk of loss resulting from:
The group has a moderate credit risk profi le and is defi ned • Human error or a lack of expertise through the group’s credit strategy. The credit strategy includes • Failure of ICT systems target fi gures for risk-adjusted return, risk-adjusted capital, • Imprecise policy, strategy or routines anticipated losses and concentration risk related to industries • Crime and internal irregularities/malpractice and the size of commitments. In connection with granting and • Other internal and external causes monitoring loans, special rating and portfolio management models are used. The group’s risk profi le for operational risk is defi ned in a sepa- rate risk strategy with target fi gures for inter alia risk-adjusted The underlying credit risk in the corporate market portfolio is capital and anticipated losses. moderate, and the risk in the retail market portfolio is low. The group has reduced its operational risk further in 2007 through Market risk systematic risk analyses and the implementation of new Market risk has an impact on the results when fl uctuations in preventive measures. The group has, for example, established a the values of fi xed interest portfolios, currency portfolios and special system for reporting and following up undesired incidents. securities portfolios. Management of market risk is carried out SpareBank 1 SR-Bank uses the template method with effect by applying defi ned limits for investments in shares, bonds and from 2007 when calculating the minimum capital adequacy for for positions in the interest rate and foreign exchange markets. operational risk. The actual fi gures are reported monthly to the Board. In line with the group’s high ambitions for risk management SpareBank 1 SR-Bank took the initiative to establish an R&D project on operational risk. This is a coordinated project between SpareBank 1 Alliance, DnB NOR and the University of Stavanger. The project’s objective is to establish Norway as a major European centre for managing and measuring operational SpareBank 1 SR-Bank Page 23
risk in banking/fi nance. The project is to also develop an No new hybrid capital instruments were issued in 2007. As at operational risk management tool that can qualify as an 31 December 2007 such hybrid capital instruments accounted advanced method for calculating statutory minimum capital for 0.65 per cent of the group’s core capital and capital adequacy. adequacy requirements for operational risk. Up to 15 per cent of the core capital can be made up of such instruments. Any additional amount is included as subordi- A more detailed description of SpareBank 1 SR-Bank’s risk nated loans in the capital adequacy fi gure. management and risk exposure can be found in the notes and a separate section of the annual report. At its meeting on 25 October 2007 the Supervisory Board authorised the Board to increase the primary capital by up CAPITAL MANAGEMENT to 10 per cent. This power of attorney is valid for a period The objective of SpareBank 1 SR-Bank’s capital management is of one year from the date it is recorded in the Register of to ensure effective capital funding and capital employment as Business Enterprises. well as prudent asset management. SpareBank 1 SR-Bank shall have a purposeful process that ensures: In order to fi nance the group’s continued growth the Board proposes that the Supervisory Board, in connection with the • An effective capital funding and capital employment in year-end appropriations for 2007, effects a private placement relation to the group’s strategic targets and adopted business (dividend issue) among primary capital certifi cate holders. strategy • Competitive yields AUDITING • Adequate capital backing based on the selected risk profi le External auditor • Competitive terms, and long-term access to ordinary funding The group’s external auditor is PriceWaterhouseCoopers. in the capital markets • That the group, as a minimum, manages to maintain the Internal auditor current international ratings Internal auditing is performed by Ernst & Young. The internal • Exploitation of growth opportunities in the group’s defi ned auditing function reports to the group’s Board of Directors. market area • That no single incident can seriously damage the group’s EMPLOYEES AND WORKING ENVIRONMENT fi nancial situation At the end of 2007, the group had 1,078 employees, corresponding to 1,021 man-years. The workforce increased by 77 man-years during the year. This is due to sharper focus on customer-orientated business and a further strengthening of the group’s overall competence. The group has strengthened its competence especially in the Retail, Corporate and Capital markets divisions. acy ratio Core capital and capital adequ In 2007, the group also conducted an organisational and
%
84
32
6 ,
0 5
57 working environment survey that shows that the employees
56 2
00 00
11,
14, 12,
0
0
11,
8 8
10,
8 8
10, 1
12,00 1 have a good relationship with the company as an employer.
1
9 9
5
9,0 9
8,9 8 9 9,1 The group is staffed by employees who are sales-minded, able
10,00 7,5
7,3 7 8,08 0 and willing to adapt and who have a desire to acquire new 6,0, 0 skills. Sick-leave in 2007 was 3.0 per cent (3.3 per cent in 4,00 2006), which is considered low in the industry. A continuous 2,00 - effort is made to keep sick-leave low through participation in 2007 2003 2004 2005 2006 the Inclusive Workplace scheme and good follow-up by
Core capital Capital adequacy ratio management. adequacy ratio An active effort is being made in health, safety and the environment, including an ongoing reinforcement of the bank’s security regime. The bank did not experience any robberies in 2007. The Board considers the climate of cooperation between the group’s management, employees and elected representatives to be very good. The minimum goals for core capital adequacy and capital adequacy in 2007 were set at 7 per cent and 11 per cent Management of the group’s overall expertise respectively. As a result of the approval of the IRB approach the The group is focused on the continuous development of the capital strategy will be revised in the course of 2008. At the end expertise of all its employees and 5 per cent of the total of 2007 the group’s capital adequacy was 10.00 per cent, of which 7.51 per cent was core capital. The corresponding key fi gures for the parent bank were 10.42 per cent and 7.42 per cent respectively. No new subordinated debt was raised in 2007. In January 2008, a time-limited subordinated loan of NOK 500 million was raised. At the end of 2007 this would have improved the group’s capital adequacy by 0.73 percentage points. working hours are used for development of employees. The average salary for bank employees is NOK 418,000, with Competence is seen as an interaction between knowledge, the average salary for women and men being NOK 365,000 and skills and attitudes, and the group intends to continually raise NOK 455,000 respectively. the level of competence in all these areas. The group recruited 119 people in 2007, 70 women and 49 At the beginning of 2008, about 50 of the group’s employees men. Of newly recruited managers, 43 per cent were women were attending college courses. and 57 per cent were men.
A survey of the employees’ knowledge, skills and attitudes The number of people working reduced hours was 181, repre- was updated in 2007 and shows that the organisation’s overall senting 125.2 man-years. Of this number, 12 are men, repre- competence is increasing. senting 6.3 man-years and 169 are women, representing 118.9 man-years. In 2007, a total of approximately NOK 13 million was used in competence-building measures in addition to the hours spent. External environment The bank uses no input factors or production methods that Life phase policy have any signifi cant environmental impact. The group’s impact SpareBank 1 SR-Bank has adopted a life phase policy that is on the external environment is limited to the materials and intended, among other things, to encourage older employees to energy necessary for the group to carry on its business. A con- continue working longer. The group’s goal is to see the average tinuous effort is being made to go over to electronic commu- retirement age rise to 63 years. Individual adaptation, fl exibility nication internally and externally, which also contributes to a and health promoting measures are key measures to achieve reduction in consumption of paper. In the opinion of the Board, this goal. In 2007, the average retirement age was 62.4 years, the bank’s activities pollute the external environment only to a compared to 62.3 years in 2006. very limited extent.
Equal opportunities BANK ADVISORY COUNCILS SpareBank 1 SR-Bank attached great importance to gender SpareBank 1 SR-Bank has local bank advisory councils in all of equality and provisions are made to ensure that men and the municipalities where the bank is represented. These bank women have the same opportunities with respect to develop- advisory councils can help recognise opportunities and identify ment, pay and other benefi ts. We strive to fi nd fl exible arrange- signals regarding the bank’s activities in the local markets. ments that make it possible to combine a career and a family life. They are made up of local resource persons and act as listen- ing posts and advisers to the local offi ces in their marketing Women account for 57.3 per cent of the man-years in the bank. efforts. The bank advisory councils administer portions of the SpareBank 1 SR-Bank has a goal that 40 per cent of manage- bank’s endowment fund for public benefi t and have committed ment positions shall be held by women. At the end of 2007 themselves to ensuring that the funds are put to good use in the this was 37.9 per cent. In 2000, women held 14 per cent of the local community. group’s management positions. PRIMARY CAPITAL CERTIFICATES Group management consists of nine people, eight men and At the end of 2007 there were 11,232 registered primary capital one woman. certifi cate holders. The percentage of primary capital certifi cates held by foreigners was 9.3 per cent, while 64.7 per The following measures have been implemented in recent years cent were held by local investors in Rogaland, the Agder to promote equality: counties and Hordaland. The 20 largest certifi cate holders controlled 30.2 per cent of the primary capital certifi cates at the • Adoption of the objective of increasing the percentage of end of 2007. The bank’s own holding of its own primary capital women in management positions to 40 per cent certifi cates (treasury stock) was 294,264 at the end of 2007. • Diversity and equal of opportunity and treatment are the subjects of management development programmes and man Trading in the primary capital certifi cates in 2007 corresponded agement groups to 22.9 per cent of the outstanding primary capital certifi cates. • All vacant positions are advertised internally This was lower than in 2006, when 34.8 per cent of the out- • Schemes are available with fl exible working hours standing certifi cates were traded. Trading in 2006 included the • Participation at group management level in a working group sale of the largest ownership stake of 9.8 per cent by Swedbank to increase female representation in the fi nance industry AB to Spring Capital AS. At the end of 2007, the market price (AKR - Working group for female representation) of the bank’s primary capital certifi cates was NOK 66.3 each • Participation in FUTURA – development of future female compared to NOK 68.4 at the end of 2006. Including dividend management in the fi nance industry paid, the bank’s primary capital certifi cates generated an effective rate of return of 3.3 per cent in 2007.
As a result of the NOK 548 million pre-emptive rights issue and the NOK 36 million private placements among employees, the number of primary capital certifi cates issued rose by 3,999,131 in April 2007 to 26,613,716. In October 2007, the primary capital certifi cates were split into two and this was followed by a bonus issue where three primary capital certifi cates SpareBank 1 SR-Bank Page 25
entitled the owner to one new primary capital certifi cate. By ALLOCATION OF PROFIT/DIVIDEND way of this scrip issue, NOK 444 million was transferred from The Board proposes the following allocation of the the Premium Reserve and the Dividend Equalisation Reserve profi t for 2007: (NOK million) to Primary Capital. Subsequent to the split and the bonus issue the number of primary capital certifi cates that have been Profi t for the year 716 issued is 70,969,909. Dividend (NOK 4.75 per PCC) 337 Dividend equalisation reserve 63 Savings bank’s reserve 221 Endowment fund for public benefi t 95 Total allocations 716
PROSPECTS FOR 2008 Fundamental conditions in the Norwegian economy remain ect yield good. The growth in GDP was high yet again in 2007 but it C and dir per PC % is expected to decline somewhat in 2008. The uncertainty is
Dividend 7.5
7, 7,2 primarily caused by weak development in the US and unrest in 7.0 the fi nancial markets which creates uncertainty regarding the kr
3 6.5 world economy. 6
6.0 6,3
6.0 As we enter into 2008 it would seem that the slowdown in US 6,
5.0 6,4 6 6,1 will be more far-reaching than originally believed. Should this
4.0 5.5 6 6,2 negative growth trend persist and spread to Europe and Asia 3.0 - 2.0 with negative growth impulses, we may experience a reduction 007 1.0 2006 2 in international demand for important Norwegian goods and
- 2004 2005 ield % services. It is therefore unclear what the impact will be on the 2003 Direct y per PCC Norwegian economy in 2008. Dividend Even though Norwegian fi nancial institutions are not directly affected by the international fi nancial unrest and the declining confi dence among market players, all Norwegian players are exposed to a signifi cant rise in the risk premium when taking up new loans. This increase in funding costs will gradually be refl ected in a higher risk premium to be paid by the fi nance institutions’ customers. Earnings per primary capital certifi cate were NOK 7.9 in 2007. On the basis of the bank’s dividend policy, the Board proposes In 2007, Norges Bank raised the key policy rate by 1.75 per- that a dividend of NOK 4.75 per primary capital certifi cate be centage points to 5.25 per cent through seven interest rate paid for 2007. The dividend in 2006 was NOK 4.4. To fi nance hikes. Taking into account the fi nancial market unrest the continued growth the Board proposes a private placement estimates now indicate that the interest rate will peak at 5.5% (dividend issue) among primary capital certifi cate holders in in the spring of 2008. The increase in the interest rate level will connection with the year-end appropriations for 2007. probably result in a somewhat more subdued credit growth rate and a lower growth in investments and household demand. Resultat pr grunnfondsbevis for 2007 ble 7,9 kroner. Basert Following high increases in housing prices over the last few på bankens utbyttepolitikk foreslår styret å utbetale et utbytte years, some correction is expected in 2008. Even though the på 4,75 kroner pr grunnfondsbevis for 2007. I 2006 var utbyttet labour market is extremely tight in many trades and industries, 4,34 kroner. For å fi nansiere fortsatt vekst foreslår styret også economic prospects seem good, with expectations of good trade en rettet emisjon (utbytteemisjon) mot grunnfondsbeviseierne and industry results in 2008 as well. i forbindelse med årsoppgjørsdisposisjonen for regnskapsåret 2007. Competition in the fi nancial industry is increasing in most areas. New niche players are establishing themselves, and ENDOWMENT FUND FOR PUBLIC BENEFIT at the same time global players and existing competitors are Pursuant to the Norwegian Act on Savings Banks the bank may increasing their activities. Higher demands and expectations allocate a maximum of 25 per cent of the profi t for the year to from customers, combined with technological changes, also an endowment fund for public benefi t. The Board proposes that make tough demands on the organisation’s ability to be NOK 95 million (corresponding to 25 per cent) be allocated to innovative and to adjust. The tight labour market means that this fund for 2007. the tough competition for competent labour will continue.
GOING CONCERN The prospects and the general macroeconomic conditions, together with the measures that have been implemented and planned, provide good prospects for continued progress for the group in 2008. The annual accounts are prepared under the going concern assumption. SpareBank 1 SR-Bank will continue to be a profi table and The Board is of the opinion that the group is well positioned sound group in 2008, contributing to creation of value for and prepared to meet the challenges it will face and expects its customers, owners and local communities. Slightly slower underlying operations to perform well in 2008. growth in lending is forecast for 2008. The Board wishes to thank the group’s employees for their The Board expects that SpareBank 1 SR-Bank’s position will be efforts and contributions to the group’s 2007 result. further strengthened in 2008. Focus on new business areas and new products and services are important in order to increase The Board would also like to thank the group’s customers and other income than income from loans and deposits. Greater elected offi ceholders for the support they gave SpareBank 1 expertise and focus on the group’s subsidiaries will also SR-Bank in 2007. contribute to reinforcing the group’s position in the market. SpareBank 1 SR-Bank expects further creation of value from Stavanger, 7 February 2008 the cooperation in the SpareBank 1 Alliance, where the group The Board of Directors of SpareBank 1 SR-Bank can exploit economies of scale in brand building, technology and product development. The issuance of bonds with pre-emptive rights through SpareBank 1 Boligkreditt will have STAVANGER, 27.02.2008, THE BOARD OF DIRECTORS OF a positive effect on the group’s funding costs in 2008. SPAREBANK 1 SR-BANK
Kristian Eidesvik Gunn-Jane Håland Katrine Trovik Sally Lund-Andersen Chairman of the Board Vice Chairman of the Board Employee representative Member of the Board
Erling Øverland Einar Risa Ingrid Landråk
Sally Lund-Andersen, Employee-elected Member of the Board
Corporate employee representative in SpareBank 1 SR-Bank, born 1961 Employed by SpareBank 1 SR-Bank since 1981 Kristian Eidesvik, Chairman of the Board Member of the Executive Committee of Finansforbundet (The Finance Sector Union of Shipowner, Bømlo, born cate 1945 Norway) Coastal skipper’s certifi shing boat Owns 426 primary capital certifi 20 years of experience as a fi SpareBank 1 SR-Bank as at 31.12.2007 cates in skipper/owner. Built up and runs his own Første gang valgt: 2006 real estate and shipping company. Valgt i denne periode til: 2008 Active politician at the municipal and county level for 12 years. Chairman of the Board of Wilson ASA and of Caiano AS, and several other managerial cates in and board positions. Owns 38,765 primary capital certifi SpareBank 1 SR-Bank as at 31.12.2007 Gunn-Jane Håland, Vice Chairman of the Board rst time: 1997 Elected fi Elected for this term until: 2008 Area manager Tampen/Oseberg, Petoro AS, Stavanger, born 1963 Master’s degree in Business Administration (MBA) from the Norwegian School of Management (BI) (1994) Experience from a range of managerial positions in Sandnes Sparebank, most recently as Deputy Managing Director. cates in Owns no primary capital certifi SpareBank 1 SR-Bank as at 31.12.2007 Elected fi rst time: 2003 Elected for this term until: 2009 SpareBank 1 SR-Bank Page 27
Katrine Trovik, Member of the Board rm Wikborg, Lawyer, Partner of the law fi Rein & Co., Bergen, born 1963 MBA from Norwegian School of Economics and Business Administration, Bergen (1985), law degree from the University of Bergen (1998). Licence to practice as advocate-at-law (2001) Erfaring fra Fabin AS, DnB Finans AS, Soussjef Industri & Skipsbanken, Advokat og senere partner i Vogt & Wiig AS. Styremedlem International School of Bergen. Board member of International School of Bergen. Board member of Wilson ASA with subsidiaries, Lerøy Seafood Group ASA and catesSNF AS. in SpareBank 1 Erling Øverland, Member of the Board Owns no primary capital certifi SR-Bank as at 31.12.2007 rst time: 2006 President of the Confederation of Norwegian Enterprise Elected fi (NHO) and director of StatoilHydro ASA, born 1952 Elected for this term until: 2008 MBA from the Norwegian School of Economics and Business Administration, Bergen (1976) Experience from various management positions in Statoil 1984, including Managing Director of Statoil Norge AS, head of Distribution and Marketing business area and Executive Vice President of Finance and Accounting. Member of Statoil’s corporate management group from 1994 to 2005 Acting CEO of Statoil from March to August 2004. Chairman of the Board of Statoil Hydro’s Pension Fund, member of the Board of head of the Audit Committee of Det norske Veritas. Christiania Eiendomsselskap and Formerly Chairman of the Board of Borealis, The Federation of Norwegian Process Industries, Navion ASA, and a board member of Hafslund ASA and Sinteborn Owns 5,845 primary capital certifi Ingrid Landråk, Member of the Board SR-Bank as at 31.12.2007 Elected fi cates in SpareBank 1 rst time: 2006. Elected for this term until: 2008 Controller, Revus Energy ASA, Stavanger, born 1970 Economics/business administration – three-year programme in accounting and auditing at Rogaland University College (1989 - 92). Master of Accounting & Audit, Norwegian School of Economics and Business Administration, Bergen (1994-95). Einar Risa, Member of the Board Competence programme for board work at Stavanger University College (2003-04) Administrative leader of Rosenberg Services AS, born 1950 Experience: Pricewaterhouse (accountant), cate 1992. Cand. Mag. (bachelor’s degree) from University of Oslo Scana Industrier ASA (controller, group management) 1974. Scaffold-builder trade certifi Gilde Vest BA (CFO) cial at Rosenberg Verft (Fellesforbundet and Local union offi Statoil ASA (head of the Finance Department). the Confederation of Norwegian Trade Unions (LO)) from Owns no primary capital certifi cates in SpareBank 1 1981. Full-time union representative from 1986, SR-Bank as at 31.12.2007 fi rst as club secretary and later as club leader from 1996 Elected fi rst time: 2005 to mars 2007. Has held positions in the local trade union Elected for this term until: 2009 movement and at corporate level in Kværner and Aker Kværner. Employee-elected Boardg and member Kværner of OilMoss and Gas, Rosenberg, Kværner Rosenber Aker Kværner Rosenberg and Rosenberg Verft AS from 1998 to March 2007. Chairman of the Board of Representatives of SpareBank 1 SR-Bank from 2001 – 2006. Board member of Stavanger-regionens Næringsutvikling AS cates in SpareBank 1 (Greater Stavanger Economic Development). Owns 4,000 primary capital certifi SR-Bank as at 31.12. 2007. rst time: 2006 Elected fi Elected for this term until: 2008 CURRICULUM VITAE
NAME: Emma Hagenström
TITLE AND PLACE OF WORK: Deputy leader of the viola group in the Stavanger Symphony Orchestra.
ORIGINALLY FROM: Oskarshamn, Småland in Sweden.
MOVED TO PRESENT ABODE: Came to Stavanger for good in 2002 Stavanger Symphony Orchestra
Emma Hagenström
“The reason I came to Norway is that I won an audition for a steady job with the Stavanger Symphony Orchestra. For which I am truly grateful”.
DID YOU KNOW ANYTHING ABOUT STAVANGER WHAT DO YOU LIKE ABOUT THE LOCAL COMMUNITY BEFORE YOU MOVED HERE? THAT YOU ARE A PART OF? Yes, I spent a year here from 1998 to 1999 and got to know the I like the fact that the town is focussing on new culture, the town and what it stands for reasonably well. Before that I only year as European Cultural Capital offers many fantastic knew that Stavanger was the petroleum capital of Norway, elements. And of course I am looking forward to the day we get whatever that means. A fellow student in Oslo told me that our new Concert Hall. Food wise, I love bacalao from Ekofi sk, it was a really pleasant town with lovely surroundings, and I Saturday sausages from Idsøe, and all the wonderful sea food. agree one hundred per cent. But I must admit that it has taken The fresh shrimp are especially good – I grew up eating the me years to understand some parts of the local dialect. frozen variety from Greenland......
WAS IT EASY TO PUT DOWN ROOTS OR WERE YOU WHERE IS YOUR FAVOURITE SPOT – THE PLACE YOU ON YOUR WAY TO SOMEWHERE ELSE? LOVE BEST? I found my sweetheart here in Stavanger when I lived here in To be honest, at home at Tasta. From home I can admire the the 1990s and in addition I liked the town, so of course I was beautiful Ryfylke scenery from the breakfast table or my hoping to come back. And I was lucky! favourite chair and watch all the boats sailing toward Only three weeks after I completed my studies in Freiburg, Stavanger. Absolutely beautiful! Germany, a job cropped up and I got it.
WHAT SORTS OF ACTIVITIES ARE YOU INVOLVED IN WHEN YOU PUT DOWN YOU INSTRUMENT AT THE END OF THE DAY? I swim at Tasta Hall and I try to train at SATS several times a week. I get my spiritual sustenance (and an excellent meal) when I meet up with friends in a restaurant, and I don’t say no to a glass of wine at Bevaremegvel.
Seaward approach to Stavanger SpareBank 1 SR-Bank Side 29 Human capital
Competence and human capital. That’s what it’s all about. Because a bank is a service enterprise. With employees that are there for the customer. That means that in addition to being knowledgeable themselves they have to make others knowledgeable. Customers, colleagues and partners. This is their duty. Because behind all the big words there is one thing that counts more than anything else: The individual. The individual is and always will be the most important asset a company has. So this is an area that it will always pay off to focus on.
SpareBank 1 SR-Bank views human capital as its most impor- tant resource for achieving its strategic goals. To be able to attract, develop and keep the most competent people is critical if SpareBank 1 SR-Bank is to have a competitive edge in the customer interface and be an attractive employer. The group places a great deal of emphasis on continually raising the level of competence, and at the same time the individual employees shall be encouraged to be very aware of their own development. SpareBank 1 SR-Bank Page 31
Name: Arild L. Johannessen Title: Executive Vice President, Human Resources Residence: Stavanger Favourite spot: On the sideline at a good football match Leisure-time activity: Training Viking’s Lilliput team
Human capital
THE INDIVIDUALS WITHIN THE ORGANISATION SpareBank 1 SR-Bank’s employees shall constantly be SpareBank 1 SR-Bank has “the ability to take a long-term challenged and developed in their own and the organisation’s perspective” as part of its core values. This value is applicable best interest, so that the group always has the competence that not least in respect of the group’s employees. The annual HR is necessary for it to succeed. Employees are encouraged to report uses this as its starting point. assume responsibility for their own development, while at the same time contributing to innovation and continuous These are the key fi gures as at 31 December 2007 improvement. (31 December 2006):
Number of man-years 1,021 (944) Number of employees 1,078 (1,015) The bank's core values Turnover 7% (7%) Women in management 38% (36%) courage to speak your mind, New employees 130 (151) strength to create Left the group 78 (71) Average age 43.2 years (43.4 years) and by By being Average seniority 13.7 years (14 years) showing Average retirement age 62.4 years (62.3 years) Sick leave rate 3.0% (3.3%)
HR STRATEGY Able to view things in a Responsibility and respect The group’s HR strategy is based on the group’s object, vision long-term perspective A will and an ability and core values. These are used as a natural part of the Open and sincere to improve development of our employees and are at the same time guidelines for what is expected of individuals.
The object of SpareBank 1 SR-Bank is to “add value to the region we are a part of “. To achieve this each individual, alone COMPETENCE or together with his or her manager, must think about how SpareBank 1 SR-Bank defi nes competence as a critical success they can contribute. To contribute to added value is a must for factor for the organisation to achieve the goals that have everyone in the group. been set.
The group’s vision is to be “the recommended bank”. This Competence is the interaction between knowledge, skills and represents a level of ambition that sets the standard for the attitudes. The group’s vision, strategy, core values, laws and quality and the service that SpareBank 1 SR-Bank shall be regulations make up the framework for the development known for. The vision is a goal that must be lived up to every of competence. day through the individual employee’s interaction with customers and the manager’s ability to bring out the best of the employees’ skills. Through good management and with a good HR policy, SpareBank 1 The group’s core values are the most important guidelines for how SpareBank 1 SR-Bank’s employees shall conduct SR-Bank will attract, challenge and themselves. The core values resonate well throughout the develop competent employees also organisation and function as a good platform for internal and in the future. external conduct and communication.
Human capital group. Existing employees who can act as good ambassadors Vision in work-related and other contexts are essential for success in this work. “Being best at attracting, challenging and developing capable employees” is therefore a very important element in the group’s strategy. Strategy
SKILLS MANAGEMENT SpareBank 1 SR-Bank regards its managers as a critical success factor for the groups ability to reach its strategic KNOWLEDGE Laws and guidelinesCOMPETENCE goals and at the same time live up to the vision of being “the HOLDNINGER recommended bank”. ATTITUDES
Values In this regard, in association with the Norwegian School of Management (BI), SpareBank 1 SR-Bank has prepared a management and cultural development programme which managers and other key employees participate in. By the summer of 2007, 120 managers had completed this programme.
In the next period we will further develop managers in practical management and sales management through internal In 2008, SpareBank 1 SR-Bank spent a lot programmes. of time and resources on strengthening its combined competence. In the annual Goal CHALLENGES AND MOST IMPORTANT TASKS and development interviews the level of IN 2008 competence is measured against the re- SpareBank 1 SR-Bank recognises that the combined human quirements for all employees, so that the capital in the group is very good. By way of constant group at all times has an overview of the competence-raising and reorganisation in accordance with the most important gaps in competence that demands of customers and the authorities, the group will also need to be fi lled. Development plans are succeed in the future. prepared on the basis of these interviews to ensure and expand the employees’ future The rate of change in society and SpareBank 1 SR-Bank is competence. The three most important constantly accelerating and the group must always ensure that measures in 2007 were the strengthening of the rate of change is faster within the organisation than outside. competence by recruiting new employees, Focus on change management and the impact of changes that the re-training or re-positioning of are introduced is therefore of the essence. employees who are not regarded as having the right competence for the future and ensuring good use of the Advisor School by our RM advisors. BENTE RISHAUG (28) Every year, new employees are evaluated Works in Business support and development to ascertain if they satisfy the expectations having started in the department as a trainee the group had. In 2007, the “hit rate” was in in September 2006. Bente is an Ålesund girl excess of 80 per cent. who received her Master’s in logistics and change from Molde and thereafter set course for Stavanger and SpareBank 1 SR-Bank. To attract profi cient employees with the “My job in the bank has been challenging and right future-orientated competence, the exciting from day one. As a trainee I got a chance to try out many different areas and in that way group places great emphasis on contact with got to meet a lot of people and tackle assign- universities and colleges and gives business ments that made the days varied and educa- presentations whenever possible. Having a tional. I have the impression that the bank has extremely profi cient employees, with experi- positive reputation in the market is crucial ence that they are more than willing to share if we are to attract new employees to the with others. For me, the emphasis on culture in the region is important. I have a background in music, dance and drama, and can fully satisfy my interest in these fi elds. Culture is an impor- tant building block in any modern society. The bank’s involvement in Stavanger 2008 is there- fore in line with the group’s core values.”
Human capital SpareBank 1 SR-Bank Page 33
LINE RØRENG (35) Line works in the Public Sector department. Her background is quite exciting, something that proves that she and the bank are both open to untraditional ways of thinking. As the former day-to-day manager of Tou Scene and Folken in Stavanger, the cultural alibi is well covered. When you can mention engineering courses and Europris’ marketing department nance as closed chapters, the real competence becomes clearer, i.e. public relations, fi and management. “The road to SpareBank 1 SR-Bank went through one of the bank’s good ambassadors who couldn’t boast enough about the challenges and opportunities that were presented, ourish if I applied and who just knew that I would fl for a job. The bank’s involvement in cultural life is unambiguous and clear to see. People here (27) know what culture is and that has an impact STIG JENSEN on what we do together with our customers. nancial consultant in SpareBank Making culture part of people’s everyday life Stig is a fi shows a fantastic social commitment. And 1 SR-Bank in Kristiansand. He works for nance from the SpareBank 1 SR-Bank does just that.” the most part on investments and has a Bachelor’s degree in fi University of Wyoming in USA. He heralds originally from Stavanger. SpareBank 1 SR-Bank shall be able to rmed. “When I started in the bank last summer I attract, challenge and develop the most quickly realised that this was the right place tone in the bank is for me. And so far this has been confi talented people through good management cient mix of pleas- The atmosphere and and good HR policy. fantastic. There is a suffi antry and seriousness to make it agreeable. Southerners are bothcient mild and goodand sedate, business but nevertheless effi RECRUITMENT people. For me, as a young, new recruit it SpareBank 1 SR-Bank gives ambitious is possible to learn many things. The bank’s ne, but training scheme is impressive and I look people unique opportunities to create a forward to having many good years in the career. The basic requirement is a university group. Cultural life in Kristiansand is fi or a college education. Those who become it’s the climate that is the best. The south of Norway at its best, with all that that entails. part of the SpareBank 1 SR-Bank family get to work with others in a team, often across departmental or professional fi eld borders, so that the learning curve is sharp and the acquisition of competence is broad. Competent and knowledgeable employees represent our guarantee for the future. That ALICE NIELSEN (34) is why we ensure that those who work with Alice Nielsen is a newly appointed Senior Vice us receive constant professional and President at Rennesøy. She is originally from Sand in personal follow-up. That makes us into a Ryfylke and thus aware that the bank is a major player in all local communities. She joins the bank from the better bank, to work for and to be a customer hotel industry where she was key account manager of. And we can thus achieve our major goal for major clients at Choice Hotels’ head offi of being a signifi cant contributor to growth studied economies and business administration at the Norwegian School of Hotel Management and has and development in the society we are a completed courses in psychology as well. ce. She part of. We have tried to put it into words: Alice Nielsen took over as Senior Vice President at Become a number 1! Rennesøy on 1 January 2008. Rennesøy is a great place to be. To be Senior Vice President in a small place provides an overview and allows customer contact in a very different way than one can have at a big offi employee it is a good way to learn. With many years in sales, I have learned how ce.important I like that, it is andto have for a one- new on-one contact with customers. And we have ample opportunities for that here at Rennesøy. On the other hand, we know that the younger generation basically do their banking by computer and it is a pleasure to see that SpareBank 1 SR-Bank is at the forefront in this respect. They are, after all, our future livelihood. And the bank has shown ability and a will to adapt. After being a customer of the bank for very many years, it is great to become part of it.
Human capital Corporate market division
Creating something costs. Not always in ready cash, but that is what is often involved. In the end. The bank that I have chosen, because I am the one who chose it, must help me with my dreams. It does not matter whether I am big or small. What counts is our relationship. Reciprocity, mutuality. Respect. To be taken seriously. It all depends on that. That is why there is a need to make demands. To expect and to insist. That must be acceptable? Because if not, there are others I can turn to? Someone who will go that little step further? So that my dreams can be realised. Of course I expect to be asked critical questions and to hear some carefully reasoned counter- arguments. But I also expect to be able to present my own arguments and to be met with openness. That makes objections easier to accept. And the future starts in the good discussion. The good and the constructive. And that is the type of dialogue I want to have with my bank. SpareBank 1 SR-Bank Page 35
Name: Tore Medhus Title: Executive Vice President Corporate market division Residence: Hafrsfjord Favourite spot: Holiday cottagee at Donsen in Sirdal Leisure-time activity:Outdoor life, preferably on skis
Corporate market division
2007 WAS CHARACTERISED • High level of activity and great demand for our products and services • Good growth and a strengthening of our market position in NumberNumber of customers:c 5 716 all market areas GroGrowth in lending: 29,7% • Successful focus on Agder and Hordaland Growth in deposits: 22,8% • Positive trends in customer satisfaction Gross lending (NOK million): 30 946 • The high degree of job satisfaction among the employees in the division and the recruitment of 20 new man-years Deposits (NOK million): 23 366 • The establishment of a separate department for Structured fi nancing and the implementation of a range of regionally based transactions • Stronger marketing efforts in Rogaland through the establishment of a new region CM South Rogaland Agder. The number of corporate customers has risen to just • Further development of the PRO concept by establishing the over 500 since the bank started its operations in full in the PRO School with over 200 participants from all our autumn of 2002. As of 31 December 2007, the bank had a loan market areas portfolio of slightly more than NOK 3.2 billion in the Agder counties. SpareBank 1 SR-Bank opened an offi ce in Bergen in WE CREATE VALUES LOCALLY 2006. This has made us more accessible to corporate customers The Corporate market division serves customers from in Hordaland and on this basis the bank is launching an Hordaland in the north to Aust-Agder in the south. The offensive market drive in Hordaland. The number of division is represented in the market through fi ve regional customers are growing, and 13 man-years are in place in corporate market departments and the group’s 54 branch Bergen, 8 man-years dedicated to fi nancing, 3 man-years offi ces. In addition, customers are served via our website dealing with pension/insurance and 2 man-years engaged in (www.sr-bank.no) and by our corporate callcentre (telephone leasing. Lending grew by more than NOK 950 million in 2007 no. 02008). SpareBank 1 SR-Bank has a business relationship and the lending volume in Hordaland now exceeds with almost 13,000 corporate customers, including the NOK 1.3 billion. SMB segment. The Corporate market division has recorded growth in all EMPLOYEES customer segments and it established customer relationships The Corporate market division employs 161 man-years. This with almost 900 new corporate customers (net) in 2007. Much includes 23 employees in SpareBank 1 SR-Finans AS and seven of this growth relates to large customers and several of the employees associated with the sale of commercial real estate region’s listed companies have selected SpareBank 1 SR-Bank in EiendomsMegler 1 SR-Eiendom AS. In 2007, the Corporate as their main bank. market division recruited 20 new employees , all of whom are engaged in customer services.
