ANNUAL REPORT 2005 TABLE OF CONTENTS
The Sparebank 1 SR-Bank Group 4 The Audit Committee's Corporate market division 110 Highlights 6 statement for 2005 92 The Retail market division 113 Main figures 7 Primary capital certificates 93 Overview of our offices 116 Key figures 7 Key figures during the past years 96 Governing bodies 117 The CEO's article 8 A group willing and able Organisational chart (simplified) 118 Annual report 2005 10 to contribute 98 Annual accounts, table of contents 23 Corporate governance 100 Auditor's report for 2005 92 Risk and capital management 105
Photo: BITMAP (side 5, 12, 21, 22, 111), Elisabeth Tønnessen (page 107), Tom Haga (page 112, 115) and Åshild Moen. WHAT SEPARATES ONE BANK FROM ANOTHER? INTEREST RATES, FEES AND PRODUCTS ARE OFTEN THE SAME. BUT HAVE YOU ASKED YOUR BANK WHAT THEY WANT? OR WHAT ROLE THEY WANT TO PLAY? OUR ANSWER IS SIMPLE. THE OBJECTIVE OF SPAREBANK 1 SR-BANK IS TO HELP CREATE VALUES FOR THE REGION WE ARE PART OF, AND THE ONLY WAY IN WHICH WE CAN DO THIS IS THROUGH THE ACHIEVEMENTS OF OUR 942 EMPLOYEES. IT’S A MATTER OF WILL.
Agathe Høynes, Aina Nordfonn, Alet Due-Olsen, Alf Henning Myklebust, Alf Inge Riska, Alf Sigmund Østreim, Alf Sveinung Lie, Alfhild Vikse, Alv Østerhus, Alvhild Tofterå Berge, Anders Rundhaug, Andrè Liodden, Anita Christine Gundersen, Anita Hodnefjell, Anita Raustøl, Anita Sørhus, Anita Torjussen, Anlaug Stormo, Ann Helen Mæle, Ann Jeanette Sunde Olaussen, Ann Kristin Igland, Ann Kristin Rise, Annbjørg Omdahl, Anne-Christine Joys, Anne-Gro Holta, Anne Beate Hope, Anne Beth Høivik, Anne Beth Naustvik Økland, Anne Brit Idsøe, Anne Brit Myklestad, Anne Brit Watne, Anne Elise Olsen, Anne Grete Gjerde, Anne Grete Skraastad, Anne Grete Svennevig, Anne Haukalid, Anne Havsø Tveit, Anne Herabakke, Anne Irene Lea, Anne Isaksen, Anne Jelsa, Anne Jorun Hauge, Anne Judith Vik, Anne Karin Undheim, Anne Karin Østerhus, Anne Karine Weibell, Anne Kristin H. Førland, Anne Krogedal, Anne Lea Hobberstad, Anne Lill Larsen, Anne Lise Aukland, Anne Lise Bjorheim, Anne Lise Krossgått Førre, Anne M Slettebø, Anne Margrethe Karlstad, Anne Marie Nortveit, Anne Mathiassen Bjørnsen, Anne Nystrøm Kvale, Anne Siri Goa Sandve, Anne Synnøve Håversen, Anne Torhild Anfinsen, Anne Turid Landmark, Anne W Salbo Hundhammer, Annett Viste Levik, Annette Eide, Annette Skaarstad Hansen, Anny Bergeland, Anny Klingsheim, Ansgar Steffensen, Arild Ask, Arild Engø, Arild Langberg Johannessen, Arild Lauvsnes, Arild Netteland, Arild Nielsen, Arild Ree, Arlin Opsahl Mæland, Arne Geir Larsen, Arne Gjerde, Arne Kjærstad, Arne L. Lund, Arne Mo, Arne Tjelta, Arnfinn Høigård, Arnhild Haddeland, Arnlaug Vistnes, Arnt Eivind Roth Halvorsen, Arthur Tengesdal, Arve Austestad, Arve Pedersen, Arvid Ek, Arvid Gjesdal, Arvid Solem, Asgaut Fiskå, Aslaug Holgersen, Aslaug Irene Frafjord, Asle Ingebrethsen, Astrid Auestad, Astrid Børresen, Astrid Hauge Edland, Astrid Horpestad, Astrid Høyland, Astrid H. Throndsen, Astrid M. Bolme, Astrid Norheim, Astrid Saurdal, Astrid Skjæveland, Atle Mortensen, Atle Nilsen, Atle Oftedal, Atle Wb Nilsen, Atle Øvestad, Aud Helene Nese, Aud Inger Haugland, Aud Randi Sivertsen Sletten, Aud S. J. Jåsund, Audny Hellevik, Audun Remesvik, Beate Bjelland Rabben, Bendik Voll, Bent Terje Lie, Bente Due-Olsen, Bente Erevik Svendsen, Bente Hope, Bente Ilona Grastveit, Bente Stokdal, Bente Øyhovden, Berit Helene Bjerga, Berit Johannessen, Berit Karin Gramstad, Berit Mihle Laugaland, Berit Nygård, Berit Sandåker Olsen, Berit Sie Eltervåg, Berit Sola, Berit Storhaug Ravndal, Berit Vatnekvam, Berit Vestersjø, Bernt H. Berge, Bernt Ringodd, Bertha Auestad, Bess Grastveit, Beth Karin Laugaland Sele, Bidun Berge Hansen, Birgitte Nordnes, Birgitte Wendelbo Johansen, Birte Wereide, Bjarte Sivertsen, Bjørg Byberg, Bjørg Espeland, Bjørg Haarr, Bjørg Ravnås Knutsen, Bjørg Stangenes Nilsen, Bjørg Tordis Lunde, Bjørn Berland, Bjørn Håheim, Bjørn Jan Tesdal, Bjørn Kjetil Hellestræ, Bjørn Rossebø, Bjørn Rune Olsen, Bjørn Sanne, Bjørn Sivertsen, Bjørn Steinar Surdal, Bjørn Stensland, Bjørn Sørlund, Bjørnar Jacobsen, Bodil Eia Folkvord, Bodil H. Nernes, Bodil Olsen, Bodil Sjøthun, Bodil Sømme Danielsen, Brit Carlsen, Brit Helen Lie Hagen, Brit Jane Tolås, Brit Røstvik, Brit Thomsen, Brit Tone Harveland, Brith Ladsten Breivik, Britt Fagerland, Børge Espeland, Børge Henriksen, Børge Severin Furuhaug, Børge Sørensen, Bård-Espen Krabbedal, Bård Birkeland, Bård Ellingsen, Camilla Gram, Carl Fredrik Hjelle, Catherine Hauge, Cathrine Brueland Andersen, Cathrine Leiros, Cecilie Hjelmervik, Cecilie Lileng, Cecilie Vik, Christian Jacobsen, Christian Krag, Christiane E. Skage, Christina R. Lund, Christine Christiansen, Christine Gjerde Kvalsund, Christine Wathne Seloter, Christoffer Inge Hovda, Corine Vollen Aulin, Dag Kristian Risa, Dag Strøm, Dag Sønsterud, Dagfinn Pedersen, Dajmi Egenæs Birkedal, Ebba Marie Breivik, Edda Runarsdottir Hodnefjell, Edna Kallevik, Edvard Jekteberg, Edvard Aarsland, Egil Nygård, Egil Reed, Einar Foss Kvavik, Einar Jøssang, Einar Osmundsen, Eirik Bjelland, Eirik Fausa, Eirik Thorsen, Eivind Pedersen, Elbjørg Husebø, Eli Fosse Orstad, Eli Lunde Wells, Eli Margrethe Hansen, Eli Nødland Knoph, Eli Øye, Elin Berne, Elin Bie Egge, Elin Bue, Elin Falck-Jørgensen Gitlesen, Elin Garborg, Elin Klungtveit, Elin Schanche, Elin Sørung, Elisabet Salthe, Elisabeth Falch, Elisabeth Krogedal, Elisabeth Ree-Pedersen, Elisabeth Østensen, Elisabeth Øvstebø, Elise Oliversen, Ellen Hansen Vestre, Ellen Iversen, Ellen Kristin Westbye, Ellen Marie Jespersen, Ellen Strømme, Elna Olena Ydstebø, Else Eriksen, Else Juul, Else Karin Rossavik, Else Karin Solvik, Else Marie Jonsson, Else Marie Rønneberg Mcneil, Emmy Holmquist, Endre Mathias Gaard, Erik Hansen, Erik Larsen, Erik Salte, Erlend Halsne, Erling Titlestad, Erling Trondsen, Erling Trædal, Erna Nilsen, Espen Solum, Eva Eliassen, Eva Wanvik, Eva Aalvik, Evy-Tone Håland, Evy Sagen, Fred Humborstad, Fredrik Vik Jørgensen, Freidar Sagen, Frode Bø, Frode Gjedrem, Frode Handeland, Frode Kulien, Frode Ollestad, Frode Solheim, Frøydis Spetland, Gabriel Haugen, Gaute Jacobsen, Gaute Thise Jacobsen, Geir Danielsen, Geir Gundersen, Geir Helge Tjordal, Geir Hoff, Geir Inge Lian, Geir Lie, Geir Olav Måland, Geir Rønhovde, Geir Tjentland, Geir Aamdal, Gerd Bergum, Gerd Ellinor Eikje, Gerd Karin Snørteland, Gerd Oddny Sørhus, Gerd Soltvedt, Gerd Solveig Sande, Gerd Størkersen, Gerd Watland, Gerd Åsbø, Gjermund Øren, Glenn Sæther, Greta Tungland, Grete Breisteinslien Olsen, Grete Elisabeth Eide, Grete Frøyland, Grete Oanæs Dahl, Grete Torarin Haga, Grete Ø. Aukland, Grethe Berge Østhus, Grethe Eriksen, Grethe E. Gjerde, Grethe Iversen, Grethe N. Holm, Grethe S Schreuder, Gro Anita Nøkland, Gro Barka, Gro Berit Haferkamp, Gro Lillian Netland Hulløen, Gro Tveit, Gry Berit Lundal, Gry L. Paulsen, Gry Soland, Gry Åmot Sjøvoll, Gudbjørg Hetland, Gunlaug Haugland, Gunn Haaland, Gunn Kristi Høgøy, Gunn Merete Johansen, Gunn Nag Nordanger, Gunn Rygh, Gunn Smithson, Gunnar Eriksen, Gunnar Fatland, Gunnar Førland, Gunnar Kristiansen, Gunnar Nielsen, Gunnar Steinsson, Gunvor Bergesen, Gunvor Bøe, Guri Aarrestad, Guro Edquist, Guttorm Sirnes, Gyrid Bakka, Gyro Eftestøl Naterstad, Gøran Heggen, Halfdan Meling, Hanne Berit Sunde, Hanne Iren Sværen, Hanne Joa Jacobsen, Hanne Keth Qvale, Hanne Lise Lindløv, Hanne Synnøve Andreassen, Hanne Tove Østebøvik, Hanne Aanderaa Kristiansen, Hans Jacob Hornseth, Hans Kristian Torske, Hans Petter Salvesen, Hans P. C. Hansen, Harald Grønnestad, Harald Skarveland, Harald Utvik Hamre, Harald Vorland, Hege Eriksen Nilsen, Hege Kyllingstad, Hege Lind Tvedt, Hege M. Drarvik Olsnes, Hege O. Larsen, Heidi Høivik, Heidi Nag Flikka, Heinz Goldhahn, Helen Hellesvik, Helene Vaaland Eriksen, Helga Undheim, Helga Vinje, Helge H. Helgø, Helge Ims, Helge Larsen, Helge Lennart Aarsheim, Helge Lindland, Helge Pollestad, Helge Thorsen, Helge Torjussen, Henning Stålesen, Henry Bjørkelund, Herbert Lundervold, Hild Marit Torvestad, Hilde Grønhilder Kristiansen, Hilde Marie Djupevik, Hilde Netland, Hilde Sløgedal Stava, Hilde Thoresen Solvoll, Hilde Tollefsen, Hugo Heitmann Hansen, Håkon Færaas, Håkon Løvslett, Håvard Norberg Bø, Håvard Øvregård, Idun Vagle, Ina Aurtun, Inge Nilson, Inge Reinertsen, Ingebjørg Feria, Inger Alida Stangeland, Inger Håland Hinna, Inger Johanne Solberg, Inger Lise Ask, Inger Lise Jonassen, Inger Lise Leite, Inger Lise Løland, Inger Lise Tønnessen, Inger Mathiassen, Inger Reidun Tjordal Underbakke, Inger Årsvoll Tuxen, Ingfrid Warhaug, Inglen Haugland, Ingolf Harkestad, Ingrid Fritzke Andresen, Ingrid N. Stueland, Ingrid Skjæveland, Ingunn B. Mæland, Ingunn Mæhle, Ingunn Stokdal, Ingunn Sunnevåg, Ingvar Austrått, Ingve Henriksen, Ingve Lerang, Ingvild Fitje Håland, Irene Fjeldheim, Irene Goa, Irene Nesbø, Ivar Skogen, Iver Tønnessen Mathiesen, Jacob Magne Kvinnsland, Jahn Fredrik Hoff, Jan Arild Sørbø, Jan Arne Puntervoll, Jan Audun Lutro, Jan Audun Pedersen, Jan Eie, Jan Einar Thesen, Jan Erik Østbø, Jan Friestad, Jan Georg Byberg, Jan Inge Buer, Jan Inge Rasmussen, Jan Jørgen Larsen, Jan Kristian Byberg, Jan Michael Nilsen, Jan Michaelsen, Jan Ove Wolff-Jakobsen, Jan Petter Mauland, Jan Petter Mikaelsen, Jan Sigve Løvold, Jan Tjelle, Jan Vidar Vestly, Jane Brit Tønnesen Ripland, Jane Cave, Jane Margon Vølstad, Janne Anette Wold, Janne Bore, Janne Clausen, Janne Erfjord, Janne Eskeland, Janne Fjellvang, Janne Stangeland Rege, Jarl Endre Egeland, Joar Johnsen, Johan Bjørn Hatleskog, Johan Bull-Njaa, Johannes Høynes, Johannes Vold, John Hov, John Instanes, John Lervik, John Aage Tisløv, Jonas Ytreland, Jone Omland, Jorunn Esther Oliversen, Jorunn E. Helgøy, Jorunn Finnestad, Jorunn Jøssang, Jorunn Lilledal, Jorunn Nepstad, Jorunn Nordvik, Jorunn Pedersen Lima, Jorunn Reianes Tvedt, Jorunn Risanger, Jorunn Simonsen, Jorunn Vadla, Jorunn Vestbøstad, Jostein Opsal, Judith Marie Taarland, Julianne Johansen, Julie Klepp, Jørgen Kristiansen, Kalle Naley, Karen Bergesen, Karen Elise Stølsvik, Karen Strøm Olsen, Kari Ellingsen, Kari Foss, Kari Grødem, Kari Helen Tollefsen, Kari Helgøy, Kari Hoff, Kari Høyvik, Kari Håland, Kari Idsø, Karin Bråtane, Karina Hobbesland, Karstein Øye, Karsten Helleberg, Kate Elin Gravdal, Kate Pallesen, Ken Bårdvik, Kenneth Dalaker, Ketil B. Askildsen, Kim Ingebretsen, Kirsten Andersen, Kirsten Ehrhorn Bjerga, Kirsten Knutsen, Kirsten Siv Ellingsen, Kirsti Skoglie, Kirsti Windingstad Løvik, Kjell Birkeland, Kjell Hestvik, Kjell Otto Vikse, Kjell Rek, Kjellaug Håvarstein, Kjetil Helgesen, Kjetil Helland, Kjetil Kiil Halvorsen, Kjetil Skjæveland, Kjetil Søyland, Kjetil Øygarden, Klara Marie Fiskå, Knut Einar Rovik, Knut Inge Houeland, Knut Jåsund, Knut Nesse, Knut Sirevåg, Kristian Spanne, Kristian Sørhus, Kristian Ur, Kristin Gundersen Lund, Kristin H. Furuholt, Kristin Skaar Smines, Kristine Ree Espedal, Kåre Gundersen, Kåre Haga, Kåre Idsøe, Kåre Mæland, Kåre Nils Hallberg, Kåre Aano, Laila Abrahamsen, Laila Berntsen, Laila Rasmussen, Laila Strøm Stange, Laila Vestbø Risa, Lars Arne Bleie, Lars Enevoldsen, Lars Færevaag, Lars Magne Markhus, Lars Martin Andersen, Lars Meling Hultin, Lars Nærland, Lars Sletten, Lars Varhaug, Leif Bø, Leif E. Bjelland, Leif Inge Løland, Leif Ole Terøy, Leif Tore Vika, Leiv Helge Kaldheim, Leiv Inge Stokka, Leiv Kåre Asbjørnsen, Leiv Vik, Lena Fidje, Lene Gravdal, Lene Hellestø, Lillian Vestre, Linda Hapnes, Linda Helen Høie, Linda Lillebø Haugstad, Line Hillestad, Linn Danielsen Hordvik, Linn Vetrhus Lode, Lisbet Tellefsen, Lise Ravndal, Liv Grethe Bergjord, Liv Grethe Obrestad, Liv Helen Pettersen, Liv Ingjerd Grude, Liv Jorunn Skåland, Liv Mykland, Liv Synnøve Jensen, Liv Tone Tou, Liv Tungland, Livar Dubland, Magnar Hobberstad, Magnar Sandanger, Magne Kr. Haugland, Magnhild Henden, Magnhild Høiland, Magnus Bjorland, Mai Brit Hanasand, Margaret Sagvåg, Margareth Alfsvaag, Margareth Storesund, Margot Fauskanger, Margot O. Kristoffersen, Margrete Engeberg, Margrete Nordvik, Margunn Bjørnøy, Margunn Herigstad, Margunn Haaland, Margunn Mikelsen, Mari-Anne Petersen, Marianne Bakke- Andersen, Marianne Johanson, Marianne Kaada, Marianne Skårdal Austrått, Marianne Skaar, Marianne Thu Salvesen, Marie Brunes, Marie Rosseid Eikeland, Marit Bellesen, Marit Gryte, Marit Halvorsen, Marit Hvidsten, Marit Idsøe Skarbøvik, Marit Kristin Brekke Fiskaaen, Marit Peggy Eie, Marit Simonsen Ohm, Marit Solberg, Marit Sørbø, Marit Thorsrud, Marit Veshovde, Marita Fjelde, Marita Olsen, Marita Raaen, Marita Øpstad Naaden, Marius Richard Riise Johnsen, Marlin Furuløkken, Marta Sandvik, Martha H. Botnen, Martin Henrichsen, Maryanne Skjerve, May Hilde Byberg, May Jorunn Vatnaland, May Kristiansen, May Kristin Enevoldsen, Meheret Dotche, Merete Gustavson, Merete Håland, Merethe Annaniassen, Merethe Kristensen Jerstad, Merethe Olsen Bygland, Mette Stene, Mindor Jelsa, Mona Malde Pedersen, Monica Bakken, Monica Kristoffersen, Monica Lilleland, Monica Tjora, Morten Erga, Morten Lange, Morten Roalsø, Møyfrid Mæland, Møyfrid Synnøve Fuglestad, Målfrid Tveit Fredriksen, Målfrid Voll, Nils Eie, Nils Inge Bokn, Nils Mikal Emberland, Nils Mikal Hegrestad, Nina Christine Henriksen, Nina Elisabeth Mortensen, Nina F. Mydske, Nina Møll, Nina Sjøen, Nina Stange Jakobsen, Nina Werness, Norunn Marie Nordbø, Odd Abrahamsen, Odd Arild Kvaløy, Odd Breistrand, Odd M. Langvik, Odd Terje Vadla, Oddfrid Warland, Oddny Aven, Oddny Hebnes, Oddny Johnsen, Oddrun Tjeltveit, Oddvar Rettedal, Oddvar Skretting, Oddveig Lima, Ola Aspen, Olaug Nedrebø, Olav Handeland, Olav Håland, Olav Lande Rossebø, Olav Magne Gard, Olav Strand, Ole Magnus Bækkelund, Ole Magnus Sirevåg, Ole Petter Dahl, Ole Sigbjørn Langeland, Ole Skjærseth, Ottar Varhaug, Ove Susort, Palma Flølo Ørevik, Peder Skåre, Per-Erik Larsen, Per Arne Jacobsen, Per Egeland, Per Ingve Leidland, Per Magne Strømstad, Per Skibeli, Petter Linaae, Petter Ølberg, Pål Frøiland, Ragnar Tollisen, Ragnhild Hegrestad, Ragnhild Røykenes, Ragnhild Åmodt, Randi Dale, Randi Eim, Randi Eim Johansen, Randi Kjær, Randi Lillebø Larsen, Randi Ravndal, Randi Torgersen, Randi Aase, Rasmus Kvassheim, Reidar Graue, Reidar Haga, Reidar Lieng, Reidun Idland, Reidun Ingjerd Sand, Reidun Nordbø, Reidun Raustein, Reidun Thuestad, Rigmor Bø Austrått, Rita Solum, Roar Bjørnsen, Roar Haualand, Roar Ullenes Olsen, Roger Abusland, Rolf Birkeland, Rolf Bjarne Lie, Rolf Egeland, Rolf Hansen, Rolf Inge Lura, Rolf Mikkelsen, Rolf Simonsen, Rolf Aarsheim, Roy Fardal, Roy Helle, Roy Tønnessen, Rudi Vestvik, Runar Skarstein, Runar Aarekol, Rune Andersen, Rune Bertelsen, Rune Bjørlo, Rune Sleveland, Rune Vaage, Sally Lund-Andersen, Saousen Ludvigsen, Seri Berge, Sigmund Bendiksen, Sigmund Bræk, Sigmund Traa, Signe Halvorsen, Signe Kristiansen, Signe Skeie, Sigrid Riskedal, Sigrunn Austrått, Sigrunn T.U. Stangeland, Silje Rasmussen, Siri Lindås, Siri S Dalehaug, Siri Tansø, Siril Kristoffersen, Sissel Bolme Hamre, Sissel Fjermestad, Sissel Hagen, Sissel Johnsen, Sissel Rage, Sissel Roa Hobberstad, Sissel Tønnessen, Siv Birkeland, Siv Hind, Siw Kristin Deisz, Sjur Andre Svihus, Sjur Eftevaag, Solbjørg Lima Skadberg, Solfrid Byberg, Solfrid Sæbø, Solveig Haugsgjerd, Solveig Olsnes Romsøe, Stein Arne Pallesen, Stein Høiland, Stein Olav Tollaksen, Steinar Borgen, Steinar Stornes, Steinar Vestbø, Stian A. Wathne, Stian Dahl, Stian Helgøy, Stian Miljeteig, Stian Simonsen, Stig Horsberg Eriksen, Stig Morten Nerheim, Stine Johannessen, Sturla Malde, Ståle Hoff, Ståle Rasmussen, Ståle Thomsen, Sune Svela Madland, Svein Hauge, Svein Inge Sel, Svein Ivar Førland, Svein Nordbø, Svein Nåden, Svein Rosberg, Svein Rødland, Svein Tysdal, Svein Aarrestad, Sveinung Hestnes, Sverre Aune, Sverre Bertelsen, Sverre Dahle, Synnøve Wathne, Terje Galta, Terje Gismervik, Terje Johnsen, Terje Krumsvik, Terje Lunde, Terje Torgersen, Terje Vareberg, Therese Håland Haver, Thor-Christian Haugland, Thora Sæther, Thorbjørn Jacobsen, Thorbjørn Thorkildsen, Thore Lie, Thrine Seglem, Tina Erga, Tjalve Lekvam, Tom Andre Lund, Tom Håland, Tom Leif Rusdal, Tom Lie, Tom Ove Horpestad, Tom Rune Tjelta, Tom Steinsvåg, Tommy Husebø Ramsvik, Tommy Sletten, Tone Johnsen, Tone Karlsen, Tone Solheim Grøsle, Tone Tangnæs Schulze, Tone Thorsdalen, Tor Dahle, Tor Ege, Tor Harald Skien, Tor Martin Kristiansen, Tor Reidar Frøystein, Tor Salvesen, Tor Tollefsen, Tor Tveit, Tor Tveit Aanestad, Tor Undset, Torbjørn Høie, Torbjørn Vasstveit, Tordis Haraldsen, Tordis Pedersen, Tordis Stenberg, Tore Drange, Tore Medhus, Tore Snørteland, Torfrid Baustad, Torhild Bjørndal, Torhild Dyskeland, Torild Naaden, Torild Sæbø Salvesen, Torill Haaland, Torill Margrethe Bjelland, Tormod Roth, Torodd Varhaug, Torstein Plener, Torunn Dyskeland, Torunn Synnøve Grude, Torvald Søiland, Tove Bjelland, Tove Christiansen, Tove Haaland, Tove Mette Mikkelsen, Tove Schilling, Trine Lise Mjåland, Trond Anton Ringøen, Trond Haaverstein, Trond Larsen, Trond Ove Edland, Trond Rannestad, Trond Sandvik, Trond Stave, Trond Støldal, Trygve Jan Gundersen, Turid Frøyland, Turid Hansen, Turid Holmen, Turid Larsen, Turid Røsdal, Turid T. Krone, Turid Vanvik, Venke Mæland, Veronica Varhaugvik, Vibeke Solheim, Vidar Grastveit, Vidar Høyvik, Vidar Plaszko, Vigleik Sirnes, Wenche Andreassen, Wenche Endresen, Wenche Netland, Wenche Winge, Wiggo Gilje, Willy Nøstbakken, Willy Skjørestad, Øygunn Nødland Idsøe, Øystein Vestre, Øystein Viland, Øyvind Bjørgengen, Øyvind Håheim, Øyvind Rege, Øyvind Rønnevik, Øyvind Sjøtrø, Øyvind Vestbø, Ågot Bratteli, Åse Eikesdal, Åse Gry Andreassen, Åse Holm, Åse Linda Stava, Åse Rygg, Åse Venke Tjørhom, Åse Winnie Skjæveland, Åsmund Sirevåg, Aage Olsen, Aasta Kalstø SpareBank 1 SR-Bank Annual Report 2005
The Sparebank 1 SR-Bank Group
HISTORY bank has enjoyed a positive market trend. By the end of 2005, Sparebanken Rogaland, the legal name of SpareBank 1 SR- Sparebank 1 SR-Bank had more than 200 corporate main Bank, was established on 1 October 1976 by merging 22 banking connection customers in Agder, and further healthy savings banks to become the country’s first regional savings growth is expected. In total, the bank’s corporate market bank. After 29 years of operations and merging of a total of 39 division serves approx. 4,200 customers in business and savings banks, the bank has become the region's leading public administration, in addition to the 8,600 small businesses bank. In November 1996, Sparebanken Rogaland was party to and agricultural customers served by the retail market division. the formation of the SpareBank 1 alliance, a Nordic banking and product partnership. EIENDOMSMEGLER 1 ROGALAND AS 4 The EiendomsMegler 1 chain is the Norwegian market leader THE GROUP in real estate brokerage. EiendomsMegler 1 Rogaland AS is In addition to the bank, the group consists of the financial the largest firm in this chain, and a regional market leader. In company SpareBank 1 SR-Finans AS, EiendomsMegler 1 2005 the company brokered approximately 5,100 homes from Rogaland AS, SR Investering AS and the bank’s company for its 20 real estate offices in Rogaland and Agder. The company active asset management, SR-Forvaltning ASA. The Group has has 120 employees. In addition to brokering homes, 942 employees, and total assets of NOK 67.2 billion. EiendomsMegler 1 Rogaland AS has a separate division for business and project brokering, a separate division for the THE BANK sale of new homes in Spain, as well as a division for brokering SpareBank 1 SR-Bank is the country's second largest savings homes in housing co-operatives. bank. The bank's market areas are Rogaland, Agder and Sunnhordland, and the bank currently has 50 branch offices in SPAREBANK 1 SR-FINANS AS its market area. The head office is located in Stavanger. SpareBank 1 SR-Finans AS is the leading leasing company in The customer-directed activities are organised into a retail Rogaland, with more than NOK 2.1 billion in total assets, and market division and a retail market division. 23 employees. The company's offfices are located alongside the bank’s corporate market division for Stavanger and Jæren Retail market at Forus outside of Stavanger. Its main products are leasing With 186,860 customers, SpareBank 1 SR-Bank is the leading and car loans. The leasing portfolio consists of a wide range retail customer bank in Rogaland. In addition to retail of products, and the customers represent most of the region's customers, the retail market division serves more than 8,600 business sectors. small businesses and agricultural customers. The bank supplies products and services in the fields of financing, placing of SR-FORVALTNING ASA investments, payments facilities, pensions, non-life insurance SR-Forvaltning ASA manages portfolios for approx. 1,900 and life assurance. At the end of 2005, SpareBank 1 SR-Bank external customers, and for SpareBank 1 SR-Bank and had 67,700 non-life insurance customers. SpareBank 1 SR-Bank’s pension fund. The objective of SR- Forvaltning is to be a local alternative with a high level of Corporate market expertise in financial management. The company has total SpareBank 1 SR-Bank holds a solid position in the corporate assets of NOK 4.3 billion, and nine employees. market. About 40% of all businesspeople in the bank’s traditional market list SpareBank 1 SR-Bank as their main banking. Since SR INVESTERING AS establishing itself in the Agder counties in the fall of 2002, the SR Investering AS is the group's recently established company for investment in equity capital instruments. The company’s OBJECTIVE OF SPAREBANK 1 SR-BANK objectiveis to invest in companies, ventures, private equity The objective of Sparebank 1 SR-Bank is the creation of value and seed funds in order to contribute to long term value for the region which we are part of. creation in the group's market area. SR Investering AS has initial assets of NOK 200 million. VISION "SpareBank 1 SR-Bank - the recommended bank" THE SPAREBANK 1 ALLIANCE The overall objective of the SpareBank 1 alliance is to develop, STRATEGY procure, sell and supply financial services and products, as SpareBank 1 SR-Bank shall be a profitable and solid bank that well as exploiting economies of scale in the form of lower is attractive for customers, capital markets, primary capital costs and/or higher quality, giving the customer the best certificate owners and employees alike. This is to be ensured advice and the best services at competitive terms. The through: Norwegian banks in the alliance co-operate through the jointly owned holding company SpareBank 1 Gruppen AS. In addition • A savings bank philosophy with a strong brand identity and to Sparebank 1 SR-Bank, the other participant banks are modern operations, in which values are created locally and Sparebanken 1 Nord-Norge, Sparebanken 1 Midt-Norge and channelled back to the community Samarbeidende Sparebanker AS (15 local savings banks in • A clear set of priorities based on customer needs and eastern and northwest Norway). Other owners and partners profitability through the SpareBank 1 Gruppen AS include Förenings- • A market area consisting primarily of Rogaland, Agder and Sparbanken AB (publ) in Sweden and the Norwegian Hordaland Federation of Trade Unions (LO). SpareBank 1 Gruppen AS • A considerable position in the savings and pension market owns the companies Bank 1 Oslo AS, SpareBank 1 • Competent employees who are proud to work for Livsforsikring AS, SpareBank 1 Fondsforsikring AS, SpareBank SpareBank 1 SR-Bank 1 Skadeforsikring AS, Odin Forvaltning AS, SpareBank 1 Bilplan AS (19.9%) and First Securities ASA 24.5%).