CUSTOMERS AND MARKETS Total lending grew approximately 30 per cent in 2007. This strong growth is a result of the high level of activity in the business community in the region. The growth continued in
Corporate market division Of the bank’s existing customers, small companies in need of developed broad competence in various investment alternatives traditional and standardised fi nancial products and services for our customers. In this connection we cooperate very closely represent a large share. A decision has been made to give atten- with our asset management company, SR-Forvaltning ASA. tion to this segment and SpareBank 1 SR-Bank has increased its focus on product development and on the allocation of We provide commercial real estate and project brokerage resources to local offi ces in close vicinity to where the through our wholly-owned subsidiary EiendomsMegler customers run their businesses. In 2007, SpareBank 1 SR-Bank 1 SR-Eiendom AS. This company is the market leader in further developed the market concept, PRO, for small and Rogaland. Leasing and special fi nancing is offered to our cus- medium-size businesses. So far, PRO - “Because working tomers through SpareBank 1 SR-Finans AS. time is money” has been a great success and more than 1,300 customers are now being served via this concept. This number CREDIT RISK TRENDS has risen by almost 1,000 during the course of the year. In addi- The group has developed and actively makes use of tion, PRO School has been established and implemented in our state-of-the-art risk classifi cation systems, risk pricing models entire market area with more than 200 participants. and portfolio management systems to manage the risk inherent in the loan portfolio. In conjunction with the credit Focus on various market activities was strengthened during review routines, these establish clear requirements for credit the year. Three editions of the magazine “Tett på Næringslivet” review processes and risk assessments. (Close to the business community) were published and distributed to more than 16,000 companies. Tett på The share of loans in the high risk category was again kept at Næringslivet is a magazine that focuses on SpareBank 1 a low level in 2007. This portion of the portfolio accounted SR-Bank as a total supplier of fi nancial services. for 5.9 per cent in 2007 compared to 4.9 per cent in 2006. The bank focuses especially on customers in the low and medium The bank’s concentration on industry-specifi c expertise has risk categories and there has been a signifi cant increase in been spread among customers through several professional lending volume in these risk classes. seminars from Bergen in the north to Kristiansand in the south. A total of fi ve Building & Property seminars and fi ve Retail The Corporate market division recorded net losses of Trading seminars have been held, and at the latter the Retail NOK 25 million in 2007. Gross defaults at year-end represented Trading Report was also presented. 0.12 per cent of gross lending. This is lower than at the same time last year when gross defaults represented 0.19 per cent of As in previous years the bank has published Economic gross lending. Barometers for Rogaland and Agder. This is done in col- laboration with the county administrations, the Norwegian PROSPECTS FOR 2008 Confederation of Trade Unions (LO), the Confederation of The bank expects a healthy corporate market in 2008 as well. Norwegian Enterprise (NHO), the Norwegian Labour and Business and industry continue to show signs of a high level of Welfare Organisation (NAV), Greater Stavanger Economic activity. For many companies the shortage of qualifi ed labour Development and Innovation Norway. will be a major challenge yet again this year.
PRODUCTS AND SERVICES In 2007, the Corporate marketing division established a special department for Structured fi nancing. A high level of expertise in the segment, innovative products and structured solutions are necessary if we are to assert ourselves. The department has participated in the fi nancing of several major transactions in connection acquisitions/restructuring of local enterprises in 2007.
Our long history has given us a good understanding of our customers’ diversed fi nancial solutions. We have recently also
Sirdal
Corporate market division SpareBank 1 SR-Bank Side 37
Retail market division
As the name indicates, Retail market division is consumer oriented. We, some 200,000 individual and very different people and personalities have said yes to being a SpareBank 1 SR-Bank customer. We are what count.
The challenge, of course, is to see every single one of us for what we are. Individual human beings. Not just an account number. The banks job is to enable me to get the best and the maximum value out of my money, irrespective of what I spend it on. There is an obligation to support me when I need more know-how and expertise with regard to managing my funds. Whether I’m in the red or have a positive balance. That’s what good and unfailing relationships are for! Name: Rolf Aarsheim Title: Executive Vice President Retail market division Recidence: Rennesøy shing- Favourite spot: On a fi boat on the Mastrafjorden
Retail market division
2007 WAS CHARACTERISED BY: • Good overall development in earnings. The division had good profi tability with a risk-adjusted return of 19.8 per cent after tax (21.5per cent in 2006) • Systematic work on the current customer portfolio based on Number of customers with SpareBank 1 the group’s total range of services, in order to ensure SR-Bank as their main bank: 195,516 customers the best advice and product coverage. Other Number of agricultural customers: 2,774 income rose as a result of this by NOK 106.7 million or Number of small and medium-sized 31.7 per cent compared to 2006. Income from the savings and businesses: 5,537 investment segment rose from NOK 64 million in 2006 to Number of clubs and associations: 2,588 NOK 103 million in 2007 (62.5 per cent) Number of customers with saving • Heavy pressure on interest margins as a result of the programmes or plans: 34,000 continuos capacity building in the industry and a increasing Number of customers with investments in interest rate curve ODIN funds: 48,860 • Further expansion of the branch network with, inter alia, new Number of customers with non-life insurance policies: 61,335 offi ces in Farsund and Åkra and initial planning of new Lending (NOK million): 56,979 offi ces in Hordaland Deposits (NOK million): 25,540 • New credit card sales efforts and a new agreement with Off-balance sheet savings investments Entercard resulting in approximately 20,000 more credit (NOK million): 12,134 cards (net) in 2007 compared to the end of 2006
WE CREATE VALUE LOCALLY SpareBank 1 SR-Bank creates value for its customers by providing professional advice from 54 offi ces. Internet banking, the callcentre, telephone banking, and gradually also mobile CUSTOMERS AND THE MARKET services function together with the local branch offi ce and give Growth in lending was 14.2 per cent, the strongest growth our customers a feeling of closeness and high degree being seen in Agder and Hordaland. Higher interest rates and of accessibility. the results of long-term rises in housing prices seem to have dampened growth somewhat, even though it remains at a fairly EMPLOYEES high level. During the year, Norges Bank raised its key interest The Retail market division employs 469 man-years. In addition, rate from 3.3 per cent to 5.25 per cent through seven interest we have employees in Eiendomsmegler 1 SR-Eiendom AS. The rate hikes of 0.25 per cent and this caused further pressure on division recruited 59 new employees in 2007. All are engaged the interest margin. in customer-orientated positions. Women in managerial positions account for 36.7 percent. Good sales of off-balance savings products and a deposit growth of 10.8 per cent are satisfactory seen in light of the low interest rate level.
AGRICULTURE In 2007, agricultural activity in our part of the country was high and investments substantial, especially in Jæren. Last year, the market situation for agricultural products developed better than expected.
Retail market division SpareBank 1 SR-Bank Page 39
During the year the bank organised its agriculturally related Income from cash management rose by 19.7 per cent, especially work in a separate expert team to ensure sharp focus on this as a result of income relating to the sale of credit cards. The important and demanding segment. With effect from the end of trend toward using self-service and low-priced electronic 2007, SpareBank 1 SR-Bank also offers agricultural services will, however, continue. Loyalty/benefi t concepts for customers non-life insurance cover, thus supplementing the the retail market have therefore been revised and will be range of products available to this industry. relaunched early in 2008. Insurance income rose by 6.7 per cent or NOK 5 million. The development in the non-life SMB MARKET insurance segment is still characterised by strong pressure on A total of 5,537 small businesses have a relationship with prices. Income relating to the sale of life insurance rose by the Retail market division through local branch offi ces. 14.9 per cent from 2006 to 2007. Commitments are distinguished by the fact that the businesses are organised as sole proprietorships, with a low level of DEVELOPMENTS IN THE CREDIT AREA complexity and risk, seen from the bank’s perspective. If the Gross defaults as a percentage of total lending have been at a nature of a business changes it is transferred to the Corporate stable, low level throughout the year, and in December it was market division, which offers specialised competence. 0.4 percent. This is thanks to extremely low unemployment, a good housing market and close customer follow-up. We recorded net recoveries on loans and the quality of the loan portfolio is good.
SpareBank 1 Boligkreditt AS is now used as a source of cheaper funding for secure housing loans. At the end of 2007, SpareBank 1 SR-Bank had transferred approximately NOK 5 billion to SpareBank 1 Boligkreditt AS.
PROSPECTS FOR 2008 The households’ fi nancial status and their belief in the future are good. Unemployment is at a record low level and this is expected to persist in 2008. Signals that interest rates are reaching their peak, combined with historic low unemployment and prospects of a favourable wage settlement result in Norwegian households staying optimistic. Unrest in the international fi nancial markets, together with a decline in and levelling off of housing prices, can nevertheless have an impact on the will to Mastrafjorden take up new loans and on behaviour in the savings market.
The Retail market division is well prepared for increased competition and is expected to continue to perform well in 2008.
PRODUCTS AND SERVICES The group’s total range of fi nancial services shall cover the customers’ needs during the different phases of life. To meet the expectations of youths and young adults, work on a further development of the bank’s communication and distribution concept aimed at the younger generation was further developed in 2007. Among other things this resulted in a new website: “sjef.no” in January 2008. The bank’s multi-channel concept has thus been taken one stage further.
Retail market division Capital market division
Once there was a radio programme called “Share prices from Oslo Børs”. It was relatively clear cut and stable. That is no longer the case. Especially not at present, with stock markets and markets undergoing change – every single day! Prior to 2007, hardly a soul outside of fi nancial circles had heard the word “subprime”. But it became so common last year that, according to the media, it beat even the word facebook in the US Word of the Year competition. In turbulent periods it is more important than ever to have an understanding of how the markets work. Knowledge is a prerequisite for all good counselling, where a long-term view and ethical values are fundamental factors. SpareBank 1 SR-Bank Page 41
Name: Sveinung Hestnes Title: Executive Vice President, Capital market division Residence: Vardeneset Favourite spot: Sogndalsstrand Leisure-time activity: In the boat house at home at Vardeneset
Capital market division
The purpose and object of the establishment of the Capital market division on 1 March 2007 was to strengthen, further develop and establish products and services that generate income from areas other than traditional banking such as deposits and loans. This is often referred to as “other income”. s VACANT POSITIONS The establishment made use of existing expertise and gradually ss EMPLOYEES new competence will be built into this new division, which s ./+ BILLION UNDER MANAGEMENT supports and complements the Retail market division and the s 3TILL IN A BUILD UP PHASE Corporate market division. s #LARIFICATION OF INVESTMENT FIRM
Currently, the division has 55 employees and 10 vacant positions. In a challenging labour market this is a tough process but we aim at being fully staffed before the end of 2008.
In 2007, activities were mainly concentrated on the intro- “The recommended provider of capital market duction of the new regulations governing investment fi rms services and products” (Markets in Financial Instruments Directive), product develop- ment, including the establishment and sale of property syndicates BUSINESS CONDITIONS AND MARKET TRENDS and PE funds, and general activities in the entire market Today’s fi nancial and capital markets are characterised by a segment. The Capital market division has NOK 12.6 billion high rate of change. A series of prosperous years for the under management and our operations and activities support business community has given companies and owners more all of the group’s 200,000 customers. scope to manoeuvre. As a result, there seems to be more activity in the fi eld of mergers and acquisitions, an increase in In 2007, the division’s total profi t was approximately NOK 250 the number and size of new issues, and a rise in the number of million. stock exchange listings. Simultaneously, we have seen a growth in the number of “restructuring players” such as private equity funds and other investment fi rms. In addition, the number of PURPOSE, VISION AND BASIC VALUES affl uent individuals who have not structured their activities The purpose of the Capital market division is to build up and through investment companies is growing. strengthen the group’s opportunities and results: The growth in investment capital combined with persistent relatively low interest rates push in the same direction. New “The objective is to build Western Norway’s customers are engaging in the investment area. These customers increasingly seek new products in various competence centre for capital market products investment classes, such as property, interest and, of late, and services” private equity that so far have been reserved for institutional and professional players. The group’s vision “The recommended bank” represents an ambitions level that puts us into an attacking position. Even though the bank has a signifi cant number of customers in Rogaland, there is a large potential in the entire market area seen as whole. This applies also to the “old” market area, where the group has markedly lower market shares in several product areas than its customer share would indicate. The vision for the Capital market division is therefore: Capital market division This situation means that there are attractive opportunities pension fund, and portfolios belonging to external customers. for banks and other fi nancial entities, Norwegian and foreign. Vågen Eiendom AS was acquired in 2007. This company As a result, new players have constantly been entering the manages properties, for the most part in the Stavanger area. Norwegian capital market over the last few years. FUTURE PROSPECTS ORGANISATION For an operation that is basedon employingcapital in the The Capital market division is organised in four areas southwest of Norway, we envisage that the immediate future, of expertise: especially 2008, will be characterised by further expansion and growth, but also by more uncertainty than in previous years. • Trade/Sales/Operations The counties in which the group operates are amongst the • Corporate Finance country’s most expansive. If companies in Rogaland can realise • Savings and investments their plans for further staff enlargements, we will see about • Management 11,000 new jobs in 2008 in the private sector. Investments in the petroleum sector will probably exceed NOK 100 billion in The fi rst two areas, Trade/Sales/Operations and Corporate 2008. Demand for goods, employees and capital will therefore Finance make up the group’s investment fi rm called be high in the year to come. Access to and the price of capital SpareBank 1 SR-Markets. is affected by the fi nancial unrest in the international market. At the beginning of the year we have seen that the world’s stock Companies that provide investment services, including invest- markets are nervous and access to and the price of capital has ment advice and reception and transmission, on behalf of been subject to change. There are therefore grounds to believe clients, of orders in relation to one or more fi nancial that 2008 will be an uneasy year. instruments must have a licence from Kredittilsynet (The Financial Supervisory Authority of Norway) to engage in these 2008 can be a year when, despite good economy including full services. This work must be clearly divorced from the group’s employment and good company profi ts, private persons and other activities. companies alike will be prudent when it comes to consumption and new investments. The Savings and investment area is responsible for analysis and procurement of the savings and investment products that the group offers. The products are supplied by SpareBank 1 Gruppen AS, the group’s own subsidiaries and external suppliers.
The Management area consists of the following companies: SR-Investering AS, SpareBank 1 SR-Forvaltning ASA and Vågen Eiendomsforvaltning AS.
The object of SR-Investering AS is to contribute to long-term added value through investments in trade and industry in the group’s market area. The company invests mainly in private equity funds and companies that have a need for capital for further growth or acquisitions.
SpareBank 1 SR-Forvaltning is an investment fi rm operating under a licence to engage in asset management. The company manages portfolios for SpareBank 1 SR-Bank, the group’s
Self-built boat, Vardeneset
Capital market division SpareBank 1 SR-Bank Page 43
To create values. Of course a bank shall create values. It’s in the name. Bank. Money. But values are so much more than money. Values are people, social engagement, paving the way, networks and ripple effects. And that is what SpareBank 1 SR-Bank does. Showing a will and an ability to grow and to develop. Not just for itself. But also for the communities that the bank is a part of. All the time. Even though much of it deals with money. In the end...
Social Audit Name: Thor-Christian Haugland Title: Executive Vice President, Communication and Public Relations Residence: Stavanger Favourite spot: A beautiful autumn day on the banks of Suldalslågen or Bjerkreim River Leisure-time activity: Squash and experiencing the beauty of nature
Where there is a will there is growth
SpareBank 1 SR-Bank creates signifi cant added values through WE UTILISE THE LOCAL BUSINESS COMMUNITY its activities. In 2007 we created quantifi able values worth In addition to the direct creation of values, the group’s approximately NOK 2 billion, a rise of as much as NOK 300 operations also have ripple effects because of our need of million compared to 2006. goods and services from the local business community. In 2007, SpareBank 1 SR-Bank purchased goods and services of • Approximately 670 million (34 per cent) was transferred back varying types for more than NOK 660 million. In addition to to society via the direct and indirect taxes paid by the being a large-scale consumer of IT services, the group spends company and its employees, and through endowments substantial amounts on communication (telephony, postage and benefi ting the public at large. freight) and marketing – both in terms of services and material. • Approximately NOK 640 million (32 per cent) went to the employees in the form of net pay, pensions and The large number of buildings we have in the group’s catch- other remunerations. ment area need to be maintained, which means work for • Approximately NOK 400 million (20 per cent) went to our craftsmen of all types. To the extent possible, we make use of primary capital certifi cate holders in the form of cash local suppliers of goods and services, so long as these are dividends and allocations to the dividend equalisation fund. considered competitive. The desire to use local businesses • Approximately NOK 280 million (14 per cent) was retained implies that the majority of the goods and services that we by the group too support ffurtherur growth in our market area. demand are supplied by local companies.
OUR ACTIVITY IS IMPORTANT TO SOCIETY SSpareBank 1 SR-Bank is one of Rogaland’s biggest taxpayers. AApproximately NOK 250 million of last year’s profi t devolves oon society in the form of taxes. These funds are channelled iin accordance with a parliamentary resolution to the central aauthorities. Thereafter, the Government distributes the funds Group 14% aamong a range of socially benefi cial purposes. The purposes Owners 20% that we help fi nance are dependent on the decisions made by our elected politicians.
In addition to income tax, the group also pays signifi cant amounts in indirect tax and duties, mainly employer’s social security contributions and value added tax. All in all these amount to approximately NOK 143 million. Employees 32% Society 34% “FORESTATION” IS IMPORTANT FOR COMING GENERATIONS SpareBank 1 SR-Bank has earmarked NOK 95 million of the profi t for 2007 for public benefi t. This is the maximum we can allocate under current regulations. In total, SpareBank 1 SR-Bank has allocated more than NOK 365 million to public
Social Audit SpareBank 1 SR-Bank Page 45
endowments over the last fi ve years. These are funds that will If we are to achieve this, we must be able to grow in line with benefi t us all, directly or indirectly. The span is wide, from the expansion of the local communities we serve. pure humanitarian support and non-profi t organisations to civil NOK 284 million of the profi t has therefore been allocated to society building on a large scale. Examples of awards in 2007 ensure that the Group has the necessary capacity for growth. include NOK 4 million to the excavation of Harald I’s (Harald Hairfair, ca 850 – 933 A.D.) royal estate at Avaldsnes and NOK 1.5 million that was given to build a bridge for the river promenade in Flekkefjord. All in all, the group gave almost NOK 70 million to various socially useful projects in 2007.
A great number of local associations and groups receive a smaller or larger amount annually to enable them to maintain their activity levels. Such support is important because it contributes to diversity in organisational and cultural life. In 2007 the group contributed some NOK 20 million to organi- sational and cultural life by way of sponsorships and support advertisements. Such payments are charged to the group’s current activities and are in addition to the allocations and awards made via the endowment fund.
JOBS Some 1,078 people work for SpareBank 1 SR-Bank. They received a total of NOK 644 million in pay, pensions and other remunerations in 2007. The group is one of the largest employers in the district and is places great emphasis on being Suldalslågen an attractive employer that attracts knowledgeable and capable people. Our presence as a large locally-based fi nancial institution contributes to the diversity of trade and industry that is necessary if our district is to continue to be a good and attractive place to live.
Employees paid a total of NOK 185 million in income tax in 2007. These taxes are in addition to the NOK 249 million paid by the group, and they contribute in turn to the maintenance of a well-developed public service section in the region.
IT IS IMPORTANT THAT WE GIVE OUR OWNERS A GOOD RETURN A very large part of the equity that SpareBank 1 SR-Bank needs to run its business comes from the issuance of primary capital certifi cates. More than 60 per cent of this primary capital is owned by individuals, companies and institutions in Rogaland, Agder and Hordaland. Offering a competitive return is important if owning such certifi cates is to be attractive. This The mountain and the fjord calls for the continual return of good results. Results that increase the value of the primary capital certifi cate, and allow for the distribution of a competitive dividend in the form of cash, and in the form of allocations to the dividend equalisation fund will ensure a competitive cash dividend also in periods when results are weak. In 2007, a total of NOK 400 million was allocated to the primary capital certifi cate holders, of which NOK 337 million was cash dividend and NOK 63 million was allocated to the dividend equalisation fund.
WE ARE THERE, WHERE THERE IS A WILL AND AN ABILITY TO GROW Through its operations, SpareBank 1 SR-Bank shall contribute to continued growth and development in Rogaland, Agder and now also in Hordaland. We shall be a group with a local presence and the will and ability to assume our share of the responsibility for making Rogaland, Agder and Hordaland into dynamic regions where it is good to live and good to reside.
Social Audit EIENDOMSMEGLER 1 SR-EIENDOM AS EMPLOYEES The company increased its staff by 15 per cent in 2007. On average we had 142.5 fulltime equivalents working to ensure that private individuals and companies got what they wanted and what they needed. A good working environment and job satisfaction are the key to success, as is refl ected in the sick- leave statistics, which at 1.05 per cent is extremely low. Number of homes sold 2004 – 2007
There is good balance between women and men in manage- 6 000 ment, with 46 per cent females. 45 per cent of our employees 5 000 are qualifi ed real estate brokers – a high ratio in our line of 4 000 work, and a clear indication of the emphasis we place on relevant know-how and competence. Management was 3 000 strengthened by appointing both a sales manager and a quality 2 000 controltrol mamanager.n 1 000 0 2004 2005 2006 2007
SoldSold in 22007:007: 5951 properties worth an aggregate NOK 14.3 billion Total revenue: NOK 274.5 million Profit before tax: NOK 36.8 million – a rise of 20.2%
Throughout the year we have strengthened our market position in brokering of re-sale homes, new build projects and commercial properties. We are represented from Grimstad to Bergen through 23 offi ces. We have a very strong and leading market position CUSTOMERS AND MARKET in Rogaland. Business is well under way in Bergen, and the EiendomsMegler 1 SR-Eiendom AS’s operations bring it into company’s offi ce has gained a good footing in the market for direct contact with some 12,000 families that buy and sell a new apartment projects. home every year. Each and every one of those is important to us. These deals probably affect a total of almost Development is also good in the Agder counties, and in some 50,000 individuals. local markets EiendomsMegler 1 SR-Eiendom AS has already become the leading player. The company is the leading player in brokering holiday homes in Rogaland and Vest-Agder. EiendomsMegler 1 also brokers a signifi cant number of holiday homes in Spain.
EXPECTATIONS FOR 2008 Prospects for 2008 are good. Much of the market area is characterised by expansion. Demand for new labour is high, income trends are good and we have a young population with a Subsidiaries SpareBank 1 SR-Bank Page 47
prospects in the private equity area more uncertain in the future than they were in 2007 and may have an impact on the value of unlisted companies as well. SR-Investering AS is still in the investment phase, and some years will pass before we can begin to reap the rewards of today’s investments. Nevertheless, the company expects a satisfactory result in 2008, Sales value of homes sold although it will probably not be at the same level as in 2007. 2004 – 2007 Together with the SpareBank 1 Group, SR-Investing AS is well NOK billion 16 equipped to exploit the opportunities and meet the challenges 14 it will encounter in 2008. 12 10 8 SR-FORVALTNING ASA 6 SR-Forvaltning ASA is a securities fi rm licensed to engage 4 in asset management. The company’s object is to be a local, 2 highly competent alternative in the fi eld of fi nancial 0 2004 2005 2006 2007 asset management.
SR-Forvaltning manages portfolios for SpareBank 1 SR-Bank and SpareBank 1 SR-Bank’s pension fund, as well as portfolios for about 3000 external customers. The external customer base comprises pension funds, public and private enterprises and affl uent private individuals. higher than average mobility. This means that EiendomsMegler Profi t before tax in 2007 was NOK 54.4 million. Total assets 1 SR-Eiendom expects the housing market to be characterised were NOK 6.3 billion at 31 December 2007, of which NOK 1 by a high level of activity, and prices to develop positively. billion was under management for SpareBank 1 SR-Bank and The commercial property market, both sales and rentals, is SpareBank 1 SR-Bank’s pension fund. External assets under very good and this is expected to continue. We believe that the management grew by approximately NOK 700 million in 2007. company will continue to grow in 2008 and that this will be SR-Forvaltning’s operations are based on a conservative phi- accelerated by the establishment of new offi ces, including one losophy and a long-term perspective. in Bergen. A range of different portfolio models form the basis for the structure and adaptation of the management of the individual SR-INVESTERING AS investor’s assets under management. The management concept The object of the company is to contribute to long-term added is based on exploiting different investment alternatives in value through investments in trade and industry in the group’s combinations that contribute to higher yields and a reduction market area. SR-Investering AS is a wholly-owned subsidiary in risk. The goal is to deliver good risk-adjusted results to the of SpareBank 1 SR-Bank and was established on 25 November individual investor. A new Securities Trading Act came into 2005. The company became part of the Capital market division effect on 1 November 2007. The new regulations in the Act in 2007. At the end of 2007 the company had made 33 invest- generally make more stringent demands on documentation of ments, including commitments, totalling NOK 309 million. At 31 the processes relating to management and investment coun- December 2007 profi t after tax amounted to NOK 51.6 million. selling. During the course of 2007 the company has adjusted internal routines and processes to satisfy the new requirements. SR-Investering AS receives ample investment requests and The company recruited two new employees in 2007 and at has built up a good network with other circles in the region. year-end has a staff of 11 people. Network building and cooperation with other players, internal and external, has been of great importance to the company’s In 2007, existing and new customers invested more than NOK good results in 2007. Experience from 2007 proves that internal 1.1 billion in new funds in SR-Forvaltning’s investment cooperation with the Capital market division and Corporate solutions. During the year customers withdrew almost NOK market division generates good synergies for the group. 700 million from management. The net infl ow of assets from The company invests in both private equity funds and directly customers was just over NOK 400 million. in companies that are in need of capital and competence for further growth. In the early seed capital phase we contribute The increasing unrest in the markets in 2007 acts as a reminder mainly through our investment in the company Såkorn Invest. that the fi nancial markets have a natural inherent risk. Risk is most dangerous when it is ignored or forgotten. The company’s asset management concept is considered to be robust and well PROSPECTS FOR 2008 adapted to meeting frequent shifts in the fi nance markets and The economic outlook for 2008 appears to be positive for most in customer preferences for risk and yield. trades and industries in our market area. There is still a great deal going on that is related to structural changes, new issues, and acquisitions and sales of companies. SR-Investering AS still envisages good business opportunities, even though the cyclical upswing has resulted in the value of companies seeming rather high in relation to investments. The fi nancial markets unrest during the last six months makes Subsidiaries salesperson. We also have two salespeople in Hordaland and in both market areas we have achieved good results for new sales. The company also has leasing distribution agreements with 14 local savings banks in the SpareBank 1 Alliance which resulted in about 10 per cent of the company’s leasing volume being arranged with customers outside of Rogaland, Hordaland and SR-Forvaltning – Development the Agder counties. in assets under management 2003 – 2007 NOK billion The company’s corporate customer base ranges from sole 7 proprietorships and small limited companies to major groups. 6 5 In December 2007, a customer satisfaction survey was carried 4 out confi rming the company’s strong position. The score for 3 SpareBank 1 SR-Finans was 83 points (81 points in 2006), and 2 1 this index places SpareBank 1 Finans at the very top of the 0 list of Norwegian companies as regards customer satisfaction. 2003 2004 2005 2006 2007 This is a pleasant confi rmation that the long-term efforts to put the customer fi rst are appreciated, while at the same time the survey gives us useful feedback on areas where there is still room for improvement and which have been included in the ongoing improvement work. Prospects for 2008 are good. With prospects of the continuance of a generally high level of activity and in the south and south-western part of the country in particular, and with an organisation that is constantly striving to improve, we expect 2008 to be a year when the company’s market position is strengthened even more.
SPAREBANK 1 SR-FINANS AS The company’s business is made up of lease fi nancing to trade and industry and car loans to private individuals. For 2007, the profi t before tax was NOK 43.4 million (NOK 35.4 million). This sharp increase in profi t was mainly due to strong growth in volume and stable interest margins. At the end of 2007 the company has total assets of NOK 3528 million, a rise of NOK 29.3 per cent over the last 12 months. New sales were extreme- Portfolio distribution – share of gross ly good, both for leasing and for car loans. New sales aggregated lending as at 31 DecemberPrivate 2007 customers NOK 1925 million in 2007. This is 45 per cent higher than in Public sector and financial services
2006, and in 2007 the company again recorded growth that was Services
7 % 1 % higher than the general market growth in both business areas. 1 % Property management
Interaction with the bank’s distribution network is a very 19 % 16 % Overseas shipping, pipeline transport and other transport important factor behind the positive growth. All distribution of Retail trades, hotels and restaurants car loans takes place through the bank’s Retail market division, Power and water supply/building and construction through one-to-one contact between customer consultants and 5 % 19 % Industry our customers. Mining/oil and gas 16 % Fisheries/fish farming 2 % In the corporate market, sales take place in part through the 8 % Agriculture/forestry company’s own sales staff and in part through the bank’s consultants. In 2007, 52 per cent of new leasing transactions were with customers of SpareBank 1 SR-Finans and SpareBank 1 SR-Bank.At the end of 2007, the company had 32 employees. This is two more than at the end of 2006 and shows that work- ing with good systems and working processes improves the company’s competiveness seen in relation to the signifi cant rise in volume in both business areas.
The majority of the company’s customers are from Rogaland, but the ambition is to be a signifi cant player in Hordaland and the Agder counties as well. In April 2007 we appointed a sales- person in Kristiansand and in December we hired a second VÅGEN EIENDOMSFORVALTNING AS In 2007, SpareBank 1 SR-Bank acquired Vågen Eiendomsfor- valtning AS, which is the region’s largest commercial property manager. Management services are split into three main fi elds: business management services, technical operations including caretaker services, and tenant follow-up. At year-end the com- pany was engaged in managing 48 properties with a total fl oor area of 227,000 square metres. In 2007, the profi t before tax was NOK 1.6 million. The company has ten employees. Subsidiaries SpareBank 1 SR-Bank Page 49
Corporate governance
Corporate governance in SpareBank 1 SR-Bank comprises the objectives and overriding principles according to which the group is managed and controlled in order to ensure that the interests of the primary capital certifi cate holders, the customers and other interest groups are safeguarded. Governance of the group’s activities shall ensure prudent asset management and greater assurance that publicly declared goals and strategies are going to be maintained and realised. SpareBank 1 SR-Bank’s corporate governance complies for the most part with the revised Norwegian Code of Practice for Corporate Governance published on 4 December 2007. The Code of Practice is adhered to, to the extent that it is applicable to savings banks with primary capital certifi cates. Following below is the Board of Directors’ report on corporate governance in SpareBank 1 SR-Bank.
REPORT ON CORPORATE GOVERNANCE The bank’s Supervisory Board decides the annual dividend (sections 1 and 2 of the Code of Practice) based on proposals made by the Board of Directors. Pursuant to its articles of association, SpareBank 1 SR-Bank’s object is to manage the funds controlled by the bank in a The bank complies with the requirements in the Act on prudent manner in accordance with the statutory rules that Financing Activities and Financial Institutions to the extent applies to savings banks. The savings bank can perform all these apply to savings banks with primary capital certifi cates. normal banking transactions and banking services in accordance with current legislation. Furthermore the bank For a full report on the bank’s primary capital certifi cates and can provide investment services within the limits of the dividend policy please refer to page 69. The bank’s dividend licences issued at any time. policy can be found at www.sr-bank.no. There are no deviations from sections 3, 4 and 5 of the SpareBank 1 SR-Bank has established a set of corporate gover- Code of Practice. nance rules that are adopted by the Board annually. The Board has resolved that the Norwegian Code of Practice for Corporate Governance shall be followed, to the extent that this is THE SUPERVISORY BOARD appropriate for a savings bank with listed primary capital cer- (section 6 of the Code of Practice) tifi cates. The bank’s corporate governance policy can be seen at A savings bank is in principle a private self-owned institution, and the following website: www.sr-bank.no. The market is updated the management structure and composition of the governing on objectives and strategies through presentations in connec- bodies differ from those of limited share companies, cf. tion with the publication of the group’s quarterly results. Read paragraph 7 of the Savings Banks Act regarding which bodies a more about the group’s objectives and main strategies on page 10. savings bank must have – supervisory board, audit committee and board of directors. Ethical guidelines have been established based on the group’s core values. These ethical guidelines are clearly communicated The Supervisory Board of SpareBank1 SR-Bank is statutory and throughout the organisation and they defi ne expected comprises 40 members, 16 of which represent primary capital behaviour and what constitutes unacceptable behaviour. certifi cate holders, four from the county councils in Rogaland, There are no deviations from sections 1 and 2 of the Code of Hordaland, and Aust and Vest Agder, ten are customers and ten Practice. are employees. The members are elected for four years at
RELATIONS WITH PRIMARY CAPITAL CERTIFICATE HOLDERS (sections 3, 4 and 5 of the Code of Practice) The Board assesses the company’s need for capital strength at any time in light of the company’s objectives, strategy and risk profi le. The Board has adopted a clear and predictable dividend policy.
Corporate governance a time. Pursuant to the legislation, emphasis is placed on the THE BOARD OF DIRECTORS elected members as a whole refl ecting the bank’s customer (section 8 of the Code of Practice) structure, other interest groups and the social function. In The Board of Directors has seven members, including one the case of a savings bank that has issued negotiable primary member elected by and from among the employees. The chair- capital certifi cates at least one-fi fth and no more than two-fi fths person and the members are elected for two years at a time. The of the Supervisory Board’s members must be elected by primary Chief Executive Offi cer is not a member of the Board. None of capital certifi cate holders. the Board members elected by the Supervisory Board has an employment contract with or an assignment for the group above The Supervisory Board shall adopt the group’s annual and beyond that of being an elected offi cer. For brief board accounts, raise subordinated loans and give power of attorney member CVs, please see page 26 or www.sr-bank.no. The Board to carry out increases in capital, distribute endowments for of Directors of SpareBank 1 SR-Bank satisfi es the demands public benefi t and nominate members to the bank’s elected relating to independence that follow from the Provisional bodies and fi x their remuneration. The Board’s chairperson and Norwegian Code of Practice on Corporate Governance. the auditor attend meetings of the Supervisory Board. There are no deviations from section 8 of the Code of Practice.
Furthermore, a meeting is held every year for holders of primary capital certifi cates where representatives are elected THE WORK OF THE BOARD OF DIRECTORS to the Supervisory Board and a report on the group’s fi nancial (section 9 of the Code of Practice) position is presented. All holders of primary capital certifi cates The Board meets at least 11 times a year. In 2007, 12 ordinary with known addresses receive written notice of the meeting in board meetings were held and six conference calls.. The work the mail. All primary capital certifi cate holders can attend the of the Board is governed by separate written rules of procedure. meeting and it is possible to vote by proxy. The Board sets annual calendars for meetings and work plans. Deviation from section 6 of the Code of Practice: The bank The agenda for each Board meeting is fi xed by the Board’s adheres to the Savings Banks Act’s regulations relating to chairperson in collaboration with the management of the bank savings banks’ bodies. on the basis of the annual work plan. Emphasis is placed on Board members being well prepared and on having all members participate in the decision-making process. The Board performs NOMINATION COMMITTEE an annual assessment of its own working methods. (section 7 of the Code of Practice) SpareBank 1 SR-Bank’s Nomination Committee is statutory and comprises fi ve members elected by and from among BOARD WORKING GROUP members of the Supervisory Board. Primary capital (section 9 of the Code of Practice) certifi cate holders are represented by two members and the At the beginning of 2008 the Board of Directors resolved to customers, publicly elected members and the employees are establish a compensation working group and an audit working represented by one member each. Further information on the group. These working groups will assist the Board in prepara- members is published on the bank’s website. No member of tion of items on the agenda, but all decisions must be taken the Board or representative of management is a member of the by the Board as a whole. Both working groups may, on their Nomination Committee. The Nomination Committee own initiative, arrange meetings and handle issues without proposes candidates with a background that satisfi es set management participation. criteria and proposes remuneration to members of the Supervisory Board, the Board of Directors, the Audit The Compensation Working Group shall keep itself updated on Committee and the Nomination Committee. guidelines and remuneration for the group’s senior management Deviation from section 7 of the Code of Practice: all members of and assist the Board in preparing remuneration schemes for the the Nomination Committee are elected from among the groups chief executive offi cer. that are represented on the Supervisory Board, pursuant to regulations governing nomination committees in savings banks. Currently, expanding the committee with a member that is not The Audit Working Group shall assist the Board in its control a member of the Supervisory Board has not been considered. functions and propose measures relating to the bank’s frame- work for administration and risk management and fi nancial reporting. The working group shall have regular contact with the internal and external auditors. There are no deviations from section 9 of the Code of Practice.
RISK MANAGEMENT AND INTERNAL CONTROL (sections 10 and 15 of the Code of Practice) Risk management in SpareBank 1 SR-Bank underpins the group’s strategic development and performance. Risk management shall also ensure fi nancial stability and prudent asset management. Strategy processes are reviewed annually and the end-product
Corporate governance SpareBank 1 SR-Bank Page 51
is a three-year business plan for the group with overriding loans can be found in note 10.The Board is encouraged to goals, strategy and budget. The Board is engaged in the entire own primary capital certifi cates in the bank. strategy process. The Chief Executive Offi cer’s salary and other remuneration EXTERNAL AND INTERNAL AUDITORS are fi xed by the Board of Directors. Guidelines for remuneration The external auditor is elected by the Supervisory Board and to senior management are presented to the Supervisory Board carries out the fi nancial audit. The external auditor partici- for informational purposes. Further details on salary and pates in Board meetings that deal with the annual accounts remuneration of senior management can be found in note 10. and presents an audit report to the Supervisory Board and the Employees are encouraged to own primary capital certifi cates Audit Committee. The Board reports the auditor’s fee to the in the bank. Supervisory Board at its meeting. The external auditor is not There are no deviations from sections 11 and 12 of the Code of engaged in providing any advisory services to the group of any Practice. signifi cance. Any advisory services provided by the external auditor at any time shall be within the limits set down in section 4.5 of the Audit and Auditors Act. Specifi ed auditor’s INFORMATION AND COMMUNICATION fees for fi nancial audit and services other than audit are shown (section 13 of the Code of Practice) in the notes to the accounts. SpareBank 1 SR-Bank believes that correct, relevant and timely information on the group’s performance and results will inspire The internal auditor is a tool that is used by the Board and by investor market confi dence in the bank. Information to the management to monitor whether the risk management process market is distributed through quarterly investor presentations. is goal-orientated, effective and functions in accordance Regular presentations are also given to international partners, with the intentions. The internal auditing function has been lenders and investors. All reporting is based on openness and outsourced. This ensures that the function has the required equal treatment of players in the securities market. The group’s independence, competence and capacity. Quarterly reports are fi nancial calendar is published on the bank’s website and in the presented to the Board. annual report. All quarterly reports, press releases and presen- tations can be found at www.sr-bank.no. There are no deviations from section 13 of the Code of Practice. THE AUDIT COMMITTEE SpareBank 1 SR-Bank’s Audit Committee is statutory and has fi ve members elected by the Supervisory Board. The term of offi ce TAKE-OVERS is two years. The committee is independent of the Board and (section 14 of the Code of Practice) management. The Committee shall ensure that all of the group’s The ownership structure of a savings bank regulated by operations are carried out in an adequate and secure manner. legislation. No-one can own more than 10 per cent of the savings bank’s primary capital. If more than this is acquired, For further information on risk management and internal permission must be sought from Kredittilsynet (The Financial auditing please see page 56. Supervisory Authority of Norway). A list of the 20 largest primary capital certifi cate holders in SpareBank 1 SR-Bank can be found on the bank’s website www.sr-bank.no. ETHICS AND REPORTING IRREGULARITIES Deviation from section 14 of the Code of Practice – statutory A separate set of ethical guidelines has been prepared for the ownership limitations. group and its employees. Ethics are a regular theme at seminars for new employees. The duty of confi dentiality and the ethical guidelines are reviewed by all employees once a year by their confi rming that they understand, accept and live up to them. The employees have been instructed to make a report if they become aware of any situation that contravenes external or internal regulations, or that can damage the group’s reputation. There are no deviations from sections 10 and 15 of the Code of Practice.
REMUNERATION TO THE BOARD AND SENIOR MANAGEMENT (sections 11 and 12 of the Code of Practice) The Board members receive annual compensation that is fi xed by the Supervisory Board. Remuneration paid to Board members is not linked to result or performance. None of the Board members elected by the Supervisory Board has assignments for the company above and beyond Board membership. Further details on remuneration and
Corporate governance CURRICULUM VITAE
NAME: Lasse B Andersen
TITLE AND PLACE OF WORK: Associate Professor at the University of Stavanger/Chairman of the Board and partner in Bayes Risk Management AS
ORIGINALLY FROM: Fredrikstad Gladmat Festival, Stavanger
MOVED TO PRESENT ABODE: Came to Stavanger in 1990 to study. Moved back to the east of Norway in 1997 and commuted back and forth to Stavanger through to 2002. Moved here permanently in 2004.
“I came back for good because I got an interesting job offer, but fi rst and foremost because Stavanger is diffi cult to forget when you have lived here for some years and managed to fall in love with the region, Stavanger is a “big small town” where an unbelievable amount of things take place.
AND THE ENVIRONMENT HERE TAKES GOOD CARE open air in Vågen on a warm summer day, proximity to the sea OF YOU? and the maritime element, the choice of restaurants, all the I love to ride a motorbike, and here in Stavanger the roads are festivals, jazz, literature, food, beach volleyball and so on and snow free and the grass is green more or less all year round. so on. Not to forget that we’re not far from the mountains or There isn’t much that can compete with a bike ride in Ryfylke from Norway’s fi nest beaches. on a sunny Sunday in May with my fi ancée on the pillion seat...... and where else in Norway can you surf along YOUR FAVOURITE SPOT EXACTLY – WHERE IS THAT? chalk-white beaches in December? And you get true peace of Just how fantastic Stavanger is in my mind every day when I mind when sailing the fjord and into Ryfylke. travel to my job at the University from the town centre, over the top of Ullandhaugveien, when I can look over Hafsfjord. HAS THE REGION HAD ANY EFFECT ON There’s an unbelievable beauty irrespective of the weather. YOUR CAREER? And it’s even better on the way home, over the same hilltop, When I had fi nished my doctorate in 1995 I got engaged when I look over Stavanger town centre, the fjord and the in the business community in Rogaland by starting up two Ryfylke mountains. Therefore one of my favourite spots is the companies that both deal with safety and risk management. Ullandhaug heights. First the Acona group, that is now Acona CMG and has about 100 employees, and then Bayes Risk Management. I couldn’t imagine a better place in Norway to establish a company than here in Stavanger. We have plenty of access to high-level competence and the working environment is challenging and attractive with a very international interface. The region has a strong fi nancial backbone and just seethes with entrepreneurship.
WHAT IN YOUR LOCAL ENVIRONMENT CHARMS YOU THE MOST? I’m infl uenced by living in the centre of the town. The narrow cobbled streets, the theatre, the concert hall, a cold beer in the
Sola Beach SpareBank 1 SR-Bank Side 53 CURRICULUM VITAE
NAME: Rob Berning
TITLE AND PLACE OF WORK: Advicer in the retail market in Kristiansand Originally from: The Netherlands
MOVED TO PRESENT ABODE: The Netherlands
MOVED TO PRESENT ABODE: South coast idyll, Søgne Came to Norway in 2005 together with his wife Eunice.
Rob Berning
“After having been here on holiday we were so keen on settling here. The country attracted us in every way. We burned a few bridges by leaving our homeland, but we haven’t regretted that one single day.”
work, and I’m very conscious of getting to the local fi tness HAVE YOU LIVED IN THE SOUTH OF NORWAY centre 3 – 4 times a week. We have lots of friends and ALL THE TIME? acquaintances we spend time with in our free time, including No, when we fi rst came to Norway we wandered around bit the other parents at the nursery. All in all, the local community and found out that there are many places we could live in. in Søgne is great and we have been very well received. When we were told that the stork was to visit us, the time was ripe to fi nd a permanent place. We love Sørlandet, and ended up in Søgne, a beautiful and cosy place to live. We were lucky AND YOUR DREAM SPOT? enough to fi nd a fl at close to the sea and the beach, and we Currently we are only dreaming of moving into the new house, have lived here for two years. We are at home in the local where we hope to live for a long time. So my dream spot just environment, both my wife and I have jobs that we like. And now must be right outside the main door with a key in my hand! our little son is happy in his nursery.
SO YOU’VE REALLY SET ROOTS IN SØGNE? No doubt about that! We have taken one more step and bought our own house at Vedderheia here in Søgne, and we are so looking forward to moving in some time in the spring.
DO YOU TAKE PART IN ANY ACTIVITIES IN YOUR LOCAL ENVIRONMENT? I dare call myself a typical family man, so there are lots of walks with my wife and son. And fortunately we have great scenery around us to enjoy. I play football with the guys at
The sky and the sea, Søgne SpareBank 1 SR-Bank Side 55 Name: Frode Bø Title: Executive Vice President, Risk Management and Compliance Residence: Tasta Favourite spot: The beaches of Jæren and Stokkavannet Leisure activities: Squash and rambling in woods and countryside.
Risk and capital management
Risk and capital management supports the group’s strategic • Commercial risk: the risk of unexpected fl uctuations in rev development and the attainment of its goals. Furthermore, risk enues and expenses as a result of changes in external circum- management shall ensure fi nancial stability and satisfactory stances such as the market situation or mandatory regulations asset management. This shall be achieved through: • Reputation risk: the risk of a decline in earnings and access to capital resulting from declining confi dence and reputation • a strong organisational culture, characterised by a high level in the market i.e. customers, counterparties, the stock market of risk management awareness and the authorities • a solid understanding of which risks drive earnings • Strategic risk: the risk of losses arising from erroneous strate- • striving towards an optimal application of capital within the gic decisions adopted business strategy • Compliance risk: the risk of the group having to deal with • avoiding unexpected negative events that can seriously harm public sanctions/penalties or fi nancial losses as a result of the group’s fi nancial status failure to comply with legislation and regulations • the exploitation of synergy and diversifi cation effects The group’s risk is quantifi ed, for example, through calcu- The group has a moderate risk profi le. The group’s target is to at lations of the expected losses and the need for economic capital least maintain its present international ratings and thus secure to cover unexpected losses. The expected losses and economic good long-term access to funding from the capital markets. capital are calculated for all the main risk groups, and for all the business categories in the group. The expected losses are SpareBank 1 SR-Bank is exposed to different types of risk and an indication of the amount of losses that must be statistically the most important risk groups are: expected over the next 12 months. Economic capital describes how much capital the group believes it needs to cover the • Credit risk: the risk of losses that arise as a result of the actual risk the group has assumed. Since it is impossible to customer’s inability or unwillingness to meet his obligations fully protect against all losses, the group has stipulated that • Market risk: the risk of loss due to changes in observable the economic capital shall cover 99.9 per cent of possible market variables such as interest rates, foreign exchange rates un expected losses. The calculation of economic capital is based (FX), and securities on statistical methods, but the calculation requires the use of • Operational risk: the risk of losses resulting from inadequate or qualitative assessments in some cases. failed internal processes and systems, people or external events • Liquidity risk: the risk of the group not being able to The return on economic capital is one of the most important re fi nance its liabilities or not being able to fi nance increases strategic targets in the internal management of the SpareBank in assets without signifi cant extra costs 1 SR-Bank. This entails that the business units are allocated • Ownership risk: the risk of SpareBank 1 SR-Bank incurring capital in accordance with the estimated risk of their activities, losses from ownerships in strategically-owned companies and that their return on capital is monitored on an ongoing and/or the need to provide these companies with new equity basis. The calculation of economic capital enables a com- parison of risk across risk groups and business units.
In order to ensure an effective and adequate process for risk and capital management the framework is based on 10 elements that refl ect the manner in which the Board of Directors and the management manage the group: SpareBank 1 SR-Bank Page 57
• Organisation and organisational culture Internal auditing is a tool that is used by the Board of Directors • Strategic targets and management to monitor whether the risk management • Risk identifi cation process is adequately targeted and effective, and that it • Risk analysis functions as intended. The group’s internal audit function is • Risk strategies performed by an external public accountant, thus ensuring that • Capital management (including returns and capital adequacy) the function has the required independence, competence and • Reporting capacity. The internal audit function reports organisationally • Monitoring to the Board of Directors. The internal audit function’s reports • Contingency plans and recommendations for risk management improvements are • Compliance reviewed and implemented on an ongoing basis in the group.
The following paragraphs deal with these elements in more In addition to the above roles, committees have been detail. established in the risk management area to assist the CEO in his decision-making and follow-up activities. ORGANISATIONAL CULTURE The risk and capital management process is the very founda- The Risk and Capital Management Committee carries out the tion of the organisational culture on which the other elements overriding follow-up of the group’s risk profi le, and the funding are built. The organisational culture covers management and capital adequacy situation. The committee also deals with philosophy, management style and the people in the organi- drafts relating to risk strategies, capital allocations, validation sation with their individual characteristics such as integrity, reports and recommends new risk models. The Risk and basic values and ethical attitudes. An inadequate organisational Capital Management Committee has a broad composition with structure can hardly be compensated for by applying other senior employees from the business units and from risk and control and management measures and SpareBank 1 SR-Bank capital management. has, therefore, established explicit basic values and ethical guidelines that are well communicated and made known The Credit Committees are responsible for making independent throughout the entire organisation. recommendations to the authority holder. In their recommen- dations the Credit Committees shall evaluate loan and credit ORGANISATION applications in accordance with the current credit strategy, SpareBank 1 SR-Bank emphasises that independence is an credit policy guidelines, loan granting regulations and credit important principle in the group’s risk management. Risk review routines. The Credit Committees shall place special management responsibility is therefore divided between emphasis on the identifi cation of risk associated with the various roles in the organisation. individual application, and on performing an independent credit risk assessment where the consequences of the various The Board of Directors of SpareBank 1 SR-Bank is responsible risks to the bank are clarifi ed. for ensuring that the group has primary and subordinated equity that is adequate based on the adopted risk profi le and STRATEGIC TARGET government requirements. The group’s Board of Directors Risk and capital management is based on the group’s strategic adopts the overall goals such as the risk profi le, rate of return targets and business plans. and how the capital is to be distributed among the various business units. The Board of Directors also determines the RISK IDENTIFICATION overall limits, authorisations and guidelines for risk manage- The risk identifi cation process is forward-looking and covers ment in the group. The Board of Directors has adopted ethical all important risk areas in the group. The process is carried out rules that contribute to the awareness of and compliance with at least annually and is an integral part of the group’s strategy the ethical standards adopted by the group. and budget process.
With respect to resolutions by the bank’s Board of Directors, the RISK ANALYSIS Boards of the subsidiaries fulfi l their duties in the individual Thorough risk analyses of identifi ed risks are carried out in companies. order to understand the characteristics of the risks and their causal mechanisms. All signifi cant risks are, to the extent The CEO is responsible for risk management. This means that possible, quantifi ed through expected losses and risk-adjusted the CEO is responsible for the implementation of effi cient risk capital. Quantifi cation is based on accepted and secure management systems in the group and for the monitoring of methods and processes for measuring risk. The risk analysis risk exposure. The CEO is also responsible for delegation of shall also ensure a quantifi ed and structured assessment as well authority and for reporting to the Board of Directors. as documentation of the control and management measures that are established. The Department for Risk Management and Compliance is organised independently of the business units and reports directly to the CEO. The department is responsible for the further development of the framework for risk management, including risk models and risk management systems. Further, the department is responsible for independently following up and reporting on the risk situation and the group’s compliance with applicable laws and regulations. STRESS TESTS The group’s target for the regulatory capital adequacy ratio is Stress tests are an important tool for analysing how negative 11.0 per cent and a core capital ratio of 7.0 per cent. Its capital events impact the group’s result, its balance sheet and its adequacy ratio was 10.0 per cent at the end of 2007, while the capital adequacy. SpareBank 1 SR-Bank carries out periodic core capital ratio was 7.5 per cent. New regulations that came stress tests on the most critical risk areas such as credit, market into effect in 2007 regarding deductibles have had a negative and liquidity risks. Stress tests are carried out on individual impact, especially on the core capital ratio. For the parent bank factors and on scenario analyses where the group is exposed to the corresponding fi gures were 10.4 per cent and 7.4 per cent a range of negative macroeconomic events through a period of respectively. at least three years. In 2007, a covered bonds issue of NOK 548 million was RISK STRATEGIES arranged, as was a NOK 36 million private placement among The risk strategies defi ne the risk profi le inter alia through employees. The proceeds were paid in April 2007. expected losses, economic capital and target fi gures for risk-adjusted returns. The risk strategies are approved by the REPORTING AND MONITORING Board of Directors and are revised at least annually. One important risk management element is the monitoring of current risk exposure. All managers are responsible for CAPITAL MANAGEMENT the day-to-day risk management in their respective areas of SpareBank 1 SR-Bank has a deliberate process for capital re sponsibility, and they shall at all times ensure that the risk management that shall ensure, to the extent possible: exposure is within the limits set by the Board of Directors of the CEO. • effi cient capital allocation and capital application in relation to the group’s strategic goals and the adopted business strategy The group’s overriding risk exposure and risk development is • a competitive rate of return monitored through periodic risk reports to management and the • satisfactory capital adequacy based on the adopted risk profi le Board of Directors. The overriding risk surveillance is carried • competitive terms and ample long-term access to funding out by the Department for Risk Management and Compliance from the capital markets which is independent of the group’s individual business units. • that, at the very least, the group maintains its current inter- national ratings CONTINGENCY PLANS • exploitation of growth opportunities in the group’s defi ned The core activity of a bank is to assume risk, and over time this market area risk may cause the bank large losses, even though it has good • that no single event can seriously harm the group’s fi nancial status risk management systems and processes. Such a situation can put a great deal of pressure on operations, capital adequacy and The long-term goal is that the economic capital shall be on the funding situation. SpareBank 1 SR-Bank has prepared allocated within the adopted business strategy to the areas that contingency plans in order to deal with such a crisis in the best generate the highest risk-adjusted return. possible manner should one arise.
On the basis of the strategic targets and the business plan, an COMPLIANCE annual capital plan is prepared to ensure effective long-term The group strives to have good processes that ensure compli- capital management. These projections take into account both ance with current legislation and regulations. The following likely developments over the next three years and a situation help us to achieve this: with a serious recession over three years. On the basis of the analysis of these scenarios the Board of Directors considers in • Explicit basic values that are clearly communicated through- general whether the capital adequacy situation is acceptable out and understood by the organisation and adjusted to SpareBank 1 SR-Bank’s risk profi le and • A process to capture, communicate and implement changes strategic targets. in law and regulations • A process to follow up and report on compliance with legi- SpareBank 1 SR-Bank’s capital adequacy goals are expressed slation and regulations through the targets for regulatory capital adequacy and a defi ned goal for protection against creditors of legal predeces- The following provides more details on the credit, market, sors. The capital adequacy goals shall ensure that SpareBank liquidity and operational risks: 1 SR-Bank has suffi cient capital to satisfy the authorities’ demands for capital adequacy and the internal goals for credi- tor protection. Creditor protection is achieved by the group, at CREDIT RISK a selected confi dence level, having equity capital (including Credit risk is defi ned as the risk of loss due to customers or hybrid instruments) that covers the need for economiccapital other counterparties not having the ability or willingness to with a one-year time horizon. fulfi l their obligations to the group.
In accordance with the group’s risk management ambitions, SpareBank 1 SR-Bank has been granted approval by the Financial Supervisory Authority of Norway (Kredittilsynet) to use an internal rating based approach for credit risk from 1 January 2007. For the group this means that the statutory minimum requirements for capital adequacy for credit risk will be based on the group’s internal risk assessments with effect from 2007. This will make the statutory minimum capital SpareBank 1 SR-Bank Page 59
adequacy requirement more risk sensitive, so that the capital all types of capital services provided to the customer by way requirement will correspond more closely to the risk inherent of loans, credits, guarantees including letters of credit, accrued in the underlying portfolios. The implementation of the new unpaid interest and commissions and forward currency and rules has had a positive effect on the group’s capital adequacy, interest rate instruments. even though the full effect will not be seen until 2010. Percentage breakdown of liabilities within the various default For a transitional period, the minimum primary and sub- classes.* ordinated capital requirement in 2007 is set at no lower than 95 per cent of the minimum requirement in accordance with the current regulations (Basel 1) from 2006. In 2008 and 2009 SpareBank 1 SR-Banks default group the corresponding restrictions are 90 and 80 per cent of the Default group Lower limit UpperU limit minimum requirement respectively. A - 0.10% Credit risk is managed through the group’s overriding credit B 0,10% 0,25% strategy, strategic credit limitations, credit policies and regu- C 0,25% 0,50% D 0,50% 0,75% lations relating to authority to approve credits. The credit E 0,75% 1,25% strategy and the strategic credit limitations are determined at F 1.25% 2,50% least annually by the Board of Directors. The group’s credit G 2,50% 5,00% H 5,00% 10,00% strategy focuses on risk-sensitive key performance indicators I 10,00% 99,99% and the limits that are set so that they can manage the group’s risk profi le in the credit area in the most appropriate and effi cient manner. This is achieved primarily by linking key performance indicators and limits to economic capital, risk- adjusted return and the probability of losses. In addition, the credit strategy sets limits for the exposure and risk profi le at the portfolio level, in industry sectors and with individual customers.
The Board of Directors is responsible for the group’s loan and credit approvals. The Board of Directors delegates authority, within certain limits, for the operational responsibility with respect to decisions in loan and credit cases to the CEO. Distribution of loans within the defined default classifications* The CEO can himself delegate authority further within the % limits of his authority. Delegated authority is linked to a loan 30,0 or a liability’s expected losses and the probability of default. 25,0 20,0 Default classes 15,0 HI The group has developed and actively uses a risk classifi cation 10,0 G system, a risk pricing model and a portfolio management 5,0 E 0 BCD F system for managing its loan portfolio in line with the credit A 2007 2006 strategy and credit policies. In combination with the rules relating to delegated authorities to grant credits, this establishes * Excluding defaults and write-downs clear requirements for the credit review process and risk asses- sments. The risk management systems mentioned above cover customers in both the corporate and retail market. The risk models on which risk management systems are based use sta- tistical calculations and are subject to continuous development and testing. The models are based on three components:
1. Probability of default (PD): Customers are classifi ed in a 2. Exposure at default (EAD): This is the estimate of what the default class based on the probability that the customer will exposure will be if a customer defaults. default on his obligations during a period of 12 months. The probability of default is calculated based on historical data series for key fi nancial fi gures, as well as non-fi nancial criteria such as behaviour and age. Nine default classes (A - I) are used to classify the customers according to the probability of default. The table below shows the probability of default intervals for each of the default classes.
In addition, the group has two default classes (J and K) for customers with defaulted and/or written down liabilities.
The table on the right shows the percentage volume distribu- tion of liabilities (excluding defaulted and written down liabili- ties) within the various default classes. The liabilities comprise 3. Loss given default (LGD): This is an estimate of how much the Funding through the Euro Medium Term Notes (EMTN) pro- group can potentially loose if the customer defaults on his obli- gramme accounts for 43 per cent of the group’s total funding. gations. This estimate takes into account the security furnished by the customer, and the costs the group incurs in collecting This group comprises both open and private loans. This defaulted liabilities. These estimates are determined on the basis segment has increased signifi cantly as the corresponding fi gure of empirical data over time. Seven classes (1-7) are used for clas- for 2006 was 37 per cent. This is mainly due to the group sifi cation by the degree of loss in the event of default. issuing two large open loans in the European market in 2007. In 2007 the group obtained 53 per cent of its funding from The three above-mentioned components also establish the international markets, while the corresponding fi gure basis for the group’s portfolio classifi cation and statistical in 2006 was 58 per cent. Hence, the share of funding obtained calcu lations of expected losses and the need for economic in Norway increased from 42 per cent to 47 per cent during the capital. The purpose of this portfolio classifi cation is to provide course of 2007. in formation on the level and development of the overall credit risk in the total portfolio. Customer deposits are the group’s main source of funding. The deposit-to-loan ratio was 57 per cent at the end of 2007, LIQUIDITY RISK compared to 55 per cent at the end of 2006. Liquidity risk is defi ned as the risk of the group not being able to refi nance its debt or fi nance an increase in assets without Despite the distressed fi nancial markets, the group’s liquidity incurring signifi cant additional costs. as per 31 December 2007 was satisfactory. The group increased its liquid assets through bonds deposited with Norges Bank. Management of the group’s fi nancial structure is based on an In 2007, legislation governing covered bonds was passed. overall liquidity strategy that is reviewed and adopted by the through the partly-owned company SpareBank 1 Boligkreditt Board of Directors at least annually. The liquidity strategy AS the group signifi cantly mitigated its liquidity risk. In 2007, refl ects the group’s moderate risk profi le. The group has the group transferred approximately NOK 5 billion in mor- prepared a contingency plan for dealing with the liquidity tgage loans, with a corresponding positive impact on liquid- situation in times of capital market unrest. ity. Actual liquidity surplus at year-end amounted to NOK 3.5 billion. Of the group’s aggregate funding portfolio of NOK 41.5 The group’s treasury department (SR-Markets) is responsible billion at 31 December 2007, 27 per cent or NOK 11.2 billion is for liquidity management, while the Department for Risk to be refi nanced in 2008. Management and Compliance monitors and reports on the utili- sation of limits in accordance with the liquidity strategy. The liquidity risk is mitigated through diversifi cation of markets, funding sources, instruments and maturity dates. The fi gures below show the diversifi cation of the group’s funding sources 2005 2006 2007 5.5 and markets as per 31.12.2007. Dividend per PCC - Direct yield % NOK billion Funding maturities SpareBank 1 SR-Bank
12 3 % 3 % 1 % 10 8 6 31 % 4
43 % 2 0 2008 2009 2010
2011 2012 2013 2014 2015
2016 2017 2018
15 % 4 % 1 % Sales value of homes sold Hybrid instruments 2004 – 2007 ENTN 43 % NOK billion 3 % Subordinated loans 4 % 16 Schuldschein 3 % 14 Money market 15 % NOK certificates
NOK bonds 31 %
The fi gure below illustrates the maturity structure of the funding portfolio with effect from the end of 2007. There is an even dis- tribution between international and domestic funding sources. SpareBank 1 SR-Bank Page 61
MARKET RISK The fi gure below shows the group’s process for identifying, Market risk is defi ned as the risk of loss due to changes in quantifying and managing operational risk. This process observable market variables such as interest rates, foreign includes the use of external and internal data, expert evalu- exchange (FX) rates, and securities. Security volatility risk due ations and thorough framework evaluation. Scenario analyses to changes in general credit prices is also considered a market and statistical models are used to estimate the group’s opera- risk. Market risk arises in SpareBank 1 SR-Bank primarily from tional risk exposure. the group’s investments in bonds, certifi cates and equities, and as a consequence of activities carried out to support ordinary banking activities, such as funding and trading in foreign The group has developed and uses an internal loss database for exchange rates and interest rate instruments. reporting and monitoring losses and undesired events. Based on this information the group is continuously carrying out Market risk is measured and monitored based on limits adopted improvements. by the Board of Directors, reviewed and renewed annually. The limits are determined based on stress tests and scenario With effect from 2007, SpareBank 1 SR-Bank uses the analyses.. The group’s exposure to market risk is moderate. Standardised Approach for calculating the minimum capital adequacy for operational risk. Interest rate risk is the risk of loss due to interest rate volatility. It is measured and monitored based on limits that are adopted as described above. Risks arise mainly in relation to fi xed-rate loans and funding through fi xed-rate instruments. The portfolio interest rate risk is expressed by estimating the change in the value of interest rate instruments in the event of a 1 per cent interest rate change. The group uses analyses that show the effect of the aforementioned interest rate change for various maturity intervals, and there are separate limits for interest rate exposure within the individual intervals. The fi xed interest rate terms for the group’s instruments are mainly short, and the group’s interest rate risk is moderate.
Statistisk modellering Foreign exchange risk is the risk of loss due to foreign exchange Tapsdata / Uønskede hendelser (Monte Carlo) rate volatility. The group measures foreign exchange based on net positions in each individual currency. The limits for foreign Evaluering av Risikoiden- rammeverk tifikasjon / Scenario exchange risks are expressed by limits for the maximum aggre- analyse forecast gate currency position and maximum position in individual currencies. The foreign exchange risk is considered to be low. Ekspertvurdering Prosess for styring og kvalifisering av operasjon risiko The Department for Risk Management and Compliance is responsible for the continuous, independent monitoring of the group’s market risk. Economic capital exposed to market risk is measured and monitored according to the Value at Risk (VaR) principle with a 99.9 per cent confi dence level. The VaR model is an important tool in managing internal limits and capital allocations. The model is still undergoing testing and cali- bration and is not yet being used in the day-to-day market risk management.
OPERATIONAL RISK In line with the group’s risk management ambitions SpareBank Operational risk can be defi ned as the risk of loss resulting from: 1 SR-Bank took the initiative to establish an R&D project in the fi eld of operational risk in association with the SpareBank 1 • human mistakes, and lack of expertise and competence Alliance, DnB NOR and the University of Stavanger. The object • internal system fault, external system faults of this project is to establish Norway as a European academic • unclear policy, strategy, routines centre in the area of managing and measuring operational • crime and internal fraud risk in banking and fi nance. The project will develop a tool • other external and internal causes for managing operational risk that qualifi es for use of the Advanced Measurement Approach (AMA) calculating the The risk strategy for operational risk is adopted at least minimum capital adequacy requirements. an nually by the Board of Directors. The risk strategy sets the framework for expected loss and economic capital. The group’s risk management and monitoring shall be so effi cient at all times that no single event caused by operational risk shall be able to seriously harm the group’s fi nancial position. The group has a moderate risk profi le for operational risk. CURRICULUM VITAE
NAME: Vanessa Riauté
TITLE AND PLACE OF WORK: Engineer, Telecommunications and Network, works for Ericsson Mobile Platform in Grimstad. Is currently testing software for mobile telephones in Devoteam telecom.
ORIGINALLY FROM: France. Brought up in Provence, but also lived three years in Bretagne before moving to Norway. The mountains adorned with pure white snow MOVED TO PRESENT ABODE: Came to Grimstad in the autumn of 2007.
Vanessa Riauté
“I wanted to experience and get to know a Scandinavian country and fi nd out how people lived “up in the far north”. So far I have only had positive experiences, Norway has been so positive with nice people and lovely scenery.
DID YOU KNOW ANYTHING ABOUT NORWAY with all the social contact this involves. And some weekends BEFORE YOU CAME? I use my thumb and try to get hikes to see the scenery in this Not much really, in fact I had never even been here on holiday wonderful part of the country. One common aspect of all my before I moved here for good. But I tried to pick up information free-time activities is that I meet local people who are friendly here and there, on the internet, in the press, at tourist offi ces and sincere – they make me feel at home. I also appreciate the and so on. fact that my employer engages in events and activities that get me involved in the local environment. The only real problem is ARE YOU PUTTING DOWN ROOTS OR READY the language, my Norwegian is not good enough, and so I don’t TO MOVE ON? understand everything that is of interest. But it will come. I’m not sure how long I will be staying in Norway, but I am enjoying myself so much I might be here quite a while yet. AND WHERE EXACTLY IS YOUR FAVOURITE SPOT? My friends and the different leisure-time activities make life I have several favourite spots; The mountains when the snow rich and varied where I am now. I am inquisitive by nature, so is a meter high, the coast when the wind and the weather bite, maybe the desire to see how people live in other countries will and a trip to Café Galleri in Grimstad to meet good friends in take control later. And maybe the job situation will take me to a the evening. new exotic country? Australia and Canada could tempt me.
DO YOU TAKE PART IN ANY ACTIVITIES IN YOUR LOCAL ENVIRONMENT? I want to make the most of being a citizen of Grimstad. In ad- dition to weekly Norwegian courses I play volleyball twice a week and I’m a regular at the swimming pool and the bow- ling lane. I love skiing and have found places for both slalom and cross country. I volunteer at the Grimstad Ski Festival,
Café Galleri, Grimstad SpareBank 1 SR-Bank Side 63 CURRICULUMC VITAE
NAME: Fredrik Mowill
TITLE AND PLACE OF WORK: Chief Executive Offi cer of OPRA Turbines which started its opera- tions in the Netherlands in 1991. He now lives in the Netherlands, but since OPRA recently established a new turbine factory in Risavika, business trips to Stavanger are common.
ORIGINALLY FROM: Oslo, but has lived in the Netherlands and the UK since 1991.