5
Sparebank 1 SR-Bank group management team: Back row, from the left: Sveinung Hestnes (Deputy CEO), Tore Medhus (Executive Vice President Corporate Market), Rolf Aarsheim (Executive Vice President Retail Market), Tor-Christian Haugland (Executive Vice President Public Relations). Front row, from the left: Terje Vareberg (CEO), Frode Bø (Executive Vice President, Head of Risk Management), Svein Ivar Førland (Executive Vice President, Business Support, IT and Security), Gro Tveit (Acting CFO) and Arild Langberg Johannessen (Executive Vice President, Human Resources). SpareBank 1 SR-Bank Annual Report 2005
Highlights
• Historically good results - high recoveries on losses and high return on financial investements • Group profit before tax. NOK 1.096 mill (NOK 821 mill). • Return on equity after tax: 24,7% (20,2%) 6 • Interest rate margin: 1,76% (2,03%) • Net other operating income: NOK 925 mill (NOK 721 mill) • Operating costs: NOK 1.012 mill (NOK 948 mill) • Gross non-performing loans: NOK 130 mill (NOK 203 mill) • Net recovered losses: NOK 70 million (Net losses NOK 81 million). • 12 month growth in lending: +13,5% (+11,3%) • 12 month growth in deposits from customers: 13,5 % (17,0 %) • Dividend of NOK 14 (NOK 9,2) per PCC • Allocation of NOK 92 mill (NOK 60 Mill) to the endowment fund
(Figures from corresponding period in 2004 in parenthesis) SPAREBANK 1 SR-BANK IFRS
Main figures
(NOK mill) 2005 2004
Net interest income 1 113 1 129 Net other operating income 925 721 Total operating costs 1 012 948
Result before losses and write-downs 1 026 902 Losses and write-downs -70 81
Result of ordinary activities pre tax 1 096 821
Key figures
7
2005 2004
Total assets 31.12. (NOK mill) 67 237 59 140 Net loans to customers (NOK mill) 61 480 53 839 Deposits from customers (NOK mill) 37 530 33 062 Growth in loans (gross) 14 % 11 % Growth in deposits 14 % 17 %
Capital adequacy ratio 1) 11,84 11,57 Core capital ratio 1) 8,98 9,08 Net equity and subordinated loan capital (NOK mill) 1) 5 338 4 411 Return on equity (%) 24,7 20,2 Cost percentage 53,0 53,2
Number of full time positions 862 813 Number of offices 50 50
Market price at the close of the year 230 144 Profit per primary capital certificate 1) 21,0 15,2 Dividend per primary capital certificate 14,0 9,2 Effective return on the primary capital certificate 66,1 40,0 RISK-amount as of 1. january 1) 1,79 6,06
Referring to page 95 for a complete list of key figures and definitions.
1) Figures calculated according to NGR. SpareBank 1 SR-Bank Annual Report 2005
What you
8
is what sets you apart from the others.
2005 WAS A VERY GOOD YEAR FOR SPAREBANK 1 SR-BANK. Customer satisfaction with our products and services has been further strengthened. The financial result places the bank among the best banks in Norway and the Nordic countries and creates a solid foundation for further efforts for the benefit of the region. Norway is in a broad-based and probably long-term positive controlled banks Kredittkassen and Fokus Bank being taken economic cycle. Good times require strong backs. This is why over by foreign banks, SpareBank 1 SR-Bank is now the it is important to emphasize the need for long-term thinking country's second largest Norwegian-owned bank. We believe and action. The foundation for the development of the region the nation and the region are best served by a diversity of over the next 10-15 years is being laid now. players in the finance sector, with Norwegian players also having a role to play. In this perspective, one must stress the necessity of careful attention to the forces which may move or shift the develop- In light of this, it is with some concern we note the burgeoning ment in a positive or negative direction. In 2006, IRIS and initiatives from European commercial banks to change the Agder Research will present scenarios for the Rogaland and special arrangement for savings banks as self-owned Agder counties towards 2020. The objective of this effort is to foundations. Norwegian savings banks ensure a wide-ranging create a debate on the long-term forces in play and take ownership across Norway and represent a local and regional measures to strengthen and exploit positive effects and to corrective to the national and international financial groups. counter negative developments. Through their chartered purpose to serve the public good, the In our view, active and diverse ownership with a will to deve- savings banks can re-allocate a share of the profits to worthy lop and invest is very important to business development and causes in the local community. At present, there are 126 the creation of new jobs in the region. SpareBank 1 SR-Bank is savings banks in Norway. The need for structural changes and an active partner in the dialogue to create ownership and adaptation in the Norwegian banking sector will be continuous. equity groups in the region. We were also among the initiators However, a basic principle must be that such changes take of Energivekst AS, which has a total equity of NOK 700 place in accordance with the wishes of the local community million. This company has had a very positive development which has contributed to creating the values which are and has prepared the foundation for a second phase in which retained as equity in the savings banks' funds. a further NOK 1.8 billion has been committed. The experien- ces from Energivekst and the development of other ownership This year, SpareBank 1 SR-Bank will celebrate its 30-year groups in the region underline the will and importance of anniversary as the first regional bank in Norway. We believe private ownership for positive business development. that being a savings bank is founded upon a very good business concept in which a local foundation is combined Commercialisation of research results is demanding, but we with proximity and expertise in all relations with our customers. 9 need to succeed in this respect if we are to supply more knowledge-based products and services in the future. The SpareBank 1 SR-Bank has always aimed for profitability and challenge is often not access to capital per se, but combining solidity when conducting its business. High profitability is competent, industrially oriented capital and commercially also a precondition for being able to play an active part as a viable ideas. regional development partner with considerable civic involve- ment. The position which the bank has achieved in its market With the new international division of labour, toll and technical would have been difficult to attain without the binding co- trade barriers are dismantled. Markets for goods and services operation which has been established with other savings are becoming integrated across national boundaries. A banks through the SpareBank 1 alliance. It is with satisfaction vigorous and competitive business environment in our region we note that more and more savings banks share our view will have to supply products and services with an even higher and we welcome Sparebanken Volda Ørsta into the alliance. knowledge content than today. This means that the products must reach markets with a high willingness to pay. As Norway In 2005, the SpareBank 1 banks and SpareBank 1 Gruppen AS is a member of the EU inner market, the sections of our have again achieved financial results which place the banks in industry which are exposed to competition must have the a class of their own, compared to other Norwegian banks. The same external conditions as the industries in the countries results confirm the contribution of our long-term cooperation with which we compete. strategy in strengthening the individual bank's position in the respective markets. As far as long-term measures are concerned, equal external conditions are by far the most important factor for positive SpareBank 1 SR-Bank has, for several years, had a high degree business development. of operating efficiency, a profitability equal to the best, a high degree of employee satisfaction and in 2005 a sick leave rate There have been significant structural changes in the finance of 2.8 per cent. Outstanding results are created by proud, industry over the last 10 years. As a result of earlier state- thriving and busy employees.
Stavanger, March 2006
Terje Vareberg CEO SpareBank 1 SR-Bank Annual Report 2005
Annual report 2005
SpareBank 1 SR-Bank achieved a pre-tax group profit of NOK and other income from ownership) amount to 36.5 per cent 1,096 million in 2005. This is an improvement of NOK 275 of total income, compared to 34.5 per cent in 2004. million from 2004. After tax, the profit was NOK 856 million, an improvement of NOK 244 million from 2004. Return on Costs increased by 6.8 per cent in 2005. The cost percentage equity after tax was 24.7 per cent, compared to 20.2 per cent for the parent bank was 48.4, and 53.0 per cent for the group. in 2004. The group had net reverse losses of NOK 70 million, The very strong result in 2005 is, in addition to fundamentally compared to losses of NOK 81 million in 2004. Corrected for sound banking operations, due to: low losses, payments reverse losses from on the Finance Credit involvement, the 10 connected to the Finance Credit involvement, positive securities regular loss costs in 2005 were NOK 6 million. Defaults have gains and very positive contribution from the stake in been reduced by NOK 73 million in 2005 and were NOK 130 SpareBank 1 Gruppen AS. million by the end of the year (0.21 per cent of gross lending).
The Board is very pleased with the results for 2005. The Board proposes that of the annual profit of NOK 840 million in the parent bank, NOK 317 million be allocated to The 2005 annual accounts for the SpareBank 1 SR-Bank group dividend (NOK 14 per primary capital certificate), NOK 156 have been prepared according to IFRS. All group figures are million be allocated to the equalisation fund, NOK 92 million stated according to IFRS, while all parent bank figures are be allocated to the endowment fund and NOK 275 million be stated according to Norwegian Accounting Standards (NGR). allocated to the savings bank's fund. Comparable figures for 2004 have been converted into IFRS in the group accounts. For a more detailed description of IFRS DEVELOPMENT OF THE GROUP implementation, see the separate section in the annual report, SpareBank 1 SR-Bank continued making good progress in the and the annual accounts. group's business areas in 2005. The group confirmed its position as the market leader in Rogaland, both in the retail The groups lendings increased by 13.5 per cent and deposits and corporate markets, as well as in real estate brokering. At increased by 13.5 per cent in 2005. the same time, the group has continued its positive develop- ment in the Agder counties. In the spring of 2005, SpareBank Deposits as measured in percentage of gross lending were 1 SR-Bank and EiendomsMegler 1 Rogaland AS opened a new 60.7 per cent by the end of the year. branch in Grimstad. In the first quarter of 2006, the bank will open. In 2005, the group decided to expand its geographical Net interest received was NOK 1,135 million in 2005, down business area to also include Hordaland. In the spring of NOK 16 million from 2004. The interest margin was 1.76 per 2006, the group will open a branch in Bergen where banking, cent in 2005. This is a decline from 2.03 per cent in 2004. real estate brokering and leasing will form part of the product range. Key personnel have been hired and the localisation Net commission income was NOK 377 million, up 10.6 per decided. cent in 2005. Income from financial investments, jointly controlled businesses and other operating income increased The interaction between the retail market division, the by NOK 168 million to NOK 548 million in 2005. This increase corporate market division, the subsidiaries and the bank's was partly due to very strong results from SpareBank 1 special divisions for trading, cash management and insurance Gruppen, as well as solid yield from the group's securities. is an important factor behind the strong results in 2005. Other income (excluding capital gains on securities, dividend A low interest rate level combined with strengthened competition in loan products has weakened the interest mar- The Rogaland business community is experiencing good gin. The growth in lending shows that there is still a high acti- times, and according to the Economic Barometer for vity level in both the group's retail and corporate markets. Rogaland the prevailing mood for 2006 is one of optimism. The majority of the businesses expect higher turnover and The new EU Capital Adequacy Directive Basel II is scheduled profitability in 2006 than in 2005. 40 per cent of the for implementation in Norway from January 1 2007. businesses in the poll expected increased manning needs in SpareBank 1 SR-Bank has high ambitions as regards risk 2006. In addition, the municipalities have increased their management in general and for adapting to the new capital hiring in 2005, and increased transfers of state funds are adequacy regime in particular. This is why SpareBank 1 SR- expected to lead to a continuation of this trend also in 2006. Bank applied to the Financial Supervisory Authority of Norway Oil investments are expected to reach record levels next year, for permission to use internal measuring methods (Internal with a prognosis of almost NOK 93 billion. The increased Rating-Based Approach - Foundation) for credit risk and the level of oil investment is to a large extent due to increased standard for operational risk management from 1 January interest in oil and gas recovery due to the strong rise in the 2007. An answer to the application from the Financial price of oil. The spillover effects are considerable for the Supervisory Authority of Norway is expected in the autumn of Norwegian economy in general and for Rogaland in particular. 2006. This is described in greater depth in a separate chapter in the annual report. The development noted in the Agder counties is not dissimilar from what we see in Rogaland, with falling unemployment The group reached its targets for 2005 with results well above rates, optimism in the business community and an increased the target figure of 15 per cent return on equity after tax, 8 per need for labour. Over the last year, unemployment has been cent core capital and almost 12 per cent capital adequacy. reduced by 30 per cent in Aust-Agder and 13 per cent in Vest- Agder. The most predominant factors in this development is The bank's target of a 50 per cent cost income ratio in the growth in orders and new industry enterprises, which are parent bank has also been reached. The cost income ratio in important in the Agder region. the parent bank ended up at 48.4 per cent. The same trend is seen in Hordaland, and according to the The Board believes it is important to the business community NHO (Confederation of Norwegian Enterprise) Economic that SpareBank 1 SR-Bank is a solid financial group with a Barometer for Hordaland and Sogn og Fjordane, the optimism local attachment, which can supply necessary capital for in the business community is on the increase. In Hordaland, 11 growth and development in the group's market areas, an employment increase on the order of 5-6,000 people is primarily Rogaland, Agder and Hordaland. In order to expected in 2006. The highest growth is expected in contribute further to the long-term creation of value in the construction, retail and business services. Most businesses group's market areas, a new wholly owned investment expect increased turnover and higher profitability, which will company, SR Investering AS, was established in late 2005. most likely lead to increased investment.
At the same time, SpareBank 1 SR-Bank shows a social By the end of December 2005, there were 5,190 completely commitment through support of local initiatives in culture, unemployed people in Rogaland, according to the Labour sports and education. This is done through active use of the Market Administration. This is 2.5 per cent of the labour bank's endowment fund. In 2005, a total of NOK 51 million force, a reduction of 1,697 people compared to December was granted from the endowment fund. 2004. With an unemployment rate of 2.5 per cent, the unemployment rate in Rogaland is 0.5 percentage points DEVELOPMENT IN THE GROUP'S MARKET AREAS below the national average. Unemployment in Rogaland is The rising economic cycle which has characterised the down 0.8 percentage points since December 2004, while the Norwegian economy since the latter half of 2003 seems to corresponding national average is 0.6 percentage points. The continue into 2006, if not as strongly as in 2005. 2005 was unemployment rate has been reduced in spite of high labour characterised in part by low interest rates and increased immigration from the EEA area and a reduction in sick leave. productivity, and in the latter half also by falling unemployment In the Agder counties, unemployment was reduced by 1,290 and a general optimism both in the business community and people in 2005, to 4,500 people by the end of the year. In households. The export industries are also experiencing Vest-Agder and Aust-Agder, unemployment rates were 3.6 and positive development. The growth rate in the Norwegian 3.2 per cent, respectively. This puts the total unemployment economy is high and there is much to indicate that we are in the Agder counties somewhat above the national average. close to full use of capacity. The drop in unemployment rates However, unemployment in the Agder counties fell considerably has been more marked in Rogaland than in Norway as a more than the national average. whole. Increased employment in business and industry has led to a tighter labour market. According to the Economic According to Statistics Norway, there were 396,490 people Barometer for Rogaland, there is already a lack of qualified living in Rogaland at the end of the third quarter of 2005. The personnel in some industries, and this can lead to increased population increased by 3,386 people (0.9 per cent) in the pressure on wages and slow growth. This has, among other three first quarters of 2005. Only Oslo and Akershus have a things, led to an increase in the use of foreign labour. higher population growth rate than Rogaland. It is the Jæren municipalities, including Stavanger and Sandnes, which have SpareBank 1 SR-Bank Annual Report 2005
the highest growth rate in the county, measured in per cent. OTHER INCOME The number of inhabitants in the Agder counties was 266,268 Net commission income in 2005 was NOK 377 million, up at the end of the third quarter of 2005. This is an increase of NOK 36 million from 2004. Income from payment transfers 1,396 (0.5 per cent) in the first three quarters of 2005. The was NOK 201 million in 2005, while insurance income was population growth rate in the Agder counties was somewhat NOK 85 million. Commission income from the sale of funds, lower than the national average of 0.6 per cent in the same structured products and real estate syndicates increased by period. There are large regional differences in the Agder 31.2 per cent, yielding a total of NOK 101 million. The sale of counties as well. Kristiansand has the highest growth, real estate interest contributed the most to the increased measured in per cent. income in 2005.
PROFIT DEVELOPMENT Income from financial investments increased by NOK 85 million to NOK 230 million in 2005. Dividend from short-term and long-term share investments increased from NOK 14 Profit before tax and return million in 2004 to NOK 38 million in 2005. This is mainly due on equity to NOK 23 million in dividend from Energivekst AS. The ban- k's short-term share and primary capital certificate invest- ments had a market value of NOK 317 million by the end of the year, compared to NOK 294 million in 2004. Capital gains were NOK 94 million, compared to NOK 61 million in 2004.
Percent The bank's long term share investment holdings were trans- ferred to the new subsidiary SR Investering AS before the end of the year. The value was set at the time of transfer by an NOK million independent auditor. The group's income from exchange gains and interest instruments was NOK 63 million in 2005.
Income from jointly controlled activities is the group's income from the stake in SpareBank 1 Gruppen AS. The income 2001 2002 2003 2004 2005 contribution has increased from NOK 45 million in 2004 to 12 Result of ordinary activities NOK 119 million in 2005. This is due to improved results in SpareBank 1 Gruppen AS and an increased stake, from 15.46 Return on equity per cent in 2004 to 17.63 per cent in 2005. The increased stake is due to the fact that the bank took over 2.17 per cent NET INTEREST INCOME in connection with buying out Sparebanken Vest's stake in SpareBank 1 Gruppen AS. The results of SpareBank 1 In 2005, the group had net interest income of NOK 1,113 mil- Gruppen AS are based on the preliminary accounts. Final lion (1.76 per cent), which is NOK 16 million lower than in accounts will be presented in late February and adjustments 2004. The interest margin was reduced by 27 basis points infany will be incorporated into the group's accounts for the from 2004. The reduction is due to increased competition, the first quarter of 2006. effects of the interest rate adjustments of the Central Bank of Norway as well as improved portfolio quality. Other operating income for 2005 was NOK 199 million. This was mostly commission income from real estate brokerage. Other income (excluding capital gains on securities, dividend Net interest income and interest margin and income from ownership) was 36.5 per cent of total inco- 1150 me, compared to 34.5 per cent in 2004.
1100 OPERATING EXPENSES Expenses to income ratio in the parent bank was 48.4 per cent
Percent and for the group 53.0 per cent in 2005, compared to 49.9 per 1050 cent and 53.2 per cent, respectively, in 2004. The group's ope- rating expenses were NOK 1,012 million in 2005, compared to 1000 NOK million NOK 948 million in 2004, an increase of 6.8 per cent.
950 Group personnel expenses increased by 3.6 per cent in 2005, from NOK 522 million in 2004 to NOK 541 million. The increase 900 in personnel expenses was due to ordinary wage increases, 2001 2002 2003 2004 2005 new employees with high expertise and expenses for restruc- Net interest income turing and expertise-building measures. Other expenses in- creased by 10.6 per cent. This was mainly due to increased IT Interest margin and marketing expenses. The operating expenses were 1.60 per cent of average total assets, compared to 1.71 per cent in 2004. Operating costs Gross lending, percentage growth, retail and corporate market
20
15 Percent 10 Percent NOK million 5
0
-5 2001 2002 2003 2004 2005 Operating costs Retail market Corporate market Percent of average total assets
LOSS PROVISION Defaults in the group have shown a positive development and were NOK 130 million by the end of 2005. This was NOK 73 million lower than by the end of 2004, a reduction of 36 per Gross lending, retail and corporate market cent. Gross defaults as a percentage of gross lending were 0.21 per cent as of 31 December 2005, down from 0.37 per 45000 cent by the end of 2004. 40000 The group had net reverse losses of NOK 70 million, compared 35000 to a loss cost of NOK 81 million in 2004. In 2005, the group 30000 13 reached a settlement with the accounting firm KPMG and 25000 insurer Lloyds and received NOK 91 million in connection 20000
with the Finance Credit affair. Of the NOK 91 million, 15 million NOK million 15000 were offset against a loss on Finance Credit not charged 10000 against income, while the remaining NOK 76 million was entered as reverse losses. Corrected for this entry, the ordinary 5000 losses in 2005 were NOK 6 million. 0 2001 2002 2003 2004 2005 The corporate market division had net reverse losses of NOK Retail market 72 million (excluding Finance Credit net loss of NOK 4 million), while losses in the retail market division were NOK 2 Corporate market million. Loss as a percentage of gross lending was positive with 0.11 per cent against minus 0.14 per cent in 2004. If loss from the Finance Credit involvement is disregarded, the loss percentage was 0.01 per cent. NOK 61.8 billion by 31 December 2005. Lending in the retail market rase by NOK 4.6 billion, an increase of 12.4 per cent, Total individual write-off was NOK 163 million as of 31 while lending in the corporate market and the public sector December 2005, while write-off on lending groups was NOK increased by NOK 2.7 billion, an increase of 15.7 per cent. The 169 million, 0.54 per cent of total lending. From 1 January distribution of lending in the retail market and the corporate 2005, the group has made the transition to IFRS in its group market is 67.8 per cent and 32.2 per cent, respectively. accounts and the new lending regulations in the bank accounts. This means that there are changes in how losses Total deposits were NOK 37.5 billion, an increase of 13.5 per are assessed and written off. This is described in more detail cent as of 31 December 2005. The growth in the retail and under the accounting principles section in the annual corporate markets was 4.0 per cent and 23.3 per cent, accounts. respectively.
BALANCE SHEET The deposit coverage is unchanged from the end of 2004 and The group's total assets were NOK 67.2 billion as of 31 was 60.7 per cent as of 31 December 2005. December 2005, up NOK 8.1 billion from 2004. The group converted to IAS 19 when entering its pension Lending rase by 13.5 per cent in 2005, and total lending was liabilities (IFRS for pensions) in both the company and group SpareBank 1 SR-Bank Annual Report 2005
Deposit to loan ratio ASA. The company manages securities for consumers, companies, pension funds and the bank and its pension fund. The managed assets increased by 47 per cent in 2005, to NOK 4.3 billion. The profit before tax was NOK 24.7 million.
In December 2005, the company SR Investering AS was founded. The company's aim is to contribute to long-term value creation through investments in businesses in the Percent group's market area. The company will be in operation from the first quarter of 2006. By the end of 2005 the company's assets consisted of NOK 83 million in long-term share- holdings and stakes in private equity, venture and seed funds transferred from SpareBank 1 SR-Bank. SpareBank 1 SR-Bank has committed a further NOK 100 million to the company to 2001 2002 2003 2004 2005 be used for new investments.