Gamle sjøhus, Stavanger
Fredrik Mowill
“We established our plant in Risavika Energy Park because of the availability of gas and its exceptional location. The OPRA building was completed at the very end of last year and are now in the construction stage.”
DID YOU KNOW THE TANAGER AREA AND FROM YOUR POINT OF VIEW WITH ONLY A SHORT STAVANGER IN ADVANCE? PERIOD OF TIME IN ROGALAND – WHAT DO YOU I had taken two recognition trips to the region to fi nd the best LIKE MOST OF ALL? location for the factory but I had no long-term relationship I like the sea view from OPRA’s offi ces in Risavika the most. with Stavanger. DO YOU THINK YOU WILL SETTLE HERE? WHERE HAVE YOU TRAVELLED MUCH IN OUR PART OF WILL YOU BE IN TEN YEARS? THE COUNTRY? I really have no idea. No, not really. I am looking forward to getting to know the countryside around Stavanger. There are so many people using lots of superlatives when talking about the nature, the moun- tains and the fjords. But so far I have not been able to fi nd the time.
BUT THE TOWN CENTRE BY NIGHT... WHAT HAVE YOU EXPERIENCED? There have been dinners of course. And I am positively sur- prised by the quality of the restaurants. The choice of food and wines shows very clearly that many talented people have done a good job to put Stavanger on the map!
View from the office Tananger SpareBank 1 SR-Bank Side 65
SpareBank 1 SR-Bank Page 67
Annual accounts
Income statement 68 Note 22 Deposits from customers 104 Balance sheet 69 Note 23 Debt securities issued 105 Table of recorded income, expenses and changes in values 70 Note 24 Subordinated loan capital 106 Changes in equity 70 Note 25 Other liabilities 107 Cash fl ow statement 71 Note 26 Pensions (with direct recognition of Note 1 General information 72 actuarial deviations) 108 Note 2 Accounting principles 72 Note 27 Capital adequacy 110 Note 3 Financial risk management 77 Note 28 Related parties 111 Note4 Critical estimates and assessments regarding the use of Note 29 Primary capital and ownership structure 112 accounting principles 79 Note 30 Restricted funds 113 Note 5 Segment information 80 Note 31 Fair value of fi nancial assets 113 Note 6 Net interest income 82 Note 32 Maturity analysis of assets and liabilities 114 Note 7 Net commission and other operating income 83 Note 33 Maximum credit risk exposures 115 Note 8 Income from fi nancial investments 83 Note 34 Credit quality per fi nancial asset class 116 Note 9 Operating expenses 84 Note 35 Credit risk exposure for each internal risk rating 119 Note 10 Remuneration to senior employees Note 36 Distribution by age of defaulted loans not and elected offi cers 85 written down 120 Note 11 Taxes 87 Note 37 Remaining contractual term to run for liabilities 121 Note 12 Other assets 88 Note 38 Market risk related to interest risk 122 Note 13 Tangible fi xed assets 88 Note 39 Market risk related to currency risk 122 Note 14 Intangible assets – goodwill 90 Note 40 Activities to be sold 123 Note 15 Investments in ownership interests 91 Note 41 IFRS implementation 123 Note 16 Shares, primary capital certifi cates and other securities 93 Note 42 Events after the balance sheet date 124 Note 17 Certifi cates and bonds 96 Audit report 126 Note 18 Financial derivatives 96 The Audit Committee’s statement for 2007 126 Note 19 Credit institutions – receivables and liabilities 98 Primary capital certifi cate 127 Note 20 Lending to and receivables from customers 98 Key fi gures for the last fi ve years 130 Note 21 Losses on loans and guarantees 102 INCOME STATEMENT
Parent company The Group 2006 2007 (fi gures in NOK million) Note 2007 2006 2005 2 934 5 023 Interest income 6 5 100 2 995 2 276 1 874 3 774 Interest expenses 6 3 760 1 867 1 163 1 060 1 249 Net interest income 1 340 1 128 1 113
464 601 Commission income 7 675 511 453 -77 -83 Commission expenses 7 -81 -75 -76 25 26 Other operating income 7 301 242 199 412 544 Net commission and other operating income 895 678 576
10 11 Dividends 8 12 12 38 10 94 Income from ownership interests 8,15 234 189 119 200 89 Income from fi nancial investments 8 142 240 192 220 194 Net yield on fi nancial investments 388 441 349
1 692 1 987 Total income 2 623 2 247 2 038
500 570 Personnel expenses 9,10 751 634 541 295 301 Administration expenses 9 339 329 277 138 182 Other operating expenses 9 267 215 194 933 1 053 Total operating expenses 1 357 1 178 1 012
759 934 Profi t before losses 1 266 1 069 1 026
-90 6 Losses on loans and guarantees 21 10 -92 -70 849 928 Profi t before tax 1 256 1 161 1 096
210 212 Taxes 11 249 237 234 639 716 Profi t after tax 1 007 924 862
- - Minority interests 13 10 6 639 716 Majority interests 994 914 856
Earnings per primary capital certifi cate (majority) 5,4 5,7 - Earnings per primary capital certifi cate * 7,9 7,8 7,7 5,4 5,7 - Diluted earnings per primary capital certifi cate 7,9 7,8 7,7
* Earnings multiplied by primary capital certifi cate percentage divided by average number of outstanding certifi cates. (Earnings * 55.9%/70,771) SpareBank 1 SR-Bank Page 69
BALANCE SHEET
Parent company The Group 2006 2007 (fi gures in NOK million) Note 2007 2006 2005 Assets 834 2 622 Cash and balances with central banks 30 2 622 834 351 2 585 6 489 Loans to and deposits with credit institutions 19 3 357 170 43 74 656 84 647 Gross loans to customers 20 88 090 77 297 61 812 -99 -92 - Loan loss provisions/write-downs on individual loans 20 -98 -107 -163 -123 -120 - Loan loss provisions/write-downs on groups of loans 20 -131 -131 -169 74 434 84 435 Net loans to customers 20 87 861 77 059 61 480 3 526 5 406 Certifi cates and bonds at fair value 17 5 444 3 558 3 159 478 897 Financial derivatives 18 897 478 519 564 449 Shares, interests and other equity instruments 16 589 582 467 649 788 Investments in ownership interests 15 1 198 793 498 310 430 Investments in group companies 15 - - - - - Intangible assets 14 23 4 12 287 282 Fixed assets 13 294 299 305 15 - Deferred tax asset 11 - 24 41 - - Activities to be sold 40 43 579 - 595 733 Other assets 12 792 655 362 84 277 102 531 Total assets 103 120 85 035 67 237
Liabilities 6 060 5 813 Loans and deposits from credit institutions 19 5 812 6 028 3 636 43 143 50 995 Deposits from customers and dept to customers 22 50 214 42 547 37 530 26 057 35 635 Debt raised through issuance of securities 23 35 635 26 057 18 051 435 713 Financial derivatives 18 713 435 203 199 183 Taxes payable 11 211 217 162 - 13 Deferred tax 11 21 -- - - Activities to be sold 40 - 524 - 1 395 1 269 Other liabilities 25,26 1 995 1 935 1 489 2 952 2 825 Subordinated loan capital 24 2 825 2 992 2 336 80 241 97 446 Total liabilities 97 426 80 735 63 407
Equity 1 126 1 764 Primary capital 1 764 1 126 1 128 18 7 Premium reserve 7 18 21 721 777 Dividend equalisation fund 777 757 673 271 337 Allocated to dividend 337 271 317 1 707 1 970 Savings bank's reserve 1 970 1 738 1 505 90 124 Endowment fund 124 90 109 103 106 Reserve for unrealised gains 139 110 - - - Other equity 560 178 70 - - Minority interests 16 12 7 4 036 5 085 Total equity 29 5 694 4 300 3 830 84 277 102 531 Total liabilities and equity 103 120 85 035 67 237
Kristian Eidesvik Gunn-Jane Håland Katrine Trovik Sally Lund-Andersen Chairman of the Board Vice Chairman of the Board Employee representative Member of the Board
Erling Øverland Einar Risa Ingrid Landråk TABLE OF RECORDED INCOME, EXPENSES AND CHANGES IN VALUES (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 638 716 Profi t for the year 1 007 924 862 1 96 Estimate deviation pensions 105 1 -57 - 3 Change in value of fi nancial assets available for sale 3 - - 639 815 Total recorded income 1 115 925 805 639 815 Of which majority's share 1 102 915 799 - - Of which minority's share 13 10 6
CHANGES IN EQUITY (fi gures in NOK million) Paid in equity Earned equity Reserve for Primary Premium Savings Endowment Equalisation unrealised Other Total Parent company capital reserve bank’s reserve fund fund gains equity equity Equity as at 31.12.2006 1 126 18 1 738 90 756 - 70 3 798 Transition to IFRS - - -31 - -35 103 -70 -33 Allocated dividend - - - - 271 - - 271 Adjusted equity as at 1.1.2007 1 126 18 1 707 90 992 103 - 4 036 Estimate deviations pensions 31.12.2007 - - 42 - 54 - - 96 Financial assets available for sale - - - - - 3 - 3 Changes in fair value without impact on profi t - - 42 - 54 3 - 99 Bonus issue 200 368 - - - - - 568 Split and transfer 443 -379 - - -64 - - - Grants from endowment fund - - - -61 - - - -61 Turnover own primary capital certifi cates -5 - - - 2 - - -3 Dividend 2006 resolved in 2007 - - - - -271 - - -271 Profi t for the year - - 221 95 401 - - 717 Equity as at 31.12.2007 1 764 7 1 970 124 1 114 106 - 5 085
Majority’s share Paid in equity Earned equity Savings Reserve for Primary Premium bank’s Endowment Equalisation unrealised Other Total Sum egen- The Group capital reserve reserve fund fund gains equity equity kapital Equity as at 31.12.2006 1 126 18 1 738 90 1 028 - 288 12 4 300 Transition to IFRS Parent company/subsidiaries - - -31 - -35 110 -36 - 8 Estimate deviation pensions 31.12.2007 - - 42 - 54 - 9 - 105 Financial assets available for sale - - - - - 3 - - 3 Changes in fair value without impact on profi t - - 42 - 54 3 9 - 108 Bonus issue 200 368 ------568 Split and transfer 443 -379 - - -64 - - - - Grants from endowment fund - - - -61 - - - - -61 Turnover own primary capital certifi cates -5 - - - 2 - - - -3 Dividend 2006 resolved in 2007 - - - - -272 - - -9 -281 Change in shares in subsidiaries ------5 - -5 Adjusted equity SpareBank 1 Gruppen ------53 - 53 Profi t for the year - - 221 95 401 26 251 13 1 007 Equity as at 31.12.2007 1 764 7 1 970 124 1 114 139 560 16 5 694 SpareBank 1 SR-Bank Page 71
CASH FLOW STATEMENT (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 849 928 Profi t before tax 1 256 1 161 1 096 - - Income from ownership interests -234 -189 -119 -113 2 Changes in value of fi nancial assets -51 -153 -116 -18 -22 Gain on disposal of non-fi nancial assets -22 -18 -5 43 47 Write-down of non-fi nancial assets 52 54 48 -90 6 Losses on loans 10 -92 -70 -149 -237 Taxes paid -255 -161 -187 522 724 Cash fl ow from operations 756 602 647
-14 901 -9 991 Change in gross lending to customers -10 793 -15 395 -7 309 -544 -3 999 Change in receivables from credit institutions -3 282 - -7 5 182 7 852 Change in deposits from customers 7 667 5 018 4 468 2 411 -247 Change in debt to credit institutions -216 2 392 946 -377 -1 880 Change in certifi cates and bonds -1 886 -398 -292 -249 -138 Change in other receivables -137 -66 -203 540 336 Change in current liabilities 96 1 204 253 -7 416 -7 343 A Net change in liquidity from operations -7 795 -6 643 -1 497
-64 -75 Investments in tangible fi xed assets -75 -70 -42 48 55 Proceeds from sale of fi xed assets 55 48 7 -441 -124 Change in shares and ownership interests 368 -1 071 -471 -457 -144 B Net change in liquidity from investments 348 -1 093 -506
9 845 21 255 Debt raised by issuance of securities 21 255 9 708 6 161 -1 701 -11 677 Repayment of debt raised by issuance of securities -11 677 -1 701 -5 148 799 - Subordinated loan capital raised - 799 822 -143 -127 Repayment/foreign exchange effect – subordinated loan capital -167 -143 -246 -317 -271 Dividend to primary capital certifi cate holders -271 -317 -208 8 483 9 180 C Net change in liquidity from fi nancing 9 140 8 346 1 381
610 1 693 A+B+C Net change in liquidity for the year 1 693 610 -622
387 997 Cash and cash equivalents as at 1 January 997 387 1 009 997 2 690 Cash and cash equivalents as at 31 December 2 690 997 387 610 1 693 Net change in liquid capital for the year 1 693 610 -622
The liquid holdings include cash and balances with central banks, and the share of loans and deposits with credit institutions that refer to pure placings in credit institutions. The cash fl ow statement shows how the parent company and the group generated liquid assets and how these were applied. The overall liquidity balance rose by NOK 1,693 million. In 2007, operations were marked by good growth in lending and in depos- its from customers. NOTE 1 GENERAL INFORMATION The annual accounts are presented in accordance with IFRS standards The SpareBank 1 SR-Bank Group comprises the parent bank, and interpretations that are obligatory for accounts presented as at SpareBank 1 SR-Bank, and its subsidiaries, SpareBank 1 SR-Finans 31.12.2007. AS, EiendomsMegler 1 SR Eiendom AS, SR-Investering AS, SR- Forretningsservice AS, SR-Forvaltning ASA and Vågen Eiendomsfor- The following standards are implemented in the annual accounts for 2007: valtning AS. 23.6 per cent of SpareBank 1 Boligkreditt is owned by • IFRS 7 (New Standard) – Financial Instruments: Disclosures SpareBank 1 SR-Bank and is dealt with as an associated company in and related amendments in IAS 1 (Amendments) – Presenta- the accounts. SpareBank 1 Utvikling DA and Vågen Eiendomsmegling tion of Financial Statements – Capital Disclosures AS are treated in the same manner, as the bank’s interests represent • The implementation of IFRS calls for new additional informa- 17.7 percent and 49 per cent respectively. SpareBank 1 SR-Bank tion to improve reports on fi nancial instruments. The standard owns 19.5 per cent of SpareBank 1 Gruppen. This ownership interest supersedes IAS 30 and expands the requirements relating to is treated as a joint venture. note information subject to IAS 32. The standard demands that information of a qualitative and quantitative nature be SpareBank 1 SR-Bank has its registered offi ce in Stavanger. The given on risk exposure linked to fi nancial instruments above bank has 54 branch offi ces in the counties of Rogaland, Vest and and beyond current demands. The amendments in IAS 1 call Aust Agder and Hordaland. Some of the offi ces are co-located with for expanded information on the group’s capital and how its EiendomsMegler 1 SR-Eiendom AS. All of the subsidiaries have their capital is managed. The standard does not affect how the head offi ces in Stavanger. The group’s primary activities are sales and group’s fi nancial instruments are classifi ed or evaluated, nor brokering of fi nancial products and services as well as leasing and real does it affect additional information related to taxation and estate brokering. other liabilities. • The following standards are implemented in the annual The group’s accounts were adopted by the Supervisory Board on 27 accounts for 2007: March 2008. The Supervisory Board is a savings bank’s highest body. • IFRIC 8 “Scope of IFRS 2”. Pursuant to IFRC 8 transactions in connection with the issuance of equity instruments, where the payment is less than the fair value of the of the issued capital NOTE 2 ACCOUNTING PRINCIPLES instrument shall be assessed in relation to whether they fall BASIS FOR PRESENTATION OF THE ACCOUNTS within the scope of IFRS 2. This standard does not have any FOR THE YEAR impact on the accounts for 2007. The parent bank’s and the group’s accounts for 2007 for SpareBank 1 • IFRIC 10 “Interim Financial Reporting and Impairment”. The SR-Bank (“the Bank”) have been prepared in accordance with Interna- standard does not allow a fall in the value of goodwill, equity tional Financial Reporting Standards (IFRS). This includes interpreta- instruments and fi nancial instruments that are recorded at tions from the International Financial Reporting Interpretations Commit- acquisition cost being revered at a later balance sheet date. The tee and its predecessor, the Standing Interpretations Committee (SIC). standard does not have any impact on the accounts for 2007.
The consolidated group accounts for SpareBank 1 SR-Bank have been The following standards, interpretations and amendments are obliga- prepared in accordance with the IFRS regulations of 1.1.2005. These tory for accounting years starting 1 January 2007 or later, but are not regulations could only be applied to savings banks’ accounts with considered relevant for the 2007 accounts: effect from 1.1.2007. The fi nancial statements for 2007 are thus the • IFRS 4 “Insurance contracts” fi rst annual accounts where both the Bank’s accounts and the group • IFRIC 7”Applying the restatement approach under IAS 29, accounts are presented in accordance with IFRS. As regards implemen- Financial reporting in hyper-infl ationary economies” and tation of IFRS in the parent bank’s accounts please refer to note 41. • IFRIC 9 “Re-assessment of embedded derivatives”
The basis for both the parent bank’s accounts and the consolidated The following interpretations of existing standards have been pub- accounts is historical cost with the following modifi cations: fi nancial lished and will be obligatory for company and group accounts begin- derivatives, fi nancial assets and fi nancial liabilities to fair value with ning 1 January 2008 or later, but which management has not opted changes in value over profi t and loss. The preparation of the accounts not to implement in advance. in accordance with IFRS calls for the use of estimates. Furthermore, • IFRS 8 “Operating segments” (comes into force from 1 January the application of the company’s accounting principles calls for 2009). IFRS 8 supersedes IAS 14 and coordinates segment management to exercise discretion. Areas that involve a great deal of reporting with requirements in the US SFAS 131 standard discretionary estimates, a high degree of complexity and areas where “Disclosures about segments of an enterprise and related assumptions and estimates are signifi cant for the group accounts are information”. The new standard calls for presented segment described in note 4. information being based on the management’s approach SpareBank 1 SR-Bank Page 73
to segment information in internal reporting. The Bank will recorded as income at the time of the acquisition. SpareBank 1 SR- implement IFRS 8 with effect from 1 January 2009. The stan- Bank has not applied IFRS 3 retrospectively on business combinations dard is not expected to have any impact on the company or the carried out prior to 1 January 2004. group accounts. Intra-group transactions, inter-company balances and unrealised gains The following interpretations of existing standards have been pub- between group companies are eliminated. The accounting principles lished and will be obligatory for company and group accounts begin- applied by the subsidiaries are changed when this is necessary to ning 1 January 2008 or later, but the management does not consider ensure consistency in accounting principles. them relevant to the company or the group. • IFRIC 11 “IFRS 2 – Group and treasury share transactions” The majority interests’ share of the group’s profi t is presented on a sep- (comes into force from 1 March 2007) arate line in the annual accounts under profi t before tax. Their share of • IAS 23 (Amendment) “Borrowing costs” (comes into force from equity is shown as a separate item. 1 January 2009) • IFRIC 14 “IAS 19 – The limit on a defi ned benefi t asset, ASSOCIATED COMPANIES minimum funding requirements and their interaction” (comes Companies, in which SpareBank 1 SR-Bank has a signifi cant infl uence into force from 1 January 2008) but not control, are defi ned as associated companies. Normally, sig- nifi cant infl uence arises when the Bank has a stake of between 20 and PRESENTATION CURRENCY 50 per cent of the voting capital. Associated companies are recorded in The presentation currency is Norwegian kroner (NOK) which is also accordance with the equity method of accounting in the group accounts SpareBank 1 SR-Bank’s functional currency. All fi gures are in NOK mil- and the cost method in the company accounts. lion unless otherwise stated. In the group accounts, new investments are recorded at acquisition SUBSIDIARIES cost. Investments in associated companies include goodwill identifi ed In the accounts of SpareBank 1 SR-Bank’s parent bank, subsidiaries’ at the time of the acquisition, reduced by any possible later write- assets are valued in accordance with the cost method of accounting. downs. Investments are assessed at the acquisition cost of the shares assum- ing that no write-down has been necessary. The group’s shares of profi ts or losses in associated companies are recorded and added to the balance sheet value of the investments Dividends, group contributions and other distributions are taken to together with the share of changes in equity not taken to profi t or loss. income in the year they are paid. If the dividend/group contribu- tion exceeds the share of the retained profi t after the acquisition the SpareBank 1 SR-Bank owns 17.7 per cent of SpareBank 1 Utvikling excessive amount represents a repayment of invested capital, and DA, where the other owners are banks in the SpareBank 1 Alliance the distribution is deducted from the value of the investment in the and SpareBank 1 Gruppen AS. The Bank owns 23.6 per cent of Spare- company’s accounts. Bank 1 Boligkreditt AS and 49 percent of Vågen Eiendomsmegling AS. All of these investments are defi ned as associated companies. CONSOLIDATION The group accounts include all the subsidiaries. Subsidiaries are all the JOINT VENTURES units in which SpareBank 1 SR-Bank has a decisive infl uence on the Joint ventures can be jointly-controlled operations, jointly-controlled unit’s fi nancial and operative strategy, normally through the ownership assets or jointly-controlled enterprises. Joint control implies that Spare- of more than 50 per cent of the voting capital. When deciding whether Bank 1 SR-Bank, by agreement, exercises control together with other this is a decisive infl uence, the effect of potential voting rights that participants. Jointly controlled enterprises are recorded in accordance can be exercised or converted on the balance sheet date is included. with the equity method in the group accounts and the cost method in Subsidiaries are consolidated from the date the Bank has taken over the company accounts. control and are no longer consolidated from the date the Bank relin- quishes control. SpareBank 1 Gruppen AS owns 19.5 per cent of each of the follow- ing: SpareBank 1 SR-Bank, SpareBank 1 Midt-Norge, SpareBank 1 Acquisition accounting (the purchase method) is applied when record- Nord-Norge and Samarbeidende Sparebanker AS. Other owners are ing subsidiaries. On acquisition of control of an enterprise (business Sparebanken Hedmark (12 per cent) and the Norwegian Confederation combination) all identifi able assets and liabilities are recorded at fair of Trade Unions (LO) (10 per cent). The management structure of the value in accordance with IFRS 3. A positive difference between the SpareBank 1 co-operation is governed by an agreement among the fair value of the acquired assets and fair value of identifi able assets owners. SpareBank 1 SR-Bank classifi es its participation in SpareBank and liabilities is carried as goodwill, while any negative difference is 1 Gruppen AS as an investment in a joint venture. LOANS AND LOSSES ON LOANS evidence of impairment is considered individually or collectively. If Loans are measured at amortised cost in accordance with IAS 39. the Bank decides that there is no objective evidence of impairment of Amortised cost is acquisition cost minus repayments on the principal, an individually assessed fi nancial asset, signifi cant or not, the asset plus or minus cumulative amortisation using the effective interest is included in a portfolio of fi nancial assets with the same credit risk method, less any amount for a decline in value or exposure to loss. characteristics. They are tested for any impairment loss on a portfolio The effective interest is the interest that exactly discounts estimated basis. Assets that are tested individually for impairment and where an future cash receipts and payments over the expected life of the fi nan- impairment loss can be identifi ed or is still identifi ed are not included in cial instrument. the portfolio assessment of impairment loss.
Fixed interest loans to customers shall be recorded at fair value. Gains If there is objective evidence that impairment loss has occurred, the and losses that are due to changes in fair value shall be recorded in amount of the loss is calculated as the difference between the asset’s profi t or loss as a change in value. Earned interest and premium/dis- book (carrying) value and the present value of estimated future cash count shall be recorded as interest. The interest rate risk inherent in fl ows (excluding future credit losses that have not been incurred) fi xed interest loans is managed by way of interest rate swaps that are discounted at the fi nancial asset’s original effective interest rate. The recorded at fair value. The Bank is of the opinion that recognition of carrying amount of the asset shall be reduced through the use of an fi xed interest rate loans at fair value provides more relevant informa- allowance account. The amount of the impairment loss shall be recog- tion on the values in the balance sheet. nised in profi t and loss.
IMPAIRMENT OF FINANCIAL ASSETS Future cash fl ows from a group of fi nancial assets that are tested for On each balance sheet date SpareBank 1 SR-Bank assesses whether impairment on a portfolio basis are estimated on the basis of the con- there is objective evidence that the value of a fi nancial asset or group tractual cash fl ows for the group and historical losses on assets with a of fi nancial assets has been impaired. A loss in value of a fi nancial similar credit risk. Historical losses are adjusted for existing observable asset or group of fi nancial assets has been incurred if, and only if, data in order to take into account the effects of existing circumstances there is objective evidence of an impairment that can result in a reduc- that were not present at the time of the historical losses, and to adjust tion in future cash fl ows to service the loan. The impairment must be for the effect of earlier circumstances that do not exist today. the result of one or more events that have occurred after the initial recording (a loss event) and it must be possible to measure in a reliable DEFAULTED LOANS/DOUBTFUL LOANS manner the result of the loss event (or events). Objective evidence The total commitment to a customer is considered to be in default and that the value of a fi nancial asset or group of fi nancial assets has been included in the Bank’s summaries of defaulted loans when an instal- reduced includes observed data that is known to the group relating to ment or interest is not paid 90 days after due date or a line of credit the following loss occurrences: is overdrawn for 90 days or more. Loans and other commitments that • the signifi cant fi nancial diffi culty of the issuer; are not in default, but where the customer’s fi nancial situation makes it • a breach of contract such as a default or delinquency in likely that the Bank will incur a loss, are classifi ed as doubtful loans. payment of interest or principal; • the lender, for economic or legal reasons relating to the bor- IMPAIRMENT OF LOANS CARRIED AT FAIR VALUE rower’s fi nancial diffi culty, granting to the borrower a conces- On each balance sheet date the Bank tests whether there is evidence sion that the lender would not otherwise consider; that a fi nancial asset or group of fi nancial assets carried at fair value is • it becoming probable that the borrower will enter bankruptcy exposed to impairment. Losses as a result of impairment are recogn- or other fi nancial reorganisation; ised in profi t and loss in the period in which they arise. • the disappearance of an active market because of fi nancial diffi culties; REALISED LOSSES • observable data indicating that there is a measurable decrease When it is highly probable that the losses are fi nal, the losses are classi- in the estimated future cash fl ows from a group of fi nancial fi ed as realised losses. Realised losses that are covered by earlier specifi c assets since the initial recognition of those assets, although loss provisions are recorded against the provisions. Realised losses with- the decrease cannot yet be identifi ed with the individual fi nan- out cover by way of loan loss provisions, and over or under absorption in cial assets in the group including: relation to previous loan loss provisions, are recognised in profi t and loss. • adverse changes in the payment status of the borrowers, or national or local economic conditions that correlate with SEIZED ASSETS defaults on the assets in the group. As part of the handling of defaulted loans and guarantees, the Bank The Bank fi rst considers whether there is individual objective evidence acquires in some cases assets that have been lodged as collateral of impairment of fi nancial assets that are signifi cant individually. For security for such commitments. At the time of acquisition the assets fi nancial assets that are not individually signifi cant, the objective are valued at their assumed realisation value and the value of the loan SpareBank 1 SR-Bank Page 75 commitment is adjusted accordingly. Acquired assets that are to be the assessment is carried out at the lowest level where it is possible to realised are classifi ed as holdings or fi xed assets available for sale and identify cash fl ows. Any write-down of goodwill is not reversible. recorded in accordance with the relevant IFRS standard (normally IAS For further details of goodwill in SpareBank 1 SR-Bank’s balance sheet 16, IAS 38, IAS 39 or IFRS 5). refer to note 14.
LEASES FIXED ASSETS Financial leases are recorded as loans in the balance sheet and rec- Fixed assets comprise buildings, plots of land and operating equip- ognised on the same principles as amortised cost. All regular income ment. Buildings and operating equipment are recorded at cost less during the expected term of the lease is included when calculating depreciation and write-downs. Plots of land are recorded at cost price the lease’s effective interest. The Bank has no “sell and lease back” less write-downs. The cost price includes all direct costs related to the contracts covering property, plant and equipment. acquisition of the asset. Depreciation is on a straight-line basis in order to allocate the cost price less possible residual value over the useful SECURITIES life of the operating equipment. Securities comprise shares and units, certifi cates and bonds. Shares and units are recognised either at fair value in profi t and loss or as Plots of land, buildings and sections of buildings owned by the Bank available for sale. Certifi cates and bonds are classifi ed either at fair with rental income and/or capital gains in mind are classifi ed as invest- value in profi t and loss or as held to maturity. ment properties. In the case of buildings where the Bank uses a part for its own operations, that part that is leased to others is treated as All fi nancial instruments that are classifi ed at fair value in profi t and an investment property if that part can be sectioned. The Bank has loss are measured at fair value and changes in the value from the chosen to recognise investment properties in accordance with the cost opening balance are recorded as income from other fi nancial invest- method of accounting. ments. Certifi cates and bonds that are classifi ed as held to maturity are measured at amortised cost using an effective interest rate, cf. ACTIVITIES TO BE SOLD discussion on this method in the chapter covering loans. These items in the balance sheet are the Bank’s activities which are resolved sold. The items include assets and liabilities relating to prop- DERIVATIVES AND HEDGING erty companies that are to be syndicated or disposed of by selling parts Derivatives comprise currency and interest rate instruments linked to to customers. The items are recognised at fair value. structured products. Derivatives are recognised at fair value in profi t and loss. LONG-TERM LOANS Loans are initially recorded at the cost at which they are raised, which The Bank assesses and documents the effi ciency of the hedging, both is fair value of the proceeds received after deducting transaction costs. when the initial classifi cation is made and on an ongoing basis. In the Loans are thereafter measured at amortised cost. Any difference case of complete hedging both the hedging instrument and the hedged between the borrowing cost and the settlement amount at maturity object are recognised at fair value and changes in these values com- is thus accrued over the term of the loan with the help of the loan’s pared to the opening balance are recorded in the income statement. effective interest.
In the case of structured capital-guaranteed product gains, including PENSIONS subscription costs and possible structuring gains are recorded as day 1 Companies in the group have different pension schemes. The schemes gains. Structuring gains are calculated by discounting the Bank’s future are secured through payments to insurance companies or pension funds receivables (option premium) and obligations (guaranteed capital) and are periodically assessed by an actuary. A defi ned benefi t plan is a using the swap curve. pension scheme that entitles the insured to a defi ned future benefi t on reaching retirement age, normally fi xed by factors such as age, number GOODWILL of years of service and salary. The obligation recorded in the balance Goodwill is the difference between the acquisition cost of acquiring sheet in respect of a defi ned benefi t plan is the present value of the a business and the fair value of the Bank’s share of the net identifi - defi ned obligation reduced by the fair value of pension assets. The able assets in the business at the time of acquisition. Goodwill on the obligation relating to the defi ned benefi t plan is calculated annually by acquisition of subsidiaries is classifi ed as intangible assets. Goodwill on an actuary. The present value of future defi ned benefi ts is calculated the acquisition of associated companies and joint ventures is included by discounting future payments using the interest rate for Norwegian in the investment and tested for depreciation as part of the recognised government bonds, adjusted for differences in maturity dates. value of the investment. Goodwill is not amortised but is subject to an With effect from 2005, IAS 19 allowed for recording actuarial gains annual impairment test with a view to ascertaining any impairment in and losses (estimate deviations) directly against equity and the Bank value, in accordance with IAS 36. When assessing any impairment, has chosen to follow this principle. UNCERTAIN LIABILITIES For interest-bearing instruments that are measured at fair value The Bank issues fi nancial guarantees as part of its ordinary business. the market interest rate is classifi ed as interest income or interest The assessment of losses is part of the assessment of losses on expenses, whereas the effect of interest rate fl uctuations is classifi ed loans, follows the same principles and is reported together with these, as income from fi nancial investments. cf. note 21. Provisions are made for other uncertain liabilities if it is probable that a liability will materialise and the fi nancial consequences COMMISSION INCOME AND COMMISSION EXPENSES of this can be reliably calculated. Information is given on uncertain Commission income and expenses are generally accrued according liabilities that do not satisfy the criteria for balance sheet recording if to the delivery/receipt of a service. Fees related to interest-bearing they are signifi cant. instruments are not recognised as commissions; they are included in the calculation of the effective interest rate and recognised accord- Allocations for restructuring costs are made when the Bank has a ingly in profi t and loss. Advisory fees are accrued in accordance with contractual or legal obligation. the agreement, typically at the time the service is delivered. The same applies to day-to-day administrative services. Fees and charges related SUBORDINATED LOANS/HYBRID INSTRUMENTS to the sale or brokerage of fi nancial instruments, properties or other Subordinated loans have a lower priority than all other debt. Non- investment objects that do not generate balance sheet items in the perpetual subordinated loans account for 50 per cent of the core capital Bank’s accounts are recognised when the transaction is completed. in the capital adequacy ratio, whilst perpetual subordinated loans can make up 100 per cent of the core capital. Subordinated loans are clas- TRANSACTIONS AND BALANCE SHEET ITEMS IN sifi ed as liabilities in the balance sheet and are measured at amortised FOREIGN CURRENCY cost in the same way as other long-term loans. Transactions involving foreign currencies are translated into Norwegian kroner using the exchange rates at the time of the transactions. Gains A hybrid instrument is a bond with nominal interest, but the Bank is and losses related to completed transactions or to the conversion of not obliged to pay any interest in periods when no dividend is paid and balance sheet items in foreign currencies on the date of the balance the investor cannot later claim any interest, i.e. interest is not accumu- sheet are recognised over profi t and loss. Gains and losses on non- lated. Hybrid instruments are approved as core capital elements limited monetary items are included in the income statement in the same way upward to 15 per cent of the total core capital. The Financial Supervi- as the corresponding balance sheet item. sory Authority of Norway (Kredittilsynet) can demand that hybrid instru- ments are written down proportionately with equity if the Bank’s core TAXES capital falls below 5 per cent or total capital ratio falls below 6 per cent. Taxes consist of the tax payable and deferred taxes. Taxes payable are Write-downs on hybrid instruments must be written up again before any the estimated taxes on the year’s taxable profi t. dividend can be paid to shareholders or the equity written up. Hybrid instruments are recorded as other long-term debt at amortised cost. Deferred taxes are accounted for by means of the liability method in accordance with IAS 12. Deferred tax assets or liabilities are calcu- DIVIDEND lated based on all the temporary differences, which are the differences Dividend on primary capital certifi cates is recognised as equity in the between the book values of assets and liabilities for accounting pur- period through to it being adopted by the Bank’s Supervisory Board. poses and for taxation purposes. However, no liabilities or assets are calculated for deferred taxes on goodwill that do not give a tax deduc- INTEREST INCOME AND INTEREST EXPENSES tion or items that are recognised for the fi rst time and do not affect the Interest income and expenses related to assets and liabilities that are fi nancial or taxable profi t. Deferred tax assets are calculated for tax assessed at amortised cost are entered continuously in the income loss carryforwards. Assets with deferred tax are included only to the statement in accordance with the effective interest rate method. The extent that future taxable profi ts make it possible to exploit the related effective interest rate is the interest rate that results in the present tax benefi t. Deferred tax assets are recognised only to the extent that value of the expected cash fl ow over the expected life of a fi nancial it is probable that the group will generate future taxable profi ts. asset or liability being equal to the carrying value of the respective fi nancial asset or liability. When calculating an effective interest rate Under IFRS regulations the company’s wealth tax is not defi ned as a the cash fl ow effect inherent in the agreement is estimated, without tax cost. This is therefore recognised as an operating expense. taking into account future impairment. The calculations take therefore into account fees, transaction costs, premiums and discounts. SEGMENT REPORTING If a fi nancial asset is written down due to losses, a new effective inter- A business segment is part of an entity that is engaged in providing est rate is calculated based on adjusted estimated cash fl ows. individual products or services that are subject to risks and returns that are different from those of other business segments. A geographic market (segment) is a part of a business that supplies products and SpareBank 1 SR-Bank Page 77 services within a limited geographic are that are subject to risks and believes it needs to cover the actual risk the group has assumed. Since returns that are different from other geographic areas. The fi gures in it is impossible to fully protect against all losses, the group has stipu- the segment reporting are based on internal management reporting. lated that the economic capital shall cover 99.9 per cent of possible unexpected losses. The calculation of economic capital is based on EVENTS AFTER THE BALANCE SHEET DATE statistical methods, but the calculation requires the use of qualitative The annual accounts are published after they have been approved by assessments in some cases. the Board of Directors. The Supervisory Board and regulatory authori- ties may refuse to approve the published annual accounts subsequent The return on economic capital is one of the most important strategic to this, but they cannot change the accounts. targets in the internal management of SpareBank 1 SR-Bank. This entails that the business units are allocated capital in accordance with Events occurring up to the time when the annual accounts are the estimated risk of their activities, and that their return on capital is approved for publication involving issues that were already known monitored on an ongoing basis. The calculation of economic capital on the balance sheet date will form part of the information basis for enables a comparison of risk across risk groups and business units. In determining accounting estimates and will thus be fully refl ected in the addition, the risk is measured and followed up by measuring frame- fi nancial statements. Events that were not known on the balance sheet work exploitation and important portfolio targets, etc. date will be reported if they are signifi cant. In order to ensure an effective and adequate process for risk and capital The annual accounts have been prepared on the assumption that the management the framework is based on 10 elements that refl ect the group will continue as a going concern. This assumption was valid in manner in which the Board of Directors and management manage the accordance with the Board of Directors’ opinion at the time the fi nan- group: cial statements were approved for publication. • Organisation and organisational culture The Board’s dividend proposal is stated in the Directors’ Report and • Strategic targets the Statement of Changes in Equity. Proposed dividends are classifi ed • Risk identifi cation as equity until fi nal approval is granted. • Risk analysis • Risk strategies • Capital management (including returns and capital adequacy) NOTE 3 FINANCIAL RISK MANAGEMENT • Reporting Risk and capital management supports the group’s strategic develop- • Follow-up ment and the attainment of its goals. Furthermore, risk management • Contingency plans shall ensure fi nancial stability and satisfactory asset management. • Compliance This shall be achieved through: • A strong risk culture, characterised by a high level of risk man- For further details please refer to the article on “Risk and capital agement awareness management”. • A solid understanding of which risks drive earnings • Striving towards an optimal application of capital within the Below is a more detailed description of fi nancial risk management adopted business strategy linked to credit risk, liquidity risk and market risk. • Avoiding unexpected negative events that can seriously harm the group’s fi nancial status CREDIT RISK • The exploitation of synergy and diversifi cation effects Credit risk is defi ned as the risk of loss due to customers or other contracting parties not having the ability or the will to fulfi l their The group has a moderate risk profi le. The group’s target is at least to obligations to the group. Credit risk is managed through the group’s maintain its present international ratings and thus secure good long- overriding credit strategy, strategic credit limitations, credit policies term access to funding from the capital markets. and regulations relating to authority to approve credits.