SPAREBANK 1 BOLIGKREDITT AS accounts. In the autumn of 2005, the use of this standard in In the autumn of 2005, SpareBank 1 SR-Bank and the other the company accounts as well was permitted given that the SpareBank 1 banks and Sparebanken Volda Ørsta, established group accounts are prepared according to IFRS. The group SpareBank 1 Boligkreditt AS. By the end of 2005, SpareBank 1 has chosen to charge current estimate variances on pensions SR-Bank had a 26.7 per cent stake in this enterprise. The directly against equity. For the group as a whole, this will enterprise has been established with the aim of being a credit mean charging NOK 130 million after tax against equity. institution which issues bonds with special guarantees in the This is, for all practical purposes, due to lower long-term enterprise's portfolio. The enterprise cannot start its operation government bonds interest rates. before the legislation takes effect. This is expected to happen around 1 January 2007. In the mean time, the enterprise will SUBSIDIARIES apply for a license as an ordinary credit institution and start Through their products and services, the subsidiaries provide operations in the second quarter of 2006. The enterprise's loss the group with a wider range of services for its customers. 14 before tax was NOK 542,000 in 2005. Through joint activities and marketing, the group appears as a total supplier of financial services and products. SPAREBANK 1-ALLIANSEN IN 2005 SpareBank 1 SR-Bank is a member of the SpareBank 1 alliance, EiendomsMegler 1 Rogaland AS is the leading real estate a broad-based cooperation between 19 independent agent in Rogaland with a market share and position paralleled SpareBank 1 banks with total assets of almost NOK 270 billion. by that of the bank. In addition, the company has won consi- The cooperation through the alliance is coordinated by the derable market shares in Lyngdal, Mandal and Kristiansand in jointly owned financial group SpareBank 1 Gruppen AS. recent years. In 2005, EiendomsMegler 1 Rogaland AS opened a new branch in Grimstad, sharing premises with the bank. In SpareBank 1 Gruppen AS is owned through 17.63 per cent the spring of 2006, a new branch in Bergen will open, sharing stakes for each of SpareBank 1 SR-Bank, SpareBank 1 Midt- premises with the bank. EiendomsMegler 1 Rogaland AS Norge, SpareBank 1 Nord-Norge and Samarbeidende operates in the residential, commercial real estate and project Sparebanker AS. Other owners are FöreningsSparbanken AB brokerage markets, and sold in excess of 5,100 properties (19.5 per cent) and LO (10 per cent). worth a total of NOK 8.3 billion in 2005. Total income in 2005 was NOK 190 million. The profit before tax was NOK 25.4 SpareBank 1 Gruppen AS owns Bank 1 Oslo AS, SpareBank 1 million. Livsforsikring AS, SpareBank 1 Fondsforsikring AS, SpareBank 1 Skadeforsikring AS and ODIN Forvaltning AS - as well as SpareBank 1 SR-Finans AS offers expertise and products in 24.5 per cent of First Securities ASA and 19.9 per cent of leasing and car financing. In addition to the bank's market SpareBank 1 Bilplan AS. area in Rogaland og Agder, the company has distribution agreements with 12 banks affiliated with the SpareBank 1 Furthermore, SpareBank 1 Gruppen AS has the administrative alliance(Samarbeidende Sparebanker AS). Leasing also forms responsibility for cooperation in the SpareBank 1 alliance, in part of the product range in the group's new effort in Bergen. which IT operations and development, brands, expertise In order to strengthen the company's profile and affiliation, building, joint processes, use of best practice and purchases the company changed its name from Westbroker Finans AS to are central. The alliance has, among other things, established SpareBank 1 SR-Finans AS in the first quarter of 2005. The three expertise centres for payments (in Trondheim), credit portfolio increased by 25 per cent in 2005, to NOK 2.1 billion. models (in Stavanger) and learning (in Tromsø), respectively. The profit before tax was NOK 20.5 million.
The development in profitability in SpareBank 1 Gruppen AS The management of the investment portfolios of the bank and in 2005 shows that the objectives of the turnaround operation its customers is organised in the company SR-Forvaltning which has been carried out have been reached in all business areas, and that the owners' ambitions for a satisfying return banks and financing companies shall not be permitted to on equity have been fulfilled. SpareBank 1 Gruppen AS managed make the transition to IFRS in their company accounts. When to improve its results in all business areas in 2005. In total, a transition to IFRS will be made effective has not been the SpareBank 1 Gruppen achieved a profit before tax of NOK clarified. Until such time, SpareBank 1 SR-Bank will present 755 million in 2005, an improvement of NOK 427 million on its company accounts according to Generally Accepted 2004. Return on equity after tax is 32.9 per cent. Norwegian Accounting Practices and the group accounts according to IFRS. The SpareBank 1 group's different product area companies supply good and competitive products to the banks in the More detailed information on the implementation of IFRS and areas of savings, pensions and insurance. The development the regulations is found in accounting principles and notes to has been very good in all product areas in 2005. Among the the group accounts for 2005. The annual accounts with notes highlights was SpareBank 1 Skadeforsikring's establishment for 2005 have been prepared according to Norwegian of a non-life insurance company in Sweden, in a joint venture regulations for the bank accounts and according to IFRS for with Trygg-Hansa, which is to distribute non-life insurance the group accounts. Both accounts are included in the annual products through FöreningsSparbanken. Furthermore, report. SpareBank 1 Livsforsikring has supplied products tailor-made according to the new law on compulsory service pension, CORPORATE GOVERNANCE products which have been well received in the market. ODIN Corporate governance in SpareBank 1 SR-Bank comprises the Forvaltning has in 2005 yet again managed to exceed the goals and paramount principles according to which the bank main index with all its funds. Bank 1 Oslo has established is managed and controlled in order to ensure that the 4 new branches in 2005, and has started the rolling out of a interests of the primary capital certificate owners, the new plan for more branches in Oslo, Akershus and Hedmark. depositors and other groups are safeguarded. Governance of the group's activities shall ensure prudent asset management The SpareBank 1 alliance's strategy for the period up to 2007 and greater assurance that communicated goals and is based on the expectation of stronger competition in both strategies are attained and realised. national and regional finance markets. Such a development calls for a stronger cooperation to exploit further advantages Consequently, the bank has established the following main as regards lower costs, increased expertise and increased principles for ownership and company management. The quality in servicing our customers. The ambition level for the principles rest on the following three main pillars: openness, 15 alliance cooperation is in this regard higher than ever. predictability and transparency:
TRANSITION TO IFRS ACCOUNTING IN THE GROUP • Value creation for the primary capital certificate owners and ACCOUNTS FROM 1 JANUARY 2005 other interest groups Listed companies in the EU/EEA are obliged to report their • A structure that ensures goal-oriented and independent group accounts according to IFRS from 1 January 2005. The management and supervision purpose of the new regulations is to lead to an increased use • Systems that ensure measurement and accountability of real values, making the accounts reflect the real book value • Effective risk management per share of companies to a larger degree, as well as making • Well set-out, easily understandable and up-to-date accounts prepared in different countries easier to compare. information • Equal treatment of the primary capital certificate owners The transition to IFRS had both negative and positive effects and a well-balanced relationship with other interest groups on the accounts of the SpareBank 1 SR-Bank group. According • Compliance with laws, regulations and ethical standards to the transition regulations, these effects were charged directly to equity at the implementation date. Some effects The group's shareholder management and corporate were made effective from 1 January 2004 and some from 1 governance is founded on "Norwegian recommendation for January 2005. The total effect on equity of the implementation shareholder management and corporate governance". A more was positive by NOK 129 million. This includes the moving of detailed description of shareholder management and dividend from debt to equity until a final decision is made by corporate governance is found in a separate section of the the Supervisory board. If this effect is disregarded, the imple- annual report. mentation had a negative effect of NOK 79 million after tax. When preparing the quarterly accounts as of 31 March 2005, NEW CAPITAL ADEQUACY REGULATIONS (BASEL II) these figures were NOK 180 and NOK 28 million, respectively. The EU's new capital adequacy directive is scheduled for The reason for the change is due to corrections to the figures implementation in Norway on 1 January 2007. The new from SpareBank 1 Gruppen AS, as well as changes in the inter- regulations are based on proposals for a new standard for pretation of the regulations pertaining to structured products. capital adequacy estimation from the Bank for International Settlements (BIS). So far, using IFRS in the bank's company accounts is not allowed (with the exception of pensions as described earlier in the SpareBank 1 SR-Bank has high ambitions for risk management annual report). The Financial Supervisory Authority of Norway in general, and for adaptation to the new capital adequacy has advised the Ministry of Finance that, for the time being, regulations in particular. As a result, SpareBank 1 SR-Bank SpareBank 1 SR-Bank Annual Report 2005
has applied to the Financial Supervisory Authority of Norway The centre is the alliance's internal specialist group for credit for permission to employ internal rating methods (Internal models, and is responsible for customer rating, pricing, analysis Rating Based Approach - Foundation) for credit risk from 1 and portfolio management models. Both the risk management January 2007. For the banks which secure approval and which department and the expertise centre for credit models are can use internal rating methods, the statutory minimum independent of the business units. This ensures independence requirement for capital adequacy for credit risk will be based in both the following up of risk and reporting. on the group's internal risk assessments from 2007. This will make the statutory minimum requirement for capital adequacy SpareBank 1 SR-Bank expects long-term gains from the efforts more risk sensitive, placing the capital adequacy requirement in the risk management area: in closer accordance with the risk in underlying portfolios. In order to secure approval from the Financial Supervisory • Reduced volatility in results due to improved risk Authority of Norway to use internal rating methods, the banks management and credit quality must satisfy extensive requirements in relation to organisation, • Increased profitability due to improved profitability expertise, risk models and risk management systems. The and capital allocation models Financial Supervisory Authority of Norway expects to complete • Improved usage of equity through capital minimalisation the main part of the review of the applications in the autumn corresponding better to the risk in the underlying of 2006. operations.
SpareBank 1 SR-Bank has an ambition to use the Standard RISK MANAGEMENT IN SPAREBANK 1 SR-BANK method for estimating minimum capital adequacy for The risk management in SpareBank 1 SR-Bank is to support operational risk from 2007. the group's strategic development and the fulfilment of its objectives. Furthermore, the risk management is to ensure continued financial stability and responsible asset manage- Core capital and capital adequacy ratio ment. This is to be achieved through:
• A strong risk culture, characterised by a high level of consciousness on risk management • A solid understanding of which risks drive earning and risk 16 costs, and through this creating a better foundation for decisions • Strive towards optimal capital usage within the approved business strategy • Avoid unexpected negative events which can damage the group's operations and reputation in the market • Exploitation of synergy and diversification effects
2001 2002 2003 2004 2005 The group has a moderate risk profile where no single event shall be capable of seriously harming the group's financial Core capital position. The risk profile is described in the group's overall Adequacy ratio risk strategy, and defined through target figures for:
• Rating: SpareBank 1 SR-Bank is rated by rating firms Moody's Investors Service and Fitch Ratings • Return on risk adjusted capital: Yield, adjusted for risk is to In accordance with the level of ambition regarding of risk be one of the most important strategic targets in the internal management mentioned above, SpareBank 1 SR-Bank has for governance of SpareBank 1 SR-Bank. This entails the several years invested considerable means and resources in different business areas receiving capital according to the the effort to further develop expertise, risk models and risk estimated risk of the activities, and that a running management systems. follow-up of the yield from these is conducted • Expected loss: Describes the less amount statistically A separate department for risk management, independent of expected over a 12-month period the business units, has been established. The department • Risk - adjusted capital (financial capital): Describes how reports directly to the CEO. The department is responsible for much capital the group believes it needs to cover the actual the group's risk models and for the further development of risk the group has assumed efficient risk management systems. The department is further- • Regulatory capital: Describes the capital requirement based more responsible for independent risk assessment, risk on set government rates reporting and the overall risk monitoring in the group. The overall risk strategy is made operational through separate To further strengthen the risk area, the SpareBank 1 alliance risk strategies for credit risk, market risk, liquidity risk and has established a separate expertise centre for credit models. operational risk. The risk strategies are approved by the Board and are reviewed at least annually or when circumstances so volume is scheduled for refinancing in 2006. There is an even indicate. distribution of international and national sources of funding. In addition, the group has undrawn committed revolving The group's risk exposure and risk development are followed credit facility of 270 million euro. up on the management level through periodical reports to the administration and the Board. Operational risk Operational risk is defined as the risk of loss resulting from: Credit risk Credit risk is defined as the danger of loss resulting from • Human error and lack of expertise customers or opposite party not being able or willing to fulfil • Failure in ICT systems their obligations to the group. • Unclear policy, strategy or routines • Crime and internal irregularities The group has a low risk profile in the credit area, and the risk • Other internal and external causes profile is defined through the group's credit strategy. The credit strategy contains target figures for, inter alia, risk- The group's risk management is so efficient that no single adjusted capital, yield, risk adjusted, expected loss and for event caused by operational risk is to able to seriously harm concentration risks in connection with industries or the size the groups financial position. The risk strategy for operational of commitments. In connection with the granting of credit risk is approved at least annually by the Board. The risk and the following up of credit, separate rating models and strategy focuses on risk sensitive target figures for expected portfolio management systems are used for the different loss and estimation of risk adjusted capital. The group has a areas. moderate risk profile for operational risk.
The underlying credit risks in the corporate and retail markets The group has reduced the operational risk in 2005 through have developed in a positive direction in 2005. This is related systematic risk analyses and implementation of new to the fact that the group has a restrictive policy in regard to precautionary measures. The group uses a separate system high-risk commitments, the positive economic development for reporting and following up on undesirable events, making in the group's market areas and the low interest rate level. the group able to continuously improve processes based on these reports. Market risk 17 Market risk is the risk of loss due to changes in observable A more detailed description of the risk management and risk market variables such as interest rates, currency exchange exposure in SpareBank 1 SR-Bank is found in the notes and in rates and securities rates. The risk of changes in securities a separate section in the annual report. rates due to changes in general credit prices is also defined as market risk. The management of market risk takes place CAPITAL MANAGEMENT through defined frameworks for, among other things, share The objective of the capital management in Sparebank 1 investments, bonds and for positions in the interest rate and SR-Bank is to ensure an efficient capital funding and employ- currency markets, and monthly reports are made to the Board. ment as well as responsible capital coverage. This is to be The frameworks are reviewed and approved by the Board at ensured through an adequate process for planning and least annually. The group has conservative guidelines for market following up on the group's capital requirements. risk, well within the maximum limits set by the authorities. • The process is risk driven and includes all significant types Liquidity risk of risk in the group Liquidity risk is the risk of the group not being able to refinance • The process is an integrated part of the business strategy, its debt or not being able to finance an increase in its assets the management process and the decision structure without considerable extra costs. The management of the • The process is future-oriented and stress tests are group's financing structure is based on an overall liquidity conducted strategy which is reviewed and approved by the Board at least • The process is based on recognised and adequate annually. The liquidity strategy reflects the group's moderate methods and procedures for risk measurement risk profile. • Processes are reviewed regularly, and at least annually, by the Board The liquidity risk is reduced through spreading deposits over different markets, deposit sources, instruments and terms. The group's target is a core capital coverage of 8 per cent and a capital coverage of 12 per cent. By the end of 2005, the group's Customer deposits are the group's most important source capital coverage was 11.84 per cent, of which 8.98 per cent of financing, and the group's deposit coverage remains was core capital. The corresponding key figures for the parent unchanged at 60.7 per cent as of 31 December 2004 and 31 bank were 12.15 per cent and 9.21 per cent, respectively. In the December 2005. first quarter of 2005, a new non-perpetual subordinated loan of 13 billion yen was raised in the market (NOK 771 million). The group's liquidity as of 31 December 2005 was satisfactory. This replaced a non-perpetual subordinated loan of NOK 300 By the end of the year, only 14 per cent of the total deposit million which had a so-called step-up in September 2005. SpareBank 1 SR-Bank Annual Report 2005
There were not issued any new fund bonds in 2005. On 31 At present, the group has approx. 110 employees attending December 2005, the fund bonds contributed 1.12 percentage expertise-raising college courses, of which 60 managers and points to the group's core capital coverage and capital key employees are attending an 18-month management and coverage. Up to 15 per cent of the core capital can consist of culture development program in a joint project with the BI fund bonds. Any sums beyond this are added to the capital Norwegian School of Management. Recently, 40 managers coverage as subordinated loans. and key employees underwent an exam in the same program. This is used as a common management platform in AUDIT SpareBank 1 SR-Bank. External audit The group's external auditor is PricewaterhouseCoopers. In 2005, the group carried out an extensive mapping of the expertise of each single employee in the areas of knowledge, Internal audit skills and attitudes, which will be used actively to enhance the The internal audit has been outsourced to Ernst & Young. The organisation's total expertise. internal auditor reports to the Board of the group. In 2005, approx NOK 11 million was set aside for expertise- EMPLOYEES AND WORKING ENVIRONMENT enhancing measures, in addition to time spent on these By the end of 2005, the group had 942 employees, equalling measures. 862 man-years. Manning has been increased by 49 man-years in 2005. This is due to a further effort in the customer- Policy on the staff’s life phases oriented business and a strengthening of the group's risk SpareBank 1 SR-Bank has adopted a policy in relation to management. The largest increase in manning is in the staff’s life phases that is intended to encourage older employees activities directed towards compulsory service pension, where to continue working longer. The Group’s objective is for the 10 new employees have been hired. In addition, both the retail average retirement age to rise from 60 to 63 by the end of and corporate market divisions have been strengthened. 2006. In 2005, the average retirement age was 62 years.
The group conducted organisation and working environment Individual adjustments and flexibility are the policy instru- surveys in 2005, as in earlier years. The surveys showed that ments used to achieve this. Annual health checks have been the employees have a satisfactory relationship with the group. introduced for all staff above the age of 58, as well as the offer 18 The group is characterised by employees with a selling of exercise and individually tailored expertise enhancement. At attitude, an ability and a will to adapt and a desire to raise the age of 62, working hours and tasks are tailored to their level of expertise further. Sickness absence has been individual requirements aming at postponing retirement age. further reduced in 2005, and is still low compared to other finance institutions. Sickness absence in 2005 was 2.8 per Equal opportunities cent, compared to 3.1 per cent in 2004. Long-term sickness Women account for 55 per cent of the Group’s man-years. absence has been further reduced, partly through the This percentage has been stable in recent years. participation in the Inclusive Workplace scheme and solid follow-up from management. The Group management consists of nine people, one woman and eight men. An active effort in health, safety and environment is still being made, including a continuous strengthening of the bank's The average wage for bank employees is NOK 364,000, with security regime. The bank has not experienced robbery in women’s and men’s average wages being NOK 331,000 and 2005. 402,000, respectively.
Input factors or production methods with noticeable The Group recruited 71 new employees in 2005, of which 33 environmental effects are not in use. The group's effect on the were women and 38 were men. There are 212 employees with external environment is limited to materials and energy reduced working hours, working a total of 143 man-years. necessary for the group to conduct its activities. A continuous Of these, 12 are men, accounting for 6.4 man-years, and effort is made employing electronic communication internally 200 are women, accounting for 136.6 man-years. and externally, contributing to reduced paper consumption. In the opinion of the Board, the activities create little pollution of The Group has worked to raise the percentage of women in the external environment. management positions for several years, and the following measures have been implemented in recent years with a view Management of the group's total expertise to, inter alia, promoting equal opportunities: The group is focused on a continuous enhancement of the expertise of all employees. Expertise is seen as the interaction • Adopting the objective of increasing the percentage of of knowledge, skills and attitudes, and an effort is made to women in management positions to 40 per cent continuously enhance all these factors. This entails all • Establishment of a talent development programme, in employees being engaged in courses, training or self-study a which most of the participants are women minimum of 5 per cent of their total working hours. • Accommodating flexible working conditions • Participation on the group management level in a held 58,976 certificates. In 2005 the bank again took working group to increase female representation in the advantage of its authorisation by the Supervisory Board to sell finance industry its own primary capital certificates (146,447 in all) at a • Participation in FUTURA - development of future female discount to employees instead of increasing the primary management talents in the finance industry capital through an issue to employees. 652 employees now hold primary capital certificates in SpareBank 1 SR-Bank. In The efforts have resulted in the percentage of women in total, the employees have an ownership stake of 2.73 per cent. management positions rising from 14 per cent to 32 per cent over the past five years. The percentage remained stable from Earnings per primary capital certificate in 2005 amounted to 2004 to 2005. NOK 21.0. Based on the bank’s dividend policy and other considerations, the Board of Directors proposes paying a divi- BANK ADVISORY COUNCILS dend of NOK 14 per primary capital certificate for 2005. The The bank advisory councils are intended to help identify RISK amount (adjustment of original cost of capital) as at opportunities, and intercept signals regarding the bank’s 1 January 2005 was fixed at NOK 6.06 per primary capital activities in the local market. They are made up of local certificate, while the amount as at 1 January 2006 was resource persons and are to act as advisers to the local offices calculated to be NOK 1.79 per certificate. in their market work. SpareBank1 SR-Bank has local bank advisory councils in the municipalities in which the bank is ENDOWMENT FUNDS represented, and the councils have been active in their work. Pursuant to the (Norwegian) Saving Banks’ Act, the bank may In 2005, the directors of the local bank advisory councils allocate a maximum of 25 per cent of the Saving Banks’ attended a joint meeting, in which the bank’s management, Guarantee Funds’ share of the profit to an endowment fund among other things, received valuable input in connection for public benefit. The Board proposes to allocate NOK 92 with the bank’s exploitation and use of the endowment fund. million (equalling 25 per cent) to endowment funds for 2005. The bank advisory councils administer some of the bank’s endowment funds, and have committed themselves to CONTINUED OPERATIONS ensuring that the funds are put to good use in the local Together with the implemented and planned measures, the community. performance prospects and the macro-economic framework conditions provide good conditions for the Group’s progress PRIMARY CAPITAL in 2006. The core capital and the capital adequacy ratio signify 19 At the end of 2005, 10,361 holders of the bank’s primary satisfactory solidity, and are well above the authorities’ capital certificates were registered. This is an increase of 2,281 requirements. owners (equalling 28.2 per cent), since the end of 2004. The percentage of primary capital certificates held by foreigners The annual report and accounts have been prepared with the was 19.4 per cent (14.4 per cent), while 44.8 per cent (47.2 expectation of continued operations. per cent) were resident in Rogaland and Agder. At the end of the year, the 20 largest owners controlled 32.1 per cent (30.3 ALLOCATION OF THE ANNUAL PROFIT/DIVIDEND per cent) of the primary capital. The Board proposes that the annual profit for 2005 is allocated as follows: 36.1 per cent of the issued primary capital certificates were NOK Million traded in 2005. This is significantly above the figures for 2004, Profit for the year 840 when 27.2 per cent of the number of issued certificates were Valuation difference fund 0 traded. At the end of 2005, the price of the bank’s primary Available for distribution 840 capital certificates was NOK 230, compared to NOK 144 at the end of 2004. Inclusive of the dividend paid, the bank’s Dividend (14 NOK per primary capital certificate) 317 primary capital had an effective rate of return of 66.1 per cent Equalisation fund 156 in 2005. For purposes of comparison, the primary capital The savings bank's fund 275 index at the Oslo Stock Exchange (GFBX) rose by 47.4 per Endowment fund 92 cent in 2005. Total allocations 840
On 1 April 2005, the primary capital certificates were split in PROSPECTS FOR 2006 two and this was followed by a capitalisation issue whereby The interest rate level stayed low through 2005 even if the four certificates entitled owners to one new (free) certificate. Central Bank of Norway increased interest rates twice, 0.5 A total of 4,522,917 new primary capital certificates where percentage points in total. The Central Bank of Norway sig- thus issued, and NOK 226,145,850 was transferred from the nals that the interest rate will increase somewhat in 2006, and equalisation fund to the primary capital. The total number of the market expects that the interest rate will rise 1 percentage primary capital certificates after the split and subsequent point from the present level by the end of 2006. capitalisation issue was 22,614,585. The economic prospects for most industries seem positive at During 2005 the bank made net purchases of 57,541 of its the entrance of 2006 and the Board expects high activity and own primary capital certificates, and at 31 December 2005 good results from the business community in 2006. SpareBank 1 SR-Bank Annual Report 2005
Net interest income and interest margin The establishment of a branch in Bergen and the increased efforts in Agder, Rogaland and new business areas, in 16 addition to increased efforts to enhance expertise, however, 14 give the Board reason to expect a strengthening of the group's position in 2006. 12
10 Percent The group will, in 2006 as before, appear as profitable and 8 solid, contributing to value creation for customers, owners NOK 6 and the local community.
4 The Board expects that more difficult external framework 2 conditions, in connection with increased competition, higher 0 expertise requirements as well as the introduction of the Basel II regulations, will lead to further structural changes in the 2001 2002 2003 2004 2005 banking sector in 2006. Divided per certificate, NOK Direct return, percent In addition to the group's inherent strength, the cooperation in the SpareBank 1 alliance is central, as it provides the group with economies of scale advantages in brand building, technology and competitive products. The increased activity has in time lowered unemployment and the Board expects continued pressure on the access to skilled The Board's assessment is that the group is well prepared to labour. meet the challenges the group faces and the Board expects a positive development in 2006. The low interest rates, with continued low costs in connection with home financing provides good opportunities for financial The Board would like to thank the Group’s employees for their savings. efforts and their contribution to the bank’s performance in 2005. 20 Market competition is on the increase in most areas through new players and increased efforts from existing competitors. The Board would also like to thank the Group’s customers and employee representatives for the support they have given Increased customer requirements and expectations, combined SpareBank 1 SR-Bank in 2005. with technological changes pose major demands on the organisation's ability to innovate and restructure.