The group’s risk is quantifi ed, for example, through calculations of the In accordance with the group’s risk management ambitions, SpareBank expected losses and need for risk-adjusted capital (economic capital) 1 SR-Bank has been granted approval by the Financial Supervisory to cover unexpected losses. The expected losses and economic capital Authority of Norway (Kredittilsynet) to use an internal rating-based are calculated for all the main risk groups, and for all the business approach for credit risk from 1 January 2007. For the group this categories in the group. The expected losses are an indication of the means that the statutory minimum requirements for capital adequacy amount of losses that must be statistically expected over the next for credit risk will be based on the group’s internal risk assessments 12 months. Economic capital describes how much capital the group with effect from 2007. This will make the statutory minimum capital adequacy requirement more risk sensitive, so that the capital require- obligations. This estimate takes into account the security furnished ment will correspond more closely to the risk inherent in the underlying by the customer, and the costs the group incurs in collecting portfolios. The implementation of the new rules has had a positive defaulted commitments. These estimates are determined on the effect on the group’s capital adequacy, even though the full effect will basis of empirical data over time. Seven classes (1-7) are used for not be seen until 2010. classifi cation by the degree of loss in the event of default.
The credit strategy and the strategic credit limitations are determined The three components mentioned above also establish the basis at least annually by the Board of Directors. The group’s credit strategy for the group’s portfolio classifi cation and statistical calculations of focuses on risk-sensitive key performance indicators and the limits that expected losses and the need for economic capital. The purpose of are set so that they can manage the group’s risk profi le in the credit this portfolio classifi cation is to provide information on the level and area in the most appropriate and effi cient manner. This is achieved development of the overall credit risk in the total portfolio, and the primarily by linking key performance indicators and limits to economic portfolio is therefore divided into 5 risk groups: lowest, low, medium, capital, the probability of losses and risk-adjusted return. In addition, high and highest risks respectively. The division into risk groups is done the credit strategy sets limits for the exposure and risk profi le at the on the basis of statistical estimates of each commitment’s expected portfolio level, in industry sectors and with individual customers. loss, based on the probability of default, exposure to default and the degree of default. The Board of Directors is responsible for the group’s loan and credit approvals. The Board of Directors delegates authority, within certain The group seeks to price its loans on the basis of risk exposure so limits, for the operational responsibility with respect to decisions that the commitments with the highest risk have the highest price. in loan and credit cases to the CEO. The CEO can himself delegate The price model is based on the group’s required rates of return for authority further within the limits of his authority. Delegated authority economic capital. is linked to a loan or commitment’s expected losses and the probability of default. Further details can be found in the article “Risk and capital manage- ment”, and notes 20, 33, 34 and 35. The group has developed and actively uses a risk classifi cation system, a risk pricing model and a portfolio management system for managing LIQUIDITY RISK its loan portfolios in line with the credit strategy and credit policies. Liquidity risk is defi ned as the risk of the group not being able to In combination with the rules relating to delegated authority to grant refi nance its debt or fi nance an increase in assets without incurring credits, this establishes clear requirements for the credit review pro- signifi cant additional costs. cess and risk assessments. The risk management systems mentioned above cover customers in both the corporate and retail market. The Management of the group’s fi nancial structure is based on an overall risk models on which risk management systems are based use statisti- liquidity strategy that is reviewed and adopted by the Board of Direc- cal calculations and are subject to continuous development and test- tors at least annually. The liquidity strategy refl ects the group’s moder- ing. The models are based on three components: ate risk profi le. The contingency plan for dealing with liquidity in times of capital market unrest is part of the liquidity strategy. 1. Probability of default . Customers are classifi ed in a default class based on the probability that the customer will default on his obli- The group’s currency/ fi nance area (SR-Markets) is responsible for gations during a period of 12 months. The probability of default is liquidity management, while the Department for Risk Management calculated based on historical data series for key fi nancial fi gures, and Compliance monitors and reports on the utilisation of limits in as well as non-fi nancial criteria such as behaviour and age. Nine accordance with the liquidity strategy. Liquidity risk is reduced by bor- default classes (A - I) are used to classify the customers according rowing in several markets, using a range of funding sources, instru- to the probability of default. The table below shows the probability ments and maturity dates. of default intervals for each of the default classes. In addition, the group has two default classes (J and K) for customers with Deposits from customers are the group’s most important source of defaulted and/or written down commitments. funding. The deposit-to-loan ratio was 57 per cent at the end of 2006, compared to 55 per cent at the end of 2006. Despite the unrest in the fi nancial markets, the group’s liquidity as at 31 December 2007 was 2. Expected exposure in the event of default: This is an estimate satisfactory. Of the group’s aggregate funding portfolio of NOK 44.23 of what the exposure will be if a customer were to default. billion at year-end, NOK 14 billion or 32 per cent is to be refi nanced in 2008. There is an even distribution between international and domes- 3. Losses in the event of default: This is an estimate of how much tic funding sources. the group can potentially lose if the customer defaults on his SpareBank 1 SR-Bank Page 79
Further details can be found in the article “Risk and capital manage- The bank’s risk classifi cation systems are described under fi nancial risk ment”, and notes 33, 38 and 39. management.
MARKET RISK Write-downs are made on individual loans and guarantees if there is Market risk is defi ned as the risk of loss due to changes in observ- objective evidence that can be identifi ed for an individual commitment, able market variables such as interest rates, currency rates, and stock and the objective evidence entails a reduction in future cash fl ows for market prices. The risk of fl uctuations in the price of securities caused servicing the commitment. Objective evidence may be default, bank- by changes in general credit prices is also considered a market risk. ruptcy, illiquidity and other signifi cant fi nancial diffi culties.
Market risk arises in SpareBank 1 SR-Bank primarily as a result of the Individual write-downs are calculated as the difference between the group’s investments in bonds, certifi cates and shares, and as a conse- loan’s book value and the present value of future cash fl ows based on quence of activities carried out to support ordinary banking activities, the effective interest rate at the time of the calculation of the initial such as funding and trading in currencies and interest rate instruments. individual write-down. Subsequent changes in interest rates are taken into account for loan agreements with fl oating interest rates if these The Department for Risk Management and Compliance is responsible changes affect the expected cash fl ow. for the regular, independent monitoring of the group’s market risk. Group write-downs are calculated for subgroups of loans where there is Market risk is measured and monitored based on limits that are objective evidence indicating impairment in future cash fl ows to repay adopted by the Board. The limits are determined on the basis of stress the loans, and where it is not possible to assess all the commitments tests and the analysis of negative market movements. The group’s on an individual basis or where it is not possible to identify evidence market risk exposure is moderate. at the commitment level. Objective evidence for groups of loans may consist of a negative risk classifi cation development, information about Interest rate risk is the risk of loss as a result of interest rate fl uctua- a negative development in the value of assets pledged as collateral, tions. It is measured and monitored based on limits that are adopted profi tability in a particular industrial sector, or the solvency of groups of as described above. The interest rate commitment terms for the debtors. The consequences of developments in solvency and the value group’s instruments are for the most part short, and the group’s inter- of assets pledged as collateral will be analysed using the Bank’s ana- est rate risk is moderate. lytical tools and statistical methods that include historical information on the probability of default and recovery percentages, as well as other Currency risk is the risk of loss due to fl uctuations in foreign exchange known information. Some portfolios of smaller loans such as consumer rates. The limits for currency risk are expressed by limits for the maxi- loans and private overdrafts will be assessed using statistical methods. mum aggregate currency position and maximum position in individual currencies. Currency risk is well within the limits laid down in regula- The assessment of individual and group write-downs will always call tions and is considered to be low. for a considerable degree of discretionary judgment. Predictions based on historical data may prove to be incorrect because of the uncertainty Stock market risk is the risk of loss as a result of fl uctuations in the value of the relevance of the historical data as a decision-making basis. of bonds, certifi cates and equity instruments the group has invested When the value of assets pledged as collateral is linked to special in. The group’s risk exposure in terms of stock market risk is controlled objects or industrial sectors in a crisis situation, it may be neces- through limits for maximum investments in the various portfolios. sary to realise these assets in markets that are not very liquid and, therefore, the assessment of fair value may be subject to considerable Further details can be found in the article “Risk and capital manage- uncertainty. ment”, and notes 33, 38 and 39. FAIR VALUE OF EQUITY INSTRUMENTS Financial assets assessed at fair value over profi t and loss will normally NOTE4 CRITICAL ESTIMATES AND ASSESSMENTS be traded in active markets and the fair value can thus be determined REGARDING THE USE OF ACCOUNTING PRINCIPLES with reasonable certainty. For fi nancial assets classifi ed as available for sale this is not necessarily the case. Similarly, market values for assets LOSSES ON LOANS AND GUARANTEES and liabilities that are carried at amortised prices and appear in notes The Bank assesses its entire corporate market portfolio annually. Large may be estimates based on discounted future cash fl ows, multiplier commitments, defaulted loans and high risk exposures are subject to analyses or other calculation methods. Such methods can be subject to quarterly assessment. Loans to private customers are subject to evalu- signifi cant uncertainty. With the exception of a few shares, the Norwe- ation when they are in default for more than 60 days. Large defaulted gian stock market is considered to have poor liquidity. Share prices will loans are evaluated on a quarterly basis. under most circumstances be the last known traded price. FAIR VALUE OF FINANCIAL DERIVATIVES PENSIONS The fair value of fi nancial derivatives is usually determined by using Net pension liabilities and the pension expenses for the year are based valuation methods where the price of the underlying object, for on a number of estimates, including the yield on pension assets, future example interest and currency rates, is obtained from the market. In interest and infl ation rates, future wage development, staff turnover, the case of share options, volatility will either be observable implicit development in the National Insurance basic amount (G), the general volatility or calculated volatility based on historical share price development in the number of persons receiving disability benefi ts movements for the underlying object. If the Bank’s risk position is and life expectancy. Uncertainty is to a great extent related to gross approximately neutral, middle rates will be used. A neutral risk posi- liabilities and not to net liabilities that are shown in the balance sheet. tion means for example that the interest rate risk within a re-pricing Changes in estimates as a consequence of changes in the above interval is approximately zero. Otherwise the relevant purchase or parameters will be recorded directly against equity on an ongoing sales price is used to assess the net position. For fi nancial derivatives basis. where the other party has a weaker credit rating than the Bank, the price will refl ect the underlying credit risk. To the extent that market prices are obtained from transactions with a lower credit risk, this will be taken into account by amortising the original price difference measured against such transactions with a lower credit risk over the maturity period.
NOTE 5 SEGMENT INFORMATION Management has assessed which segments are reportable based on the form of distribution, products and customers. The primary reporting format is based on the risk and return profi le of the assets, and it is divided between the retail market (including self-employed people) and the corporate market and subsidiaries of considerable signifi cance. The Bank’s own investment activities are not a separate reportable segment, and they appear under the item “other activities” together with activities that cannot be allocated to the retail market, the corporate market or subsid- iaries of considerable signifi cance.
Reporting by business areas: 1) (fi gures in NOK million) Retail Corporate Eiendoms- SR- SR- SR- Other SR-Bank 2007 marketmarket Megler 1 Finans Forvaltning Investering activities group Net external interest income 706 435 -5 219 1 - -16 1 340 Net internal interest income -13 -3 16 -141 1 3 137 - Net interest income 693 432 11 78 2 3 121 1 340 Net commission and other income 435 156 275 -1 68 2 -40 895 Net yield on fi nancial investments - - - 1 - 52 335 388 Operating expenses 353 73 249 32 16 7 627 1 357 Profi t/loss before losses 775 515 37 46 54 50 -211 1 266 Losses on loans and guarantees -16 28 - 3 - - -5 10 Profi t/loss before taxes 791 487 37 43 54 50 -206 1 256
Lending to customers 50 429 34 218 - 3 472 - - -29 88 090 Individual loan write-downs -36 -56 - -6 - - - -98 Group loan write-downs -31 -89 - -11 - - - -131 Other assets - - 733 90 68 201 14 167 15 259 Total assets per segment 50 362 34 073 733 3 545 68 201 14 138 103 120
Deposits from and debt to customers 21 450 29 545 - - - - -781 50 214 Other liabilities - - 716 3 245 61 33 43 157 47 212 Total liabilities per segment 21 450 29 545 716 3 245 61 33 42 376 97 426
Equity - - 17 300 7 168 5 202 5 694 Total liabilities and equity per segment 21 450 29 545 733 3 545 68 201 47 578 103 120 SpareBank 1 SR-Bank Page 81
(continuation note 5)
Retail Corporate Eiendoms- SR- SR- SR- Other SR-Bank 2006 marketmarket Megler 1 Finans Forvaltning Investering activities group Net external interest income 702 242 -3 126 1 - 60 1 128 Net internal interest income -6 48 8 -71 - 3 18 - Net interest income 696 290 5 55 1 3 78 1 128 Net commission and other income 336 120 226 -3 51 - -52 678 Net yield on fi nancial investments - - - - 1 24 416 441 Operating expenses 343 61 202 24 12 5 531 1 178 Profi t/loss before losses 689 349 29 28 41 22 -89 1 069 Losses on loans and guarantees -5 -37 - - - - -50 -92 Profi t/loss before taxes 694 386 29 28 41 22 -39 1 161
Lending to customers 48 152 26 504 - 2 642 - - -1 77 297 Individual loan write-downs -52 -51 - -9 - - 5 -107 Group loan write-downs -34 -89 - -8 - - - -131 Other assets - - 519 103 54 159 7 141 7 976 Total assets per segment 48 066 26 364 519 2 728 54 159 7 145 85 035
Deposits from and debt to customers 19 189 23 954 - - - - -596 42 547 Other liabilities - - 503 2 562 47 25 35 051 38 188 Total liabilities per segment 19 189 23 954 503 2 562 47 25 34 455 80 735
Equity - - 16 166 7 134 3 977 4 300 Total liabilities and equity per segment 19 189 23 954 519 2 728 54 159 38 432 85 035
Retail Corporate Eiendoms- SR- SR- SR- Other SR-Bank 2005 marketmarket Megler 1 Finans Forvaltning Investering activities group Net external interest income 764 222 -1 85 2 - 41 1 113 Net internal interest income -2 29 3 -42 - - 12 - Net interest income 762 251 2 43 2 - 53 1 113 Net commission and other income 291 103 190 -2 33 - -39 576 Net yield on fi nancial investments - - - - - 1 348 349 Operating expenses 315 47 167 21 10 - 452 1 012 Profi t/loss before losses 738 307 25 20 25 1 -90 1 026 Losses on loans and guarantees 2 -72 ------70 Profi t/loss before taxes 736 379 25 20 25 1 -90 1 096
Lending to customers 41 792 17 897 - 2 059 - - 64 61 812 Individual loan write-downs -70 -84 - -9 - - - -163 Group loan write-downs -34 -128 - -7 - - - -169 Other assets - - 388 79 34 134 5 122 5 757 Total assets per segment 41 688 17 685 388 2 122 34 134 5 186 67 237
Deposits from and debt to customers 17 464 20 066 - - - - - 37 530 Other liabilities - - 376 1 969 27 1 23 504 25 877 Total liabilities per segment 17 464 20 066 376 1 969 27 1 23 504 63 407
Equity - - 12 153 7 133 3 525 3 830 Total liabilities and equity per segment 17 464 20 066 388 2 122 34 134 27 029 67 237 (continuation note 5) The group operates in a geographically limited area from Grimstad in the south to Bergen in the north. In addition, important classes of assets (loans and deposits) are distributed geographically in separate notes under loans and deposits.
Rogaland Agder Other/undistributed SR-Bank group Reporting by geographic area 1) 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005 Net interest income 1 231 1 055 1 063 82 60 50 27 13 - 1 340 1 128 1 113 Net commission and other income 784 598 517 95 77 59 16 3 - 895 678 576 Net yield on fi nancial investments 388 440 349 - - - - 1 - 388 441 349 Operating expenses 1 223 1 064 950 95 83 59 39 31 3 1 357 1 178 1 012 Profi t/loss before losses 1 180 1 029 979 82 54 50 4 -14 -3 1 266 1 069 1 026 Losses on loans and guarantees ------10 -92 -70 10 -92 -70 Profi t/loss before tax 1 180 1 029 979 82 54 50 -6 78 67 1 256 1 161 1 096
Lending to customers 76 709 69 482 51 916 8 381 6 465 4 462 3 000 1 350 5 434 88 090 77 297 61 812 Individual loan write-downs -96 -102 -115 - - -23 -2 -5 -25 -98 -107 -163 Group loan write-downs ------131 -131 -169 -131 -131 -169 Other assets 15 259 7 976 5 757 ------15 259 7 976 5 757 Total assets per segment 91 872 77 356 57 558 8 381 6 465 4 439 2 867 1 214 5 240 103 120 85 035 67 237
Deposits from and debt to customers 47 900 40 835 28 395 2 016 1 620 1 448 298 92 7 687 50 214 42 547 37 530 Other liabilities 47 212 38 188 25 877 ------47 212 38 188 25 877 Total liabilities per segment 95 112 79 023 54 272 2 016 1 620 1 448 298 92 7 687 97 426 80 735 63 407
Equity 5 694 4 300 3 830 ------5 694 4 300 3 830 Total liabilities and equity per segment 100 806 83 323 58 102 2 016 1 620 1 448 298 92 7 687 103 120 85 035 67 237 1) Figures for the business areas and geographic areas are based on internal management reporting.
NOTE 6 NET INTEREST INCOME (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 Interest income 92 378 Interest on receivables from credit institutions 236 21 18 2 719 4 440 Interest on lending to customers 4 659 2 851 2 172 116 184 Interest on certifi cates and bonds 184 116 86 Interest on written-down fi nancial assets 7 21 - Loans and receivables from customers 21 7 (*) 2 934 5 023 Total interest income 5 100 2 995 2 276
Interest expenses 62 224 Interest on debt to credit institutions 228 64 138 930 1 853 Interest on deposits from customers 1 833 919 536 774 1 537 Interest on securities issued 1 536 774 396 108 160 Interest on subordinated loan capital 163 110 93 1 874 3 774 Total interest expenses 3 760 1 867 1 163 1 060 1 249 Net interest income 1 340 1 128 1 113
(*) Comparative fi gures for 2005 are not available. SpareBank 1 SR-Bank Page 83
NOTE 7 NET COMMISSION AND OTHER OPERATING INCOME (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 35 51 Guarantee commissions 49 34 28 20 22 Interbank commissions 22 20 22 38 81 Securities trading 81 38 31 - - Management 66 49 31 52 74 Brokerage commission 74 52 39 - 8 Commission from SpareBank 1 Boligkreditt 8 - - 208 234 Commission from money transfers 234 208 201 88 96 Insurance services 96 88 85 23 35 Other commission income 45 22 16 464 601 Total commission income 675 511 453
17 16 Interbank commissions 16 17 17 48 54 Commission on money transfers 54 48 53 2 3 Guarantee commissions 3 2 - 10 10 Other commission expenses 8 8 6 77 83 Total commission expenses 81 75 76
6 4 Operating income from real estate 4 5 5 - - Real estate brokerage 275 218 189 19 22 Other operating income 22 19 5 25 26 Total other operating income 301 242 199 412 544 Net commission and other income 895 678 576
NOTE 8 INCOME FROM FINANCIAL INVESTMENTS (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 Change in value of interest rate instruments -1 -32 Bonds and certifi cates at fair value -32 -1 5 Change in value of equity instruments 10 11 - Dividend 12 12 38 10 94 - Dividend from ownership interests - - - 64 35 - Equity instruments – held for trading 35 104 94 52 - - Equity instruments – at fair value 53 52 30 Change in value of derivatives - -3 Net change in value of secured bonds and derivatives -3 - -13 -2 -2 Net change in value of secured fi xed interest loans and derivatives -2 -2 - 133 103 Total net income from fi nancial assets at fair value 63 165 154
- 1 Realised available for sale instruments 1 - - - 1 Net income from securities available for sale 1 - -
87 90 - Net currency gain 90 87 76
220 194 Net income from fi nancial investments 154 252 230 NOTE 9 OPERATING EXPENSES (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005
500 570 Personnel expenses 751 634 541 160 163 IT expenses 169 166 145 59 53 Marketing 71 77 61 76 86 Other administration expenses 99 86 71 43 47 Ordinary depreciation (note 13 and 14) 52 47 46 - - Write-down of fi xed assets (note 13 and 14) - 7 2 22 25 Operating expenses real estate 26 23 25 26 48 External fees 52 27 20 47 61 Other operating expenses 137 111 101 933 1 053 Total operating expenses 1 357 1 178 1 012
Personnel expenses 371 429 Salaries 568 476 401 46 62 Pension costs (defi ned benefi t plan, note 26) 76 56 51 48 53 Social benefi ts 73 62 55 35 26 Other personnel expenses 34 40 34 500 570 Total personnel expenses 751 634 541
809 852 Average number of employees 1 032 969 916 775 821 Number of fulltime equivalents as at 31 December 1 021 944 862 835 869 Number of employees as at 31 December 1 078 1 015 942
Auditor’s fees – external auditor – specifi cation (fi gures in NOK 1000) 1 226 1 281 Mandatory audit 1 737 1 658 1 258 351 388 Other attestation services 397 358 337 84 2 Tax advice 81 148 112 1 579 836 Other non-audit related services 1 255 1 641 725 3 240 2 507 Total 3 470 3 805 2 432 SpareBank 1 SR-Bank Page 85
NOTE 10 REMUNERATION TO SENIOR EMPLOYEES AND ELECTED OFFICERS (Figures in NOK)
Present Remuneration to Group Executive Management Loans *No. Of value of Of which Other as at 31 PCCs owned pension Pension 2007 Salary bonus benefi ts December as at 31 obligation cost
Terje Vareberg Chief Executive Offi cer 3 054 828 575 000 229 507 7 146 787 94 117 14 559 952 1 640 479 Sveinung Hestnes Executive VP Capital Market 1 798 756 290 000 176 319 2 376 107 33 112 10 519 748 695 633 Lisbet K. Nærø Chief Financial Offi cer 1 611 867 275 000 157 001 3 449 468 34 258 2 127 066 992 681 Tore Medhus Executive VP Corporate Market 1 661 069 300 000 127 394 2 833 395 11 301 6 178 236 432 377 Rolf Aarsheim Executive VP Retail Market 1 588 636 225 000 163 205 3 223 306 41 338 10 547 030 556 530 Svein Ivar Førland Executive VP Business Support and Development 1 448 508 230 000 161 527 1 757 002 6 304 2 865 090 470 986 Thor-Christian Haugland Executive VP Communication and Public Relations 1 240 780 210 000 139 196 3 368 492 19 037 3 263 913 484 525 Frode Bø Executive VP Risk Management and Compliance 1 199 953 300 000 116 201 1 835 504 3 394 2 217 508 205 886 Arild L. Johannessen Executive VP Human Resources 1 196 316 200 000 141 401 1 500 000 10 984 4 909 709 236 574
2006
Terje Vareberg Chief Executive Offi cer 2 697 150 375 000 236 870 7 020 756 28 881 12 780 984 1 615 275 Sveinung Hestnes Executive VP Capital Market 1 652 321 250 000 179 500 2 230 957 2 329 8 143 108 627 213 Lisbet K. Nærø Chief Financial Offi cer 844 358 - 123 558 3 562 626 1 812 968 810 750 850 Tore Medhus Executive VP Corporate Market 1 490 018 220 000 118 873 1 422 325 3 119 5 487 505 354 202 Rolf Aarsheim Executive VP Retail Market 1 483 743 220 000 161 979 2 351 022 5 059 9 774 458 493 410 Svein Ivar Førland Executive VP Business Support and Development 1 301 016 190 000 161 713 1 975 312 1 514 2 300 441 375 664 Thor-Christian Haugland Executive VP Communication and Public Relations 1 131 164 170 000 153 923 3 377 112 739 2 842 405 381 009 Frode Bø Executive VP Risk Management and Compliance 852 589 91 847 129 561 1 835 977 577 1 213 676 138 591 Arild L. Johannessen Executive VP Human Resources 1 084 196 164 000 140 648 1 600 000 3 019 5 088 615 178 475
2005
Terje Vareberg Chief Executive Offi cer 2 271 610 360 000 217 435 3 951 000 22 669 13 386 606 1 525 141 Sveinung Hestnes Deputy Managing Director 1 518 472 250 000 144 253 2 283 000 2 117 7 910 036 436 965 Tor Dahle Chief Financial Offi cer 1 347 238 220 000 189 339 2 653 000 6 779 8 678 710 176 138 Tore Medhus Executive VP Corporate Market 1 282 779 165 000 133 524 1 467 000 2 907 5 247 648 182 931 Rolf Aarsheim Executive VP Retail Market 1 328 938 220 000 129 308 2 439 000 4 847 8 543 583 303 598 Svein Ivar Førland Executive VP Business Support and Development 1 091 563 140 000 117 259 1 962 000 1 302 3 462 460 159 375 Thor-Christian Haugland Executive VP Communication and Public Relations 982 687 145 138 122 377 3 392 000 842 3 876 681 139 815 Arild L. Johannessen Executive VP Human Resources 970 172 150 000 113 883 1 660 000 2 507 4 286 012 58 847
All managers and staff of SpareBank 1 SR-Bank, with the exception of the CEO, have a bonus scheme linked to their positions. The scheme encompasses group, divisional, departmental and individual bonuses, depending on the position. No bonus schemes exceed 25 per cent of fi xed salary. Any bonus paid to the CEO is determined by the Board of Directors upon special consideration.
The group executive management has pension benefi ts of up to 70 per cent of their fi xed salary at the time of retirement, and these benefi ts are earned in the same manner as the rest of the bank’s employees. Reference is made to note 26 for further details on pension terms. The loan terms for executives are the same as for the rest of the employees.
* The number of SpareBank 1 SR-Bank primary capital certifi cates held by the individual as at 31 December 2007.The fi gure includes certifi - cates held by close family members where the individual has decisive infl uence.cf. Section 1-2 of the Public Limited Companies Act. In addi- tion it includes primary capital certifi cates belonging to the institution that the elected offi cer represents. (continuation note 10)
Remuneration to Board of Director and Audit Committee *No. of PPCs Loan as at owned as at 2007 Fee Other benefi ts 31.12. 31.12 Kristian Eidesvik Chairman of the Board 290 000 - 38 765 Gunn-Jane Håland Vice Chairman of the Board 162 500 - Einar Risa Board member 135 000 - 4 000 Sally Lund-Andersen Board member (employee representative) 135 000 495 414 1 315 473 426 Ingrid Landråk Board member 135 000 - Erling Øverland Board member 135 000 - 5 845 Katrine Trovik Board member 135 000 -
Odd Rune Torstrup Chairman of the Audit Committee 117 500 - 9 000 Odd Broshaug Vice Chairman of the Audit Committee 85 000 1 585 859 Svein Hodnefjell Audit Committee member 85 000 - Vigdis Wiik Jacobsen Audit Committee member 85 000 - 9 000 Randi Larsen Skjæveland Audit Committee member 94 000 1 330 497 68 380
2006 Kristian Eidesvik Chairman of the Board 223 868 11 290 - 8 000 Gunn-Jane Håland Vice Chairman of the Board 135 000 1 303 992 Einar Risa Board member 88 000 1 784 908 Sally Lund-Andersen Board member (employee representative) 60 000 469 812 1 353 843 110 Ingrid Landråk Board member 120 000 - Erling Øverland Board member 60 000 - 1 000 Katrine Trovik Board member 60 000 -
Odd Rune Torstrup Chairman of the Audit Committee 110 000 - Odd Broshaug Vice Chairman of the Audit Committee 80 000 1 555 085 Svein Hodnefjell Audit Committee member 83 000 - Vigdis Wiik Jacobsen Audit Committee member 80 000 - Randi Larsen Skjæveland Audit Committee member 49 000 986 943 14 440
2005 Geir Worum Chairman of the Board 288 595 10 503 - Kristian Eidesvik Vice Chairman of the Board 154 855 5 475 - Gunn-Jane Håland Board member 125 698 5 475 1 762 000 3 000 Torstein Plener Board member (employee representative) 120 000 457 070 1 365 000 2 527 Ingrid Landråk Board member 65 054 5 475 - John Peter Hernes Board member 122 948 5 475 137 000 Magne Vathne Board member 125 698 5 475 595 000 Anne Kroken Board member 120 000 -
Odd Rune Torstrup Chairman of the Audit Committee 110 000 - Odd Broshaug Vice Chairman of the Audit Committee 80 000 1 327 710 Svein Hodnefjell Audit Committee member 80 000 - Vigdis Wiik Jacobsen Audit Committee member 43 000 - Kåre Hansen Audit Committee member 101 000 333 719
* The number of SpareBank 1 SR-Bank primary capital certifi cates held by the individual as at 31 December 2007.The fi gure includes certifi - cates held by close family members where the individual has decisive infl uence.cf. Section 1-2 of the Public Limited Companies Act. In addition it includes primary capital certifi cates belonging to the institution that the elected offi cer represents. SpareBank 1 SR-Bank Page 87
NOTE 11 TAXES (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 1 029 928 Profi t before taxes 1 256 1 161 1 096 -308 -168 Permanent differences * -333 -347 -274 -21 - Group contribution - -- -37 -101 Change in temporary differences -156 -71 -365 21 131 - of which recorded directly against equity 154 2 108 - -162 Excess/insuffi cient temporary difference calculated in previous years -166 -- 684 628 Tax base/taxable income for the year 755 745 565
192 176 Of which is tax payable 28% 204 209 158 6 - Effect of group contribution - -- - 7 Tax impact of issue costs recorded against equity 7 -- 10 28 Change in deferred tax 41 25 104 -6 -36 - of which change not recorded in income statement -38 -6 -31 1 37 Excess or defi cient tax payable allocation in previous years 35 1-1 203 212 Total tax charge 249 229 230
Explanation of why the tax charge for the year is not 28 per cent of the year’s profi t before tax: 288 260 28% tax on profi t before tax 344 325 307 -86 -47 28% tax on permanent differences * -93 -97 -76 - 7 Tax impact of issue costs recorded against equity 7 -- 1 37 Excess or defi cient tax allocation in previous years 36 1-1 - -45 Defi cient tax asset allocation in previous years -45 -- 203 212 Estimated tax charge 249 229 230
Deferred tax assets: -113 -67 - deferred tax assets that reverse in more than 12 months -86 -471 -499 -8 -7 - deferred tax assets that reverse within 12 months -7 -30 -40 -121 -74 -93 -501 -539 Deferred tax: 106 80 - deferred tax that reverses in more than 12 months 115 415 393 - 7 - deferred tax that reverses within 12 months - -- 106 87 115 415 393 Specifi cation of temporary differences: 29 43 Gains and loss account 32 17 - 244 172 Differences related to fi nancial items 172 242 248 106 71 Loans 85 106 142 -360 -205 Pension liabilities -257 -418 -451 -29 -24 Accounting provisions -26 -30 -40 - - Leasing operating equipment 111 50 3 -44 -36 Tangible fi xed assets -43 -51 -45 - 26 Group contribution paid - -- - - Tax loss carryforward in subsidiaries 1 -2 -3 -54 47 Total temporary differences 75 -86 -146
28% 28% Tax rate applied 28% 28% 28% -15 13 Deferred taxes/tax assets in the balance sheet 21 -24 -41
* Includes tax-exempted dividends, non-tax-deductible expenses, net tax-exempt gains on realisation of shares in the European Economic Area (EEA), and tax allowances for profi t attributable to associated companies in 2006 and 2005 (the percentage of the profi t is extracted as it has already been taxed in the individual company).