Stavanger, 23 February 2006 The Board of Directors of Sparebanken Rogaland
Geir Worum Ingrid Landråk Anne Elisabeth Kroken Chairman of the Board
Kristian Eidesvik Gunn-Jane Håland John P. Hernes Deputy Chairman of the Board
Magne Vathne Torstein Plener Terje Vareberg CEO The Board of Directors
21
Geir Worum Kristian Eidesvik Gunn-Jane Håland Born in: 1947 Born in: 1945 Born in: 1963 Chairman of the Board Deputy Chairman of the board Elected for the first time in: 2003 Elected for the first time in: 1999 Elected for the first time in: 1997 Term of office until: 2007 Term of office until: 2006 Term of office until: 2007 Asset Manager Oseberg, Petoro AS, Managing Director of Ship owner, Bømlo Stavanger Woco AS, Haugesund Director in : Chairman of the Board in the Wilson AS following companies: Green Reefers ASA Oma Baatbyggeri AS and Caiano AS subsidiaries Oma Slipp og Mekaniske Verksted Solve IT-Stavanger AS Rasmussen Elektro AS Teleconsult AS Woco AS Vikom AS Karmsundgaten 77 AS Director in the following companies: Sinvest ASA Data Design System ASA Haugaland Gass AS Simek AS SpareBank 1 SR-Bank Annual Report 2005
Anne Elisabeth Kroken Ingrid Landråk John Peter Hernes Born in: 1962 Born in: 1970 Born in: 1959 Elected for the first time in: 2003 Elected for the first time in: 2005 Elected for the first time in: 2001 Term of office until: 2006 Term of office until: 2007 Term of office until: 2007 Attorney running her own law firm Controller General Manager, SåkornInVest, Forus Revus Energy ASA Chairman of the Baord in: Kino 1 Stavanger/Sandnes AS Director in: OniX AS
22
Magne Vathne Terje Vareberg Torstein Plener Born in: 1944 Born in: 1948 Born in: 1961 Elected for the first time in 1998 CEO SpareBank 1 SR-Bank Elected for the first time in: 2000 Term of office until: 2006 Chairman of the Board in: Term of office until: 2006 Managing Director Coop Økonom BA, Sparebankforeningen Group employee representative in Stavanger SpareBank 1 Gruppen AS SpareBank 1 SR-Bank Director in: IRIS AS Director in: OBS AS Deputy Chairman of the Board in: SpareBank 1 Gruppen AS Coop Økonom BA Rogaland Teater Marieroparken AS Annual accounts
NGAAP
TABLE OF CONTENTS PAGE PAGE
INCOME STATEMENT 24 NOTE 18 PAYMENTS IN ADVANCE AND DEFERRED BALANCE SHEET 25 INCOME 42 CASH FLOW STATEMENT 26 NOTE 19 DEBT TO CREDIT INSTITUTIONS 43 ACCOUNTING PRINCIPLES 27 NOTE 20 CUSTOMER DEPOSITS 43 NOTE 1 INTEREST INCOME AND INTEREST EXPENSE 30 NOTE 21 BOND LOAN DEBT AND OTHER NOTE 2 NET OTHER OPERATING INCOME 30 LONG-TERM LOANS 43 NOTE 3 WAGES AND GENERAL ADMINISTRATION NOTE 22 ALLOCATIONS TO LIABILITIES AND EXPENSES 31 EXPENSES 44 NOTE 4 OTHER OPERATING EXPENSES 32 NOTE 23 PENSION SCHEMES 44 NOTE 5 WRITE-DOWN OF LOANS AND GUARANTEES 32 NOTE 24 SUBORDINATED LOAN CAPITAL 45 NOTE 6 LOSS/GAIN ON LONG TERM NOTE 25 PRIMARY CAPITAL, OWNERSHIP STRUCTURE FINANCIAL ASSETS 32 AND EQUITY MOVEMENTS 46 NOTE 7 TAXES 33 NOTE 26 GUARANTEES/SECURED DEBT 47 NOTE 8 ACCOUNTS RECEIVABLE FROM NOTE 27 CURRENCY POSITION AND CURRENCY CREDIT INSTITUTIONS 34 INTEREST AGREEMENTS 48 NOTE 9 CUSTOMER LENDING 34 NOTE 28 CONDITIONAL COMMITMENTS 49 NOTE 10 WRITE-DOWNS LENDING 34 NOTE 29 DISTRIBUTION OF LENDING, GUARANTEES NOTE 11 DEFAULTED, DOUBTFUL COMMITMENTS AND DEPOSITS ACCORDING TO INDUSTRY AND NON-PERFORMING LOANS 35 SECTOR AND GEOGRAPHIC AREA 49 NOTE 12 RISK CLASSIFICATION OF TOTAL LENDING 36 NOTE 30 TRANSACTIONS WITH SUBSIDIARIES 49 NOTE 13 LOSS ON LENDING AND GUARANTEES NOTE 31 CAPITAL ADEQUACY RATIO 50 DISTRIBUTED BY INDUSTRY 37 NOTE 32 REMAINING TERM OF THE LOAN AND 23 NOTE 14 CERTIFICATES AND BONDS 37 INTEREST RATE COMMITMENT TERM 51 NOTE 15 SHARES AND OWNERSHIP 38 NOTE 33 IMPLEMENTATION OF PENSION AND NOTE 16 TANGIBLE FIXED ASSETS 42 NEW REGULATION RELATING TO LENDING 53 NOTE 17 OTHER ASSETS 42 NOTE 34 RESTRICTED ASSETS 54
IFRS
TABLE OF CONTENTS PAGE PAGE
INCOME STATEMENT 55 NOTE 16 SECURITIES 75 BALANCE SHEET 56 NOTE 17 FINANCIAL DERIVATIVES 76 CONSOLIDATED SPECIFICATION OF INCOME, NOTE 18 CREDIT INSTITUTIONS - EXPENSES AND VALUE CHANGES 57 LOANS AND DEPOSITS 77 STATEMENT OF CHANGES IN EQUITY 57 NOTE 19 LOANS AND ADVANCES TO CUSTOMERS 77 CASH FLOW STATEMENT 58 NOTE 20 WRITE-DOWN OF LOANS AND NOTE 1 GENERAL INFORMATION 59 GUARANTEES DUE TO IMPAIRMENT 79 NOTE 2 ACCOUNTING PRINCIPLES - NOTE 21 DEPOSITS FROM CUSTOMERS 80 GROUP ACCOUNTS ACCORDING TO IFRS 59 NOTE 22 DEBT SECURITIES ISSUED 81 NOTE 3 FINANCIAL RISK MANAGEMENT 63 NOTE 23 SUBORDINATED LOAN CAPITAL 81 NOTE 4 CRITICAL ESTIMATES AND ASSESSMENTS NOTE 24 OTHER LIABILITIES 82 REGARDING THE USE OF ACCOUNTING NOTE 25 PENSIONS (WITH DIRECT RECOGNITION PRINCIPLES 64 CHANGES IN ESTIMATES) 83 NOTE 5 SEGMENTS 66 NOTE 26 CAPITAL ADEQUACY 85 NOTE 6 NET INTEREST INCOME 68 NOTE 27 RELATED PARTIES 86 NOTE 7 NET FEE AND COMMISSION INCOME 69 NOTE 28 PRIMARY CAPITAL CERTIFICATES AND NOTE 8 INCOME FROM OTHER FINANCIAL OWNERSHIP STRUCTURE 86 INVESTMENTS 69 NOTE 29 RESTRICTED FUNDS 87 NOTE 9 OTHER OPERATING INCOME 69 NOTE 30 IFRS - IMPLEMENTATION 88 NOTE 10 OPERATING EXPENSE 69 NOTE 31 EVENTS AFTER THE BALANCE NOTE 11 INCOME TAX 71 SHEET DATE 91 NOTE 12 OTHER ASSETS 72 NOTE 13 PROPERTY, PLANT AND EQUIPMENT 72 THE AUDITOR’S REPORT/ NOTE 14 INTANGIBLE ASSETS 73 THE AUDIT COMMITTEE’S STATEMENT 92 NOTE 15 ASSOCIATED COMPANIES AND PRIMARY CAPITAL CERTIFICATES 93 JOINT VENTURES 74 KEY FIGURES FROM THE PAST FIVE YEARS 96 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
Income statement NGAAP
NOTE 2005 2004 2003
Interest income 1 2 231 2 081 2 921 Interest expense 1 1 160 999 1 871 Net interest income 1 071 1 082 1 050
Dividends 2 178 77 14 Commission income 2 423 386 360 Commission expence 2 -76 -65 -67 Net change in fair market value of securities 2 175 131 163 Other operating income 2 10 98 Net other operating income 710 538 478 Total operating income 1 781 1 620 1 528
Wages and general administration expence 3 687 638 622 Depreciation and write-downs 16 45 49 55 Other operating expence 4 82 83 83 Total operating expence 814 770 760
Profit before losses and write-downs 967 850 768 Loss on loans and guarantees 5, 13 -70 76 218 Loss/gain on long-term financial assets 6 -23 - -14 24 Result of ordinary activities 1 060 774 564
Taxes 7 220 188 156 Profit/loss for the year 840 586 408
Dividend -317 -208 -151 Transferred to equalization reserve -156 -134 -95 Transferred to savings bank’s reserve -275 -184 -130 Transferred to endowment fund -92 -60 -32 Total allocation of profit/coverage of loss for the year -840 -586 -408
Profit/loss per primary capital certificate 21,0 15,2 10,9
Geir Worum Ingrid Landråk Anne Elisabeth Kroken Chairman of the Board
Kristian Eidesvik Gunn-Jane Håland John P. Hernes Deputy Chairman of the Board
Magne Vathne Torstein Plener Terje Vareberg CEO SPAREBANK 1 SR-BANK NGAAP
Balance sheet NGAAP
NOTE 2005 2004 2003
Assets Cash and balances with central banks 34 351 942 545 Loans and deposits with credit institutions 8 1 914 1 610 668 Loans to customers net of write-down 9,10,11,12,29 59 373 52 221 46 720 Certificates and bonds 14 3 148 2 867 2 375 Shares and ownership stakes 15 1 129 795 769 Intangible assets 16 27 127 34 Fixed Assets 16 294 297 309 Financial derivative 214 -- Other assets 17 152 112 69 Prepayments and accrued income 18 168 158 300 Total assets 66 770 59 129 51 789
Liabilities and equity Debt to credit institutions 19 3 649 2 749 4 928 Deposits from customers 20, 29 37 961 33 382 27 548 Total deposits 41 610 36 131 32 476 Certificates and other short-term borrowings 1 400 2 000 2 248 Bond and other long-term debt. 21 16 523 15 111 11 412 25 Debt established by issuance of securities 17 923 17 111 13 660 Financial derivatives - 63 94 Other debt 812 560 403 Accrued costs and income paid in advance 281 283 362 Cost accruals and other provisions 22, 23 412 359 150 Subordinated loan capital 24 2 296 1 720 1 835 Primary capital certificate capital 1 131 905 754 Holding of own primary capital certificates -3 --4 Premium reserve 21 20 18 Savings bank’s reserve 1 505 1 198 1 132 Endowment fund 109 69 37 Dividend equalization reserve 673 710 872 Total equity 25 3 436 2 902 2 809 Total liabilities and equity 66 770 59 129 51 789
For off-balance sheet items, please see notes 26 og 27. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
Cash flow statement
2005 2004 2003
Profit for the year 840 586 408 Dividend to owners of primary capital certificates -317 -208 -151 Dividends from subsidiaries 45 38 7 Depreciation and write-downs 45 49 55 Loss on loans -70 76 218 Transferred from the year’s activity 543 541 537
Change in gross loans to customers -6 830 -5 486 -3 520 Change in claims on credit institutions -328 -1 030 -239 Change in deposits from customers 4 579 5 835 831 Change in debt to credit institutions 900 -2 179 -138 Change in certificates and bonds -281 -493 -107 Change in other claims -377 -132 -28 Change in other short-term liabilities 148 -63 159 A Net cash flow from the activity -1 646 -3 007 -2 505
Change in fixed assets -41 -32 -37 Change in shares and ownership stakes -316 -44 326 B Net cash flow, investments -357 -76 289
26 Change in debt established by issuance of securities 812 3 451 1 808 Change in other long-term liabilities 576 -59 417 C Net cash flow, financing 1 388 3 392 2 225
A+B+C Net cash flow during the year -615 309 9
Cash and cash equivalents January 1st 1 002 693 684 Cash and cash equivalents December 31st 387 1 002 693 Net cash flow during the year -615 309 9
The liquidity balance includes cash and receivables from central banks, and the share of total deposits in and lending to credit institutions that apply to pure investments in credit institutions. The cash flow analysis shows how SpareBank 1 SR-Bank have been provided with liquid assets, and how these have been used.
Overall, the liquidity balance of the SpareBank 1 SR-Bank reduce by NOK 615 million. Operations in 2005 were characterised by a higher growth in lending and customer deposits. SPAREBANK 1 SR-BANK NGAAP
Accounting principles
GENERAL with SpareBank 1 Nord-Norge, SpareBank 1 Midt-Norge, and The annual accounts for 2005 have been prepared in accordance Samarbeidende Sparebanker AS, the bank owns SpareBank 1 with the applicable laws, regulations and generally accepted Gruppen AS. The parties own 17.63 per cent each of the shares accounting practices in Norway. Unless otherwise stated, all in the company. In addition, the Swedish FöreningsSparbanken amounts are given in NOK million. AB owns 19.5% of the shares in the company, and the Norwegian Federation of Trade Unions (LO) and federations As of 1 January 2005, SpareBank 1 SR-Bank made a transition to affiliated to LO own 10% of the shares. The governing structure using IFRS (International Financial Reporting Standards) in its for the SpareBank 1 cooperation is regulated in an agreement group accounts. As of yet, IFRS is not permitted for use in the between the owners. In the company accounts of SpareBank 1 bank's accounts. The 2005 annual accounts for the SpareBank 1 SR-Bank the shares in the SpareBank 1 Gruppen AS are assessed SR-Bank parent bank have therefore been prepared according to according to the equity method. Generally Accepted Norwegian Accounting Practice, while the SpareBank 1 SR-Bank group accounts have been made according ENTERING INCOME AND COSTS to IFRS. Separate IFRS group accounts have been prepared with Interest income and costs related to assets and liabilities notes and accounting principles presented in the annual report. assessed at amortised cost are entered continuously in the profit and loss statement based on an effective interest rate method. As of January 1 2005, SpareBank 1 SR-Bank made a transition to All fees related to interest-bearing borrowing and lending are using the new regulations relating to lending. This is in all included in the assessment of effective interest rate and substantial aspects in accordance with the IAS 39 regulations amortised over the expected term of the loan. Fees that are a relating to lending and assessment of losses. The bank uses the direct payment for performed services are entered as income same interpretation of the regulations in its bank accounts, in when they are acquired. which the new regulations relating to lending are applied, and in the group accounts, in which IAS 39 is applied. The figures for Pre-paid income and accrued, deferred costs at the end of the 27 2004 have not been converted according to the new standards in year are periodised, and entered as liabilities in the balance the annual accounts. sheet. Accrued, deferred income is carried to income and entered as a receivable in the balance sheet. Dividends from shares and SpareBank 1 SR-Bank has made a transition to using IAS 19 dividends from money market funds are entered as income the (IFRS pensions standard) when entering pension liabilities in year they are received. Dividends from shares and group both the company and group accounts. In the autumn of 2005, contributions minus deferred tax from subsidiaries, associated the use of this standard was permitted also in the Norwegian companies and joint ventures are entered directly against book accounts when the group accounts were presented according to interest in the relevant businesses. Profit/loss from the sale of IFRS. This change took effect from 1 January 2004, making the securities is calculated on the basis of the average cost of sold 2004 and 2005 figures comparable. securities. The purchase and sale of securities is entered at the time of the settlement. In addition, we refer to the separate note in the company's annual accounts for further details regarding the implementation SHARES AND UNITS of these changes in the regulations. Shares, primary capital certificates and shares in unit trusts that are sold on the Stock Exchange or in a regulated market and CONSOLIDATION OF SUBSIDIARIES have good liquidity and dispersion of owners, are part of the Investments in subsidiaries are presented according to the equity trading portfolio, and are assessed at market value on the method of accounting in the company's accounts. balance sheet date. If there is no continuous market, the value is assessed on the basis of the company's methods of estimation. ASSOCIATED COMPANIES Long-term share investments are assessed at initial cost. If the Companies in which the bank holds long-term investment with real value is significantly lower than the initial cost, and the an interest between 20 and 50% and in which the bank has a decline in value is not considered to be temporary, the share is significant influence are defined as associated companies. Such written down to the real value. The write-down is reversed when investments are assessed according to the equity method of the basis for the write-down no longer exists. accounting in the company's accounts. CERTIFICATES AND BONDS JOINT VENTURES Certificates and bonds are classified as trading portfolio, and are Joint ventures are financial undertakings regulated by an assessed at market value on the balance sheet date. agreement between the bank and one or more participants so that the bank and the participants jointly control the undertaking. CURRENCY No single participant has a controlling interest. In cooperation Monetary assets and liabilities denominated in foreign currencies SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
are translated into NOK, at the rate of exchange ruling at the Loans are entered at amortised cost using the effective interest balance sheet date 31. December. The bank’s accounts receivable method. and debts in foreign currency have been converted at middle market prices at 31 December. Income and costs in foreign Loss of value on gross lending and credits entered at currency have been translated to NOK according to the exchange amortised cost rates at the time of transaction. The currency items are largely On each balance sheet date, the bank considers whether there is hedged by corresponding items on the opposite side of the objective proof of the value of a financial asset or group of balance sheet, or with hedging items off the balance sheet. financial assets having been reduced. Loss of value of a financial asset or a group of financial assets has been incurred if, and only FINANCIAL INSTRUMENTS if, there is objective proof of loss of value. The loss of value must Financial instruments include transferable financial assets and be the result of one or more events which have occurred since liability items, in addition to financial derivatives. Financial first entering the asset or group of assets in the accounts (a loss instruments on the balance sheet include shareholdings, primary event), and the result of the loss event (or events) must be capital certificates, bonds, certificates and units in money market possible to measure in a reliable manner. Objective proof of the instruments, as well as financial derivatives. Financial derivatives value of a financial assets or group of financial assets being are agreements the bank enters into with financial institutions or reduced includes observable data made known to the bank customers in order to determine financial values, either as regarding the following loss events: interest rate conditions, exchange rates or the value of equity - Significant financial difficulties for the issuer or borrower. instruments for specific periods. Such agreements include - Breach of contract, e.g. non-payment of instalments or interest. forward exchange contracts, interest swap agreements (currency - The bank granting the borrower special terms on the basis of swaps), currency and interest options and forward rate financial or legal matters related to the borrower's financial agreements (FRAs). situation. - The likelihood of a debtor having to enter debt negotiations or We distinguish between agreements that are part of own-account other financial reorganisations trading in order to attain profit in connection with price differences - Due to financial difficulties, the active markets for the financial and price changes (the trading portfolio), and agreements that asset cease to exist, or are part of ordinary activities. At the time of signing the agree- - observable data indicate a measurable reduction in future cash ment, interest and currency agreements are classified as part of flow from a group of financial assets since first entering them 28 the trading portfolio or banking activities, depending on the in the accounts, even if the reduction is not yet fully linked to individual agreement. The trading portfolio consists of certificates one individual financial asset in the group, including: and bonds, shares and primary capital certificates on the bank's • Unfavourable development in the payment status of the balance sheet, as well as currency, interest and equity instruments debtors in the group, or not included in the balance sheet. • national or local financial conditions which correlates with the default of the assets in the group. Financial instruments which are part of the trading portfolio are assessed according to the market value principle, and any The bank will first consider whether there are individual objective changes in market value are entered in the profit and loss proof of loss of value for financial assets which are individually account under the item net capital gains/losses. Agreements significant. For financial assets which are not individually entered into in order to reduce the bank's risk exposure in significant, the objective proof of loss of value is assessed connection with interest rate and/or currency fluctuations on individually or collectively. If the bank finds that there is no balance sheet items are defined as hedging agreements. objective proof of loss of value for an individually assessed financial asset, significant or not, the asset is included in a group In order for a currency or interest rate agreement to be defined of financial assets with the same credit risk characteristics. The as a hedging agreement, the expected value development of the group is then assessed as a whole as regards loss of value. hedging agreement must be closely linked to the balance sheet Assets which are assessed individually as regards loss of value, item being secured. Income and costs relating to hedging and in which a loss of value is being identified or is still identified, agreements and the appurtenant balance sheet items are accrued are not included in a total assessment of loss of value. and classified in the same manner. If there is objective proof of a loss of value having occurred, the GROSS LENDING TO CUSTOMERS size of the loss is estimated as the difference between the ente- As of 1 January 2005, SpareBank 1 SR-Bank made a transition to red value of the asset and the present value of estimated future using the new regulations relating to lending in its parent bank cash flows (excluding future credit losses not incurred), discounted accounts. With the transition to the new regulations relating to with the original effective interest rate of the financial asset. The lending, new routines for entering losses on lending were entered value of the asset is reduced using an appropriation implemented. This resulted in earlier unspecified losses being account, and the loss is entered in the profit and loss account. reduced by a significant amount and lending fees previously entered as income and LTMs (long-term monitored) loans Future cash flows from a group of financial assets, which are previously entered in the balance sheet, were reversed at the date assessed together as regards loss of value, are estimated based of transition. All these entries were against equity. on the contractual cash flows for the group as well as historic losses for assets with a similar credit risk. Historic losses are SPAREBANK 1 SR-BANK NGAAP
adjusted for present observable data in order to take into Hybrid Tier 1 Perpetual Capital is a so-called "hybrid", ranked consideration the effect of existing conditions which were not between equity and subordinated loan as regards priority. Hybrid present at the time when the historic losses were incurred, as Tier 1 Perpetual Capital is an interest-bearing security, but banks well as adjusting the effects of former conditions not existing at are not obligated to pay interest in periods where no dividend is present. paid, and the investor has no later claim to interest which has not been paid, i.e. the interest is not accumulated. Hybrid Tier 1 DEFAULTS/DOUBTFUL Perpetual Capital can not make up more than 15 per cent of the A customer's overall commitment is considered to be in default, total core capital. The issuing of Hybrid Tier 1 Perpetual Capital and is included in the bank's list of commitments in default, does not affect entered equity. Costs incurred from taking up the when the instalments and interest due have not been paid 90 loan are accrued over the term of the loan. days after the due date, or the credit ceiling has been exceeded for 90 days or more. PENSION COMMITMENTS In the autumn of 2005, publicly listed companies which use IFRS WRITE-OFFS in their group accounts were permitted to make the transition to When there is a predominant probability that the losses are final, IFRS regulations as regards pensions in their company accounts. the losses are classified as write-offs. Write-offs covered by loss SpareBank 1 SR-Bank and its subsidiaries did this, effective from allocations carried out previously are entered against the allocations. the 2005 annual accounts, with retroactive effect from 1 January Write-offs that are not provided for in the loss allocations, as well 2004. At the implementation, the accumulated estimate deviation as excess or insufficient provisions in relation to former loss as of 1 January 2004 were entered against equity. The standard allocations, shall be entered in the profit and loss account. used for handling pensions in the accounts is IAS 19.
SEIZED ASSETS Pension expenses and pension commitments are calculated As part of the handling of loans and guarantees in default, the according to linear earnings, based on assumptions regarding bank sometimes seizes the assets that have been offered as discount rate, future wage and salaries adjustments, retirement security for such commitments. In the event of seizing the assets, pensions and national insurance benefits, future return on they are valued at their estimated realisation value. Seized assets pension assets, as well as actuary assumptions regarding that are to be realised are classified as current assets. Any losses/ mortality, voluntary retirement, etc. In the balance sheet, net gains in connection with the disposal or re-evaluation of such pension assets within the group scheme are presented as fixed assets are entered as a loss/reduction in losses on lending. assets, while net uncovered pension commitments are classified 29 as long-term debt. The employer's national insurance contribution, TANGIBLE FIXED ASSETS which accrues according to applicable rates, is also included in Tangible fixed assets are entered at initial cost in the accounts, the amount for uncovered pension commitments. Total net plus former appreciation, minus write-downs and ordinary pension expenses are classified under wages and salaries in the accumulated depreciation. Ordinary depreciation is based on profit and loss account, and include the period's earning of cost and the depreciation is linear over the economic life of the entitlements to pension benefits and interest paid on liabilities, tangible assets. If the actual value of a tangible fixed asset is minus the estimated return on pension funds. significantly lower than the book value and the decrease in value is not expected to be of a temporary nature, the asset will be SpareBank 1 SR-Bank has chosen to enter estimate deviations written down to its real value. The write-down is reversed when directly against equity when they occur. the basis for the write-down is no longer present. TAXES ISSUED BONDS AND OTHER BORROWING The year's tax expense in the profit and loss account consists of Issued bonds are entered in the balance sheet at nominal value, tax payable on income for the year, adjusted by excessive/ plus any premium and minus any discount. Premium is entered insufficient allocations in earlier years, as well as changes in as income, and discount is entered as cost according to plan as deferred tax. Deferred tax is calculated on the basis of temporary an adjustment of the running interest costs up to the bond's differences between accounting and fiscal assets at the end of maturity, or, if applicable, up to the time of the first interest rate the accounting year. adjustment. Any investment discount when issuing other long- term loans is handled correspondingly. Direct costs in connection Nominal tax rates are used in the calculation. Positive and with issuing bonds and other borrowings are entered according negative differences are assessed against each other, and their to plan as an adjustment of the running interest cost until the net result is shown in the balance sheet. Deferred tax assets arise maturity of the bond or the loan. if there is a temporary difference giving rise to future tax deductions.
SUBORDINATED LOANS/BOND FUNDS DEBT Subordinated loans have lower priority than bond loans, and Debt is entered at the price of taking up the loan. Interest is therefore have a higher price. Non-perpetual subordinated loans continuously entered as cost in the profit and loss account. may make up 50% of the core capital in the capital adequacy ratio, while perpetual subordinated loans can make up 100% of BUSINESS AREAS the core capital. SpareBank 1 SR-Bank considers the bank's operations to be a single business area. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
Notes to the accounts
NOTE 1 INTEREST INCOME AND INTEREST EXPENSE 2005 2004 2003
Interest income from claims on credit institutions 60 37 40 Interest income from lending to customers 2 086 1 971 2 753 Interest income from certificates and bonds 85 73 128 Interest income 2 231 2 081 2 921
Interest expence on debt to credit institutions 133 184 194 Interest expence on customer deposits 539 423 961 Interest expence on securities issued 396 323 617 Interest expence on subordinated loan capital 92 69 59 Premium to the Norwegian Banks' Guarantee Fund - -40 Interest expence 1 160 999 1 871
In June 2004, a decision was made to merge the Savings Banks’s Guarantee Fund and the Commercial Banks’s Guarantee Fund. As a result of the merger, the savings banks will be granted an exemption from the premium for the guarantee fund for a three-year period, from and including 2004.
NOTE 2 NET OTHER OPERATING INCOME 2005 2004 2003
Income from shares 38 14 14 30 Income from ownership in affiliated companies 95 25 -7 Income from ownership in group companies 45 38 7 Dividend 178 77 14
Interbank commissions 22 23 25 Guarantee commissions 29 20 21 Payment transfers 201 189 178 Securities trading and management 70 56 48 Insurance products 85 83 68 Other commissions and fees 16 15 20 Commission income 423 386 360
Interbank commissions 17 17 18 Payment transfer 52 42 41 Other commissions 7 68 Commission expenses 76 65 67
Net profit/loss from certificates and bonds 5 622 Net profit/loss from shares and primary capital certificates 94 61 86 Net profit/loss from exchange and financial derivates 76 64 55 Net profit/loss 175 131 163
Operating income real estate 5 65 Other operating income 5 33 Other operating income 10 98 Net other operating income 710 538 478 SPAREBANK 1 SR-BANK NGAAP
NOTE 3 WAGES AND GENERAL ADMINISTRATION EXPENSES 2005 2004 2003
Wages 325 316 293 Pensions 44 41 46 Social security expenses 42 40 38 Other personnel expenses 29 25 23 Personnel expenses 440 422 400 IT expenses 137 119 123 Marketing 48 32 27 Postage/telephone 26 33 38 Travel/meetings/office supplies 24 20 19 Other administration expenses 12 12 15 General administration expenses 247 216 222 Wages and general administration expenses 687 638 622
Staff Number of man years as of 31 December 722 686 708 Number of employees as of 31 December 792 756 767 Average number of employees 772 752 760
(Amounts in NOK 1,000) Remuneration to the Board 1 318 Remuneration to the Audit Committee 436 Remuneration to the Supervisory Board 440
The remuneration for the CEO was NOK 2,483 thousand. When reaching the age of 62 the CEO may retire with a retirement pension equalling 70% of his salary at the time of retirement. There are no contractual bonus schemes, option schemes or compensation in the event of cessation of the employment relationship for the CEO, the chairman of the Board of Directors, the directors or the individual 31 employee at management level.
Loans and security to management employees Loans in NOK 1,000 CEO 3 951 Chairman of the Board - Chairman of the Control Committee - Chairman of the Board of Representatives 1 847 Members of the board with loans in the bank Gunn Jane Håland 1 762 John Peter Hernes 137 Magne Vathne 595 Torstein Plener 1 365 Management employees Deputy CEO and CFO 2 283 Executive Group Controller, CRO 2 653 Executive Vice President Business Support, IT and Security 1 962 Executive Vice President Corporate Market 1 467 Executive Vice President Retail Market 2 439 Executive Vice President Public Relations 3 392 Executive Vice President Human Resources 1 660 Control Committee 1 661 Board of Representatives 33 023 No security has been given. The terms of the loans do not deviate from the general terms for employees.
For information regarding management employees' primary capital certificate holdings in Sparebank 1 SR-Bank, see overview of governing bodies in the Annual Report, where the number of owned primary capital certificates as of 31 December 2005 is listed. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 4 OTHER OPERATING EXPENSES 2005 2004 2003
Operating expenses real estate 24 21 21 External remuneration 18 17 16 Other operating expenses 40 45 46 Other operating expenses 82 83 83
The bank’s auditor’s fees entered as expenses amount to NOK 2,023,353. Of this NOK 978,086 for ordinary auditing services, while NOK 337,407 is for other audit-related services. In addition, NOK 56,610 has been entered as expenses for tax advice and NOK 651,250 for other non-audit-related services. Non-audit-related services include accountancy advice in connection with IFRS of NOK 538,411.
NOTE 5 WRITE-DOWN OF LOANS AND GUARANTEES 2005 2004 2003
Change in individual write-downs over the period -54 -91 -84 Change in group write-downs over the period -7 -- Write-off of commitments previously written down 60 180 294 Write-off of commitments previously not written down 20 518 Changes in connection with implementation of new regulations relating to lending -5 -- Reverse loss from loss previously written off -84 -18 -10 Write-down of loans and guarantees -70 76 218
Write-off of commitments written down individually in previous years 60 180 294 Write-off of commitments not written down in previous years 20 518 32 Total write-off 80 185 312
A new regulation relating to lending was implemented on 1 January 2005. The 2005 figures are therefore not directly comparable with previous years.
NOTE 6 LOSS/GAIN ON LONG TERM FINANCIAL ASSETS 2005 2004 2003
Write-down of securities 2 34 Reversal of previous write-down of securities -10 -9 -19 Net profit/loss on securities -15 61 Loss/gain on long term financial assets -23 - -14 SPAREBANK 1 SR-BANK NGAAP
NOTE 7 TAXES 2005 2004 2003 Tax basis Profit/loss before taxes 1 060 774 564 Permanent differences -287 -116 -20 Group contribution -15 -8 -58 Changes in temporary differences -352 350 - - changes in temporary differences without tax effect included 107 -346 -228 Annual tax basis 513 654 258
Annual income tax (tax payable) 144 182 72
Tax expenses Income tax 144 182 72 Wealth tax 4 44 Tax effect of group contribution 4 216 Changes in deferred taxes 99 -97 64 - changes in deferred taxes without tax effect included -30 97 - Excess/deficit in tax allocations in previous years -1 -- Total tax expenses 220 188 156
Temporary differences Fixed assets -60 -63 -65 Write-up 27 28 29 Pension assets outstanding - - 127 Securities 248 -1 - Lending fees 142 -- Pension liabilities -412 -358 -149 Other negative differences -35 -48 -35 Net temporary differences -90 -442 -93 33
Deferred tax/(tax advantage) -25 -124 -26
Explanation to why tax expenses for the year are not 28 per cent of pre-tax profit/loss 28 per cent of pre-tax profit/loss 297 217 157 28 per cent of permanent differences* -80 -33 -5 Too much/too little set aside for taxes in earlier years -1 -- Wealth tax 4 44 Estimated tax expenses 220 188 156
*includes tax-exempt dividend, non-tax-deductible expenses, net tax-exempt profit from realisation of shares according to the exemption model as well as tax allowances for profit attributable to affiliated companies (the percentage of the profit is extracted, as it has already been taxed in the individual company).
The Bank implemented a new regulation relating to lending and pensions in 2005. The implementation effects have been entered directly against equity and deferred tax/tax payable. Comparable figures for 2004 have been prepared accordingly.
RISK adjustment The RISK adjustment amount for the bank’s primary capital certificates has previously been set at NOK 6.06. As of 1 January 2006 the RISK amount has been estimated at NOK 1.79 per primary capital certificate. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 8 ACCOUNTS RECEIVABLE FROM CREDIT INSTITUTIONS 2005 2004 2003
Accounts receivable with no set term/notice 36 60 149 Accounts receivable with set term/notice of withdrawal 1 878 1 550 519 Accounts receivable from credit institutions 1 914 1 610 668
NOTE 9 CUSTOMER LENDING 2005 2004 2003
Overdraft facilities 10 239 4 485 2 906 Building loans 1 336 1 448 948 Repayment loans 48 114 46 856 43 525 Gross lending to customers 59 689 52 789 47 379 Individual write-down of lending -154 -208 -299 Group write-down of lending -162 -360 -360 Net lending to customers 59 373 52 221 46 720
Of this, subordinated loan capital Equity and subordinated capital in credit institutions 60 60 60 Equity and subordinated capital in other finance institutions 43 43 43 Other equity and subordinated capital - -33 Subordinated loan capital entered under lending 103 103 136
Lending to employees
Loans to employees 784 726 702 Subsidising of interest rate on loans to employees 10 918
34 Apart from ordinary staff terms, there are no special terms for these loans.
NOTE 10 WRITE-DOWNS LENDING 2005 2004 2003
Individual write-downs Individual write-downs as of 1 January 208 299 383 - Write-off in the period where write-downs -60 -180 -294 have been made earlier +/- Changes to individual write-down in the period 6 89 210 Individual write-downs as of 31 December 154 208 299
Group write-downs lending Group write-downs as of 1 January 169 360 360 +/- Changes to Group write-downs in the period -7 -- Group write-downs as of 31 December 162 360 360
The implementation of regulations relating to lending as of 1 January 2005 makes 2005 figures incomparable with earlier years. SPAREBANK 1 SR-BANK NGAAP
NOTE 11 DEFAULTED, DOUBTFUL COMMITMENTS AND NON-PERFORMING LOANS 2005 2004 2003 2002 2001
Defaulted commitments Retail market: Gross defaulted commitments 88 93 163 166 164 Individual write-downs 28 49 78 72 71 Net defaulted retail market commitments 60 44 85 94 93 Allocation rate retail market 32 % 53 % 48 % 43 % 43 %
Corporate market: Gross defaulted commitments 32 99 229 127 132 Individual write-downs 7 22 53 35 57 Net defaulted corporate market commitments 25 77 176 92 75 Allocation rate corporate market 22 % 22 % 23 % 28 % 43 %
Total: Gross defaulted commitments 120 192 392 293 296 Individual write-downs 35 71 131 107 128 Net defaulted commitments 85 121 261 186 168 Allocation rate lending 29 % 37 % 33 % 37 % 43 %
Of this, gross non-performing loans: Retail market 69 80 124 104 97 Corporate market 10 49 120 31 35 Total 79 129 244 135 132
Not defaulted written down commitments Retail market: 35 Not defaulted written down commitments 144 139 157 119 99 Individual write-downs 42 44 48 46 37 Net written down retail market commitments 102 95 109 73 62 Allocation rate retail market 29 % 32 % 31 % 39 % 37 %
Corporate market: Not defaulted written down commitments 181 238 242 578 306 Individual write-downs 77 93 120 230 117 Net written down corporate market commitments 104 145 122 348 189 Allocation rate corporate market 43 % 39 % 50 % 40 % 38 %
Total: Not defaulted written down commitments 325 377 399 697 405 Individual write-downs 119 137 168 276 154 Net written down commitments 206 240 231 421 251 Allocation rate lending 37 % 36 % 42 % 40 % 38 %
When instalments or interest due are not paid 90 days after their due date, or the credit limit has been overdrawn for 90 days or more, the overall commitment to a customer is regarded as in default, and is included in the Group’s overview of commitments in default. Loss assessments are carried out on commitments that have been in default for more than 60 days. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 12 RISK CLASSIFICATION OF TOTAL LENDING 2005 2004 2005 2004 2005 2004 2005 2004 Distribution by risk group Total commitment Gross lending Individual write-downs Expected annual average Net loss Lowest and low risk 65 395 54 401 54 699 47 895 - 4 27 30 Medium risk 4 172 4 175 2 569 3 162 2 7 13 19 High and highest risk 3 020 2 321 2 421 1 732 152 197 44 39 Total 72 587 60 897 59 689 52 789 154 208 84 88
2005 2004 2005 2004 Distribution by risk group Total commitment Percentage of total commitment Lowest and low risk 65 395 54 401 90,1 89,3 Medium risk 4 172 4 175 5,7 6,9 High and highest risk 3 020 2 321 4,2 3,8 Total 72 587 60 897 100,0 100,0
2005 2004 2005 2004 Distribution by geographical area Gross lending Percentage of gross lending Oslo area 2 318 2 238 3,9 4,2 The Agder counties 4 411 2 747 7,4 5,2 Rogaland 50 436 44 944 84,5 85,1 Hordaland 1 747 1 635 2,9 3,1 Abroad 228 226 0,4 0,4 Other 549 999 0,9 1,9 Total 59 689 52 789 100,0 100,0
36 2005 2004 2005 2004 2005 2004 2005 2004 Distribution by sector and industry Total commitment Gross lending Individual write-downs Expected annual average Net loss Farming/Forestry 2 124 2 028 1 790 1 783 5 4 6 4 Fisheries/Fish farming 462 771 270 364 6 14 2 11 Quarries/Mining 469 590 332 438 - - 1 2 Industry 3 969 2 460 1 628 1 480 28 25 4 8 Energy and water supply/ Construction 2 330 2 176 904 845 1 1 4 3 Distributive trades Hotel and restaurants 2 048 1 703 1 419 1 276 10 13 4 5 Overseas shipping, pipeline transport, other transport 1 575 2 106 1 394 1 861 10 9 4 4 Real estate operation 8 979 6 472 7 591 5 312 14 7 34 20 Tertiary sector 3 023 2 035 1 770 1 430 11 42 9 9 Public management and financial services 2 743 1 938 799 743 - - - - Total industry 27 722 22 279 17 897 15 532 85 115 68 66 Retail market 44 865 38 618 41 792 37 257 69 93 16 22 Total 72 587 60 897 59 689 52 789 154 208 84 88
Credit risk Credit risk is defined as the risk of losses as a result of customers or opposing parties not having the will or ability to fulfil their obligations to the bank. Credit risk is managed through the bank's credit strategy, credit policy guidelines and allocation regulations.
The credit strategy is decided at least once a year by the Board of Directors. The bank's credit strategy focuses on risk sensitive target figures and limits set so that they govern the bank's credit risk profile in the most adequate and efficient manner possible. This is done primarily by comparing target figures and limits connected with risk-adjusted capital, risk-adjusted dividend and expected losses. In addition, the credit strategy imposes limits on the exposure and risk profile of portfolios, industries and individual customers.
The Board of Directors are responsible for the bank's granting of credits and loans. The Board delegates authority for operational decisions in credit and loan issues to the CEO, within certain limits. The CEO can, within his authority, delegate authority. The delegated authority is connected to the expected losses and likelihood of default from the commitment. SPAREBANK 1 SR-BANK NGAAP
(NOTE 12 continued)
The bank develops and uses risk classification systems, risk pricing models and portfolio management systems actively to manage the lending portfolio in line with the credit strategy, the credit policy guidelines and the allocation regulations. These, combined with the credit handling routines, set clear requirements to the credit handling process and the risk assessments. The risk classification systems cover both corporate and retail market customers, and are based on statistic calculations. The risk models on which the statistical calculations are based are subject to continuous development and testing.
The portfolio is divided into five risk groups - lowest, low, medium, high and highest, respectively. The categorisation into different risk groups is made on the basis of statistical calculation of each individual commitment's expected loss, based on the commitment's likeliho- od of default, exposure to default and the loss rate in the case of default. In addition, there is a separate risk class for defaulted and written down commitments. The commitments include all kind of capital services performed for the customer through loans, credits, guarantees including commercial credit, not paid interest due and commissions and futures with currency and interest rate instruments.
The underlying credit risk in the corporate and retail markets had a positive development in 2005. This is a result of the bank's restrictive practice in approving high-risk commitments, as well as the positive economic development in the bank's market area and the low interest rate level. The bank has a low risk profile in the credit area. The bank aims to price its commitments according to the risk exposure, giving the highest price for the commitments with the highest risk.The price models are based on the return requirements for risk-adjusted capital.
For more information on credit risk, see the article "Risk and capital management", in the annual report.
NOTE 13 LOSS ON LENDING AND Lending Gross Recovery Net Loss GUARANTEES DISTRIBUTED BY INDUSTRY guarantees loss of losses loss percentage Farming/Forestry 1 796 2 - 2 0,11 % Fisheries/Fish farming 321 - 3 -3 -0,93 % Quarries/Mining 341 - - - 0,00 % Industry 2 799 18 2 16 0,57 % Energy and water supply/Construction 1 609 - 1 -1 -0,06 % Distributive trades/Hotel and restaurants 1 579 3 4 -1 -0,06 % 37 Overseas shipping/Pipeline transport, other transport 1 456 5 3 2 0,14 % Real estate operation 8 027 6 1 5 0,06 % Tertiary sector 2 134 4 89 -85 -3,98 % Public management and financial services 960 - - - 0,00 % Carried forward from group write-downs 7 -7 Total industry 21 022 38 110 -72 -0,34 % Retail customers 41 836 22 20 2 0,00 % Total 62 858 60 130 -70 -0,11 %
NOTE 14 CERTIFICATES AND BONDS 2005 2004 2003 Certificates and bonds issued by the government 25 175 278 Certificates and bonds issued by others 3 123 2 692 2 097 Certificates and bonds 3 148 2 867 2 375
Trading portfolio 3 148 2 867 2 375 Acquisition cost 3 144 2 868 2 378 Proportion of publicly listed shares 52 % 60 % 70 %
Average effective interest rate 2,5 % 2,5 % 5,1 %
Distributed by significant currencies NOK 2 440 2 785 2 375 EURO 640 82 USD 68
Public management 25 175 278 Financial enterprises 1 923 1 689 1 260 Non-financial enterprises 1 200 1 003 837 Certificates and bonds 3 148 2 867 2 375 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 15 SHARES AND OWNERSHIP 2005 2004 2003 Short-term investments in shares and primary capital certificates 317 294 260 Long-term investments in shares and primary capital certificates 17 53 100 Ownership in affiliated companies 484 311 253 Ownership in credit institutions 153 128 131 Ownership in other group companies 158 925 Shares and ownership 1 129 795 769
Investments in shares, units and primary capital certificates The company's Ownership Number Acquisition Entered value/ (Sums in NOK 1,000) share capital percentage shares costs market value Short-term investments in shares, units and primary capital certificates: Publicly listed companies Kongsberg Gruppen 150 000 0,4 119 515 11 513 14 820 Scana Industrier 209 167 1,0 1 671 000 5 809 7 520 Otrum 21 900 0,5 115 600 3 659 3 121 Vmetro 11 491 1,7 391 802 11 616 10 304 Prosafe 340 975 0,1 46 923 7 348 13 443 Lerøy Seafood Group 39 377 0,7 279 271 8 461 20 387 Orkla 1 301 789 0,0 57 684 11 238 16 123 Norske Skogindustrier 1 899 456 0,0 59 202 7 582 6 349 Kverneland 154 309 0,6 94 389 7 936 6 985 Norsk Hydro 4 738 866 0,0 20 386 10 698 14 127 Transocean USD 3 301 0,0 11 969 3 625 5 642 Pride USD 1 619 0,0 31 288 4 984 6 510 Opera Software 2 158 0,2 175 000 1 684 3 938 DOF 153 535 0,6 428 841 3 392 15 439 Statoil 5 473 964 0,0 102 878 12 059 15 946 38 DNB Nor 13 368 749 0,0 40 000 2 658 2 880 Sandsvær Sparebank 101 545 0,0 100 21 22 Sparebanken Vestfold 126 655 1,8 22 275 4 358 4 678 Sparebanken Nord-Norge 791 642 0,7 116 059 6 203 18 221 Sparebanken Pluss 125 000 2,7 34 280 7 486 8 741 Sparebanken Midt-Norge 1 262 227 0,5 238 156 6 857 18 636 Helgeland Sparebank 201 826 0,7 13 853 2 570 3 117 Shares secured in options Ganger Rolf 45 350 0,2 20 000 6 632 6 632 Fred Olsen Energy 1 224 119 0,0 30 000 5 445 5 445 Steen og Støm 27 883 0,1 30 000 5 517 5 517 Sinvest 346 232 0,2 100 000 6 400 6 400 Other shares secured in options 15 102 15 102 Total shares secured in options 39 096 39 096 Other publicly listed companies 8 423 10 085 Sum publicly listed companies 189 276 266 130
Ågotnes Eiendom Holding 3 200 34,4 110 11 000 11 000 Løwenstrasse Eiendom Holding 2 500 100,0 250 25 000 25 000 Marine Farms 50 816 3,8 1 950 000 14 256 10 725 Other not listed companies 218 853 7 749 3 798 Total not listed companies 58 005 50 523 Total short-term investments in shares, stakes and primary capital certificates 247 281 316 653
Long-term investments in shares, units and primary capital certificates: Non-t listed companies Bankenes Betalingssental 165 000 4,3 283 830 4 940 Teller 45 000 1,7 784 11 165 Others 1 443 Total long-term investments in shares, units and primary capital certificates 17 548 SPAREBANK 1 SR-BANK NGAAP
(NOTE 15 continued)
Changes to long-term investments in shares, units and primary capital certificates Entered value as of 1 January 2005 52 551 Additions/Disposals -43 135 Write-back of earlier write-down 8 132 Entered value as of 31 December 2005 17 548
Ownership in affiliated and jointly controlled companies Book value Admi-Senteret - SpareBank 1 Utvikling 17 837 SpareBank 1 Boligkreditt 26 613 SpareBank 1 Gruppen 439 558 Total ownership in affiliated and jointly controlled companies 484 008
Company Ownership Number Face Entered Shares in subsidiaries share capital percentage of shares value value SpareBank 1 SR-Finans 67 000 100 134 000 67 000 153 033 Total ownership in credit institutions 67 000 153 033 EiendomsMegler 1 Rogaland 1 500 100 150 1 500 12 123 Westbroker Finans 100 100 100 100 8 032 SR Investering 30 000 100 3 000 30 000 133 572 SR-Forvaltning 6 000 66,7 4 000 4 000 4 727 Total ownership in other group companies 35 600 158 454
The voting stake and ownership stake equal for all companies 39
Subsidiaries, affiliated and jointly controlled companies Date of Business Ownership Company acquisition premises percentage SpareBank 1 SR-Finans 1987 Stavanger 100,00 EiendomsMegler 1 Rogaland 1990 Stavanger 100,00 Westbroker Finans 1990 Stavanger 100,00 SpareBank 1 Gruppen 1996 Oslo 17,63 Admi-senteret 1984 Jørpeland 50,00 SR-Forvaltning 2001 Stavanger 66,67 SpareBank 1 Utvikling 2004 Oslo 20,00 SpareBank 1 Boligkreditt 2005 Stavanger 26,72 SR Investering 2005 Stavanger 100,00
The investment in all companies is assessed according to the equity method. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
(NOTE 15 continued)
Investments in subsidiaries SR- Eiendoms- Westbroker SR- SR Added value analysis Finans Megler 1 Finans Forvaltning Investering Capitalised equity at date of acquisition 53 400 8 000 50 4 000 133 067 Goodwill 40 000 - - 18 - Acquisition cost 93 400 8 000 50 4 018 133 067
Calculation of capitalised value as of 31 December 2005 Opening balance as of 31 December 2004 130 305 12 736 8 086 4 136 - Pension corridor against equity as of 1 January 2004 -1 794 -11 581 - -668 - Estimate deviation pension 2004 -579 -2 776 - -487 - Opening balance 1 January 2005 127 932 -1 621 8 086 2 981 - Invested capital - - - - 133 067 Changes lending 1 663 - - - - Annual profit 14 476 18 296 95 11 824 505 Transferred to company (Group contribution) 10 127 - 381 - - Transferred from company (Dividend) - - -530 -9 667 - Estimate deviation pension 2005 -1 165 -4 552 - -411 - Closing balance as of 31 December 2005 153 033 12 123 8 032 4 727 133 572
Investment in affiliated and jointly controlled companies SpareBank 1 Admi- SpareBank 1 SpareBank 1 Added value analysis Gruppen Senteret Utvikling Boligkreditt Capitalised equity at date of acquisition 145 900 1 000 7 000 26 718 Goodwill - - - - Acquisition cost 145 900 1 000 7 000 26 718
Calculation of capitalised value as of 31 December 2005 40 Opening balance as of 1 January 2005 304 100 - 7 000 - Annual portion of profit/loss 94 920 - - -105 Corrected result from 2004 58 - - - Adjusted against equity -1 772 - - - Increased/new share stakes 42 750 - 10 837 26 718 Depreciation of goodwill -498 - - - Closing balance as of 31 December 2005 439 558 - 17 837 26 613 SPAREBANK 1 SR-BANK NGAAP
(NOTE 15 continued)
SpareBank 1 Gruppen SpareBank 1 Gruppen is owned by SpareBank 1 Nord-Norge, SpareBank 1 Midt-Norge, SpareBank 1 SR-Bank and Samarbeidende Sparebanker AS, with a 17.63% stake each, and FöreningsSparbanken AB (publ) with 19.5% and the Norwegian Federation of Trade Unions (LO) and affiliates with 10%. The ownership stake in the SpareBank 1 Gruppen AS should be considered as participation in a joint venture, and is entered according to the equity method.
Company's Ownership Stake of share capital stake voting Name of company (NOK millions) shares SpareBank 1 Gruppen AS 1 562 17,63 % 17,63 %
The joint venture consists of the parent company SpareBank 1 Gruppen AS, SpareBank 1 Livsforsikring AS, SpareBank 1 Skadeforsikring AS, SpareBank 1 Fondsforsikring AS, Bank 1 Oslo AS, ODIN Forvaltning AS and SpareBank 1 Medlemskort AS. In addition, SpareBank 1 Gruppen AS owns 24.5% of the brokering business First Securities ASA and 20% of SpareBank 1 Utvikling DA. The subsidiaries have activities within bank, insurance and fund management. All transactions between the bank and the subsidiaries in the SpareBank 1 Group have been agreed on businesslike terms. Internal compensations between the bank and SpareBank 1 Gruppen AS that are not related to sale and portfolio consulting have been based on the full cost principle.
2005 2004 Profit/loss 100 % 17,63 % 100 % 15,46 %
Profit/loss after taxes 657,0 285,0
Goodwill and added value depreciation -126,0 -132,0 Other eliminations -4,0 Minority stake -0,1 41
Annual profit 531,0 94,5 148,9 25,1 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 16 TANGIBLE FIXED ASSETS Machines, Bank building fixtures and and other means of transport real estate Total Acquisition cost as of 1 January 2005 456 346 802 Annual added value 34 8 42 Depreciation of acquisition costs 158 15 173 Total depreciation and write-downs as of 31 December 2005 229 148 377 Entered value as of 31 December 2005 103 191 294 Annual ordinary depreciation 36 6 42 Of this, depreciated on assets written up - 1 1 Annual depreciation -2 2 Annual gains from divestment - 5 5 Percentage for ordinary depreciation 14-33 % 2 %
Of total entered value of bank buildings, NOK 174 million is for use in the banking activities.
Real estate of substantial importance to the bank: Total Rented out Geographical location Type m2 m2 Stavanger Bjergsted Bank building 8 954 921 Sola sentrum Bank building 3 783 1 955 Haugesund sentrum Bank building 3 536 363 Stavanger sentrum Bank building 3 085 930 Aksdalsenteret Tysvær Bank building 2 288 850 Egersund Bank building 2 069 210 Randaberg sentrum Bank building 1 903 928
42 Intangible assets
Acquisition costs goodwill as of 1 January 2005 32 Total depreciation and write-downs as of 31 December 2005 30 Entered value as of 31 December 2005 2 Deferred tax advantage 25 Total 27 Annual ordinary depreciation of goodwill 1
The individual items under Goodwill are depreciated in a straight line over 5 years.
NOTE 17 OTHER ASSETS 2005 2004 2003 Equity and subordinated capital SR-Bank pension fund 25 15 15 Dividend not received from subsidiaries 10 44 49 Various other assets 117 53 5 Other assets 152 112 69
NOTE 18 PAYMENTS IN ADVANCE AND DEFERRED INCOME 2005 2004 2003 Deferred income and prepaid, not accrued expenses 154 142 155 Net pension assets - - 127 Other prepaid, not accrued expenses 14 16 18 Payments in advance and deferred income 168 158 300 SPAREBANK 1 SR-BANK NGAAP
NOTE 19 DEBT TO CREDIT INSTITUTIONS 2005 2004 2003 Debt with no set term or notice 195 119 50 Debt with set term or notice 3 454 2 630 4 878 Debt to credit institutions 3 649 2 749 4 928
Average interest rate 1,1 % 1,1 % 1,3 % Debt distributed by significant currencies USD 77 - 2 359 EURO 3 000 2 165 2 317 NOK 556 535 228
The average interest rate is calculated based on actual interest rate expenses during the year as a percentage of average debt to credit institutions.
NOTE 20 CUSTOMER DEPOSITS 2005 2004 2003 Deposits from and debts to customers with no set term or notice 27 633 23 306 20 682 Deposits from and debts to customers with set term or notice 10 328 10 076 6 866 Customer deposits 37 961 33 382 27 548
Average interest rate 1,5 % 1,5 % 3,7 %
Customer deposits are mainly in NOK. The average interest rate is calculated based on actual interest rate expenses during the year as a percentage of average customer deposits.