Pursuant to IFRS regulations, wealth tax is classifi ed as a levy and not as a tax charge. For 2007 the wealth tax is estimated at NOK 8 million and is classifi ed as other operating expenses. This note has been restated for 2006 and 2005 with this in mind and comparable fi gures have been compiled. (The income statements and the balance sheets for 2006 and 2005 have not been restated with this in mind). NOTE 12 OTHER ASSETS (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 25 25 Equity and subordinated capital in SR-Bank Pension Fund 25 25 25 203 175 Other assets 210 252 157 355 525 Accrued income not received 543 362 163 12 8 Prepaid expenses 14 16 17 595 733 Total other assets 792 655 362
NOTE 13 TANGIBLE FIXED ASSETS (fi gures in NOK million) Parent company The Group Machinery, Machinery, Buildings Buildings Investment fi xtures and Investment fi xtures and and other Total and other Total property means of property means of real estate real estate transport transport 278 68 456 802 Cost of acquisition as at 1.1. 2005 279 69 494 842 8 - 34 42 Additions 21 - 39 60 2 13 158 173 Disposals 15 13 160 188 284 55 332 671 Cost of acquisition as at 31.12. 2005 285 56 373 714
125 28 351 504 Acc. depreciation and write-downs as at 1.1. 2005 125 28 380 533 5 1 36 42 Current year's depreciation 5 1 40 46 8 5 158 171 Current year's disposals 8 5 159 172 1 1 - 2 Current year's write-downs 1 1 - 2 123 25 229 377 Acc. depreciation and write-downs as at 31.12. 2005 123 25 261 409
161 30 103 294 Book value 31.12. 2005 162 31 112 305
236 48 Fair value 239 48
284 55 332 671 Cost of acquisition as at 1.1. 2006 285 56 373 714 - 5 65 70 Additions - 5 70 75 41 22 2 65 Disposals 42 21 2 65 243 38 395 676 Cost of acquisition as at 31.12. 2006 243 40 441 724
123 25 229 377 Acc. depreciation and write-downs as at 1.1. 2006 123 25 261 409 2 3 36 41 Current year's depreciation 2 3 41 46 17 11 1 29 Current year's disposals 18 10 2 30 - - - - Current year's write-downs - - - - 108 17 264 389 Acc. depreciation and write-downs as at 31.12. 2006 107 18 300 425
135 21 131 287 Book value 31.12. 2006 136 22 141 299
223 39 Fair value 227 42 SpareBank 1 SR-Bank Page 89
(continuation note 13)
243 38 395 676 Cost of acquisition as at 1.1. 2007 243 40 441 724 - - 75 75 Additions - - 79 79 43 18 11 72 Disposals 43 18 13 74 200 20 459 679 Cost of acquisition as at 31.12. 2007 200 22 507 729
108 17 264 389 Acc. depreciation and write-downs as at 1.1. 2007 107 18 300 425 3 1 43 47 Current year's depreciation 3 1 47 51 19 8 12 39 Current year's disposals 19 8 14 41 - - - - Current year's write-downs - - - - 92 10 295 397 Acc. depreciation and write-downs as at 31.12. 2007 91 11 333 435
108 10 164 282 Book value 31.12. 2007 109 11 174 294
224 31 Fair value 227 34
Collateral security The group has not mortgaged or accepted any other limitations on its right to dispose of the fi xed assets.
Revaluation/depreciation The group does not reassess its fi xed assets on an ongoing basis. In connection with the initial implementation of IFRS, buildings were valued at cost less accumulated depreciation in accordance with the Norwegian regulations applicable at the time. The ordinary depreciation rate for machin- ery, fi xtures and means of transport is 14-33 per cent, and it is 2 per cent for bank buildings, investment property and other types of real estate.
Commitments The group has contractual agreements to acquire fi xed assets totalling NOK 41 million, NOK 8 million of which has been paid in advance. Of gross capitalised fi xed assets, there are fi xed assets under construction or not yet in use with a book value of NOK 8 million.
Buildings and other real estate The parent bank applies IFRS with effect from 1 January 2007 and the building portfolio was divided into buildings and other real estate and investment properties. Comparative fi gures for investment properties have been compiled for 2006 and 2005.
Of the total book value of bank buildings, NOK 101 million is used for banking. The fair value of the buildings has been established through independent valuation. A portion of the group’s buildings are rental properties. When property owned by the group can be physically divided and one or more of the divisions is rented, the rental portion is defi ned as an investment property. The group has chosen to account for its investment properties in accordance with the cost model. Operating expenses related to rental properties are in general either invoiced directly to the tenant or re-billed to the tenant by the group.
Parent company The Group
Book value Share Book value Share Book value Additions/ 31 rented 31 Book value Additions/ 31 rented 31 1 January disposals/ December Rental December 1 January disposals/ December Rental December 2005 depreciation 2005 income 2005 2005 depreciation 2005 income 2005 7 -2 5 1 8% Bjergsted Terrasse 7 -2 5 1 8% 6 - 6 1 30% Domkirkeplassen 6 - 6 1 30% 4 -2 2 - 10% Haugesund town centre 4 -2 2 - 10% 7 - 7 1 49% Sola 7 - 7 1 49% 5 -2 3 - 49% Randaberg 5 -2 3 - 49% 4 -1 3 - 37% Tysvær (Aksdal senteret) 4 -1 3 - 37% 3 -2 1 - 15% Vigrestad 3 -2 1 - 15% 3 - 3 1 40% Madla 3 - 3 1 40% Apartment Bjergsted Terrasse 1 - 1 - 100% 1 -1 - - Flekkefjord 1 -1 - - 40 -10 30 4 Total 41 -10 31 4 (continuation note 13)
Book value Share Book value Share Book value Additions/ 31 rented 31 Book value Additions/ 31 rented 31 1 January disposals/ December Rental December 1 January disposals/ December Rental December 2006 depreciation 2006 income 2006 2006 depreciation 2006 income 2006 5 - 5 1 8% Bjergsted Terrasse 5 - 5 1 8% 6 - 6 1 30% Domkirkeplassen 6 - 6 1 30% 2 2 4 - 23% Haugesund town centre 2 2 4 - 23% 7 -7 - - Sola 7 -7 - - 3 -3 - - Randaberg 3 -3 - - 314151%Tysvær (Aksdal senteret) 3 1 4 1 51% 1 -1 - - Vigrestad 1 -1 - - 3 -1 2 1 42% Madla 3 -1 2 1 42% Apartment Bjergsted Terrasse 1 - 1 - 100% 30 -9 21 4 Total 31 -9 22 4
Book value Share Book value Share Book value Additions/ 31 rented 31 Book value Additions/ 31 rented 31 1 January disposals/ December Rental December 1 January disposals/ December Rental December 2007 depreciation 2007 income 2007 2007 depreciation 2007 income 2007 5 -1 4 - 8% Bjergsted Terrasse 5 -1 4 - 8% 6 - 6 1 30% Domkirkeplassen 6 - 6 1 30% 4 -4 - - Haugesund town centre 4 -4 - - 4 -4 - 1 Tysvær (Aksdal senteret) 4 -4 - 1 2 -2 - 1 Madla 2 -2 - 1 Apartment Bjergsted Terrasse 1 - 1 - 100% 21 -11 10 3 Total 22 -11 11 3
NOTE 14 INTANGIBLE ASSETS – GOODWILL (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 32 32 Cost of acquisition as at 1.1 45 45 45 - - Additions 19 - - - - Disposals - - - 32 32 Cost of acquisition as at 31.12 64 45 45
30 32 Accumulated depreciation and write-downs as at 1 January 41 33 33 2 - Current year's write-downs - 8 - 32 32 Accumulated depreciation and write-downs as at 31 December 41 41 33
- - Book value as at 31 December 23 4 12
The book value (carrying value) as at 31 December 2007 is made up of NOK 19 million relating to goodwill in connection with the acquisition of 100 per cent of the shares in Vågen Eiendomsforvaltning AS in June 2007. The amount appears as the difference between identifi able assets and excess of purchase price and the cost price of the shares. The goodwill item’s elements relate to future earnings in the company and are supported by present value calculations of expected future earnings that document a future economic benefi t of the acquisition of the company.
NOK 4 million of the goodwill in the balance sheet refers to EiendomsMegler 1 and covers a number of smaller items.
The value of the goodwill items are reviewed annually and written down if there are grounds for so doing. No write-down has been called for in 2007. SpareBank 1 SR-Bank Page 91
NOTE 15 INVESTMENTS IN OWNERSHIP INTERESTS
Subsidiaries, associated companies and joint ventures Date of Registered Percentage Company acquisition offi ce stake Investments in subsidiaries Shares owned by the parent bank SpareBank 1 SR-Finans 1987 Stavanger 100,00 EiendomsMegler 1 SR-Eiendom 1990 Stavanger 100,00 Westbroker Finans 1990 Stavanger 100,00 SR-Forvaltning 2001 Stavanger 66,67 SR-Investering 2005 Stavanger 100,00 SR-Forretningsservice 2007 Stavanger 100,00 Vågen Eiendomsforvaltning 2007 Stavanger 100,00 Shares owned by subsidiaries Jærmegleren 2007 Stavanger 100,00 Vågen Drift 2006 Stavanger 100,00 Investments in associated companies Admi-senteret 1984 Jørpeland 50,00 SpareBank 1 Utvikling 2004 Oslo 17,74 SpareBank 1 Boligkreditt 2005 Stavanger 23,63 Vågen Eiendomsmegling 2007 Stavanger 49,00 Investments in joint ventures SpareBank 1 Gruppen 1996 Oslo 19,50
The percentage stake and the percentage of voting rights are the same for all companies.
2007 2006 Shares in subsidiaries parent bank The company’s Percentage No. of Nominal Book Book (fi gures in NOK 1000) share capital stake shares value value value SpareBank 1 SR-Finans 167 000 100 334 000 167 000 265 663 165 663 Total investments in credit institutions 167 000 265 663 165 663 EiendomsMegler 1 SR-Eiendom 1 500 100 150 1 500 3 000 3 000 Westbroker Finans 100 100 100 100 4 177 4 177 SR-Investering 30 000 100 3 000 30 000 133 244 133 244 SR-Forvaltning 6 000 66,7 4 000 4 000 4 018 4 018 SR-Forretningsservice 100 100 1 000 100 125 - Vågen Eiendomsforvaltning 500 100 5 000 500 19 639 - Total investments in subsidiaries parent bank 203 200 429 866 310 102
Investments in all of these companies are recorded in accordance with the cost method in the parent bank’s accounts. (continuation note 15)
(fi gures in NOK million) Transactions with subsidiaries 2007 2006 Income and expenses Interest income from subsidiaries 144 67 Interest expenses to subsidiaries 22 11 Commission income from subsidiaries 3 2 Commission expenses to subsidiaries 2 2 Other income from subsidiaries 1 1 Other expenses to subsidiaries - 1 Receivables from subsidiaries Operating credit 2 975 431 Other loans 163 1 991 Other receivables 3 84 Total receivables 3 141 2 506 Debt to subsidiaries Deposits from subsidiaries 782 627 Other liabilities 1 22 Total liabilities 783 649
Associated companies and joint ventures Parent company (fi gures in NOK 1000) 2007 2006
As at 1 January 648 919 519 601 Increased/new interests 139 416 146 943 Transferred from the company (dividend) - -17 625 As at 31 December 788 335 648 919
Of which investments in credit institutions NOK 243 029 (2006: NOK 106 873). Investments in all of these companies are recorded in accordance with the cost method in the parent bank’s accounts.
The Group (fi gures in NOK 1000) 2007 2006 2005
As at 1 January 793 179 498 244 291 831 Increased/new interests 136 156 146 943 80 305 Acquisitions of associated companies 3 260 - - Disposals of associated companies -385 -290 - Adjustments against equity 52 349 -23 599 7 476 Dilution losses -821 - - Share of the profi t 234 216 189 506 119 003 Transferred from the company (dividend) -19 500 -17 625 -371 As at 31 December 1 198 454 793 179 498 244
Investments in all of these companies are recorded in accordance with the equity method in the parent bank's accounts. As at 31 December2007 investments in associated companies include goodwill of NOK 25 695 (2006: NOK 22 589). SpareBank 1 SR-Bank Page 93
(continuation note 15)
The Group’s stakes in associated companies and joint ventures Percentage 2007 Assets Liabilities Income Profi t/loss ownership
SpareBank 1 Gruppen Oslo 10 807 588 9 902 774 2 028 734 230 906 19,50 SpareBank 1 Utvikling Oslo 62 747 39 281 70 610 318 17,74 SpareBank 1 Boligkreditt Stavanger 3 709 157 3 464 325 104 042 2 247 23,63 Vågen Eiendomsmegling Stavanger 2 207 1 984 3 509 745 49,00 Admi–Senteret Jørpeland - - - - 50,00 Total 14 581 699 13 408 364 2 206 895 234 216
2006
SpareBank 1 Gruppen Oslo 9 587 433 8 888 904 1 882 273 189 792 19,50 SpareBank 1 Utvikling Oslo 58 472 39 153 61 610 1 822 17,74 SpareBank 1 Boligkreditt Stavanger 219 573 113 155 2 976 -355 26,72 SpareBank 1 Bilplan Trondheim 8 251 6 869 31 946 -1 753 26,70 Admi–Senteret Jørpeland 11 020 8 833 2 448 - 50,00 Total 9 884 749 9 056 914 1 981 253 189 506
2005
SpareBank 1 Gruppen Oslo 7 692 178 7 261 120 1 585 530 119 748 17,63 SpareBank 1 Utvikling Oslo 61 595 43 595 57 579 - 20,00 SpareBank 1 Boligkreditt Stavanger 29 444 2 831 197 -105 26,72 SpareBank 1 Bilplan Trondheim 7 803 6 014 35 515 -740 26,70 EiendomsMegler Sunnhordland Stord 1 129 893 2 704 100 50,00 Admi–Senteret Jørpeland 11 753 9 892 2 411 - 50,00 Total 7 803 902 7 324 345 1 683 936 119 003
Receivables from and debts to associated companies and joint ventures Loans Deposits Subordinated loan Admi-Senteret 17 - - SpareBank 1 Gruppen 104 15 43 SpareBank 1 Utvikling 55 - - SpareBank 1 Boligkreditt - 827 - Vågen Eiendomsmegling - 32 -
NOTE 16 SHARES, PRIMARY CAPITAL CERTIFICATES AND OTHER SECURITIES (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 562 445 At fair value over profi t and loss 580 574 460 341 303 - Listed 331 350 273 221 142 - Unlisted 249 224 187
2 4 Available for sale 9 87 2 4 - Unlisted 9 87 564 449 Shares, primary capital certifi cates and other securities 589 582 467
Shares, primary capital certifi cates and other securities are classifi ed in the categories fair value and available for sale. Securities that can be assessed in a reliable manner and reported internally at fair value are classifi ed at fair value over profi t and loss. Other shares are classifi ed as available for sale. (continuation note 16)
Investments in shares, primary capital certifi cates and other securities parent bank The company’s Percentage No. of Cost of Book value/ (fi gures in NOK 1000) share capital ownership shares acquisition market value At fair value over profi t and loss Listed companies Kongsberg Gruppen 150 000 0,2 57 346 6 899 19 440 Scana Industrier 209 167 0,5 825 231 3 802 15 597 Lerøy Seafood Group 53 577 0,2 116 910 7 410 12 860 Orkla 1 295 539 0,0 111 562 10 685 11 741 Kverneland 138 878 0,5 824 056 7 071 8 694 Norsk Hydro 1 370 257 0,0 76 438 3 030 5 932 Pride USD 1 669 0,0 45 244 8 888 8 402 DOF 165 536 0,4 294 420 5 471 18 328 StatoilHydro 7 971 618 0,0 96 477 13 405 16 305 Telenor 10 081 647 0,0 67 721 7 369 8 787 Wilh. Willhelmsen Class B-shares 255 621 0,3 40 132 7 955 7 826 Solstad Offshore 75 588 0,1 47 902 5 772 7 425 DOF Subsea 563 669 0,3 387 685 16 346 16 244 Voss Veksel- og Landmandsbank 9 500 1,6 1 540 3 781 4 312 Protector Forsikring 103 364 0,2 171 365 2 110 1 695 Sparebanken Vestfold 126 655 4,2 53 427 10 333 8 014 Sparebanken Nord-Norge 840 698 0,5 84 115 6 384 10 683 Sparebanken Pluss 125 000 2,9 36 788 8 140 8 001 Sparebanken Midt-Norge 1 349 400 0,4 206 781 8 342 14 940 Rygge - Vaaler Sparebank 147 260 1,8 26 450 4 038 3 624 Nøtterø Sparebank 107 510 0,2 2 300 253 258 Melhus Sparebank 80 000 0,1 590 100 83 Other listed companies 31 161 28 167 Shares secured by options Awilco Offshore 1 494 155 0,1 100 000 6 588 6 588 Tandberg 113 675 0,1 130 000 17 818 17 818 Golden Ocean Group USD 28 024 0,1 300 000 10 563 10 563 StatoilHydro 7 971 618 0,0 25 000 4 154 4 154 Odfjell Invest USD 138 316 0,5 650 000 10 440 10 440 Acta Holding 45 303 0,1 320 000 7 413 7 413 Other shares secured by options 8 369 8 369 Total shares secured by options 65 345 65 345 Total listed companies 244 090 302 703
Unlisted companies Short-term investments Møbelinvest Eiendom Holding 2 500 25,0 125 12 500 12 500 Other unlisted companies 6 548 2 597 Long-term investments Blå Holding 253 846 6,2 632 172 23 831 127 372 Total unlisted companies 42 879 142 469
Total at fair value over profi t and loss shares primary capital certifi cates and other securities. 286 969 445 172
Available for sale Total unlisted companies 3 557 Total shares primary capital certifi cates and other securities parent bank. 448 729 SpareBank 1 SR-Bank Page 95
(continuation note 16)
Investments in shares, primary capital certifi cates and other securities the group The company’s Percentage No. of Cost of Book value/ (fi gures in NOK 1000) share capital ownership shares acquisition market value At fair value over profi t and loss: Total listed companies parent bank 244 090 302 703 Oslo Børs 86 008 0,1 37 500 2 925 5 437 Kverneland 138 878 0,2 336 000 2 452 3 545 Sparebanken Vest 250 000 0,5 13 350 2 600 2 523 Austevoll Seafood 92 159 0,0 81 000 3 159 3 200 Grieg Seafood 306 048 0,0 23 000 529 363 Roxar 238 783 0,8 1 948 624 11 863 13 446 Total listed companies subsidiaries 23 528 28 514 Total listed companies the group 267 618 331 217
Unlisted companies parent bank 42 879 142 469 Viking Venture II 2 880 1,0 30 000 3 956 3 956 SR Feeder 1 675 29,9 500 1 000 1 000 Proserv 10 570 2,0 212 238 6 501 6 501 Borea Opportunity II 56 200 2,2 1 250 1 250 1 250 Marin Vekst II 561 8,3 46 439 4 644 4 644 Hitec Vision Private Equity III 4 031 7,9 319 927 12 159 39 965 Optimarin 1 325 10,9 144 000 5 010 5 010 RPT Gass 4 944 20,0 9 888 4 005 4 005 Progressus 13 3,4 450 2 376 2 376 FishEx 12 064 8,9 25 017 2 079 579 Mikro A 200 16,5 33 000 2 970 2 970 Marin Forvaltning 125 5,0 625 250 250 Hitec Vision Private Equity IV 19 836 21 134 Other unlisted shares subsidiaries 11 281 12 183 Total unlisted shares subsidiaries 77 317 105 823 Total unlisted shares the group 120 196 248 292
Total at fair value over profi t and loss shares, primary capital certifi cates and other securities 387 814 579 509
Available for sale Unlisted companies parent bank 3 557 Unlisted companies subsidiaries 5 787
Total shares, primary capital certifi cates and securities the group 588 853 NOTE 17 CERTIFICATES AND BONDS (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 Government - - - nominal value 16 25 7 - - - fair value 16 25 7 Other public sector issuers 25 - - nominal value - 25 25 26 - - fair value - 26 25 Financial institutions 2 189 4 102 - nominal value 4 120 2 263 1 919 2 263 4 073 - fair value 4 091 2 264 1 923 Non-fi nancial institutions 1 232 1 334 - nominal value 1 338 1 238 1 199 1 237 1 333 - fair value 1 337 1 243 1 204 3 526 5 406 Total certifi cates and bonds at fair value 5 444 3 558 3 159
Bonds and certifi cates are recorded at fair value over profi t and loss.
NOTE 18 FINANCIAL DERIVATIVES
General description: The fair value of fi nancial derivatives is usually determined by using valuation methods where the price of the underlying object, for example interest and currency rates, is obtained from the market. If the group’s risk position is approximately neutral, middle rates will be used. A neutral risk position means, for example, that the interest rate risk within a re-pricing interval is approximately zero. Otherwise the relevant purchase or sales price is used to assess the net position. For fi nancial derivatives where the other party has a weaker credit rating than the group, the price will refl ect the underlying credit risk. If market prices are obtained based on transactions with a lower credit risk, this will be taken into account by allocating the original price difference to future credit losses.
The group has hedged certain fi xed-rate borrowings. Each hedge is documented with reference to the group’s risk management strategy, a clear identifi cation of the item being hedged, the hedging instrument used, a description of the hedged risk, a description of why hedging is regarded as highly probable and a description of when and how the group shall determine the effi ciency of the hedge during the accounting period and that it is expected to be very effective during the next accounting period. The group has defi ned the hedged risk as value changes linked to the NIBOR component of the hedged fi xed interest rates in NOK and value changes linked to LIBOR and the currency components of the hedged fi xed inter- est rates in foreign currencies.
The group uses interest rate swaps as hedging instruments, where the group receives fi xed interest in NOK or a foreign currency and makes payments based on a fl oating (for the most part 3 months) NIBOR rate. As of 31 December 2007 the net fair value of hedging instruments was NOK 63 million (NOK 174 million in assets and NOK 237 million in liabilities). SpareBank 1 SR-Bank Page 97
(continuation note 18)
Currency and interest rate instruments (fi gures in NOK million)
At fair value over profi t and loss 2007 2006 Contract Fair Contract Fair amount value amount value Currency instruments Assets Liabilities Assets Liabilities Currency forward contracts 3 729 16 109 2 902 52 10 Currency swaps 12 154 188 34 11 522 115 107 Currency options 72 1---- Total currency instruments 15 955 205 143 14 424 167 117
Interest rate instruments Interest rate swaps (including cross currency) 35 496 514 331 12 910 171 221 Other interest rate contracts 45 4 2 1 503 32 1 Total interest rate instruments 35 541 518 333 14 413 203 222
Hedging/Interest rate instruments Interest rate swaps (including cross currency) 8 704 174 237 9 943 108 96 Sum renteinstrumenter sikring 8 704 174 237 9 943 108 96
Total currency and interest rate instruments Total interest rate instruments 44 245 692 570 24 356 311 318 Total currency instruments 15 955 205 143 14 424 167 117 Total 60 200897 713 38 780 478 435
At fair value over profi t and loss 2005 Contract Fair amount value Currency instruments Assets Liabilities Currency forward contracts 1 747 17 13 Currency swaps 13 114 222 13 Currency options - - - Total currency instruments 14 861 239 26
Interest rate instruments Interest rate swaps (including cross currency) 15 055 88 121 Other interest rate contracts 1 161 36 28 Total interest rate instruments 16 216 124 149
Hedging/Interest rate instruments Interest rate swaps (including cross currency) 5 965 156 28 Total interest rate instruments hedging 5 965 156 28
Total currency and interest rate instruments Total interest rate instruments 22 181 280 177 Total currency instruments 14 861 239 26 Total 37 042 519 203
The note applies equally to the parent bank and the group. NOTE 19 CREDIT INSTITUTIONS – RECEIVABLES AND LIABILITIES (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005
Loans to and deposits with credit institutions 163 109 Loans and deposits at call 115 170 43 2 422 6 380 Loans and deposits with agreed maturities or notice 3 242 - - 2 585 6 489 Total 3 357 170 43
Debt to credit institutions 253 1 201 Debt to credit institutions at call 1 201 222 183 5 807 4 612 Debt to credit institutions with agreed maturities or notice 4 611 5 806 3 453 6 060 5 813 Total 5 812 6 028 3 636
Specifi ed by major currencies 1 223 17 USD 17 1 223 77 4 101 2 675 EUR 2 675 4 101 3 000 725 2 788 NOK 2 787 694 543 11 333 Other currencies 333 10 16 6 060 5 813 Total 5 812 6 028 3 636
2,0 % 4,3 % Average interest rate 4,3 % 2,0 % 1,1 %
The average interest rate is calculated on the actual interest expense during the year as a percentage of the average outstanding debt to credit institutions.
NOTE 20 LENDING TO AND RECEIVABLES FROM CUSTOMERS (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 Distribution by type of receivable Financial leasing 2 735 2 191 1 783 20 021 24 492 Overdraft facilities and operating credits (excluding fl exi-loans) 24 492 20 021 10 239 2 526 3 947 Building loans 3 985 2 633 1 374 52 133 56 313 Repayment loans 56 995 52 476 48 352 Excess value of fi xed interest rate lending / -24 -105 Amortisation of establishment fees -117 -24 64 74 656 84 647 Gross lending 88 090 77 297 61 812 -222 -212 Write-downs -229 -238 -332 74 434 84 435 Net lending 87 861 77 059 61 480
Distribution by market 48 152 50 429 Retail market 51 095 48 461 41 890 25 391 33 840 Corporate market 36 447 27 554 18 903 1 137 483 Public sector 665 1 306 955 -24 -105 Undistributed -117 -24 64 74 656 84 647 Gross lending 88 090 77 297 61 812 -222 -212 Write-downs -229 -238 -332 74 434 84 435 Net lending 87 861 77 059 61 480 SpareBank 1 SR-Bank Page 99
(continuation note 20)
Of which subordinated loan capital 60 60 Subordinated loan capital in credit institutions - -- 43 65 Subordinated loan capital in other fi nancial institutions 65 43 43 103 125 Subordinated loan capital recorded as lending 65 43 43
871 894 Of which loans to employees 1 076 1 057 959 The terms are one percentage point lower than the standardised interest rate set by the Norwegian Ministry of Finance.
Parent company The Group Total lending distributed by risk group 57 429 65 750 Very low risk 66 580 58 699 54 694 19 534 26 411 Low risk 28 328 20 303 12 329 13 719 12 048 Medium risk 12 499 14 087 4 547 1 470 2 026 High risk 2 220 1 557 1 605 1 349 841 Very high risk 903 1 458 1 074 307 709 Defaults 739 321 461 93 808 107 785 Total 111 269 96 425 74 710
Gross loans distributed by risk group 49 552 53 075 Very low risk 53 876 50 846 47 372 15 018 19 531 Low risk 21 448 15 787 8 891 7 415 9 436 Medium risk 9 887 7 783 3 044 1 217 1 713 High risk 1 907 1 304 1 231 1 171 623 Very high risk 685 1 280 749 307 374 Defaults 404 321 461 -24 -105 Undistributed -117 -24 64 74 656 84 647 Total 88 090 77 297 61 812
Individual write-downs distributed by risk group 1) 103 99 Defaults 105 111 163 103 99 Total 105 111 163
1) In the event of a write-down the capital of all loans irrespective of risk class is transferred to defaults.
Expected annual average net loss distributed by risk group 3 4 Very low risk 5 4 10 19 28 Low risk 29 20 18 48 48 Medium risk 52 50 16 13 19 High risk 21 15 14 29 26 Very high risk 28 31 30 3 5 Defaults 5 3 1 115 130 Total 140 123 89
The expected average annual loss over an economic cycle is set equal to one year’s expected losses as these are calculated using the bank’s classifi cation system. During boom conditions, such as we had in 2007, the actual annual losses are far below the average loss level. During future business downturns the losses for the individual years are similarly expected to exceed the expected average annual losses. Expected losses are a parameter in the bank’s price model for calculating recommended prices, based on factors such as the probability of default and security. (continuation note 20)
Parent company The Group 2006 2007 Gross lending distributed by geographic area 2007 2006 2005 6 010 7 648 Agder counties 7 864 6 112 4 462 62 482 67 253 Rogaland 69 732 64 424 51 916 3 007 3 643 Hordaland 3 861 3 210 1 929 285 266 Abroad 266 285 228 2 872 5 837 Others 6 367 3 266 3 277 74 656 84 647 Total 88 090 77 297 61 812
Gross lending distributed by sector and industry 2 293 2 655 Agriculture/forestry 2 887 2 500 2 303 693 885 Fisheries/fi sh farming 911 720 499 1 871 3 441 Mining/oil and gas 3 480 1 928 525 6 531 5 300 Industry 5 857 6 930 4 217 3 525 3 858 Power and water supply/building and construction 4 550 4 028 2 690 2 300 2 844 Retail trades, hotels and restaurants 3 047 2 478 2 182 2 280 5 047 Overseas shipping, pipeline transport and other transport 5 343 2 540 1 805 13 343 19 113 Property management 19 167 13 369 9 195 4 173 4 780 Service sector 5 327 4 655 3 432 3 083 1 414 Public sector and fi nancial services 1 586 3 252 2 899 40 092 49 337 Total industry 52 155 42 400 29 747 53 716 58 448 Retail market 59 114 54 025 44 963 93 808 107 785 Total 111 269 96 425 74 710
Gross lending distributed by sector and industry 1 930 2 157 Agriculture/forestry 2 389 2 137 1 969 639 614 Fisheries/fi sh farming 640 666 307 1 523 2 457 Mining/oil and gas 2 497 1 580 388 2 162 2 436 Industry 2 993 2 561 1 876 952 1 154 Power and water supply/building and construction 1 845 1 455 1 264 1 676 2 013 Retail trades, hotels and restaurants 2 216 1 854 1 553 2 046 3 453 Overseas shipping, pipeline transport and other transport 3 749 2 306 1 624 11 379 15 892 Property management 15 917 11 429 7 743 3 084 3 664 Service sector 4 211 3 566 2 179 1 137 483 Public sector and fi nancial services 655 1 306 955 Undistributed (excess value of fi xed interest rate -24 -105 lending/amortisation of establishment fees) -117 -24 64 26 504 34 218 Total industry 36 995 28 836 19 922 48 152 50 429 Retail market 51 095 48 461 41 890 74 656 84 647 Total 88 090 77 297 61 812 SpareBank 1 SR-Bank Page 101
(continuation note 20) 2006 2007 Individual write-downs distributed by sector and industry 2007 2006 2005 4 - Agriculture/forestry - 4 9 1 - Fisheries/fi sh farming 1 3 6 - - Mining/oil and gas - - - 9 32 Industry 32 10 28 1 - Power and water supply/building and construction 1 2 2 11 9 Retail trades, hotels and restaurants 10 11 10 6 3 Overseas shipping, pipeline transport and other transport 5 8 10 14 8 Property management 8 14 14 5 11 Service sector 11 7 15 - - Public sector and fi nancial services - - - 51 63 Total industry 68 59 94 52 36 Retail market 37 52 69 103 99 Total 105 111 163
Expected average annual net loss distributed by sector and industry 2 3 Agriculture/forestry 4 3 6 2 1 Fisheries/fi sh farming 1 2 2 9 10 Mining/oil and gas 10 9 1 20 11 Industry 13 21 5 8 7 Power and water supply/building and construction 9 10 4 5 8 Retail trades, hotels and restaurants 9 6 4 7 10 Overseas shipping, pipeline transport and other transport 11 8 4 28 44 Property management 44 28 37 16 15 Service sector 16 17 10 1 - Public sector and fi nancial services - 1 - 98 109 Total industry 117 105 73 17 21 Retail market 23 18 16 115 130 Total 140 123 89
Loans to and receivables from customers The Group related to fi nancial leasing 2007 2006 2005 Gross receivables related to fi nancial leasing - Up to 1 year 158 117 77 - Between 1 and 5 years 1 950 1 628 1 206 - More than 5 years 619 446 500 Total 2 727 2 191 1 783
Net investments in fi nancial leases can be analysed in the following manner: - Up to 1 year 158 116 - Between 1 and 5 years 1 944 1 619 - More than 5 years 617 443 Total 2 719 2 178 (*)
(*) Comparable fi gures for 2005 are not available. NOTE 21 LOSSES ON LOANS AND GUARANTEES (fi gures in NOK million) Parent company
2006 2007 Retail Corporate Retail Corporate Marked Market Total Marked Market Total Losses on loans and guarantees -17 -34 -51 -16 12 -4 Change in individual write-downs in the period - -39 -39 -3 - -3 Change in group write-downs in the period 11 2 13 31720Realised losses on commitments previously written down 123 ---Realised losses on commitments not previously written down -111-1-Amortised loans -8 -9 -17 -4 -3 -7 Recoveries on loans and guarantees previously written down -13 -77 -90 -19 25 6 Total losses on loans and guarantees
Individual write-downs 69 85 154 52 51 103 Individual write-downs to cover losses on loans and guarantees as at 1 January -Realised losses in the period on loans and guarantees previously -11 -2 -13 -3 -17 -20 written down individually -15 -45 -60 -23 -17 -40 -Reversal of write-downs in previous years + Increase in write-downs on commitments previously written 123224 down individually 81119 84452+ Write-downs on commitments not previously written down individually = Individual write-downs to cover losses on loans and guarantees 52 51 103 36 63 99 as at 31 December
Write-downs on groups of loans 34 128 162 34 89 123 Write-downs to cover losses on loans and guarantees as at 1 January - -39 -39 -3 - -3 + Write-downs to cover losses on loans and guarantees in the period = Write-downs on groups of loans to cover losses on loans 34 89 123 31 89 120 and guarantees as at 31 December
Losses by sector and industry 1% -1 -67% -4 Agriculture/forestry 6% -5 -17% -1 Fisheries/fi sh farming 0% - 0% - Mining/oil and gas 20% -18 433% 26 Industry 4% -4 -17% -1 Power and water supply/building and construction -2% 2 -33% -2 Retail trades, hotels and restaurants 4% -4 -33% -2 Overseas shipping, pipeline transport and other transport 1% -1 50% 3 Property management 8% -7 100% 6 Service sector 43% -39 -50% -3 Transferred from write-downs of groups of loans 14% -13 -267% -16 Retail market 100% -90 100% 6 Losses on loans to customers SpareBank 1 SR-Bank Page 103
The Group
2007 2006 2005 Retail Corporate Retail Corporate Retail Corporate Marked Market Total Marked Market Total Marked Market Total -17 11 -6 -17 -35 -52 -26 -33 -59 ---- -38 -38 - -8 -7 4192311 2 13 27 36 63 1-11 2 3 3 21 24 1-1- - 1 1 1 -6 -5 -4 -4 -8 -8 -11 -19 -4 -81 -85 -15 25 10 -13 -79 -92 1 -71 -70
52 59 111 69 94 163 93 129 222
-4 -19 -23 -11 -2 -13 -27 -36 -63 -23 -21 -44 -15 -51 -66 -17 -26 -43
2241 4 5 3 10 13 10 47 57 8 14 22 17 17 34
37 68 105 52 59 111 69 94 163
26 105 131 34 135 169 34 142 176 ----8 -30 -38 - -7 -7
26 105 131 26 105 131 34 135 169
-40% -4 1% -1 -3% 2 -20% -2 8% -7 6% -4 0% - 0% - 0% - 260% 26 20% -18 -26% 18 -20% -2 4% -4 1% -1 -10% -1 -3% 3 1% -1 -20% -2 3% -3 -3% 2 30% 3 2% -2 -7% 5 70% 7 10% -9 120% -84 0% - 41% -38 11% -8 -150% -15 14% -13 -1% 1 100% 10 100% -92 100% -70 (continuation note 21)
The Group Defaulted and doubtful commitments 2007 2006 2005 2004 2003 Defaulted commitments 92 111 130 203 426 Other doubtful commitments 647 210 331 386 419 Total doubtful commitments 739 321 461 589 845 Individual write-downs -105 -111 -163 -222 -316 Interest on reversal of discounted write-downs 7 610 Net doubtful commitments 641 216 308 367 529
Interest income from defaulted and doubtful commitments totals NOK 23 million.