NOTE 21 BOND LOAN DEBT AND OTHER LONG-TERM LOANS 2005 2004 2003 Due date 2004 - - 3 596 2005 - 3 737 3 785 43 2006 1 572 1 388 526 2007 6 028 6 108 1 967 2008 1 560 1 664 1 169 2009 1 265 1 265 600 2010 5 083 500 - 2011 605 605 560 2012 120 -- 2014 296 305 - 2035 80 -- Premium 1 12 Holdings of own bonds -77 -456 -790 Capitalised costs from bond loans -10 -6 -3 Bond loan debt and other long-term loans 16 523 15 111 11 412
Average interest rate 2,5 % 2,2 % 4,3 % Debt distributed by significant currencies NOK 7 400 7 709 5 800 EURO 5 293 6 703 3 898 USD 3 830 --
Premium when taking up loans is entered as income over the term of the loan. All loans are without instalments. Average interest rate is calculated based on actual interest rate expenses during the year, including any interest rate or currency swaps as a percentage of average bond holdings. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 22 ALLOCATIONS TO LIABILITIES AND EXPENSES 2005 2004 2003 Uncovered pension liabilities 412 358 149 Other allocations to liabilities and expenses - 11 Allocation to liabilities and expenses 412 359 150
NOTE 23 PENSION SCHEMES SpareBank 1 SR-Bank has collective pension schemes for its employees. The pension scheme is covered by the bank’s pension fund. SpareBank 1 SR-Bank has a uniform scheme, in which the principal terms are 30 years of earning entitlements to pension benefits, 70% retirement pension relative to the pension basis as of 1 January the year the employee reaches the age of 67, as well as invalidity, spouse and children’s pension. All pension benefits are coordinated with expected benefits from the national insurance. If changes are made in the national insurance scheme leading to reduced benefits, such reductions will not be compensated through the pension schemes. As of 31 December 2005 the pension scheme had 875 active members and 237 pensioners. In addition to the pension liabilities that are covered through the insurance schemes, the bank has uncovered pension liabilities that cannot be covered by the assets in the collective scheme. The liabilities apply to people that are not enrolled in the insurance schemes, supplementary pensions in excess of 12 G (1 G = the national insurance basic amount), ordinary early retirement pensions and early retirement contractual pensions. Estimated assets are used when assessing the pension assets and when measuring accrued liabilities. These estimates are corrected every year in accordance with the actual value of the pension assets in the pension fund, statements of the pension assets in the event of being transferred from the insurance company, and actuary calculations regarding the size of the liabilities. The calculation of future pensions is based on the following principles:
2005 2004 Discount rate 3,9 % 4,5 % Expected dividend from assets 6,0 % 6,0 % Wage adjustment 3,0 % 3,0 % G adjustment/inflation 3,0 % 3,0 % Pension adjustment 3,0 % 3,0 % 44 Employers' contribution 14,1 % 14,1 %
The calculations are based on standardised assumptions regarding death and invalidity trends and other demographic factors prepared by Norges Forsikringforbund (the Norwegian Federation of Life- and Non-Life Offices). Furthermore, a resignation frequency of 2% is assu- med up to 45 years of age, and 0% for the age group over 45. For the calculation of the contractual pension scheme liabilities, it has been estimated that 25% of employees entitled to the scheme will make use of it at the age of 62, and that the 25% will make use of the scheme when they reach 64 years of age.
Pension liabilities in defined benefit pension schemes 2005 2004 Present value of pension liabilities as of 1 January 787 653 Pension earned during the period 33 29 Interest expenses accrued on pension liabilities 35 33 Actuary gains and losses (estimate deviations) 85 94 Paid benefits -22 -22 Present value of pension liabilities as of 31 December 918 787 Of this, fund-based 764 643 of this, not fund-based 154 144
Pension assets Pension assets 1 January 465 415 Expected dividend in the period 29 26 Actuary gains and losses (estimate deviation) 22 10 Payments from employer 63 45 Benefits paid -22 -22 Pension assets 31 December 557 474
Net pension liabilities in the balance sheet Current value of pension liabilities as of 31 December 918 787 Pension assets as of 31 December 557 474 Net pension assets 31 December 361 313 Employers' contribution 51 45 Net pension liabilities in the balance sheet 412 358 SPAREBANK 1 SR-BANK NGAAP
(NOTE 23 continued)
Pension expenses in the period 2005 2004 Defined benefit pension earned in the period 33 29 Interest expenses accrued on pension liabilities 35 33 Expected dividend from pension assets -29 -26 Net defined benefit pension expenses, employers' contribution excluded 39 36 Accrued employers' contribution 5 5 Net defined benefit pension expenses entered in the profit and loss account 44 41 Defined benefit pension expenses - - Accrued pension expenses during the period, entered in the profit and loss account 44 41
Actuary gains and losses (estimate changes) Accrued actuary gains and losses during the period, entered against equity 71 96 Cumulative actuary gains and losses during the period, entered against equity 167 96
Expected dividend from pension assets has been calculated as: 29 26 Actual dividend from pension assets was: 60 38
Development over the last two years in the defined benefit pension scheme Present value of pension liabilities as of 31 December 918 787 Pension assets as of 31 December 557 474 Net 361 313
NOTE 24 SUBORDINATED LOAN CAPITAL 2005 2004 2003 Due date/Interest rate Of limited duration: 2009 - USD 83.7 million 3 months' Libor + margin - - 557 2010 - 3 months' Nibor + margin - 300 300 Premium - -1 45 2014 EUR 65 million 3 months' Libor + margin 520 536 - Capitalised expenditure -3 -4 - 2035 YEN 13,000 million 3 months' Libor + margin 782 -- Total of limited duration 1 299 832 858
Perpetual: USD 75 million 3 months' Libor + margin 508 454 501 Capitalised expenditure -17 -18 -23 Total perpetual 491 436 478
Fund bonds: USD 75 million 3 months' Libor + margin 508 454 501 Capitalised expenditure from fund bonds -2 -2 -2 Total fund bonds 506 452 499
Subordinated loan capital 2 296 1 720 1 835
Subordinated loan capital and bond funds in foreign currencies (USD 150 million, EUR 65 million and Yen 13,000 million as of 31 December 2005) enter into the bank’s total currency position, so that there is no currency risk associated with the loans, see note 27. Subordinated loan capital of Yen 13,000 million can be redeemed in 2012. Of the total subordinated loan capital, as of 31 December 2005, all is considered supplementary capital. Premiums/discounts in connection with borrowing are entered as costs over the term of the loan. Fund bonds can constitute a maximum of 15% of the overall core capital. Any fund bonds in excess of this are considered perpetual subordinated loan capital. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 25 PRIMARY CAPITAL, OWNERSHIP STRUCTURE AND EQUITY MOVEMENTS Primary capital The primary capital of Sparebank 1 SR-Banks amounts to NOK 1,130,729,250 divided among 22,614,585 primary capital certificates, each with the nominal value of NOK 50. In April 2005 a split and capitalisation issue was carried out, entailing that NOK 226.1 million was transferred from the equalisation reserve and 4,522,917 new primary capital certificates (free certificates) were issued, with an issuing price and nominal value per certificate of NOK 50. Four old certificates entitled owners to one new primary capital certificate. The primary capital was raised in the following manner and at the following time:
Year Change Change in Total Number of primary primary capital primary capital capital certificates 1994 Public issue 744,0 744,0 7 440 000 2000 Employee issue 5,0 749,0 7 489 686 2001 Employee issue 4,8 753,8 7 538 194 2004 Capitalisation issue 150,8 904,6 9 045 834 2005 Capitalisation issue/split 226,1 1 130,7 22 614 585
In addition to the primary capital, the primary capital certificate owners' share of the equity in SpareBank 1 SR-Bank consists of an equalisation reserve which consist of accumulated profits not paid out as annual dividend. This equity is used to stabilise cash dividend, or for capitalisation issue. Other equity is the savings bank's fund, premium account and revaluation reserve. Up to 25 per cent of the sum allocated to the savings bank's funds can be set aside for the endowment fund.
The share of the profit attributable to the primary capital certificate owners: The profit per primary capital certificate is calculated by dividing the profit attributable to the owners of the primary capital certificates by the average number of outstanding primary capital certificatesin 2005. The profit attributable to primary capital certificate owners equals the share of the bank's total equity of the primary capital, the dividend equalisation reserve and the share premium account, minus the reserve for valuation variances.
The savings 46 Primary Premium Revaluation bank's Endowment Equalisation Total capital account reserve fund fund reserve equity Equity as of 31 December 2003 750 18 - 1 132 37 872 2 809 Implementation effect pension 1 January 2004 -85 -109 -194 Adjusted equity as of 1 January 2004 750 18 - 1 047 37 763 2 615 Capitalisation issue 151 -151 - Endowments, endowment fund, etc. -1 -28 -29 Turnover own primary capital certificates 4 2 5 11 Estimate deviation pension 2004 -32 -41 -73 Annual profit/loss 184 60 342 586 Dividend -208 -208 Equity as of 31 December 2004 905 20 - 1 198 69 710 2 902 Implementation effect lending 1 January 2005 57 73 130 Adjusted equity as of 1 January 2005 905 20 - 1 255 69 783 3 032 Capitalisation issue 226 -226 - Endowments, endowment fund, etc. -51 -1 -52 Turnover, own primary funds 1) -3 1 -8 -10 Estimate deviation pension 2005 -25 -32 -57 Annual profit/loss 275 91 474 840 Dividend -317 -317 Equity as of 31 December 2005 1 128 21 - 1 505 109 673 3 436
1) Turnover of own primary capital certificates in 2005: (Figures in 1,000)
Reserve as of 31 December 2004 57 Change in reserve in 2005 2 892 Reserve as of 31 December 2005 2 949 SPAREBANK 1 SR-BANK NGAAP
(NOTE 25 continued)
The 20 largest primary capital certificate owners as of 31 December 2005 Primary capital Owner certificate Percentage Swedbank, Sweden 2 225 850 9,80 % Folketrygdfondet 1 028 300 4,50 % State Street Bank & Trust, USA 805 341 3,60 % Trygve Stangeland 300 940 1,30 % Tveteraas Finans AS 300 010 1,30 % Brown Brothers Harriman & Co, USA 288 914 1,30 % Frank Mohn AS 280 205 1,20 % Clipper AS 260 000 1,10 % JP Morgan Chase Bank, UK 258 440 1,10 % Otto B. Morcken 195 000 0,90 % Audley AS 194 532 0,90 % Solvang Shipping AS 180 000 0,80 % Westco AS 162 650 0,70 % Forsand kommune 152 295 0,70 % Trondheim kommune 120 450 0,50 % Arne B. Corneliussen Invest AS 120 000 0,50 % Ringerikes Sparebank 102 400 0,50 % MP Pensjon 99 900 0,40 % Terra Utbytte 93 250 0,40 % Olav T. Stangeland 90 000 0,40 % Total 20 largest owners 7 258 477 32,10 % Other owners 15 356 108 67,9 % Primary capital certificates issued 22 614 585 100,0 %
The total number of primary capital certificate owners as at 31 December 2005 is 10,361. This is an increase of 2,281 since the beginning of the year. The percentage of primary capital certificates owned in Rogaland and the Agder counties is 44.8%, and the percentage owned 47 abroad is 19.4%. Reference is also made to the overview of primary capital certificate owners in the Board of Directors and the Supervisory Board. For more details concerning primary capital certificates, see separate chapter in the annual report.
NOTE 26 GUARANTEES/SECURED DEBT 2005 2004 2003 Payment guarantees 1 514 1 058 878 Contract guarantees 1 331 868 735 Loan guarantees - 113 Tax guarantees 47 28 27 Other guarantees 209 255 264 Guarantee for the Norwegian Bank's Guarantee Fund 68 68 68 Total 3 169 2 278 1 985 The bank has no significant secured debts SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 27 CURRENCY POSITION AND CURRENCY INTEREST AGREEMENTS 2005 2004 2003 Net position on foreign currencies Ownership in foreign currencies 4 934 5 496 5 994 Forward purchases in foreign currencies 10 232 7 945 8 321 Debt in foreign currencies 15 030 11 494 12 368 Forward sale in foreign currencies 1 300 1 954 1 859
Currency risk Currency risk can be defined as the bank’s risk for incurring losses as a consequence of changes in exchange rates. The bank has a policy of limited currency risk on its own books. The Board of Directors has stipulated limits for the bank’s maximum currency position, both overall and with regard to individual currencies. The bank’s maximum limits are conservative, and well within the limits set by Norges Bank, the Norwegian central bank. Furthermore, the bank can only take on currency risk in the currencies for which Norges Bank stipulates exchange rates on a daily basis. In relation to the bank’s size, currency risk has been low throughout 2005. At the end of the year, the aggregated currency position was NOK 97 million. The largest positions were in USD, with NOK 62 million, and EUR with NOK 33 million, and only minor positions in other currencies. All currency items have been converted according to the market rate on 31 December 2005.
Off-balance sheet interest, currency and share-related agreements (financial derivatives) Nominal as of Nominal Value 31December2005 average 2005 31December2005 Trading portfolio Interest 11 080 9 544 41 Currency 2 671 2 030 11 Hedging portfolio Interest 9 005 9 746 92 Currency 12 190 11 634 215 Share swaps 1 160 1 262 36 Nominal total equal to the contract's principal sum. 48 Off-balance sheet interest, currency and share-related agreements (financial derivatives) Trade in financial derivatives is largely carried out in order to reduce interest and currency risk in the balance sheet. The Board of Directors have drawn up clear limits, both for currency and interest derivatives, on the extent of risk that may be placed in the trading portfolio. Relative to the size of the bank, the limits for trade in derivatives is considered conservative, and the market risk as a consequence of trade in these products is therefore considered to be small. Share-related agreements such as share options, share swaps, etc. are largely used to secure guarantee products sold to customers. Derivatives are mostly carried out with solid Norwegian and international banks as counter- parts. The credit risk is therefore considered to be small. Transactions with customers are part of the bank’s continuous credit assessment of individual commitments. All instruments that are used throughout the year are subject to daily turnover in liquid markets. These are described below:
Interest agreements largely comprise: Interest swap agreements (interest swaps) are agreements to change interest terms on nominal amounts with customers or banks. Forward rate agreements (FRAs) are agreements that set an interest rate for a nominal amount for a period in the future. Interest options are agreements entitling the buyer to claim the difference between the money market rate and the agreed interest paid by the seller. The difference is calculated on the basis of an agreed principal sum.
Currency agreements largely comprise: Currency forward agreements are agreements to buy or sell a specific amount of currency at a future point in time at an agreed exchange rate against a different currency. Currency swap agreements (currency swaps) are agreements with customers or banks to change currency amounts at a previously agreed exchange rate, and pay interest on them for an agreed period.
Share agreements largely comprise: Share swaps ensure the buyer a given rate of return on specific share index(es) and/or funds/trusts in return for the payment of floating/fixed interest for a previously agreed period. SPAREBANK 1 SR-BANK NGAAP
NOTE 28 CONDITIONAL COMMITMENTS Sparebank 1 SR-Bank is party to several lawsuits. The lawsuits’ total financial extent is not considered to be of great significance. This is because the bank has made loss allocations in the cases in which there is a probability that the bank will suffer losses as a consequence of the lawsuits.
NOTE 29 DISTRIBUTION OF LENDING, GUARANTEES AND DEPOSITS ACCORDING TO INDUSTRY SECTOR AND GEOGRAPHIC AREA Lending Guarantees Deposits Agriculture/Forestry 1 7906 712 Fisheries/Aquaculture 270 51 55 Quarries/Mining 332 9 619 Industry 1 628 1 171 1 441 Energy and water supply/Construction 904 705 1 387 Distributive trades/Hotel and restaurants 1 419 160 1 383 Overseas shipping/Pipeline transport, other transport 1 394 62 1 273 Real estate 7 591 436 2 172 Tertiary sector 1 770 364 2 999 Public management and financial services 799 161 8 456 Total corporate market 17 897 3 125 20 497 Retail customers 41 792 44 17 464 Total 59 689 3 169 37 961
Lending Guarantees Deposits Oslo area 2 318 266 5 986 Agder counties 4 411 639 1 448 Rogaland 50 436 2 152 28 826 Hordaland 1 747 88 1 209 Abroad 228 20 282 49 Other 549 4 210 Total 59 689 3 169 37 961
NOTE 30 TRANSACTIONS WITH SUBSIDIARIES 2005 2004 2003 Income and expenses: Interest income from subsidiaries 43 17 12 Interest expenses from subsidiaries 3 25 Commission income from subsidiaries 2 33 Commission expenses from subsidiaries 1 12 Other income from subsidiaries 1 11 Other expenses from subsidiaries 1 -- Accounts receivable from subsidiaries: Operating credit 461 522 1 Other lending 1 417 1 028 518 Other accounts receivable 11 44 50 Total accounts receivable 1 889 1 594 569
Debt to subsidiaries: Deposits from subsidiaries 444 379 155 Other debts 15 759 Total debts 459 386 214
Subordinated Accounts receivable and debts to affiliated companies Lending Deposits loans Admi-Senteret AS 18 - - SpareBank 1 Gruppen AS 26 100 43 SpareBank 1 Utvikling DA 55 - - SpareBank 1 Boligkreditt AS - 100 - SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
NOTE 31 CAPITAL ADEQUACY RATIO 2005 2004 2003
The Savings bank's fund 1 505 1 313 1 132 - Pension fund - -98 -91 Paid up primary capital 1 131 905 754 - Own primary capital certificates -3 --4 Endowment fund 109 69 37 Premium reserve 21 20 18 Dividend equalisation reserve 673 858 872 Fund obligations 506 452 473 Entered goodwill and other intangible assets -27 -31 -34 Share of non-performing non-amortised estimate deviation 144 -- Core capital 4 059 3 488 3 157
Perpetual equity and subordinated loan capital 491 436 504 Time-limited equity and subordinated loan capital 1299 832 858 Additional capital 1 790 1 268 1 362 Gross equity and subordinated loan capital 5 849 4 756 4 519
Equity and subordinated loan capital in other finance institutions pursuant to Section 7e -494 -314 -262 Deduction in equity and subordinated loan capital -494 -314 -262
Net equity and subordinated loan capital 5 355 4 442 4 257
Total assets (weighted) 40 019 34 864 31 764 Sum items off balance sheet (weighted) 2 939 1 603 1 377 Currency risks and items in the trade balance 1 914 1 821 1 235 Deductions made pursuant to Section 7e-f -494 -314 -262 50 Loss allocations -316 -569 -660 Total calculation basis 44 062 37 405 33 454 Capital adequacy 12,15 % 11,88 % 12,72 %
The statement shows the capital adequacy ratio of SpareBank 1 SR-Bank. The capital adequacy ratio shall not be below eight per cent. The equity value of the non-perpetual subordinated loan capital is reduced by 20% each year during the last five years before they are due. To the extent that the bank has equity and subordinated capital in other financial institutions, this is directly deducted from the bank’s own equity and subordinated capital for the percentage that exceeds 2% of the equity and subordinated capital of the receiving financial institution.
If the bank has equity and subordinated capital in other financial institutions amounting to less than 2% of the equity and subordinated capital of the financial institution in question, the sum of such capital is deducted from the bank’s equity and subordinated capital that exceeds 10% of the bank’s equity and subordinated capital. The basis for calculation is weighted according to risk. There are five risk categories, namely 0%, 10%, 20%, 50% and 100%, with the percentage indicating how much of the balance sheet item shall be included in the calculation basis. SPAREBANK 1 SR-BANK NGAAP
NOTE 32 REMAINING TERM OF THE LOAN AND INTEREST RATE COMMITMENT TERM Up to 1-3 3-12 More than Remaining term of the loan 1 month months months 1-5 years 5 years No term Total NOK: Cash and accounts receivable from central banks 163 175 338 Accounts receivable from credit institutions 1 161 500 60 1 721 Customer lending 10 465 380 583 5 474 39 021 -316 55 607 Certificates and bonds 195 2 190 55 2 440 Assets with no term 1 744 1 744 Foreign currencies: Cash and accounts receivable from central banks 13 13 Accounts receivable from credit institutions 36 1 68 88 193 Lending to customers 163 2 104 1 499 3 766 Certificates and bonds 708 708 Assets with no term 240 240 Total assets 11 988 880 779 10 544 40 723 1 856 66 770
Up to 1-3 3-12 More than Remaining term of the loan 1 month months months 1-5 years 5 years No term Total NOK: Debt to credit institutions 115 99 342 556 Customer deposits 32 405 2 200 2 509 412 37 526 Debt assumed when issuing securities 500 2 200 5 495 605 8 800 Debts with no term 1 298 1 298 Subordinated loan capital - Total equity 3 436 3 436 Foreign currencies: Debt to credit institutions 748 24 160 2 001 160 3 093 Customer deposits 435 435 51 Debt assumed when issuing securities 236 8 391 496 9 123 Subordinated loan capital 1 791 505 2 296 Debts with no term 207 207 Total debt and equity 33 703 2 724 5 105 16 398 3 394 5 446 66 770 Net total all items -21 715 -1 844 -4 326 -5 854 37 329 -3 590
Up to 1-3 3-12 More than Interest rate commitment term 1 month months months 1-5 years 5 years No term Total NOK: Cash and accounts receivable from central banks 163 175 338 Accounts receivable from credit institutions 1 161 500 60 1 721 Lending to customers 3 340 48 018 2 340 1 824 401 -316 55 607 Certificates and bonds 459 1 931 50 2 440 Non-interest yielding assets 1 744 1 744 Foreign currencies: Cash and accounts receivable from central banks 13 13 Accounts receivable from credit institutions 36 150 7 193 Lending to customers 163 916 2 687 3 766 Certificates and bonds 228 480 708 Non-interest yielding assets 240 240 Total assets 5 550 51 995 5 144 1 824 401 1 856 66 770 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
(NOTE 32 continued)
Up to 1-3 3-12 More than Interest rate commitment term 1 month months months 1-5 years 5 years No term Total NOK: Debt to credit institutions 214 342 556 Customer deposits 32 405 2 200 2 509 412 37 526 Debt assumed when issuing securities 1 558 1 344 2 211 3 082 605 8 800 Debt with no term 1 298 1 298 Subordinated loan capital - Total equity 3 436 3 436 Foreign currency: Debt to credit institutions 2 229 408 200 96 160 3 093 Customer deposits 435 435 Debt assumed when issuing securities 1 350 4 090 3 507 176 9 123 Subordinated loan capital 507 1 010 779 2 296 Debts with no term 207 207 Total debts and equity 38 698 9 052 5 262 7 097 1 720 4 941 66 770 Net interest rate exposure on the balance sheet -33 148 42 943 -118 -5 273 -1 319 -3 085 Derivatives not entered which affect interest rate exposure 499 -3 872 -3 242 5 206 1 410 - Net interest rate exposure, not capitalised financial derivatives included -32 649 39 071 -3 360 -67 91 -3 085 As percentage of total assets -49 % 59 % -5 % 0 % 0 % -5 %
Overdrafts are included under the 0-1 month interval. The statement of the remaining term shows the remaining term for different balance sheet items. The statement of the remaining interest rate commitment term shows the remaining term for which the bank is bound to the applicable interest rate for different balance sheet items. Relative to the bank’s balance sheet, the bank has had low interest risk throughout the year. At the end of the year, overall interest sensitivity was such that a 1% change in interest rates would have affected the bank’s profits by NOK 4 million. All items on the balance sheet and the off-balance sheet items such as interest swaps etc. are included in this 52 calculation. For the trading portfolio, which largely consists of bonds and certificates, the portfolio has had short (bond) duration during the year. At the end of the year, the portfolio had a (bond) duration of 0.15 years, and a 1% change in interest rates would have affected the bank’s profits by approximately NOK 5 million. SPAREBANK 1 SR-BANK NGAAP
NOTE 33 IMPLEMENTATION OF PENSION AND NEW REGULATION RELATING TO LENDING Below follows a reconciliation of the balance sheet from 31 December 2004 to 1 January 2005 with the changes which were made based on the implementation of the new regulation relating to lending on 1 January 2005 and the implementation of IAS 19 (pensions) on 1 January 2004. Attached is also a statement showing differences in the profit and loss account for 2004. Details of the individual items are described in footnotes below.
Reconciliation as of 1 January 2005 Balance sheet Pension Estimate Balance sheet 31 December 2004 according to corridor deviation Profit/loss Changes 1 January 2005 Norwegian accounting principles (NGR) to equity pension 2004 lending/loss according to NGR 1) 2) 3) 4) Cash and accounts receivable from central banks 942 942 Accounts receivable from credit institutions 1 610 1 610 Lending to customers 52 221 178 52 399 Certificates, bonds and other securities with fixed dividends 2 867 2 867 Shares and stakes 813 -14 -4 2 797 Intangible assets 31 70 27 -1 -50 77 Fixed assets 297 297 Other assets 406 -127 -9 270 Total assets 59 187 -71 23 -10 130 59 259
Debts to credit institutions 2 749 2 749 Customer deposits 33 382 33 382 Debts assumed when issuing securities 17 111 17 111 Financial derivatives 63 63 Other debts 560 560 Accrued expenses and prepaid income 283 283 Allocations for commitments and expenses 154 123 96 -14 359 53 Subordinated loan capital 1 720 1 720 Total debt 56 022 56 227 Primary capital certificates 905 905 Premium account 20 20 Equalisation reserve *) 858 -109 -41 2 73 783 The savings bank's fund *) 1 313 -85 -32 2 57 1 255 Endowment fund 69 69 Total equity 3 165 3 032 Total debts and equity 59 187 -71 23 -10 130 59 259 * Distribution formula when allocating equity entries is 56.32 % to the equalisation reserve and 43.68 % to the savings bank's fund.
1) Pension corridor: With the transition to IAS 19 which is the IFRS standard for pensions, an opportunity was given in IAS 1 (standard on implementation) to reset to zero estimate deviations (corridor) as of 1 January 2004 in its entirety against equity. For SpareBank 1 SR-Bank, this totalled NOK 180 million after taxes. In addition comes NOK 14 million as a result of the bank's subsidiaries entering the pension corridor against equity. 2) Estimate deviations pensions: SpareBank 1 SR-Bank has chosen to enter running estimate deviations directly against equity. This will be done effective 1 January 2004. This deviation was NOK 70 million after taxes. In addition comes NOK 4 million due to subsidiaries making corresponding entries against equity. 3) Difference in profit/loss 2004: Se reconciliation regarding transition to IAS 19 in the profit and loss account for 2004. 4) Changes to lending/loss: The new regulation relating to lending leads us to increase our equity by NOK 130 million. We reduce the unspecified loss allocations by NOK 137 million after taxes (increase in equity). This takes place after the reviewing of the new regulations and models for loss write-downs. Otherwise, we capitalise long term observation loans by NOK 12 million (increase in equity) and capitali- se earlier lending fees taken to income by NOK 21 million (reduction in equity). In addition comes NOK 2 million as a result of the bank's subsidiaries entering the effect of the regulations relating to lending against equity. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK NGAAP
(NOTE 33 continued)
Reconciliation of profit/loss 2004: Profit/loss Profit/loss 31 December 2004 31 December 2004 according to Norwegian accounting principles (NGR) pension according to NGR 1) Interest income 2 081 2 081 Interest expenses 999 999 Net interest income 1 082 1 082 Dividend 77 77 Commission income 386 386 Commission expenses -65 -65 Net currency rate gain/loss 131 131 Other operating income 9 9 Net other income 538 538 Total operating income 1 620 1 620 Pay and general administration expenses 643 -5 638 Depreciation and write-downs 49 49 Other operating expenses 83 83 Total operating expenses 775 770 Profit before loss 845 850 Loss from lending and guarantees 76 76 Profit/loss from regular operations 769 774 Tax expenses 186 2 188 Annual result 583 3 586
1) Pension: With the transition to IAS 19 in the 2004 accounts, total pension expenses are reduced by NOK 5 million. This is due to the actuary calculations and preconditions deviating somewhat between the two accounting languages.
54 NOTE 34 RESTRICTED ASSETS As of 31 December 2005, the restricted assets in SpareBank 1 SR-Bank are worth NOK 20,011,671. SPAREBANK 1 SR-BANK IFRS
Income statement IFRS
IFRS IFRS NGAAP NGAAP Notes 2005 2004 2004 2003
Interest income 6 2 276 2 143 2 143 3 009 Interest expense 6 1 163 1 014 1 014 1 914 Net interest income 1 113 1 129 1 129 1 095
Fee and commission income 7 453 405 405 369 Fee and commission expense 7 76 64 64 66 Net fee and commission income 377 341 341 303
Income from financial investments 8 230 145 145 177 Income from associated companies and joint ventures 15 119 45 25 -7 Other operating income 9 199 190 190 159 Operating expense 10, 13 1 012 948 956 922 Profit before write-downs 1 026 902 874 805
Write-downs on loans and guarantees 20 -70 81 81 236 Profit before income tax 1 096 821 793 569
Income tax 11 234 206 204 160 Profit for the year 862 615 589 409 55
Minority interests 6 3 3 1 Majority interests 856 612 586 408
Earnings per primary capital certificate (majority) - Earnings per primary capital certificate 21.4 15.8 15.2 10.9 - Diluted earnings per primary capital certificate 21.4 15.8 15.2 10.9
Geir Worum Ingrid Landråk Anne Elisabeth Kroken Chairman
Kristian Eidesvik Gunn-Jane Håland John P. Hernes Vice Chairman
Magne Vathne Torstein Plener Terje Vareberg CEO SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
Balance Sheet IFRS
IFRS IFRS Note 2005 2004 ASSETS Cash and balances with central banks 29 351 942 Loans and deposits with credit institutions 18 43 67 Loans to customers net of write-downs 19, 20 61 480 53 839 Securities 16 3 626 3 213 Financial derivatives 17 519 - Investment in associated companies and joint ventures 15 498 292 Intangible assets 14 12 12 Property, plant and equipment 13 305 309 Deferred tax asset 11 41 145 Other assets 12 362 321 Total assets 67 237 59 140
LIABILITIES Loans and deposits from credit institutions 18 3 636 2 690 Deposit from customers 21 37 530 33 062 Securities issued 22 18 051 17 111 Financial derivatives 17 203 63 Taxes payable 11 162 197 56 Other liabilities 24, 25 1 489 1 151 Subordinated loan capital 23 2 336 1 760 Total liabilities 63 407 56 034
EQUITY Primary capital certificates 1 128 905 PCC premium reserve 21 20 Other equity 2 674 2 176 Minority interests 7 5 Total equity 28 3 830 3 106 Total equity and liabilities 67 237 59 140 SPAREBANK 1 SR-BANK IFRS
CONSOLIDATED SPECIFICATION OF INCOME, EXPENSES AND VALUE CHANGES 2005 2004 Profit for the year 862 615 Unrecognised actuarial gains and losses -57 -73 Total income recognised 805 542
Majority’s portion 799 539 Minority’s portion 6 3
This specification shows the profit for the year if the unrecognised actuarial gains and losses had been recognised in the income statement.
STATEMENT OF CHANGES IN EQUITY Majority interests Paid in equity Retained earnings Primary certificate PCC premium Savings Bank’s Donations Dividend Minority Total capital reserve Fund Equalisation Fund interests equity
Equity capital as of 1 Jan 2004 750 18 1 032 37 895 3 2 735 Unrecognised actuarial gains and losses as of 31 Dec 2004 - - -32 - -41 - -73 Changes in fair value booked to equity - - -32 - -41 - -73 Share dividend issue 151 - - - -151 - - Donations - - -1 -28 - - -29 Purchase/sale of primary capital certificates 4 2 - - 5 - 11 Dividend for 2003 approved in 2004 - - - - -151 -1 -152 Profit for the year 2004 - - 195 60 356 3 614 Equity capital as of 31 Dec 2004 905 20 1 194 69 913 5 3 106 Implementation of IAS 39 1 Jan 2005 57 - Financial instruments - - 23 - 30 - 53 - Loans/impairment losses - - 58 - 73 - 131 - SpareBank 1 Group - - 4 - 5 - 9 Adjusted equity capital as of 1 Jan 2005 905 20 1 279 69 1 021 5 3 299 Unrecognised actuarial gains/ losses 31 Dec 2005 - - -25 - -31 -1 -57 Changes in fair value booked to equity - - -25 - -31 -1 -57 Share dividend issue 226 - - -226 - - Donations - - - -51 -1 - -52 Purchase/sale of primary capital certificates -3 1 - - -8 - -10 Dividend for 2004 approved in 2005 - - - - -208 -3 -211 Profit for the year 2005 - - 282 91 482 6 861 Equity capital as of 31 Dec 2005 1 128 21 1 536 109 1 029 7 3 830 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
Cash Flow Statement
2005 2004 Profit before income tax 856 612 Impairment of non-financial fixed assets 48 49 Net impairment losses on loans and guarantees -70 81 Income taxes -187 -77 Net change in cash and cash equivalents from operations 647 665
Change in gross loans to customers -7 309 -5 626 Change in loans and deposits with credit institutions -7 - Change in deposits from customers 4 468 4 796 Change in loans and deposits from credit institutions 946 -2 222 Change in certificates and bonds -292 -493 Change in other receivables -203 -195 Change in other short-term liabilities 169 362 A Net cash flow from operations -1 581 -2 713
Cash flow from investment activities Investment in fixed assets -47 -45 Sale of tangible fixed assets 7 11 Change in shares and ownership interests -273 -65 B Net cash flow from investment activities -313 -99
58 Issuance of new debt securities 6 161 5 284 Payment on debt securities issued -5 148 -1 833 Issuance of new subordinated loan capital 822 536 Payment on subordinated loan capital -246 -651 Dividend to primary capital certificate holders -317 -208 C Net cash flow from financing activities 1 272 3 128
A+B+C Net cash flow for the period -622 316
Cash and cash equivalents 1 Jan 1 009 693 Cash and cash equivalents 31 Dec 387 1 009 Net cash flow for the period -622 316 SPAREBANK 1 SR-BANK IFRS
Notes
NOTE 1 GENERAL INFORMATION possible, therefore the Group decided to implement the following The Group, SpareBank 1 SR-Bank, is comprised of the parent non-compulsory standards in 2005: bank, SpareBank 1 SR-Bank, and its subsidiaries: SpareBank 1 • IAS 19 (Amendment) – Employee Benefits (from 1 January SR-Finans AS, EiendomsMegler 1 Rogaland AS, SR Investering 2006). The revised standard allows unrecognised actuarial AS and SR Forvaltning ASA. SpareBank 1 SR-Bank owns 26.7 gains and losses to be recognised directly through the Group’s percent of SpareBank 1 Boligkreditt AS which is accounted for as equity. The Group has chosen to implement the revised an associated company in accordance with the equity method in standard effective 1 January 2004, with comparable figures for the Group accounts. SpareBank 1 Utvikling DA, which the Group 2004 changed accordingly. owns 20 percent of, is accounted for in the same way. SpareBank • IAS 39 (Amendment) – The Fair Value Option (from 1 January 1 SR-Bank owns 17.63 percent of SpareBank 1 Gruppen AS, and 2006) The revised standard alters the definition of financial this ownership interest is accounted for as a joint venture in instruments classified as fair value through profit or loss and accordance with the equity method in the consolidated financial limits the option to designate financial instruments to this statements. category. The Bank has chosen to implement the revised standard as of 1 January 2005. This implies a portion of the SpareBank 1 SR-Bank’s headquarters are located in Stavanger. Group’s liabilities in the form of bonds are carried at fair value The Bank has 50 offices in the counties of Rogaland, Vest-Agder as well as structured products being carried at fair value. In and Aust-Agder. Some of the offices are shared with addition, fixed interest rate lending is carried at fair value. EiendomsMegler 1 Rogaland AS. All subsidiaries have headquarters in Stavanger. Of the remaining standards, revisions and interpretations effective for annual periods on or after 1 January 2006, the The Group’s main activities are sales and brokerage of financial following will impact the Group: products and services, as well as leasing and brokerage of • IAS 39 and IFRS 4 (Amendment) – Financial Guarantee property. Contracts (from 1 January 2006) The revised standard requires 59 financial guarantee contracts to be initially recognized at fair The Group’s annual accounts were approved by the parent value and subsequently measured at the highest of (i) the bank’s Board of Directors on 30 March 2006. remaining non-amortised amount related to fees received but not yet recognised in the income statement and (ii) the expected expenses related to the settlement of the liability on NOTE 2 ACCOUNTING PRINCIPLES – GROUP ACCOUNTS the balance sheet date. ACCORDING TO IFRS • IFRS 7 (New Standard) – Financial Instruments: Disclosures BASIS OF CONSOLIDATION and a revision of IAS 1 – Presentation of Financial Statements The 2005 group accounts for SpareBank 1 SR-Bank (”the Bank”) – Capital Disclosures (from 1 January 2007) The revised have been prepared in accordance with International Financial edition of IFRS 7 requires new disclosures in order to improve Reporting Standards (IFRS). These include interpretations from information about financial instruments. The standard the International Financial Reporting Interpretations Committee replaces IAS 30 and expands the information requirements of (IFRIC) and the preceding interpretations committee, the IAS 32. The standard goes beyond the current reporting Standing Interpretations Committee (SIC). requirements and requires that information is given in a qualitative and quantitative nature about the risk exposure The basis for accounting for the group accounts is historic cost arising from financial instruments. Changes in IAS 1 require with the following modifications: financial assets available for further information about the Group’s capital as well as how sale, financial derivatives and assets and financial liabilities that capital is managed. carried at fair value through profit or loss. • IFRIC 4 – Determining whether an Arrangement contains a lease (from 1 January 2006) IFRIC 4 requires an assessment of The annual accounts have been prepared in accordance with whether an agreement contains elements of leasing based on IFRS and interpretations that are mandatory for annual accounts the agreement’s underlying intent. prepared as of 31 December 2005 with additional changes due to IAS 19 and IAS 39 as described below. Management is working to clarify the impacts of the above- mentioned changes to the Group’s financial reporting. There are a number of new standards, changes to existing standards and interpretations that are expected to be mandatory for the Group in 2006. IFRS encourages early adoption where SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
FIRST TIME ADOPTION OF IFRS balance sheet at cost and adjusted thereafter for changes in the As of 1 January 2005 it was mandatory for all publicly-listed Bank’s share of net assets in the associate. The Bank’s share of groups within the EU (including EEC-countries) to prepare the associate’s profit/loss is recognised in the income statement. quarterly and annual accounts in accordance with International The Bank owns 20 percent of Sparebank Utvikling DA with the Financial Reporting Standards (IFRS). SpareBank 1 SR-Bank has remaining ownership divided among other banks within prepared its quarterly and annual group accounts for 2005 in SpareBank 1-alliansen and SpareBank 1 Gruppen AS. This accordance with IFRS. investment is booked as an associate. The Bank also owns 26.7 percent of SpareBank 1 Boligkreditt AS which is also defined as Conversion to IFRS has been done retrospectively as of 1 January an associate. 2004. Comparable figures for one year are shown in the income statement, balance sheet and notes with the exception of items JOINT VENTURES related to IAS 39 which are exempt from the requirement of A joint venture can consist of jointly-controlled operations, assets presenting comparable figures. For the Bank, the same applies to and/or companies. Joint-control implies that the Bank shares items related to lending/loan impairment, shares and other control with other parties governed by an agreement. Joint financial instruments. For these items comparable figures are ventures are presented in accordance with the equity method of presented in accordance with Norwegian Generally Accepted accounting. Accounting Principles (NGAAP). SpareBank 1 SR-Bank, SpareBank 1 Midt-Norge, SpareBank 1 For further details on implementation impacts, see Note 30 – Nord-Norge and Samarbeidende Sparebanker AS each own 17.63 IFRS implementation. percent of SpareBank 1 Gruppen AS. Other owners include FöreningsSparbanken AB (19.5 percent) and LO (10 percent). REPORTING CURRENCY The governance structure of the SpareBank 1-joint venture is The reporting currency is Norwegian kroner (NOK), which is the regulated by an agreement between its owners. The Bank Bank’s functional currency. All amounts are presented in NOK classifies its ownership interest in SpareBank 1 Gruppen AS as a million unless otherwise stated. joint venture which is presented according to the equity method of accounting. CONSOLIDATION The annual accounts for the Group include the accounts for the LOANS AND IMPAIRMENT ALLOWENCES 60 Bank and all subsidiaries. Subsidiaries are defined as companies The Group implemented IAS 39 with respect to loans and in which the Bank has a controlling interest, in other words, the impairment allowances as of 1 January 2005. As a result of the ability to govern the financial and operational principles of the transition, new routines were established for the impairment of company in order to obtain benefits from the company’s activities. loans, and the amortisation of lending fees over the loans expected Subsidiaries are consolidated from the point of acquisition, being repayment period was implemented. This resulted in a substantial the date that the Group obtained control, and continue to be reduction in previously booked unspecified losses, the reversal of consolidated until the date that such control ceases. lending fees previously recognised as income, and bad debt under long-term supervision were carried in the balance sheet. Upon achieving a controlling interest in a company (business All of these impacts were recognised directly through equity. combination), all identifiable assets and liabilities are incorporated in the balance sheet on the basis of their fair value Loans are carried at amortised cost in accordance with IAS 39. in accordance with IFRS 3. Any positive differences between the Amortised cost is defined as acquisition cost less any repayments cost of acquisition and fair value of identifiable assets and of the principal amount, plus or minus cumulative amortisation liabilities are recognised as goodwill, whereas any negative as a result of the application of the effective interest rate method, differences are recognised as income. The Bank has not applied and less any reductions for impairment and uncollectibiliy. The IFRS 3 retrospectively to all business combinations implemented effective rate of interest is the rate of interest which discounts the before 1 January 2004. estimated future cash flows during the expected repayment period for a given financial instrument. All transactions between Group companies are eliminated in the group accounts. The minority’s share of the Group’s profit/loss Loans in the parent Bank’s financial statements are measured is presented on a separate line under profit/loss after tax in the according to the same principles as applied to the consolidated income statement. The minority’s share of equity is shown as a financial statements, as NGAAP lending regulations dated 21 separate item. December 2004 adopted basically the same principles as IFRS (see FSA Norway circular nr 10/2005). ASSOCIATED COMPANIES An associate is a company where the Bank has significant Loans to customer with fixed interest are carried at fair value. interest, typically defined as owning 20 percent or more of the Profit or losses as a result of changes in fair value are recognised company’s shares. Associates are booked according to the equity through the income statement as a change in fair value. Accrued method of accounting. Investments are initially measured in the interest and premiums/discounts are recognised as interest SPAREBANK 1 SR-BANK IFRS
income. Risk exposure related to fixed interest rate loans is reduced by use of an allowance account and the loss is managed through the use of interest rate swaps which are recognised in the income statement. measured at fair value. The Bank has the opinion that fair value Future cash flows from a group of financial assets which are in the balance sheet for fixed interest rate loans provides more collectively assessed with respect to impairment are estimated relevant information about these items. based on contractual cash flows for the group including historical losses from assets with similar credit risk. Historical losses are IMPAIRMENT OF FINANCIAL ASSETS adjusted for existing observable data in order to take into On each balance sheet date the Group considers whether there is account effects of circumstances which did not exist when the objective evidence indicating impairment in value of individual historical losses were incurred, as well as effects of previous financial asset or group of assets. Impairment loss is recognised circumstances which do not exist at the balance sheet date. only if there is objective evidence that the present value of an asset or group of assets has been reduced, based on discounted IMPAIRMENT IN VALUE OF LOANS CARRIED AT FAIR VALUE future cash flows. Impairment may be a result of one or several On each balance sheet date the Group considers whether there events occurring after initial recognition (an impairment event) are objective evidence that the value of a financial asset or group and the results of the event (or events) must also be able to be of financial assets carried at fair value through profit or loss is measured reliably. Objective evidence indicating a loss in value subject to impairment. Loss as a consequence of impairment is of a financial asset or group of assets includes observable data recognised through profit or loss in the period they occur. brought to the Group’s attention for the following impairment events: NON-PERFORMING LOANS AND LOANS AT RISK - Significant financial difficulty of the issuer or obligor A loan or commitment is regarded as in default (and is included - Breach of contract, such as a default or delinquency in interest in the Bank’s record of defaulted loans) when instalments and or principal payments interest payments have not been made within 90 days after - The Group, for economic or legal reasons relating to the maturity, or when credit limits have been exceeded for 90 days or borrower’s financial difficulty, granting to the borrower a more. Loans and commitments that are not in default, but where concession that the lender would not otherwise consider the customer’s financial circumstances are likely to lead to losses - It becoming probable that the borrower will enter bankruptcy for the Bank, are classified as at risk. or other financial reorganisation - The disappearance of an active market for that financial asset CONFIRMED LOSSES because of financial difficulties Losses are classified as confirmed when it is highly probable that 61 - Observable data indicating that there is a measurable decrease they will occur. Confirmed losses covered by previous individual in the estimated future cash flows from a group of financial write-downs are recognised against these write-downs. assets since the initial recognition of those assets, although Confirmed losses which are not covered by write-downs, as well the decrease cannot yet be identified with the individual as positive or negative differences with respect to previous financial assets in the group, including: write-downs are recognised in the income statement. • Adverse changes in the payment status of borrowers in the group or REPOSSESSED ASSETS • National or local economic conditions that correlate with In cases of defaulted loans and guarantees, the Bank may defaults on the assets in the group repossess assets that have been provided as collateral for such commitments. Such assets are assessed at their estimated fair The Group first considers whether there exists objective evidence value at the time of repossession and the value of the loan is of impairment of financial assets which are individually signifi- adjusted accordingly. Repossessed assets which are held for sale cant. Objective evidence of impairment related to financial assets are included in the balance sheet as current assets or fixed assets which are not significant is assessed individually or in groups. If held for sale and are measured in accordance with relevant IFRS there is no evidence of impairment for an individually assessed standards (normally IAS 16, IAS 38, IAS 39 or IFRS 5). asset, significant or not, the asset is included in a group of financial assets with similar credit risk characteristics. The group LEASING is then evaluated collectively for possible impairment losses. Financial leases are classified as loans and measured at Assets which are assessed individually with respect to impair- amortised cost. All fixed payments in the leasing period are ment in value, and where a loss in value is being identified or is included in the calculation of the agreement’s effective interest still identified, are not included in groups of financial assets for rate. The Bank does not have sale and lease-back contracts with assessment of group impairment losses. respect to property, plant and equipment.
If there is objective evidence that an impairment event have SECURITIES taken place, the size of the impairment loss is calculated as the Securities consist of shares, equity instruments, bonds and difference between the asset’s book value and the present value certificates. Shares and equity instruments are classified either as of estimated future cash flows, excluding future losses on loans at fair value through profit or loss or as available for sale. Bonds which are not yet incurred, discounted with the financial asset’s and certificates are classified either as at fair value through profit original effective interest rate. The book value of the asset is or loss or as held-to-maturity. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
All financial instruments that are classified at fair value trough transaction costs. Loans are subsequently measured at profit or loss are measured at fair value, and any change in fair amortised cost. Any difference between cost of acquisition and value is recognised as income from financial investments. cost of settlement at maturity is accrued over the loan period Shares classified as available for sale are measured at fair value using the effective interest rate method. in the balance sheet, and changes in fair value except for impairment are booked directly to equity. PENSIONS The Group’s companies have different pension schemes. The Bonds and certificates classified as held-to-maturity are schemes are secured through payments to insurance companies measured at amortised cost in accordance with the effective or pension funds, and determined by actuarial calculations. interest rate method (see reference in the Loans paragraph). A defined benefit plan is a pension plan which entitles employees to a defined future benefit when reaching the retirement age and DERIVATIVES AND HEDGING is usually determined by such factors as age, years of Derivatives include currency and interest-rate derivatives as well employment and salary. The pension liability recognised in the as derivate instruments related to structured products. balance sheet is the present value of the defined liability less the Derivatives are measured at fair value, and any change in fair fair value of pension funds. The liability is calculated each year by value is recognised through profit or loss, unless designated for independent actuaries. The present value of future contributions hedging. The Bank assesses and documents the effectiveness of is calculated by discounting future pensions’ payments using the hedging, both at the time of initial recognition and on an ong- interest rate of Norwegian state bonds adjusted for differences in oing basis. For fair-value hedges, both the hedging instrument maturity. and the hedged item are measured at fair value, and any changes in fair value are recognised through profit or loss. Gains related From 2005 it is allowed to recognise certain actuarial gains and to structured products with a capital guarantee, including initial losses directly to equity in accordance with IAS 19, a principle the fees and structural gains, are recognised as day one profits. Bank has chosen to implement. Structural gains are calculated by discounting the Bank’s option premiums and liabilities (guaranteed capital) using the swap CONTINGENT LIABILITIES curve. The Bank issues financial guarantees in the course of its usual business. Potential write-downs are considered in the same GOODWILL process as for impairment on loans using the same principles 62 Goodwill is the result of a positive difference between the price and are reported collectively (see Note 19). Provisions for paid for an acquisition and the fair value of assets and liabilities, contingent liabilities are made if the liability is more likely than both tangible an intangible, acquired at the time of the acquisition. not to materialise and the financial consequences can be measured Goodwill resulting from acquisitions of associated companies is reliably. Information about contingent liabilities, which do not recognised in the balance sheet together with the investment. satisfy the criteria for recognition in the balance sheet, is given in Goodwill is not amortised, but is subject to an annual impair- notes if significant. Provisions for restructuring expenses are ment test aimed at identifying possible impairment losses in made when the Bank has a contractual or legal obligation. accordance with IAS 36. Impairment testing is made at the level of the smallest identifiable cash-generating unit. SUBORDINATED LOANS AND PERPETUAL SUBORDINATED LOAN CAPITAL PROPERTY, PLANT AND EQUIPMENT Subordinated loans have priority after all other liabilities. Tangible, fixed assets consist of property, plant and equipment. Subordinated loans with fixed maturity can be included with 50 Property and equipment are measured at historical cost less percent of core capital in the calculation of capital adequacy, depreciation and write-downs. Land is measured at historical whereas perpetual subordinated loans can be included with up to cost less write-downs. Historical cost includes all expenses 100 percent of core capital. Subordinated loans are classified as directly related to the acquisition of the asset. Historical cost, liabilities in the balance sheet and are measured at amortised less any residual value, is allocated over the asset’s estimated cost in accordance with other long-term loans. economical life using a straight line depreciation method. Some of the Bank’s perpetual subordinated loan capital securities All properties or parts thereof owned by the Bank for generating has a nominal interest rate, but the Bank is not obliged to make rental income or increase in value are classified as investment interest rate payments for periods without dividend payments, property. Where part of the property is used by the Bank for its and the investor cannot claim payments for interest at a later own activities, the rented portion of the property is treated as an date (e.g., interest does not accumulate). These perpetual sub- investment property if the areas are physically separate. The Bank ordinated loan capital securities have been approved to be part has chosen to measure investment property according to the of the core capital within a limit of 15 percent of total core capital. cost model. The FSA in Norway can require such subordinated loan capital securities to be written down in proportion with equity if the LONG-TERM LOANS bank’s core capital ratio falls below 5 percent or if total capital Loans are initially measured at fair value plus directly attributable ratio falls below 6 percent. Write-down of subordinated loan SPAREBANK 1 SR-BANK IFRS
capital securities must be reversed before dividend payments can taxes payable (recoverable) in respect of the taxable profit be made to shareholders or equity is increased. These sub- (tax loss) for a period. ordinated loan capital securities are recognised in the balance sheet as other long-term liabilities at amortised cost. Deferred tax is measured in the balance sheet according to the liability method in accordance with IAS 12. Deferred tax asset or DIVIDENDS liability is calculated based on all temporary differences, which Dividends on primary capital certificates are recognised as equity arise as a difference between the carrying amount and tax base of until the dividends have been finally approved by the bank’s assets and liabilities on the balance sheet date. However, Board of Representatives. deferred tax asset or liability is not recognised with respect to items that are recognised for the first time and do not affect INTEREST INCOME AND INTEREST EXPENSE financial or taxable profit. Deferred tax asset is calculated for tax Interest income and interest expense related to assets and losses carried forward. Deferred tax asset is recognised only to liabilities which are measured at amortised cost are recognised in the extent that it is probable that the Bank will generate future the income statement using the effective interest rate method. taxable profits that make it possible to utilize accumulated tax The book value of the financial asset or liability carried at losses. amortised cost is equal to the present value of expected cash flows over the maturity period of a financial asset or a financial SEGMENT REPORTING liability, discounted by the effective interest rate. Calculating the A business segment is a distinguishable component of an entity effective interest rate entails making an estimate of future cash that is engaged in providing an individual product or service or a flows, without taking possible future losses into account. The group of related products or services and that is subject to risks calculation includes, amongst others, fees, transaction costs, and returns that are different from those of other business premiums and discounts. segments Business segments are discussed in Note 5.