Fair value of collateral security furnished for loans and receivables is equal to the book value plus write-downs. Collateral security is in the form of cash, securities, guarantees and properties.
NOTE 22 DEPOSITS FROM CUSTOMERS (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 33 078 40 858 Deposits from and debt to customers at call 40 084 32 489 27 206 10 065 10 137 Deposits from and debt to customers at agreed maturities 10 130 10 058 10 324 43 143 50 995 Total deposits 50 214 42 547 37 530
Deposits distributed by sector and industry 703 789 Agriculture/forestry 789 703 712 93 349 Fisheries/fi sh farming 349 93 55 471 1 624 Mining/oil and gas 1 624 471 619 1 546 2 086 Industry 2 086 1 546 1 441 1 364 1 464 Power and water supply/building and construction 1 464 1 364 1 387 1 544 1 768 Retail trades, hotels and restaurants 1 768 1 544 1 383 1 543 1 690 Overseas shipping, pipeline transport and other transport 1 690 1 543 1 273 2 856 3 961 Property management 3 961 2 856 2 172 4 451 5 920 Service sector 5 139 3 855 2 568 9 382 9 894 Public sector and fi nancial services 9 894 9 382 8 456 23 953 29 545 Total industry 28 764 23 357 20 066 19 190 21 450 Retail market 21 450 19 190 17 464 43 143 50 995 Total deposits distributed by sector and industry 50 214 42 547 37 530
Deposits distributed by geographic area 1 810 2 134 Agder counties 2 134 1 810 1 448 33 829 41 805 Rogaland 41 024 33 233 28 395 1 078 1 207 Hordaland 1 207 1 078 1 209 303 380 Abroad 380 303 282 6 123 5 469 Other 5 469 6 123 6 196 43 143 50 995 Total deposits distributed by geographic area 50 214 42 547 37 530 SpareBank 1 SR-Bank Page 105
NOTE 23 DEBT SECURITIES ISSUED (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 801 5 515 Certifi cates and other short-term borrowings 5 515 801 1 400 25 256 30 120 Bonds 30 120 25 256 16 651 26 057 35 635 Total debt raised through issuance of securities 35 635 26 057 18 051
3,3 % 4,8 % Average interest rate 4,8 % 3,3 % 2,4 %
Bond debt by maturity date - - 2006 - - 1 543 6 063 - 2007 - 6 063 6 022 4 005 4 084 2008 4 084 4 005 1 560 - -460 Own bonds 2008 -460 - - 2 170 4 307 2009 4 307 2 170 1 293 5 811 6 637 2010 6 637 5 811 5 053 5 016 5 827 2011 5 827 5 016 684 514 4 585 2012 4 585 514 120 124 120 2013 120 124 - 372 3 149 2014 3 149 372 296 826 997 2016 997 826 - - 349 2017 349 -- 99 99 2024 99 99 - 83 79 2035 79 83 80 - 174 2037 174 -- 173 173 2046 173 173 - 25 256 30 120 Bond debt 30 120 25 256 16 651
Debt distributed by major currencies 10 285 11 688 NOK 11 688 10 285 7 400 10 634 14 180 EUR 14 180 10 634 5 293 3 666 2 846 USD 2 846 3 666 3 830 - 636 SEK 636 -- 486 - GBP - 486 - 185 770 Other 770 185 128 25 256 30 120 30 120 25 256 16 651
Average interest rate is calculated based on the actual interest expenses during the year, including any interest rate or currency swaps, as a percentage of average security holdings. NOTE 24 SUBORDINATED LOAN CAPITAL (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 Non-perpetual - - Loan 1 (2012 - 3 months NIBOR + margin) - 40 40 535 517 Loan 2 (2014 - EUR 65 mill. - 3 months LIBOR + margin) 517 535 517 687 672 Loan 3 (2035 - JPY 13 000 mill. - 3 months LIBOR + margin) 672 687 782 449 450 Loan 4 (2017 - NOK 450 mill. - 3 month NIBOR + margin) 450 449 - 1 671 1 639 Total non-perpetual 1 639 1 711 1 339
Perpetual: 458 396 Loan 5 (USD 75 mill. - 3 months LIBOR + margin) 396 458 491 183 172 Loan 6 (SEK 200 mill. - 3 months STIBOR + margin) 172 183 - 170 170 Loan 7 (NOK 170 mill. - 3 months NIBOR + margin) 170 170 - 811 738 Total perpetual 738 811 491
Hybrid instruments 470 448 Loan 8 (USD 75 mill. - 3 months LIBOR + margin) 448 470 506 470 448 Total hybrid instruments 448 470 506
2 952 2 825 Total subordinated loan capital 2 825 2 992 2 336
Subordinated loan capital and bond funds in foreign currencies (USD 150 million, EUR 65 million, SEK 200 million and JPY 13,000 million as of 31 December 2007) are included in the group’s total currency position, so that there is no currency risk associated with the loans. Subordinated loan capital of JPY 13,000 million and NOK 450 million can be redeemed in 2012. EUR 65 million can be redeemed in 2009. All of the perpetual loan capital totalling NOK 738 million counts as supplementary capital as at 31 December 2007. Capitalised expenses associated with borrowing are refl ected in the calculation of the amortised cost. Hybrid instruments cannot make up more than 15 per cent of the total core capital. Any hybrid instruments in excess of this are considered perpetual subordinated loan capital. SpareBank 1 SR-Bank Page 107
NOTE 25 OTHER LIABILITIES (fi gures in NOK million) Parent company The Group 2006 2007 Balance sheet liabilities 2007 2006 2005 361 205 Pension liabilities (note 26) 257 420 451 4 7 Specifi c loss provisions guarantees 7 4 - 28 24 Other liabilities 24 29 34 22 17 Accounts payable 273 222 170 21 23 Tax withholdings 31 28 25 - - Settlement accounts 313 229 165 419 231 Other liabilities 242 404 290 35 39 Accrued holiday pay 52 45 39 378 551 Accrued interest 551 357 204 127 172 Other accrued expenses 245 197 111 1 395 1 269 Total balance sheet liabilities 1 995 1 935 1 489
Guarantee commitments (amounts guaranteed) 1 631 2 464 Payment guarantees 2 464 1 631 1 514 2 532 2 244 Contract guarantees 2 244 2 532 1 331 47 54 Guarantees for taxes 54 47 47 284 259 Other guarantees 259 284 209 68 - Guarantee in favour of the Norwegian Banks' Guarantee Fund - 68 68 4 562 5 021 Total guarantees 5 021 4 562 3 169
Other liabilities 14 566 18 041 Unutilised credit lines 18 041 14 566 9 729 1 899 3 515 Loans approved not disbursed 3 682 2 022 1 306 105 46 Letters of credit 46 105 99 16 570 21 602 Total other liabilities 21 769 16 693 11 134
22 527 27 905 Total liabilities 28 806 23 190 15 792
Secured debt 3 238 3 895 Securities lodged as collateral 3 895 3 238 2 854
Ongoing lawsuits The group is a party to several lawsuits with a total fi nancial exposure that is not considered to be of great signifi cance, since as the group has made provisions for losses in the cases in which there is a probability that the group will suffer losses as a consequence of the lawsuits.
Operational leasing The group’s operational leasing contracts have a term of 3 - 4 years. The annual expense is approximately NOK 5 million. NOTE 26 PENSIONS (WITH DIRECT RECOGNITION OF ACTUARIAL DEVIATIONS)
SpareBank 1 SR-Bank Group has collective pension schemes for its employees. The pension schemes for SpareBank 1 SR-Bank, SR-Forvaltning ASA, SR-Investering AS and EiendomsMegler 1 SR-Eiendom AS are covered by the Bank’s pension fund.
SpareBank 1 SR-Bank, SR-Forvaltning ASA, SR-Investering AS, SR-Finans AS and EiendomsMegler 1 SR-Eiendom AS have uniform schemes, in which the principal terms are a contribution period of 30 years, 70 per cent pension relative to the pension basis as at 1 January in the year the employee reaches the age of 67, as well as a disability, surviving spouse and children’s pension. All pension benefi ts are coordinated with expected National Insurance benefi ts. If changes are made to the National Insurance scheme that entail a reduction in benefi ts, such reductions will not be compensated through the pension schemes. The pension schemes had 1164 active members and 273 pensioners as at 31 December 2007.
Vågen Eiendomsforvaltning AS has its own contribution-based mandatory service pension scheme covering 8 employees.
In addition to the pension liabilities that are covered through the insurance schemes, the group has uncovered pension liabilities that cannot be covered by the assets in the collective schemes. The liabilities apply to people that are not enrolled in the insurance schemes, supplemen- tary pensions in excess of 12 G (G = the National Insurance basic amount), ordinary early retirement pensions and contractual early retirement pensions.
Estimated values are used when assessing pension assets and measuring accrued liabilities. These estimates are corrected every year in accor- dance with the actual value of the pension assets in the pension fund, statements of the transfer value of pension assets from the insurance company, and actuarial calculations regarding the size of the liabilities. The calculation of future pensions is based on the following assumptions:
Assumptions 2007 2006 2005 Discount rate 4.8 % 4.3 % 3.9 % Expected yield on assets 6.0 % 5.5 % 6.0 % Future wage development 4.3 % 4.0 % 3.0 % Basic amount adjustment (G) 4.0 % 3.0 % 3.0 % Pension adjustment 3.0 % 3.0 % 3.0 % Employers' National Insurance contribution 14.1 % 14.1 % 14.1 % Voluntary retirement 5 % before age 45 2 % before age 45 2 % before age 45 2 % after age 45 0 % after age 45 0 % after age 45 Expected contractual early 25 % at age 62 25 % at age 62 25 % at age 62 retirement from 62 years and an additional 25 % at age 64 and an additional 25 % at age 64 and an additional 25 % at age 64
Average life expectancy on balance sheet date for a person who retires at the age of 65 and average life expectancy 20 years after balance sheet date for a person who retires at the age of 65:
Males 19,3 years 17,6 years 17,6 years Females 21,8 years 19,9 years 19,9 years
The calculations are based on standardised assumptions regarding mortality and disability trends and other demographic factors prepared by the Association of Norwegian Insurance Companies (Norges Forsikringforbund). The mortality assumptions are based on published statistics and historical data. NB! Now part the Norwegian Financial Services Association (FNH). SpareBank 1 SR-Bank Page 109
(continuation note 26)
(fi gures in NOK million) Parent company The Group 2006 2007 Book value of liabilities 2007 2006 2005 207 37 Pension benefi ts – insured scheme 71 249 266 154 168 Pension benefi ts – uninsured scheme 186 171 185 361 205 Total book value of liabilities 257 420 451
Expenses charged to profi t and loss 32 46 Pension benefi ts – insured scheme 59 41 36 14 16 Pension benefi ts – uninsured scheme 17 15 15 46 62 Total expenses charged to profi t and loss 76 56 51
Pension liabilities in defi ned benefi t pension schemes 918 971 Present value of pension liabilities as at 1 January 1 076 993 845 41 51 Pension benefi ts earning during the period 60 50 38 37 45 Interest expenses accrued on pension liabilities 50 40 38 -3 -73 Actuarial gains and losses (estimate deviations) -91 15 94 -22 -25 Benefi ts paid -26 -23 -23 - - Change in prior periods' earnings 2 - - 971 969 Present value of pension liabilities as at 31 December 1 071 1 076 993 836 818 - of which fund-based 905 926 831 135 151 - of which not fund-based 166 150 162
Pension assets 474 702 Pension assets as at 1 January 747 515 497 37 42 Expected return during the period 45 39 31 25 - Actuarial gains and losses (estimate deviations) - 24 23 149 71 Payments from employer 81 146 69 -28 -25 Benefi ts paid -29 -13 -22 - - Other changes 3 - - 657 790 Pension assets as at 31 December 847 711 598
Net pension liabilities in the balance sheet 971 969 Present value of pension liabilities as at 31 December 1 071 1 076 993 657 790 Pension assets as at 31 December 847 711 598 314 179 Net pension liabilities as at 31 December 224 365 395 47 26 Employer's National Insurance contribution 32 55 56 361 205 Net pension liabilities in the balance sheet 257 420 451
Pension costs for the period 42 51 Defi ned benefi ts pension earned during the period 60 50 38 37 45 Interest expenses accrued on pension benefi ts 50 40 38 -37 -42 Expected return on pension assets -45 -39 -31 - - Benefi ts earned in prior periods included in the period 2 - - Net defi ned benefi t pension costs excluding 42 54 employer's National Insurance contribution 67 51 45 4 8 Accrued employer's National Insurance contribution 9 5 6 46 62 Net defi ned benefi t pension expenses recognised in profi t and loss 76 56 51 - - Defi ned contribution pension expenses - - - 46 62 Pension expenses for the period recognised in profi t and loss 76 56 51 (continuation note 26)
Actuarial gains and losses (estimate changes) -21 -131 Actuarial gains and losses included in equity for the period -147 -1 80 146 14 Cumulative actuarial gains and losses in equity 33 180 181
37 42 The expected return on pension assets is calculated at: 45 39 31 67 46 Actual return on pension assets: 46 67 64
The expected return on assets is the expected return taking into account the investment strategy adopted in the plans. The expected return on fi xed income securities is based on the effective interest rate of the securities at the balance sheet date. The expected return on equity instru- ments and investments in real estate refl ects the long-term return achieved in the respective markets.
Composition of the group's pension assets 2007 2006 2005 Real estate 22 12 15 - of which used by the Bank - - - Shares 204 175 149 Other assets 621 524 434 Total pension assets 847 711 598
Development the last four years in defi ned benefi t pension schemes in the group 2007 2006 2005 2004 Present value of pension liabilities as at 31 December 1 071 1 076 993 787 Pension assets as at 31 December 847 711 598 474 Net defi cit 224 365 395 313
NOTE 27 CAPITAL ADEQUACY (fi gures in NOK million) Parent company The Group 2006 2007 2007 2006 2005 1 131 1 774 Primary capital 1 774 1 131 1 131 -5 -10 - Own primary capital certifi cates -10 -5 -3 18 7 Premium reserve 7 18 21 1 738 1 970 Savings bank's reserve 1 970 1 738 1 505 90 124 Endowment fund 124 90 109 756 777 Equalisation reserve 777 756 673 337 Allocated to dividend 337 106 Reserve for unrealised gains 139 - - Other equity 560 72 - 3 728 5 085 Total book equity 5 678 3 800 3 436 -14 - Deferred taxes, goodwill and other intangible assets -26 -31 -46 -2 Reserve for unrealised gains available for sale -2 -337 Deduction for allocated dividend -337 -424 Deduction in core capital 50 % -671 108 72 Share of non-performing non-amortised estimate deviations 77 116 155 470 448 Hybrid instruments 448 469 506 4 292 4 842 Total core capital 5 167 4 354 4 051 Supplementary capital beyond core capital 807 739 Perpetual subordinated capital 739 807 491 1 672 1 639 Non-perpetual subordinated capital 1 639 1 712 1 339 -599 -424 Deduction in supplementary capital 50 % -671 -42 -34 - - Capital adequacy reserve - -608 -509 1 880 1 954 Total supplementary capital 1 707 1 869 1 287 6 172 6 796 Net subordinated capital 6 874 6 223 5 338 57 582 Basis for calculation Basel I 58 939 45 098 SpareBank 1 SR-Bank Page 111
(continuation note 27)
Minimum subordinated capital requirement Basel II 1 860 Participation in specialised enterprises 1 860 1 037 Participation in other enterprises 1 037 31 Participation in mass market SMB 31 559 Participation in mass market private individuals 559 47 Participation in other mass market 47 - Equity positions 152 3 534 Total credit risk IRB 3 686 158 Debt risk 158 38 Equity risk 38 2 Currency risk 2 232 Operational risk 268 892 Transition scheme 681 431 Participations calculated in accordance with Basel I 776 -68 Deductions -108 5 219 Minimum subordinated capital requirement 5 501
10,72% 10,42% Capital adequacy ratio 10,00% 10,56% 11,84% 7,45% 7,42% Core capital ratio 7,51% 7,39% 8,98% 3,26% 3,00% Supplementary capital ratio 2,49% 3,17% 2,85%
For 2005 and 2006 the capital adequacy ratio is compiled in accordance with earlier capital adequacy regulations (Basel I). Basel II applies from 1 January 2007.
The capital adequacy ratio shall be at least 8 per cent. The equity value of non-perpetual subordinated loans is reduced by 20 per cent every year the last fi ve years prior to maturity. To the extent the group has subordinated capital in other fi nancial institutions this is deducted directly from the group’s own capital base for that part of the subordinated capital that exceeds 2 per cent of the recipient fi nancial institution’s subordinated capital. If the group has subordinated capital in other fi nancial institutions that amounts to less than 2 per cent of the individual fi nancial institution’s subordi- nated capital, the total of such capital is deducted from the group’s capital base to the extent that it exceeds 10 per cent of the group’s subordinated capital. In the event that the group has been ordered to maintain a 100 per cent capital adequacy ratio for specifi c assets an amount equal to the asset’s carrying value shall be deducted from the capital base and from the basis for the calculation. The basis for the calculation is risk-weighted.
NOTE 28 RELATED PARTIES (fi gures in NOK 1000) Group management Board of Directors Audit Committee Associated companies Other related parties 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005 Loans Outstanding loans as at 1 January 25 376 19 106 20 357 2 658 5 043 15 220 2 542 2 173 1 707 4 184 4 233 2 147 2 242 92 1 680 New loans disbursed during the period 5 224 16 475 6 558 2 050 2 657 3 590 604 3 333 1 126 4 412 1 752 33 783 1 123 3 445 Repayments 3 106 10 205 7 109 3 395 3 188 14 951 230 2 964 1 172 443 1 801 600 2 698 758 3 274 Outstanding loans as at 31 December 27 494 25 376 19 806 1 313 4 512 3 859 2 916 2 542 1 661 8 153 4 184 1 580 327 457 1 851 Interest income 831 351 303 77 95 221 139 48 49 193 69 25 115 74 33
Deposits Deposits as at 1 January 1 495 1 051 4 126 113 68 352 519 282 650 3 490 2 538 1 089 1 826 1 688 1 111 New deposits 22 004 12 442 16 984 1 336 1 430 2 148 4 039 2 699 2 637 7 256 7 626 5 217 11 944 6 499 3 745 Withdrawals 22 495 12 038 19 674 807 1 385 2 294 3 883 2 465 2 657 8 058 6 223 4 645 12 015 6 411 3 977 Deposits as at 31 December 1 004 1 455 1 436 642 113 206 675 516 630 2 688 3 941 1 661 1 755 1 776 879 Interest expenses 33 18 61 12 1 - 20 5 4 141 93 9 69 28 8 NOTE 29 PRIMARY CAPITAL AND OWNERSHIP STRUCTURE
Primary capital The primary capital of SpareBank 1 SR-Bank totals NOK 1 774 247 725 divided into 70 969 909 primary capital certifi cates, each with a nominal value of NOK 25. The primary capital was raised in the following manner and at the following times:
Change in Total primary No. of primary Year Change primary capital capital capital certifi cates 1994 Public issue 744,0 744,0 7 440 000 2000 Private placement with employees 5,0 749,0 7 489 686 2001 Private placement with employees 4,8 753,8 7 538 194 2004 Bonus issue 150,8 904,6 9 045 834 2005 Bonus issue/split 226,1 1 130,7 22 614 585 2007 Bonus issue 200,0 1 330,7 26 613 716 2007 Bonus issue/split 443,5 1 774,2 70 969 909
In addition to primary capital, the primary capital certifi cate holders’ share of the equity in SpareBank 1 SR-Bank consists of an equalisation reserve and a premium reserve. The equalisation reserve is retained earnings not distributed as annual dividends. This equity is used to stabilise cash dividends or for bonus issues. Other equity includes the savings bank’s reserve, the endowment fund and valuation difference fund. Up to 25 per cent of the profi t that is not distributed as dividend can be set aside for the endowment fund.
Earnings per primary capital certifi cate are calculated by dividing the profi t/loss attributable to the holders of primary capital certifi cates by the average number of outstanding primary capital certifi cates. The profi t attributable to primary capital certifi cate holders corresponds to the primary capital’s, equalisation reserve’s and premium reserve’s share of the Bank’s total equity less the valuation difference fund.
Purchase/sale of own primary capital certifi cates 2007 (fi gures in NOK 1000) Holding as at 31 December 2006 4 580 Change in holding during 2007 5 376 Holding as at 31 December 2007 9 956
The 20 largest primary capital certifi cate holders as at 31 December 2007 Primary capital Percentage Holder certifi cates ownership Coil Financial Holding AS 3 539 029 5,0% Nye Spring Capital AS * 3 539 029 5,0% State Street Bank & Trust, U.S.A. 1 592 197 2,2% Romern AS 1 518 133 2,1% Clipper AS 1 291 397 1,8% Trygve Stangeland 1 275 407 1,8% Frank Mohn AS 1 239 330 1,7% Tveteraas Finans AS 919 177 1,3% Brown Brothers Harriman, U.S.A. 785 779 1,1% Bjergsted Investering AS 699 581 1,0% Credit Suisse Securities, U.K. 641 417 0,9% Westco AS 596 252 0,8% Solvang Shipping AS 572 384 0,8% Forsand Municipality 555 192 0,8% Olav T. Stangeland 540 584 0,8% Terra Utbytte Vpf 441 348 0,6% Køhlergruppen AS 432 200 0,6% Otto B. Morcken 424 666 0,6% SpareBank 1 SR-Bank Page 113
(continuation note 29)
Helland AS 413 389 0,6% Ivar S. Løge AS 413 333 0,6% Total 20 largest owners 21 429 824 30,2% Other holders 49 540 085 69,8% Primary capital certifi cates issued 70 969 909 100,0 %
* Nye Spring Capital AS sold its stake in ROGG on 4 February 2008.
The total number of primary capital certifi cate holders as of 31 December 2007 was 11,232, which is 144 fewer than at the start of the year. The percentage of primary capital certifi cates owned in Rogaland, Hordaland and the Agder counties is 64.7, and the percentage owned abroad is 9.3. Reference is also made to the overview of primary capital certifi cate holders on the Board of Directors and Supervisory Board. For more details concerning primary capital certifi cates, see the separate section in the annual report.
NOTE 30 RESTRICTED FUNDS
As at 31 December 2007, restricted funds in SpareBank 1 SR-Bank totalled NOK 22 834 194, and in the group they totalled NOK 31 450 759.
NOTE 31 FAIR VALUE OF FINANCIAL ASSETS
Parent company The Group 2006 2007 2007 2006 2005
Changed Changed Changed Changed Changed Book Book Book Book Book to fair to fair to fair to fair to fair value value value value value value value Assets value value value Loans to and receivables 2 585 2 585 6 489 6 489 from credit institutions 3 357 3 357 170 170 43 43 Loans to and receivables from 72 151 72 151 81 999 81 999 customers at amortised cost 85 425 85 425 74 772 74 772 58 332 58 332 Loans to and receivables from 2 283 2 283 2 436 2 436 customers at fair value 2 436 2 436 2 287 2 287 3 148 3 148 562 562 446 446 Shares at fair value 580 580 574 574 460 460 2233Shares available for sale 998 8 7 7 3 526 3 526 5 406 5 406 Certifi cates and bonds at fair value 5 444 5 444 3 558 3 558 3 159 3 159 478 478 897 897 Derivatives 897 897 478 478 519 519 81 587 81 587 97 676 97 676 Total assets 98 148 98 148 81 847 81 847 65 668 65 668
Liabilities 6 060 6 060 5 813 5 813 Liabilities to credit institutions 5 812 5 812 6 028 6 028 3 636 3 636 43 143 43 143 50 995 50 995 Deposits from and debt to customers 50 214 50 214 42 547 42 547 37 530 37 530 Debt raised by issuance 19 300 19 300 28 186 28 186 of securities, at amortised cost 28 186 28 186 19 300 19 300 9 797 9 797 Debt raised by issuance of 6 757 6 757 7 449 7 449 securities, at fair value 7 449 7 449 6 757 6 757 8 254 8 254 435 435 713 713 Derivatives 713 713 435 435 203 203 1 613 1 613 1 533 1 533 Capital base, at amortised cost 1 533 1 533 1 653 1 653 1 049 1 049 1 339 1 339 1 292 1 292 Capital base at fair value 1 292 1 292 1 339 1 339 1 287 1 287 78 647 78 647 95 981 95 981 Total liabilities 95 199 95 199 78 059 78 059 61 756 61 756
4 562 4 562 5 021 5 021 Off-balance sheet guarantee liabilities 5 021 5 021 4 562 4 562 3 169 3 169
Principles that apply to measurement of fair value of fi nancial instruments that are not recognised in the fi nancial statements at fair value: Assets Book value (carrying values) are considered to be equal to fair value of fi nancial assets and liabilities that are liquid or that have a short time to maturity (less than three months). Liabilities Debt raised by the issuance of securities at amortised cost and subordinated loan capital at amortised cost comprises certifi cates and bonds with fl oating interest rates that have less than three months to run before the net interest adjustment date. Book value is considered to be equal to fair value. NOTE 32 MATURITY ANALYSIS OF ASSETS AND LIABILITIES (fi gures in NOK million)
The table below shows an analysis of whether assets and liabilities have maturity dates within one year of the balance sheet date or not. Overdraft facilities/operating credits (excluding fl exi-loans) are included in the interval “at call”.
Parent company Less than 3 More than As at 31 December 2007 At call months 3-12 months 1 - 5 years 5 years Total Assets Cash and balances with central banks 2 622 - - - - 2 622 Loans and deposits with credit institutions 3 084 3 248 - 157 - 6 489 Gross loans to customers 34 423 375 5 447 6 836 37 566 84 647 Individual write-downs -92-----92 Write-downs on groups of loans -120-----120 Net loans to customers 34 211 375 5 447 6 836 37 566 84 435 Certifi cates and bonds at fair value - 857 950 3 194 405 5 406 Financial derivatives - 19 169 220 489 897 Shares, units and other equity instruments 449 - - - - 449 Investments in associated companies and joint ventures 1 218 - - - - 1 218 Tangible fi xed assets 282 - - - - 282 Other assets 733 - - - - 733 Total assets 42 599 4 499 6 566 10 407 38 460 102 531
Liabilities Debt to credit institutions 1 199 3 604 80 310 620 5 813 Deposits from and debt to customers 49 666 431 694 204 - 50 995 Debt raised by issuance of securities - 4 260 4 880 21 357 5 138 35 635 Financial derivatives - 17 104 388 204 713 Deferred tax liabilities - - 13 - - 13 Taxes payable - - 183 - - 183 Other liabilities 1 269 - - - - 1 269 Subordinated loan capital - - - - 2 825 2 825 Total liabilities 52 134 8 312 5 954 22 259 8 787 97 446
The Group Less than 3 More than As at 31 December 2007 At call months 3-12 months 1 - 5 years 5 years Total Assets Cash and balances with central banks 2 622 - - - - 2 622 Loans and deposits with credit institutions 53 3 248 - 56 - 3 357 Gross loans to customers 34 423 376 5 578 9 165 38 548 88 090 Individual write-downs -98 -----98 Write-downs on groups of loans -131 -----131 Net loans to customers 34 194 376 5 578 9 165 38 548 87 861 Certifi cates and bonds at fair value - 886 950 3 199 409 5 444 Financial derivatives - 19 169 220 489 897 Shares, units and other equity instruments 589 - - - - 589 SpareBank 1 SR-Bank Page 115
(continuation note 32)
Investments in associated companies and joint ventures 1 198 - - - - 1 198 Tangible fi xed assets 294 - - - - 294 Other assets 858 - - - - 858 Total assets 39 808 4 529 6 697 12 640 39 446 103 120
Liabilities Debt to credit institutions 1 198 3 604 80 310 620 5 812 Deposits from and debt to customers 48 885 431 694 204 - 50 214 Debt raised by issuance of securities - 4 260 4 880 21 357 5 138 35 635 Financial derivatives - 17 104 388 204 713 Deferred tax liabilities - - 21 - - 21 Taxes payable - - 211 - - 211 Other liabilities 1 995 - - - - 1 995 Subordinated loan capital - - - - 2 825 2 825 Total liabilities 52 078 8 312 5 990 22 259 8 787 97 426
NOTE 33 MAXIMUM CREDIT RISK EXPOSURES (fi gures in NOK million)
The table below shows the maximum exposure to credit risk for balance sheet components, including derivatives. The exposure is shown excluding collateral security lodged and permitted off-sets.
Parent company The Group 2006 2007 2007 2006 2005 Assets 834 2 622 Cash and balances with central banks 2 622 834 351 2 585 6 489 Loans to and deposits with credit institutions 3 357 170 43 74 656 84 647 Loans to and receivables from customers 88 090 77 297 61 812 3 961 5 724 Securities – held for trading 5 897 4 005 3 551 127 127 Securities – recognised over profi t and loss at fair value 127 127 68 478 897 Derivatives 897 478 519 2 4 Securities – available for sale 9 8 7 1 634 2 021 Other assets 2 121 2 116 886 84 277 102 531 Total assets 103 120 85 035 67 237
Liabilities 1 395 1 282 Contingent liabilities 2 016 1 935 1 489 14 566 18 041 Unutilised credit lines 18 041 14 566 9 729 1 899 3 515 Loans approved not disbursed 3 682 2 022 1 306 17 860 22 838 Total fi nancial guarantees 23 739 18 523 12 524
102 137 125 369 Total credit risk exposure 126 859 103 558 79 761 (continuation note 33)
Credit risk exposure on fi nancial assets distributed by geographic area Parent company The Group 2006 2007 Banking activities 2007 2006 2005 6 010 7 648 Agder counties 7 864 6 112 4 462 67 511 78 385 Rogaland 74 475 67 374 53 153 3 007 3 643 Hordaland 3 861 3 210 1 929 285 266 Abroad 3 577 433 228 2 896 5 837 Other 6 413 3 288 3 320 79 709 95 779 Total 96 190 80 417 63 092
Marketing activities 2 988 4 174 Norway 4 352 3 038 2 983 557 1 148 Europe/Asia 1 148 557 323 545 533 USA 533 545 320 4 090 5 855 Total 6 033 4 140 3 626
83 799 101 634 Total distributed by geographic area 102 223 84 557 66 718
NOTE 34 CREDIT QUALITY PER FINANCIAL ASSET CLASS (fi gures in NOK million)
The credit quality of fi nancial assets is dealt with by the Bank applying its internal guidelines for credit rating. The table below shows the credit quality per fi nancial asset class for loan-related assets recognised in the balance sheet, based on the Bank’s own credit rating system.
Parent company Neither matured nor written down Matured and Very low Low Medium High Very high individually 2007 Note risk risk risk risk riskwritten down Total
Loans to and deposits with credit institutions 19 6 489 - - - - - 6 489 Loans to and receivables from customers Retail market 20 44 903 4 050 1 141 139 16 180 50 429 Corporate market 20 8 172 15 481 8 295 1 574 607 194 34 323 Total 59 564 19 531 9 436 1 713 623 374 91 241
Financial investments Listed bonds and certifi cates 17 2 962 1 193 940 99 175 - 5 369 Unlisted bonds and certifi cates 17 - - - - 37 - 37 Total 2 962 1 193 940 99 212 - 5 406
Total 62 526 20 724 10 376 1 812 835 374 96 647 SpareBank 1 SR-Bank Page 117
(continuation note 34) Neither matured nor written down Matured and Very low Low Medium High Very high individually 2006 Note risk risk risk risk riskwritten down Total
Loans to and deposits with credit institutions 19 2 585 - - - - - 2 585 Loans to and receivables from customers Retail market 20 43 225 3 386 1 040 181 140 180 48 152 Corporate market 20 6 327 11 632 6 375 1 036 1 031 127 26 528 Total 52 137 15 018 7 415 1 217 1 171 307 77 265
Financial investments Listed bonds and certifi cates 17 1 047 1 459 956 25 39 - 3 526 Total 1 047 1 459 956 25 39 - 3 526
Total 53 184 16 477 8 371 1 242 1 210 307 80 791
The Group Neither matured nor written down Matured and Very low Low Medium High Very high individually 2007 Note risk risk risk risk riskwritten down Total
Loans to and deposits with credit institutions 19 3 357 - - - - - 3 357 Loans to and receivables from customers Retail market 20 45 151 4 295 1 257 159 50 182 51 094 Corporate market 20 8 725 17 153 8 630 1 748 635 222 37 113 Total 57 233 21 448 9 887 1 907 685 404 91 564
Financial investments Listed bonds and certifi cates 17 3 000 1 193 940 99 175 - 5 407 Unlisted bonds and certifi cates 17 - - - - 37 - 37 Total 3 000 1 193 940 99 212 - 5 444
Total 60 233 22 641 10 827 2 006 897 404 97 008
Neither matured nor written down Matured and Very low Low Medium High Very high individually 2006 Note risk risk risk risk riskwritten down Total
Loans to and deposits with credit institutions 19 170 - - - - - 170 Loans to and receivables from customers Retail market 20 43 340 3 500 1 094 190 156 181 48 461 Corporate market 20 7 506 12 287 6 689 1 114 1 124 140 28 860 Total 51 016 15 787 7 783 1 304 1 280 321 77 491
Financial investments Listed bonds and certifi cates 17 1 079 1 459 956 25 39 - 3 558 Total 1 079 1 459 956 25 39 - 3 558
Total 52 095 17 246 8 739 1 329 1 319 321 81 049 (continuation note 34) Neither matured nor written down Matured and Very low Low Medium High Very high individually 2005 Note risk risk risk risk riskwritten down Total
Loans to and deposits with credit institutions 19 43 - - - - - 43 Loans to and receivables from customers Retail market 20 39 974 1 356 172 156 - 232 41 890 Corporate market 20 7 398 7 535 2 872 1 075 749 229 19 858 Total 47 415 8 891 3 044 1 231 749 461 61 791
Financial investments Listed bonds and certifi cates 17 614 1 527 991 27 - - 3 159 Total 614 1 527 991 27 - - 3 159
Total 48 029 10 418 4 035 1 258 749 461 64 950
Financial investments: Rating: Very low risk AAA AA+ AA AA- Low risk A+ A A- Medium risk BBB+ BBB BBB- High risk BB+ BB BB- Very high risk Over B+ Source: Standard Poor’s Ratings - Long term
In Norway, bonds and certifi cates listed on Oslo Børs’ main list and the ABM (alternative bond market) are defi ned as listed bonds and certifi cates. SpareBank 1 SR-Bank Page 119
NOTE 35 CREDIT RISK EXPOSURE FOR EACH INTERNAL RISK RATING
Average Average Average Parent company unsecured unsecured unsecured exposure as %age Total amount exposure as %age Total amount exposure as %age Total amount 2007 2007 2006 2006 2005 2005 Very low risk 3,85 65 750 2,89 57 429 6,41 53 819 Low risk 10,64 26 411 12,16 19 534 12,08 11 576 Medium risk 13,45 12 048 8,18 13 719 10,23 4 172 High risk 8,98 2 026 6,19 1 470 58,90 1 506 Very high risk 13,20 841 5,19 1 349 9,64 1 069 Defaulted and written down 4,65 709 33,88 307 22,02 445 Total 6,76 107 785 5,78 93 808 8,77 72 587
Average Average Average The Group unsecured unsecured unsecured exposure as %age Total amount exposure as %age Total amount exposure as %age Total amount 2007 2007 2006 2006 2005 2005 Very low risk 3,80 66 580 2,83 58 699 6,31 54 694 Low risk 9,92 28 328 11,70 20 303 11,34 12 329 Medium risk 12,97 12 499 7,96 14 087 9,39 4 547 High risk 8,20 2 220 5,84 1 557 55,26 1 605 Very high risk 12,29 903 4,80 1 458 9,59 1 074 Defaulted and written down 4,47 739 32,40 321 21,26 461 Total 6,55 111 269 5,62 96 425 8,52 74 710
SpareBank 1 SR-Bank sets the realisation value of lodged collateral in such a way that the collateral, on a conservative evaluation, refl ects the expected realisation value in a cyclical business downturn. For example, collateral in the form of a negative pledge and unlisted shares will, pur- suant to the group’s internal guidelines, have no realisation value and are therefore not considered secured. The conservative evaluation implies that the realisation value actually achieved can be higher than the estimated realisation value. NOTE 36 DISTRIBUTION BY AGE OF DEFAULTED LOANS NOT WRITTEN DOWN (fi gures in NOK million)
The table shows amounts due on loans and overdraft facilities/deposits that are not caused by delays in money transfers, by number of days after due date.
Parent company Less than 31 - 60 61 - 90 More than 2007 30 days days days 91 days Total
Loans to and receivables from customers Retail market 269 71 10 12 362 Corporate market 18 - 1 13 32 Total 287 71 11 25 394
2006
Loans to and receivables from customers Retail market 285 30 3 1 319 Corporate market 93 4 2 7 106 Total 378 34 5 8 425
Of the total amount of gross matured but not written down loans to and receivables from customers, the fair value of the related collateral secu- rity totalled NOK 357 million as at 31 December 2007 (NOK 301 million as at 31 December 2006).
The Group 2007
Loans to and receivables from customers Retail market 269 72 10 12 363 Corporate market 22 1 1 13 37 Total 291 73 11 25 400
2006
Loans to and receivables from customers Retail market 286 30 3 1 320 Corporate market 97 9 2 10 118 Total 383 39 5 11 438
2005
Loans to and receivables from customers Retail market 320 11 6 6 343 Corporate market 139 1 4 19 163 Total 459 12 10 25 506
Of the total amount of gross matured but not written down loans to and receivables from customers, the fair value of the related collateral secu- rity totalled NOK 363 million as at 31 December 2007 (NOK 313 million as at 31 December 2006). SpareBank 1 SR-Bank Page 121
NOTE 37 REMAINING CONTRACTUAL TERM TO RUN FOR LIABILITIES (fi gures in NOK million)
Parent company Less than 3 More than 2007 On callmonths 3-12 months 1 - 5 years5 years Total Debt to credit institutions 1 199 3 604 80 310 620 5 813 Deposits from and debt to customers 49 666 431 694 204 - 50 995 Debt raised through issuance of securities - 4 260 4 892 21 416 5 105 35 673 Subordinated loan capital - - - - 2 739 2 739 Total liabilities 50 865 8 295 5 666 21 930 8 464 95 220
Derivatives Contractual cash fl ows out - 3 200 2 726 9 394 1 212 16 532 Contractual cash fl ows in - -3 071 -2 550 -8 604 -1 039 -15 264
2006 Debt to credit institutions - 5 328 282 450 - 6 060 Deposits from and debt to customers 39 363 2 260 1 343 177 - 43 143 Debt raised through issuance of securities 4 556 2 317 17 084 2 109 26 066 Subordinated loan capital - - - - 2 952 2 952 Total liabilities 39 363 12 144 3 942 17 711 5 061 78 221
The Group 2007 Debt to credit institutions 1 198 3 604 80 310 620 5 812 Deposits from and debt to customers 48 885 431 694 204 - 50 214 Debt raised through issuance of securities - 4 260 4 892 21 416 5 105 35 673 Subordinated loan capital - - - - 2 739 2 739 Total liabilities 50 083 8 295 5 666 21 930 8 464 94 438
Derivatives - Contractual cash fl ows out - 3 200 2 726 9 394 1 218 16 538 Contractual cash fl ows in - -3 071 -2 550 -8 604 -1 033 -15 258
2006 Debt to credit institutions 5 296 282 450 - - 6 028 Deposits from and debt to customers 38 767 2 260 1 343 177 - 42 547 Debt raised through issuance of securities - 4 556 2 317 17 084 2 109 26 066 Subordinated loan capital - - - - 2 992 2 992 Total liabilities 44 063 7 098 4 110 17 261 5 101 77 633
2005 Debt to credit institutions 850 24 160 2 100 502 3 636 Deposits from and debt to customers 32 409 2 200 2 509 412 - 37 530 Debt raised through issuance of securities - 500 2 436 13 886 1 101 17 923 Subordinated loan capital - - - - 2 336 2 336 Total liabilities 33 259 2 724 5 105 16 398 3 939 61 425
Contractual terms to maturity for derivatives are not shown for 2006 and 2005 as it is impossible to reconstruct the data. NOTE 38 MARKET RISK RELATED TO INTEREST RISK (fi gures in NOK million)
The table shows sensitivity of net interest cost (interest change of 1 percentage point) at the end of each of the last three years.
Parent company The Group 2006 2007 2007 2006 2005 Currency 8 8 NOK 8 8 4 2 1 EUR 1 2 -2 2 2 USD 2 2 -2 - - Other - - -6
An interest rate risk arises when the group has different interest lock-in periods for its assets and liabilities. The main activities linked to dealing in interest rate instruments shall at all times take place within adopted limits and authorities. The group defi nes, therefore, quantitative goals for maximum potential loss. The commercial risk is continuously quantifi ed and monitored.
The group’s overriding guidelines for interest rate risk defi ne the maximum loss arising from a 1 percentage point change in interest rates. The maximum loss, locally, shall not exceed NOK 30 million on the kroner balance and within each interest rate period (0-3 months, 3-6 months...... 1-2 years etc.) the maximum loss shall not exceed NOK 15 million. The maximum net loss due to interest rate risk in currency bal- ances is NOK 8 million. No single currency shall have an inherent interest rate risk in excess of NOK 5 million.
NOTE 39 MARKET RISK RELATED TO CURRENCY RISK (fi gures in NOK million)
The table shows net currency exposure including fi nancial derivatives in accordance with the defi nition given by Norges Bank.
Parent company The Group 2006 2007 2007 2006 2005 Currency -91 -9 EUR -9 -91 33 -27 15 USD 15 -27 62 - - CHF - - -22 -4 2 GBP 2 -4 1 5 -3 Other -3 5-9 -117 5 Total 5 -117 65
4 - Effect on profi t or loss of a 3% change - 4 2
Currency risk arises when the group has differences in assets and liabilities in an individual currency. Foreign exchange trading shall always take place within the adopted guidelines and authorities at any time. The group’s limits defi ne, therefore, quantitative goals for maximum net currency exposure, measured in NOK. The commercial risk is quantifi ed and monitored continuously.
The group has set limits for the net exposure in each individual currency, and limits for aggregate net currency exposure (expressed as the highest of total long and short positions). The net overnight currency risk for spot trading must not exceed NOK 100 million per individual currency and NOK 125 million on aggregate. SpareBank 1 SR-Bank Page 123
NOTE 40 ACTIVITIES TO BE SOLD
This item comprises the assets and liabilities in SpareBank 1 SR-Bank that have been resolved sold. The item is recognised at fair value. The balance sheet items refer to assets and liabilities in property companies that are acquired with a view to syndicating and selling units to customers. The properties are to be sold by the end of June 2008. The group’s income from this sale will be commission income from the sale of units.
NOTE 41 IFRS IMPLEMENTATION (fi gures in NOK million) Transition from NGAAP to IFRS in the parent bank Profi t ownership Fin. instr. Profi t Income statement NGAAP 2006 1) 2) IFRS 2006
Interest income 2 934 2 934 Interest expenses 1 874 1 874 Net interest income 1 060 - - 1 060
Commission income 464 464 Commission expenses -77 -77 Other operating income 25 25 Net commission and other income 412 - - 412
Dividends 10 10 20 Income from investments in associated companies 148 -148 - Income from investments in group companies 91 -91 - Net change in value of fi nancial assets 151 49 200 Net return on fi nancial investments 400 -229 49 220
Total income 1 872 -229 49 1 692
Personnel expenses 500 500 Administration expenses 295 295 Other operating expenses 138 138 Total operating expenses 933 - - 933
Profi t before loss 939 -229 49 759
Losses on loans and guarantees -90 -90
Profi t before tax 1 029 -229 49 849 Taxes 211 -1 210 Profi t after tax 818 -229 50 639
1) Income from investments in associated companies and group companies was previously recorded against equity, but is now recorded in accordance with the cost method of accounting (cash dividend). 2) The net change in value of fi nancial assets rose by NOK 51 million as a result of the increase in fair value of long-term shareholdings. At the same time, the item was reduced by NOK 2 million through the present value assessment of fi xed interest loans and part of the bond debt. (continuation note 41)
(fi gures in NOK million) Balance sheet Reclass. Change in Ownership int. Balance sheet 31.12.2006 dividend fi n. instr.and group 1.1.2007 Balance sheet under NGAAP 1) 2)companies. 3) under IFRS Cash and balances with central banks 834 834 Loans to and deposits with credit institutions 2 585 2 585 Net loans to customers 74 458 -24 74 434 Certifi cates and bonds at fair value 3 526 3 526 Financial derivatives 2 476 478 Shares, units and ownership interests 461 - 103 - 564 - recognised at fair value over profi t and loss 435 435 - recognised as available for sale with change in equity 1 1 - recognised at cost 25 103 128 Investments in ownership interests 691 -42 649 Investments in group companies 328 -18 310 Deferred tax asset 15 - 15 Other assets 984 -28 -74 882 Assets 83 884 - 527 -134 84 277
Debt to credit institutions 6 060 6 060 Deposits from and debt to customers 43 143 43 143 Debt raised through issuance of securities 26 066 -9 26 057 Financial derivatives - 435 435 Subordinated loan capital 2 952 2 952 Other liabilities 1 865 -271 1 594 - Taxes payable 199 199 - Allocated to dividend 271 -271 - - Other liabilities 1 395 1 395 Total liabilities 80 086 -271 426 - 80 241
Primary capital 1 126 1 126 Premium reserve 18 18 Equalisation reserve 756 -1 -34 721 Savings bank's reserve 1 738 -1 -30 1 707 Endowment fund 90 90 Valuation difference fund 70 -70 - Fund for unrealised gains - 103 103 Total equity 3 798 - 101 -134 3 765 Allocated to dividend 271 271 Liabilities and equity 83 884 - 527 -134 84 277
1) Reclassifi ed dividend: Pursuant to IFRS dividend is to be classifi ed as equity until the dividend distribution is fi nally approved by the bank’s highest body, the Supervisory Board. 2) Financial instruments: Pursuant to IFRS the fair value shall be recognised for long-term shareholdings that were previously recognised at cost price. On transition to IFRS the parent bank’s shares rose in value by NOK 103 million which has earlier been recognised in the group accounts. Fair value of the fi xed interest rate funding and part of the bond debt reduces equity by NOK 2 million. 3) Investments in ownership interests and group companies: Pursuant to IFRS the cost method is used and not the equity method and this reduces equity by NOK 61 million. In addition, the 2006 profi ts from the subsidiaries has been reversed and recognised as income in 2007 in the amount of NOK 73 million.
NOTE 42 EVENTS AFTER THE BALANCE SHEET DATE There have been no events after the balance sheet date of 31 December 2007 that affect the published consolidated accounts.
Audit Committee’s statement for 2007
The Audit Committee has performed its duties in compliance The annual report and accounts that are presented have with the Norwegian Savings Banks Act and the instructions to been prepared in compliance with the Norwegian Savings the Committee. Banks Act and the regulations issued by Kredittilsynet (The Financial Supervisory Authority of Norway). The Board of The bank’s activities in 2007 were in accordance with the Representatives may adopt the profi t and loss account and the Savings Banks Act, the bank’s Articles of Association and other balance sheet as the bank’s accounts for 2007. regulations the bank must comply with.
STAVANGER, 6 MARCH 2008
Odd Rune Torstrup Vigdis Wiik Jacobsen Chairman
Sølvi L. Nordtveit Odd Broshaug Randi Larsen Skjæveland SpareBank 1 SR-Bank Page 127
Primary capital certifi cates
PRIMARY CAPITAL INFORMATION ADDRESSES At the end of 2007, SpareBank 1 SR-Bank had primary capital SpareBank 1 SR-Bank is accessible via the Internet for infor- of NOK 1,764 million, divided into 70,675,645 outstanding mation that is of interest to investors, the media and brokers. primary capital certifi cates with a nominal value of NOK 25 each. The number of certifi cates issued is 70,969,909, In • SpareBank 1 SR-Bank’s Internet address is www.sr-bank.no. addition, the primary capital certifi cate holders’ capital • Other links to fi nancial information: www.huginonline.no. consists of the equalisation reserve of NOK 777 million and the premium reserve of NOK 7 million. FINANCIAL CALENDAR FOR 2008 To fi nance the group’s growth and exploitation of interesting • Ex-dividend date: 28.03.2008 business opportunities in the coming years, a NOK 548 million • First quarter: 24.04.2008 pre-emptive rights issue and a NOK 36 million private • Second quarter: 12.08.2008 placement were carried out among the group’s employees • Third quarter: 30.10.2008 in April 2007. • Provisional accounts for 2008 will be published in February 2009.
In October 2007, the primary capital certifi cates were split The following list shows the 10 largest PCC-holders as of into two and this was followed by a bonus issue where three 31 December 2006: primary capital certifi cates entitled the holder to one new primary capital certifi cate. By way of this scrip issue, NOK 444 million was transferred from the premium reserve and the equalisation reserve to primary capital. 10 largest primary capital certificate holders:olders: Number Percentage
To fi nance further growth, the Board of Directors will propose 1. Coil Financial Holding AS 3 539 00292 5,0 %
to the Supervisory Board at the meeting on 27 March 2008 that 2. Nye Spring Capital AS 3 539 0290 5,0 % a private placement be carried out (share dividend) among primary capital certifi cate holders. The certifi cate holders will 3. State Street Bank & Trust, USA 1 592 197 2,2 % then be able to choose between receiving an ordinary dividend 4. Romern AS 1 518 133 2,1 % and receiving new primary capital certifi cates. 5. Clipper AS 1 291 397 1,8 %
DIVIDEND POLICY 6. Trygve Stangeland 1 275 407 1,8 % SpareBank 1 SR-Bank’s fi nancial goal for its operations is to 7. Frank Mohn AS 1 239 330 1,7 % achieve results that provide a good and stable return on the 8. Tveteraas Finans AS 919 177 1,3 % bank’s total equity and thus create values for the primary capital certifi cate holders in the form of competitive dividends 9. Brown Brothers Harriman, USA 785 779 1,1 % and an appreciation in the market price of the primary capital 10. Bjergsted Investering AS 699 581 1,0 % certifi cate. The bank’s profi t for the year shall be divided between the primary capital certifi cate holders and the savings Total 10 largest 16 399 059 23,1 % bank’s reserve in accordance with their respective share of the * Nye Spring Capital AS sold their shares in ROGG at 4.2.2008 bank’s equity capital. In the proportional distribution between cash dividend and equalisation reserve, variations may arise when the development of the bank’s equity must be given consideration. Earnings per primary capital certifi cate were OWNERSHIPOWNERSHIP NOK 7.9 in 2007. Based on the bank’s dividend policy, the SpareBank 1 SR-Bank’s goal is to ensure good liquidity in its Board proposes the distribution of a dividend of NOK 4.75 per primary capital certifi cates and a good diversity of holders that primary capital certifi cate for 2007. represent customers, regional investors and Norwegian and foreign institutions. The bank held 294,264 of its own primary INVESTOR POLICY capital certifi cates (treasury stock) at the end of 2007. The bank The bank attaches great importance to the fact that correct, buys and sells its own primary capital certifi cates with a view relevant and timely information of the bank’s development to improving their liquidity. and results will inspire the investor market to have confi dence. Information to the market is provided by way of quarterly reports, investor presentations, websites, press releases and accounting reports. Regular presentations are made to inter- national partners, lenders and investors, mainly in London. At the end of 2007, there were 11,232 registered holders of was maintained at Prime 1. In 2007, Fitch Ratings maintained primary capital certifi cates. This is 144 less than at the end of its A (long-term) and F1 (short-term) ratings of SpareBank 1 2006 (corresponding to 1.3 per cent). Foreigners held 9.3 per SR-Bank. The initial rating by DBRS was issued in 2007 with A cent (6.7 per cent), while 64.7 per cent of the certifi cates (63.4 (high) (long-term) and R-1 (middle) (short-term), trend: stable. per cent) were held by local investors in Rogaland, Agder and Hordaland. The 20 largest holders controlled 30.2 per cent (31.3 per cent) of the primary capital at the end of the year.
The ownershipship ststructurer as of 31 December for the last fi ve years hahass been as fofollows:l
200720 2006 2005 2004 2003 Trading volumes for the bank's primary capital certificates as a percentage Regional sharee 65 % 63 % 48 % 47 % 49 % % 40 of certificates issued Other Norwegian holders 26 % 30 % 33 % 39 % 34 % 35 30 25 Foreign holders 9 % 7 % 19 % 14 % 17 % 20 15 No. of certificate holders 11 232 11 376 10 361 8 080 7 065 10 5
2004 2005 2006 2007
Return on th b RISK-ADJUSTMENT The adjustment of the taxable opening (original) value for Norwegian stockholders pursuant to the RISK regulations (Adjustment of opening value of shares based on the change in retained taxed capital) took place for the last time in 2005. Due to an amendment in taxation regulations the RISK amount was abolished with effect from 2006.
RETURN ON THE BANK’S PRIMARY CAPITAL CERTIFICATES IN 2007 At the end of 2007, the market price of the bank’s primary capital certifi cates was NOK 66.3, compared to NOK 68.4 at the end of 2006. Including dividends paid, the bank’s primary capital certifi cates generated an effective return of 3.2 per cent in 2007. 2004 2005
In 2007, turnover of SpareBank 1 SR-Bank’s primary capital certifi cates represented* 22.9 per cent of the total number Return on the bank's primary of certifi cates issued, compared to 34.8 per cent in the capital certificates preceding year. %
100 85,0 66,1 80 CREDIT RATING 40,5 32,4 60 48,4 40,038,4 11,5 In the fi rst quarter of 2007, Moody’s Investor Service intro- 3,3 40 -11,7 duced a new rating system for banks. In this connection, 20 2007 SpareBank 1 SR-Bank’s rating for long-term debt rose to Aa3 - 2005 2006 OSEBX return (stable outlook) from A2 (stable outlook), while short-term debt -20 2003 2004 Effective return SpareBank 1 SR-Bank Page 129
ROGG
KEY FIGURES 2007 2006 2005 2004 20033
Market price as off 3131.12..12. ((NOK)NOK) 66,25 68,41 83,25 52,12 38,9898
Value for tax purposes as of 1.1.following year (NOK) 56,10 54,44 54,00 33,88 25,21
Dividend per certificate (NOK) 4,75 4,34 5,07 3,33 2,43
Direct yield 1* 7,2 % 6,3 % 6,1 % 6,4 % 6,2 %
Effective return 2* 3,2 % -11,7 % 66,1 % 40,0 % 85,0 %
Book value per certificate (NOK) 3* 40,8 34,9 34,3 31,8 28,7
Earnings per certificate (NOK) 4* 7,85 7,78 7,75 5,72 3,95
Payout ratio (net) 5* 84 % 68 % 67 % 61 % 61 %
Primary capital certificate percentage 6* 54,9 % 51,0 % 53,0 % 56,3 % 58,4 %
RISK amount as of 1.1. following Year (NOK) n.a. n.a. 0,65 2,19 1,56
No. of certificates issued as of 31.12. 70 969 909 60 305 560 60 305 560 60 305 560 60 305 560
Own certificates as of 31.12. 294 264 244 264 157 269 3 827 309 293
No. of outstanding certificates as of 31.12 70 675 645 60 061 296 60 148 291 60 301 733 59 996 267
Certificates traded per year (% of issued certificates) 23 % 35 % 36 % 27 % 31 %
1) Dividend as a percentage of year-end market price 2) Price increase during the year plus dividend paid asa percentage of market price at beginning of the year 3) Primary capital, equalisation reserve and premium reserve divided by the number of outstanding certifi cates 4) Primary capital certifi cates’ share of the group’s profi t after tax 5) Dividend as a percentage of allocated profi t to primary capital certifi cate holders. 6) Primary capital, equalisation reserve and premium reserve as a percentage of parent company’s equity at year-end (excluding allo- cated dividend, valuation difference fund and unrealised gains fund). Due to the issue in 2007 the primary capital certifi cate ratio applied in 2007 rose from 51.0% to 55.9%). KEY FIGURES LAST 5 YEARS IFRS IFRS IFRS IFRS NGAAP
Key fi gures for SpareBank 1 SR-Bank group 2007 2006 2005 2004 2003 Income statement Net interest income 1 340 1 128 1 113 1 129 1 095 Net exchange and capital gains/losses 142 240 192 131 163 Other operating income 1 141 879 733 590 469 Total operating income 2 623 2 247 2 038 1 850 1 727 Total operating expenses 1 357 1 178 1 012 948 922 Profi t before losses 1 266 1 069 1 026 902 805 Losses and write-downs 236 Losses on loans and guarantees 10 -92 -70 81 Result of ordinary activities 1 256 1 161 1 096 821 569 Taxes 249 237 234 206 160 Profi t after tax 1 007 924 862 615 409 Minority interests 13 10 6 3 1 Majority interests 994 914 856 612 408
Income statement (percentage of average total assets) Net interest income 1,42% 1,52% 1,76% 2,03% 2,12% Net exchange and capital gains/losses 0,15% 0,32% 0,30% 0,24% 0,32% Other operating income 1,21% 1,19% 1,16% 1,06% 0,91% Total operating income 2,79% 3,04% 3,22% 3,33% 3,34% Total operating expenses 1,44% 1,59% 1,60% 1,71% 1,78% Profi t before losses and write-downs 1,35% 1,44% 1,62% 1,62% 1,56% Losses and write-downs 0,46% Losses on loans and guarantees 0,01% -0,12% -0,11% 0,15% Result of ordinary activities 1,33% 1,57% 1,73% 1,48% 1,10% Taxes 0,26% 0,32% 0,37% 0,37% 0,31% Profi t for the year 1,07% 1,25% 1,36% 1,11% 0,79%
Volumes (NOK million) Total assets 103 120 85 035 67 237 59 140 52 642 Loans to retail customers 51 095 48 461 41 890 37 264 33 353 Loans to retail customers incl. SB1 Boligkreditt 56 085 48 864 41 890 37 264 33 353 Loans to corporate market 36 995 28 836 19 922 17 169 15 521 Deposits from retail customers 21 450 19 190 17 464 16 787 15 944 Deposits from corporate market 28 764 23 357 20 066 16 275 12 322 Growth in loans to retail customers % 5,4 15,7 12,4 11,7 11,9 Growth in loans to corporate market % 28,3 44,7 16,0 10,6 -0,7 Growth in deposits from retail customers % 11,8 9,9 4,0 5,3 3,7 Growth in deposits from corporate market % 23,1 16,4 23,3 32,1 0,5
Equity (NOK million) Primary-capital-certifi cate capital 1 764 1 126 1 128 905 750 Savings bank's reserve 1 970 1 738 1 505 1 198 1 132 Dividend equalisation reserve 1 114 1 028 990 918 872 Other equity 830 396 200 80 55 Minority interests 16 12 7 5 2 Total equity 5 694 4 300 3 830 3 106 2 811 SpareBank 1 SR-Bank Page 131
Key fi gures Return on equity % 20,0 23,1 24,7 20,2 15,2 Cost ratio 51,7 52,4 49,7 51,2 53,4 No. of man-years 1 021 944 862 813 829 Loss ratio on loans 0,01 -0,13 -0,12 0,16 0,53 Gross non-performing loans as percentage of loans 0,10 0,14 0,21 0,38 0,87 Other doubtful loans as percentage of loans 0,73 0,27 0,54 0,71 0,86 Capital adequacy ratio % 10,00 10,56 11,84 11,57 12,32 Core capital ratio % 7,51 7,39 8,98 9,08 9,11 Average total assets 94 101 73 997 63 376 55 581 51 725
2003 200
EquityEquity and and subordinated subordinated loans loans NOK million 2004 9 000 2005 2006 2007 8 000 Profit before tax 7 000 6 000 Loans and deposits (NOKLosses million) on loans 5 000 NOK million and guarantees 4 000 100 000 NOK million Profit and loss (NOK million) 3 000 NOK million Profit and loss (NOK million) 2 000 80 000 1 400 1 000 - 11 200 400 2006 2007 60 000 11 000 200 2003 2004 2005 Other reserves 40 000 1 000 Subordinated loans 800 20 000 600 Equalisation reserve Primary certificate and allocated to capital - 400 dividend 200 2003 2004 2005 2006 2007 - Operating costs -200 Loans % 2003 2004 2005 2006 2007 Deposits Return on equity Profit before tax % Losses on loans 30,0 Loans and deposits (NOKand guarantees million) NOK million 25 0 100 000
Operating costs % of average total assets 2,00 1,50 1,00
1 021 0,50 1 021 944 NumberNumber of man-years, of man-years, the the group944 group - 862 862 2003 2004 2005 2006 2007 813 200 813 1 200 2004 2005 2006 2007 829 1 000 Loans 05 2006 2007 Loans 800 Return on equity 600 % Return on equity Deposits 30,0 % Deposits 400 30,0 25,0 200 25,0 20,0 - 20,0 2003 2004 2005 2006 2007 15,0 15,0 10,0 10,0 5,0 ity and subordinated loans 50 -
2003 2004
2005 2006 2007 NORWAY Overview of FINLAND
SWEDEN our offi ces: DENMARK
HORDALAND
Bergen
Sauda Ølen
Vindafjord Aksdal Sand Haugesund Karmsund ROGALAND Kopervik Sjernarøyane Åkra Bokn Fister Finnøy Skudeneshavn Rennesøy Årdal Kvitsøy Tau Randaberg Jørpeland Tananger Stavanger Forsand Sola Sandnes Klepp Ålgård AUST-AGDER Bryne Nærbø Vikeså Tonstad Varhaug Vigrestad
Egersund VEST-AGDER Lund Grimstad
Sokndal Flekkefjord
Kristiansand Farsund Søgne Lyngdal Mandal SpareBank 1 SR-Bank Page 133
Contact Information
Central Switchboard: +47 915 02 002
Headoffi ce / Administration:
SpareBank 1 SR-Bank Bjergsted Terrasse 1, P.b. 250, 4066 Stavanger
Fax +47 51 57 12 60 Email: [email protected] Website: www.sr-bank.no Governing Bodies
THE SUPERVISORY BOARD MEMBERS ELECTED FROM AND BY (The fi gures in the brackets state how many primary capital THE EMPLOYEES certifi cates the person in question owned in the SpareBank 1 Anne Nystrøm Kvale, Stavanger (9 117) SR-Bank Rogaland as at 31 December 2007. We have also Arnt Eivind Roth Halvorsen, Finnøy (6 061) included primary capital cerfi fi cates owned by close family Christina R. Lund, Stavanger (7 445) members and known companies in which the person has Frode Handeland, Sandnes (1 599) decisive infl uence, cf.Section 1–2 of the Companies. Act. We Hanne Keth Qvale, Sandnes (3 621) have salso included primary capital certifi cates belonging to Helge Pollestad, Stavanger (5 933) the institution that has elected the person as its representa- Kirsten Siv Ellingsen, Stavanger (2 917) tive.) Lars Magne Markhus, Stavanger (25 666) Tor Ege, Sandnes (1 333) MEMBERS ELECTED BY PRIMARY CAPITAL Torstein Plener, Stavanger (8 904) CERTIFICATE OWNERS Alf Erevik, Hønefoss (388 100) THE BOARD OF DIRECTORS Berit Rustad, Trondheim (39 330) Shipowner Kristian Eidesvik, Chairman of the Board (38 765) Bjarne Risa, Nærbø (73 816) Area Manager Gunn-Jane Håland, Vice Chairman of the Board Egil Fjogstad, Stavanger (23 845) Local Union Einar Risa (4 000) Elisabeth Utheim, Tromsø (56 154) President of the Confederation of Norwegian Business and Kristin Hedberg, Stavanger (144 431) Industry (NHO) andDirector Erling Øverland (5 845) Kristine Tveteraas, London (919 177) Controller Ingrid Landråk Leif Inge Slethei, Røyneberg (362 506) Attorney Katrine Trovik Olav Linga, Sagvåg (260 066) Corporate employee representative Sally Lund-Andersen, Olav Stangeland, Tjelta (629 663) Employee representative (426) Olav Tredal, Sør-Audnedal (3 178) Ole Njærheim, Stavanger (1 000) THE AUDIT COMMITTEE Ragnhild Hegre, Sandnes (138 381) Attorney Odd Rune Torstrup, Chairman of The Board (9 000) Randi Larsen Skjæveland, Jørpeland (68 380) Head of Division Odd Broshaug, The Deputy Cgariman of The Torill Stave, Oslo (1 296 162) Board Trygve Jacobsen, Stavanger (599 577) Manager Svein Hodnefjell Exploration Manager Vigdis Wiik Jacobsen (9 000) MEMBERS ELECTED FROM AND BY Senior Consultant Randi Larsen Skjæveland (68 380) THE DEPOSITORS Brit Elisabeth Bratland, Varhaug Eyvin M. Olsen, Stavanger GROUP MANAGEMENT Inga Roda, Finnøy CEO Terje Vareberg (94 117) Jan Moen, Sand Executive Vice President, Catital Market Sveinung Hestnes (33 112) Jan Olaf Tønnevold, Grimstad CFO Lisbet K. Nærø (34 258) Karl Endre Igland, Lyngdal Ececutive Vice President, Retail Market Rolf Aarsheim (41 338) Lynn Atteraas Erland, Paradis Executive Vice President, Corporate Market Tore Medhus (11 301) Svein Kjetil Søyland, Ålgård Executive Vice President, Communication and Public Tor Leif Helgesen, Aksdal Relations Thor-Christian Haugland (19 037) Executive Vice President, Human Resources Arild Langberg MEMBERS APPOINTED BY THE MUNICIPALITIES Johannessen (10 984) Arne Madland, Kleppe Executive Vice President, Business Support and Development Olav Haavorstad, Øvrebø Svein Ivar Førland (6 304) Olav Sande, Randaberg Executive Vice President, Head of Risk Management and Reidun Korsvoll, Sand compliance Frode Bø (3 394) Robert Erlandsen, Rådal
EXTERNAL AUDITOR PricewaterhouseCoopers AS Attn. State-uthorised public accountant Torbjørn Larsen
Idea and design : Oktan Apropos. Photo: Main Photographer: Anne Lise Norheim. Other Photographers: Odd Inge Worsø, Kristian Ridder-Nielsen, Fotoservice Søgne, Kreativ Foto Grimstad, Tom Haga, Fredrik Refvem Stavanger Aftenblad, several private pictures. Print: Kai Hansen
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