If a financial asset is written down based on an impairment EVENTS AFTER THE BALANCE SHEET DATE calculation, a new effective interest rate is calculated based on The annual accounts are published after they have been adjusted estimated cash flows. The market interest rate on debt approved by the Board of Directors. The Board of instruments measured at fair value is classified as interest Representatives and regulatory authorities can refuse to approve income or interest expense, whereas the effect of a change in the published annual accounts but cannot change them. interest rate is classified as income from financial investments. 63 Events occurring up to the time when the annual accounts are COMMISSION INCOME AND COMMISSION EXPENSE approved for publication and which involve issues which were Commission income and expense is generally accrued in already known at the balance sheet date, will form part of the accordance with the delivery/receipt of a service. Fees related to basis of information for determining accounting estimates and interest-bearing instruments are not recognised as commission, will thereby be fully reflected in the annual accounts. Events but are included in the calculation of the effective interest rate which were not known on the balance sheet date will be reported and accrued accordingly. Advisory fees are accrued in accordance if significant. with the agreement, typically at the time the service is delivered. The same applies to day-to-day administrative services. Fees and The annual accounts were prepared under the assumption that charges related to sale or brokerage of financial instruments, the Bank is a going-concern. This assumption was valid property or other investment objects that do not generate according to the Board of Director’s opinion at the time the balance sheet items in the Bank’s accounts, are recognised when financial statements were submitted for approval. The Board’s the transaction is completed. proposal for dividend payments is shown in the annual report and the note specifying changes in equity. Proposed dividends TRANSACTIONS AND BALANCE SHEET ITEMS IN FOREIGN are classified as equity until final approval CURRENCY Transactions in foreign currencies are converted to Norwegian kroner using the exchange rates at the date of the transaction. NOTE 3 FINANCIAL RISK MANAGEMENT Gains and losses related to completed transactions or to the STRATEGY FOR USING FINANCIAL INSTRUMENTS conversion of holdings of cash or cash equivalents in foreign The Group uses financial instruments in order to reduce risk currency are recognised through profit or loss. Gains and losses arising during the ordinary course of banking activities, including on non monetary items are included in the profit and loss in the customer activities and funding. The use of financial instruments same way as the corresponding balance sheet item. is limited to those where risk and market value are measurable and can be monitored through the Group’s systems for TAXES performance measurement and risk management. Tax expense (tax income) is the aggregate amount included in the determination of profit or loss for the period in respect of CREDIT RISK current tax and deferred tax. Current tax is the amount of income Credit risk is defined as the risk of loss due to customers or SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
other counterparties not having the ability or willingness to fulfil For further information about credit risk, see the article “Risk- their obligations towards the Group. Credit risk is managed and capital management”. through the Group’s credit strategy, credit policies and allocation guidelines. MARKET RISK Market risk is defined as the risk of loss due to changes in Sparebank 1 SR-Bank’s credit strategy is approved at least observable market variables such as interest rates, currency annually by the Board of Directors. The Group’s credit strategy rates, and stock market prices. The risk of changes in market focuses on key risk indicators and provides a framework for prices of securities caused by changes in general credit prices is maintaining an appropriate and effective risk profile for all credit also considered a market risk. risks. This is primarily achieved by linking key indicators and credit limits to risk-adjusted capital, risk-adjusted return and Market risk is mainly caused by the Group’s investments in expected losses. In addition, the credit strategy limits exposure bonds, certificates and shares, and as a consequence of activities and risk profile on portfolio level, industries and individual carried out to support ordinary banking activities, such as customers. funding and interest and currency trading.
The Board of Directors are responsible for the Group’s loan and CURRENCY RISK credit approvals. The Board of Directors delegates authority, Currency risk is the risk of loss due to changes in currency rates. within limits, to the CEO, who has operational responsibility for The Group measures currency risk based on net positions in decision-making in loan and credit issues. The CEO can further each individual currency, and has a low currency risk compared delegate authority. Delegated authority is related to the loan and to the size of the Group’s tier 1 and tier 2 capital. commitment’s expected loss and probability of default. INTEREST RATE RISK The Group has developed and actively uses a system for risk Interest rate risk is the risk of loss as a result of changes in classification, a risk pricing model and a portfolio system for interest rates. The risk arises mainly in relation to fixed-rate loans managing its portfolio of loans in line with the credit strategy, and funding through fixed-rate securities. The Group measures credit policies and allocation guidelines. In conjunction with interest rate risk as the potential gain or loss as a result of guidelines relating to credit process routines, these guidelines parallel shifts in the interest rate curve. The risk of non-parallel constitute clear requirements as to how credit issues are handled shifts is managed by the establishment of limits for maximum 64 and risk assessments carried out. The risk classification system exposure per repricing period. covers private as well as corporate customers, and it is based on statistical calculations. The risk models underlying statistical RISK RELATED TO EXCHANGE RATES calculations are subject to continuous development and testing. There is a risk of loss related to changes in the market price of bonds, certificates and equity instruments which the Group has The portfolio is divided into five risk groups – lowest, low, invested in. medium, high and highest risk respectively. Categorisation into risk group is based on a statistical calculation of each loan and LIQUIDITY RISK commitment’s expected loss, based upon the probability of Liquidity risk is defined as the risk of the Group not being able to default with the resulting exposure and extent of losses. In re-finance their liabilities or finance an increase in assets without addition, there is a separate risk category for loans which are incurring significant additional costs. Management of the already defaulted upon and written down. Loans and Group’s financial structure is based on a liquidity strategy which commitments consist of all types of financial services provided is assessed and approved by the Board of Directors at least to the customer, such as loans, credit, guarantees including annually. Liquidity risk is reduced by diversifying loans through letters of credit, accrued but not yet paid interest and different markets, funding sources, instruments and maturity commission, and currency and interest rate derivates. periods.
The underlying credit risk in both the corporate and private ASSET MANAGEMENT portfolios has shown a positive development in 2005. This is The Group provides asset management services to customers. explained by the Group’s restrictive practice of taking on new Assets held on behalf of customers under agreements about high risk exposures, a positive economic development in the asset management are not consolidated in the Group’s financial Group’s geographic market and low interest rate levels. The statements. Group has a low risk profile in its credit portfolios.
The Group endeavours to price loans and commitments based on risk exposure, so that customers with the highest risk have the highest price. The pricing model is based on the Group’s required return on risk-adjusted capital. SPAREBANK 1 SR-BANK IFRS
NOTE 4 CRITICAL ESTIMATES AND ASSESSMENTS uncertainty of the relevance of historical data. In many cases, REGARDING THE USE OF ACCOUNTING PRINCIPLES assets pledged as collateral are not sold in the most effective LOSSES ON LOANS AND GUARANTEES markets and, therefore, the stipulation of their fair value may be The Bank assesses its entire loans and guarantees portfolio of subject to considerable uncertainty. corporate customers each year. Large exposures, defaulted loans and high risk exposures are subject to quarterly assessment. FAIR VALUE OF EQUITY INSTRUMENTS Loans to private customers are subject to evaluation when in Financial assets classified as fair value through profit or loss are default for more than 60 days. Larger defaulted loans are normally quoted in active markets and fair value is determined evaluated on a quarterly basis. with reasonable certainty. For financial assets classified as available for sale this is not necessarily the case. Accordingly, The Bank’s risk classification systems are described under disclosures of fair value in the notes for assets and liabilities Financial risk management. measured at amortised cost may be estimates based on discounted future cash flows, multiplier analysis or other Write-down is made on individual loans and guarantees if there calculation methods. Such methods can be subject to significant is objective evidence of a loss event which can be identified on uncertainty. With the exception of a few quoted shares, the individual exposures, and the objective evidence cause reduced Norwegian stock market is considered to have poor liquidity. future cash flow for repayment of the loan. Objective evidence Share prices will under most circumstances be the last known may be default, bankruptcy, illiquidity and other significant transaction price. financial difficulties. FAIR VALUE OF FINANCIAL DERIVATIVES Individual write-downs due to impairment are calculated as the The fair value of financial derivatives is usually determined by difference between the loan’s book value and present value of using valuation methods where the price of the underlying discounted cash flows based on the effective interest rate at the object, for example interest and currency rates, is obtained from time of initial write-down. Subsequent changes in interest rates the market. In the case of share options, volatility will either be are taken into account for loan agreements with floating interest observable implicit volatility or calculated volatility based on rates to the degree these changes will affect the expected cash historical share price movements for the underlying instrument. flow. If the Bank’s risk position is approximately neutral, mid-prices will be used. As an example, a neutral interest rate risk position Group write-downs due to impairment are calculated on sub- can exist when the net exposure for a repricing interval is 65 groups of loans where there is objective evidence indicating a approximately zero. For other exposures the relevant bid/ask reduction in future cash flows to repay the loans, and where it is price is used for determining the fair value of financial not possible to assess all exposures on an individual basis or instruments. where it is not possible to identify evidence at contract level. For financial derivatives where the counterpart has a weaker Objective evidence for groups of loans can consist of a negative credit rating than the Bank, the price will reflect any underlying development in credit risk classification, information about a credit risk. To the extent that market prices are obtained from negative development in the value of assets pledged as collateral, transactions with a lower credit risk, this will be taken into profitability in a particular industry or group of debtors’ account by amortising the price difference measured against repayment ability. The consequences of developments in groups such transactions with a lower credit risk, over the maturity period. of debtors’ repayment ability and in the value of assets pledged as collateral will be analysed using the Bank’s analytical tools, PENSIONS statistical methods including historical information and Net pension liability and pension cost are based upon a series of probability of default, percentages of recoverable amounts and estimates, including return on pension funds, future interest and other known information. Some portfolios of smaller loans such inflation rates, development in wage rates, turnover, development as consumer loans and private overdrafts will be assessed based in the basic social security amount (’G’), the general develop- upon statistical methods. ment in the number of persons receiving disability benefits and life expectancy. Uncertainty is to a great extent related to gross The assessment of individual and group write-downs due to liabilities and not to net liabilities as shown on the balance sheet. impairment will always include a considerable degree of Changes in estimates as a consequence of the abovementioned subjective judgement. Predictions based on historical parameters will be recognised through equity to the extent information can always be proven incorrect because of the allowed by IAS 19. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
NOTE 5 SEGMENTS To identify reportable segments management has made an assessment of business and geographical segments based upon distribution type, product and customer. The primary segment reporting format is business segments, and is based on the risk-and-return profile of the activities. Reporting is divided between retail banking and corporate customers. The Bank’s own investing activities are not reported sepa- rately and appear under the item ”unallocated” together with activities which cannot be allocated to either retail or corporate segments.
Eiendoms- 2005 Retail Corporate Megler 1 SR-Finans Unallocated Total
Net interest income 762 251 2 43 55 1 113 Net fee and commission income 291 103 - -2 -15 377 Other operating income - - 190 - 358 548 Operating expense 315 47 167 21 462 1 012 Profit before write-downs 738 307 25 20 -64 1 026 Write-downs on loans and guarantees 2 -72 - - - -70 Profit before income tax 736 379 25 20 -64 1 096
Loans to customers 41 792 17 897 - 2 059 64 61 812 Individual write-downs on loans to customers -70 -84 - -9 - -163 Group write-downs on loans to customers - - - -7 -162 -169 Other assets - - 388 79 5 290 5 757 Total assets per segment 41 722 17 813 388 2 122 5 192 67 237
Deposits and loans from customers 17 464 20 066 - - - 37 530 66 Other liabilities - - 376 1 969 23 532 25 877 Total liabilities per segment 17 464 20 066 376 1 969 23 532 63 407 Equity - - 12 153 3 665 3 830 Total equity and liabilities per segment 17 464 20 066 388 2 122 27 197 67 237
Eiendoms- 2004 Retail Corporate Megler 1 SR-Finans Unallocated Total
Net interest income 795 257 2 46 29 1 129 Net fee and commission income 271 74 - -2 -2 341 Other operating income - - 180 2 198 380 Operating expense 316 47 158 20 407 948 Profit before write-downs 750 284 24 26 -182 902 Write-downs on loans and guarantees 2 75 - 5 -1 81 Profit before income tax 748 209 24 21 -181 821
Loans to customers 37 257 15 532 - 1 644 - 54 433 Individual write-downs on loans to customers -93 -115 - -14 - -222 Group write-downs on loans to customers - - - -12 -360 -372 Other assets - - 323 171 4 807 5 301 Total assets per segment 37 164 15 417 323 1 789 4 447 59 140
Deposits and loans from customers 16 787 16 275 - - - 33 062 Other liabilities - - 325 1 661 20 986 22 972 Total liabilities per segment 16 787 16 275 325 1 661 20 986 56 034 Equity - - -2 128 2 980 3 106 Total equity and liabilities per segment 16 787 16 275 323 1 789 23 966 59 140 SPAREBANK 1 SR-BANK IFRS
(NOTE 5 continued)
The Group operates in the geographically limited area from Grimstad in the South to Ølen in the North. Reporting for geographic seconda- ry segments is specified below. In addition, significant classes of assets (loans and deposits) are allocated geographically in separate notes under loans and deposits.
Other/ 2005 Rogaland Agder Unallocated Total
Net interest income 1 063 50 - 1 113 Net fee and commission income 339 38 - 377 Other operating income 527 21 - 548 Operating expense 950 59 3 1 012 Profit before write-downs 979 50 -3 1 026 Write-downs on loans and guarantees - - -70 -70 Profit before income tax 979 50 67 1 096
Loans to customers 51 916 4 462 5 434 61 812 Individual write-downs on loans to customers -115 -23 -25 -163 Group write-downs on loans to customers - - -169 -169 Other assets 5 757 - - 5 757 Total assets per segment 57 558 4 439 5 240 67 237 - Deposits and loans from customers 28 395 1 448 7 687 37 530 Other liabilities 25 877 - - 25 877 Total liabilities per segment 54 272 1 448 7 687 63 407 Equity 3 830 - - 3 830 Total equity and liabilities per segment 58 102 1 448 7 687 67 237
67 Other/ 2004 Rogaland Agder Unallocated Total
Net interest income 1 079 50 - 1 129 Net fee and commission income 313 28 - 341 Other operating income 362 18 - 380 Operating expense 894 54 - 948 Profit before write-downs 860 42 - 902 Write-downs on loans and guarantees - - 81 81 Profit before income tax 860 42 81 821
Loans to customers 46 166 2 977 5 290 54 433 Individual write-downs on loans to customers -158 -28 -36 -222 Group write-downs on loans to customers - - -372 -372 Other assets 5 300 1 - 5 301 Total assets per segment 51 308 2 950 4 882 59 140
Deposits and loans from customers 24 898 1 257 6 907 33 062 Other liabilities 22 972 - - 22 972 Total liabilities per segment 47 870 1 257 6 907 56 034 Equity 3 106 - - 3 106 Total equity and liabilities per segment 50 976 1 257 6 907 59 140 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
NOTE 6 NET INTEREST INCOME 2005 2004
Interest income Interest income from loans and deposits with credit institutions 18 22 Interest income from loans to customers 2 172 2 047 Interest income from certificates and bonds 86 74 Total interest income 2 276 2 143
Interest expense Interest expense on loans and deposits from credit institutions 138 185 Interest expense on deposits from and liabilities to customers 536 436 Interest expense on securities issued 396 323 Interest expense on subordinated loan capital 93 70 Total interest expense 1 163 1 014 Net interest income 1 113 1 129
Interest for 2005 is calculated according to amortised cost whereas interest for 2004 was calculated using historical cost in accordance with NGAAP. The figures, therefore, are not fully comparable.
Average interest rates and average interest-bearing assets and liabilities for the period
Liabilities 2005 2004
Average interest-bearing deposits 35 959 31 507 Average interest rate on deposits 1.5 % 1.5 %
Average interest-bearing securities issued 16 259 14 455 68 Average interest rate on securities issued 2.4 % 2.2 %
Assets
Average interest-bearing loans to customers 57 353 51 100 Average interest rate on loans to customers 3.8 % 4.0 %
Average interest-bearing securities portfolio 3 069 2 485 Average interest rate on interest-bearing securities 2.5 % 2.5 %
INTEREST INCOME ON NON-PERFORMING LOANS AND LOANS AT RISK Interest income on non-performing loans and loans at risk is 15 million kroner. SPAREBANK 1 SR-BANK IFRS
NOTE 7 NET FEE AND COMMISSION INCOME 2005 2004
Guarantee commission 28 18 Interbank commission 22 23 Securities trading and asset management fees 101 77 Money transfer fees 201 189 Insurance services 85 83 Other commission income 16 15 Total fee and commission income 453 405
Interbank commission 17 17 Money transfer fees 53 42 Other commission expense 6 5 Total commission expense 76 64 Total net fee and commission income 377 341
NOTE 8 INCOME FROM OTHER FINANCIAL INVESTMENTS 2005 2004
Value changes on interest rate instruments - Value changes on bonds and certificates 5 6 Dividends from equity instruments 38 14 Value changes on equity instruments and derivatives - At fair value through profit or loss 124 61 Currency trading - Net transaction gain 63 64 Total income from other financial investments 230 145
69 NOTE 9 OTHER OPERATING INCOME 2005 2004
Operating income from properties 5 6 Real estate brokerage fees 189 180 Other operating income 5 4 Total other operating income 199 190
NOTE 10 OPERATING EXPENSE 2005 2004
Personnel expenses 541 522 IT expenses 145 124 Marketing 61 44 Other administrative expenses 71 74 Ordinary depreciation (note 13 and 14) 46 49 Write-down of fixed assets (note 13 and 14) 2 - Operating expenses properties 25 22 External fees 20 20 Other operating expenses 101 93 Total operating expenses 1 012 948 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
(NOTE 10 continued)
Audit fees The Group booked NOK 2,431,566 in total fees to the auditors. This includes NOK 1,257,608 for ordinary audit services and NOK 337,407 for other assurance services. In addition, NOK 112,024 has been booked for tax consultancy services and NOK 724,527 for other non-audit services. Included in other non-audit services are NOK 541,536 for accounting consultancy services related to IFRS.
Personnel expenses 2005 2004 Salaries 401 393 Pension cost (defined-benefit plan, note 25) 51 47 Social expenses 55 53 Other personnel expenses 34 29 Total personnel expenses 541 522
Average number of employees 916 886 Number of man-years as of 31 Dec 862 813 Number of employees as of 31 Dec 942 891
(Amounts in NOK 1000) Remuneration to the main Board of Directors 1 318 Remuneration to the Control Committee 436 Remuneration to the Board of Representatives 440
Remuneration to the CEO was NOK 2,483,000. The CEO has a pension scheme which entitles him to retire at the age of 62, with a pension of 70 percent of his annual salary at the date of retirement. There are no contracts related to bonus, share options or remuneration on the termination of employment for the CEO, Chairman of the Board of Directors or any members of senior management.
Loans and guarantees to senior management Loan balance in NOK 1000 CEO 3 951 70 Chairman of the Board of Directors - Chairman of the Control Committee - Chairman of the Board of Representatives 1 847 Members of the Board of Directors who have loans with the Bank Gunn Jane Håland 1 762 John Peter Hernes 137 Magne Vathne 595 Torstein Plener 1 365 Senior management Deputy CEO and CFO 2 283 Executive Group Controller, CRO 2 653 Executive Vice President Business Support, IT and Security 1 962 Executive Vice President Corporate Market 1 467 Executive Vice President Retail Market 2 439 Executive Vice President Public Relations 3 392 Executive Vice President Human Resources 1 660 Control Committee 1 661 Board of Representatives 33 023 No provisions of security or guarantees are given to the abovementioned parties. The loans are given on the same terms as the general terms for employees.
Information regarding senior management’s holdings of primary capital certificates in SpareBank 1 SR-Bank is included in the table of governing bodies in the annual report, where the number of PCCs owned as of 31 Dec 2005 is stated. SPAREBANK 1 SR-BANK IFRS
NOTE 11 INCOME TAX 2005 2004 Components of income tax Current period’s tax expense 158 193 Capital tax 4 4 Change in deferred tax 73 9 Too small/large accrual for taxes payable in previous year -1 - Income tax 234 206
Change in net deferred tax asset Changes in deferred tax booked through the income statement 73 9 Changes in deferred tax booked through equity - Financial assets according to IFRS 2 - - Accounting provisions according to IFRS - 3 - Change in accounting principle for pensions -22 -104 - Change in accounting principle for loans 51 - Total change in net deferred tax asset 104 -92
Deferred tax Deferred tax booked in the balance sheet in the income statement Composition of deferred tax carried in the balance sheet and deferred tax recognised in the income statement: 2005 2004 2005 2004 Temporary differences: - Revaluation of tangible fixed assets 27 28 1 1 - Other differences related to fixed assets -79 -120 -41 -32 - Goodwill 10 8 -2 -8 - Pension funds - - - 133 - Net pension liability -451 -387 64 231 71 - Securities 7 -1 -8 - - Loans 142 - -142 - - Hedging instruments 241 - -241 - - Other temporary differences -43 -47 -4 5 Total temporary differences -146 -519 -373 330 Deferred tax in the balance sheet/ deferred tax booked in the income statement -41 -145 -104 92
Reconciliation of current period’s tax expense and profit before income tax 2005 2004 28% of profit before income tax 307 230 Non-taxable income statement items (permanent differences)* -76 -28 Changes in deferred tax booked in the income statement -73 -9 Current period’s tax expense 158 193
* Including non-taxable dividends, non-deductible expenses, net non-taxable gain on the sale of shares within the EEC area, and deduction of the share of profit or loss in associated companies (the share of profit or loss is deducted as it has already been taxed by the associate).
The Group’s annual accounts for 2005 are presented in accordance with IFRS. Effects of first time adoption of IFRS are recognised directly through equity and through deferred tax/tax charges in accordance with IFRS 1. Comparable figures for 2004 have been prepared accor- dingly.
The Group does not have any tax loss carry-forward. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
NOTE 12 OTHER ASSETS 2005 2004 Subordinated capital SR-Bank Pension Fund 25 15 Other assets 157 144 Accrued income, not yet received 163 146 Pre-paid expenses 17 16 Total other assets 362 321
NOTE 13 PROPERTY, PLANT AND EQUIPMENT Buildings Investment Machinery, Total and property property inventory and vehicles Acquisition cost as of 1 Jan 2004 282 74 450 806 Acquisitions - - 45 45 Disposals -3 -5 -1 -9 Acquisition cost as of 31 Dec 2004 279 69 494 842
Accumulated depreciation and write-down as of 1 Jan 2004 118 29 337 484 Current period’s depreciation 5 1 43 49 Current period’s disposals 2 -2 - - Current period’s write-down - - - - Accumulated depreciation and write-down as of 31 Dec 2004 125 28 380 533
Book value as of 31 Dec 2004 154 41 114 309
Fair value 226 56
Acquisition cost as of 1 Jan 2005 279 69 494 842 72 Acquisitions 21 - 39 60 Disposals -15 -13 -160 -188 Acquisition cost as of 31 Dec 2005 285 56 373 714
Accumulated depreciation and write-down as of 1 Jan 2005 125 28 380 533 Current period’s depreciation 5 1 40 46 Current period’s disposals -8 -5 -159 -172 Current period’s write-down 1 1 - 2 Accumulated depreciation and write-down as of 31 Dec 2005 123 25 261 409
Book value as of 31 Dec 2005 162 31 112 305
Fair value 239 48
Provision of collateralised assets as security The Bank has not provided collateral security or accepted any other limitations of its rights to dispose of its fixed tangible assets.
Revaluation/depreciation The Group does not make revaluations of fixed tangible assets on an ongoing basis. In connection with the initial implementation of IFRS, buildings were valued at acquisition cost less accumulated depreciation, in accordance with Norwegian regulations. The depreciation rate for machinery, inventory and vehicles is 14-33 percent, and 2 percent for bank buildings, investment property and other types of property.
Commitments The Group has contractual agreements to acquire fixed tangible assets totalling NOK 33 million. Fixed assets under construction or not yet in use is included in the balance sheet with a book value of NOK 8 million.
Buildings and other property Buildings include property used in the banking activities with a book value of NOK 174 million. Fair value of the buildings has been esta- blished through independent valuation. A portion of the Group’s buildings are rental properties. When a property can be physically divided and one or more of the divisions is ren- ted, the rental portion is defined as an investment property. The Group has chosen to carry investment property at historical cost. Operational expenses related to rental properties are either invoiced directly to the tenant or indirectly through the Group. SPAREBANK 1 SR-BANK IFRS
(NOTE 13 continued)
Opening Acquisitions/ Closing balance Rent income Share rented out Investment property balance 1 Jan 2004 disposal/deprec. as of 31 Dec 2005 as of 31 Dec 2004 Bjergsted Terasse 7 - 7 1 10 % Domkirkeplassen 7 -1 6 1 30 % Haugesund sentrum 4 - 4 - 23 % Sola 8 -1 7 1 51 % Randaberg 5 -5 - 49 % Tysvær (Aksdal senteret) 4 - 4 - 51 % Vigrestad 3 - 3 - 38 % Madla 3 - 3 - 40 % Leilighet Bjergsted Terasse 1 - 1 - 100 % Flekkefjord 1 - 1 - 29 % Avaldsnes 1 -1 - - Hinna 1 -1 - - Total as of 31 Dec 2004 45 -4 41 3
Opening Acquisitions/ Closing balance Rent income Share rented out balance 1 Jan 2005 disposal/deprec. as of 31 Dec 2005 as of 31 Dec 2005 Bjergsted Terasse 7 -2 5 1 8 % Domkirkeplassen 6 - 6 1 30 % Haugesund sentrum 4 -2 2 - 10 % Sola 7 -7 149 % Randaberg 5 -2 3 - 49 % Tysvær (Aksdal senteret) 4 -1 3 - 37 % Vigrestad 3 -2 1 - 15 % Madla 3 - 3 1 40 % Leilighet Bjergsted Terasse 1 - 1 - 100 % Flekkefjord 1 -1 - - 29 % 73 Total as of 31 Dec 2005 41 -10 31 4
NOTE 14 INTANGIBLE ASSETS Goodwill Total Acquisition cost as of 1 Jan 2004 45 45 Acquisitions - - Disposals - - Acquisition cost as of 31 Dec 2004 45 45
Accumulated depreciation and write-downs as of 1 Jan 2004 33 33 Current period’s write-down - - Accumulated depreciation and write-down as of 31 Dec 2004 33 33 Book value as of 31 Dec 2004 12 12
Acquisition cost as of 1 Jan 2005 45 45 Acquisitions -- Disposals - - Acquisition cost as of 31 Dec 2005 45 45
Accumulated depreciation and write-downs as of 1 Jan 2005 33 33 Current period’s write-down - - Accumulated depreciations and write-downsas of 31 Dec 2005 33 33 Book value as of 31 Dec 2005 12 12
Useful economic life and method of depreciation Components of goodwill is tested for impairment annually, and written down if necessary. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
NOTE 15 ASSOCIATED COMPANIES AND JOINT VENTURES (Figures in NOK 1000) SpareBank 1 Gruppen SpareBank 1 Utvikling Other associated companies* 2005 2004 2005 2004 2005 2004
As of 1 Jan 281 392 254 285 7 000 7 000 3 439 2 409 Acquisitions 42 750 27 361 10 837 - 26 718 1 499 Adjustments through equity 7 476 -42 295 - - - -607 Share of profit/loss 119 748 42 041 - - -745 288 Paid-out dividend - - - - -371 -150 As of 31 Dec 451 366 281 392 17 837 7 000 29 041 3 439
*Other associated companies include: SpareBank 1 Boligkreditt (2005) SpareBank 1 Bilplan EiendomsMegler Sunnhordland Admisenteret
The Group’s shares in associated companies and joint ventures (NGAAP): Name Assets Liabilities Income Profit/loss Ownership interest 2005 SpareBank 1 Gruppen Oslo 7 402 245 7 023 214 1 550 050 95 026 17,63 SpareBank 1 Utvikling Oslo 61 595 43 595 57 579 3 101 20,00 SpareBank 1 Boligkreditt Stavanger 29 444 24 207 - -105 26,72 SpareBank 1 Bilplan Trondheim 7 803 6 014 35 515 -572 26,70 EiendomsMegler Sunnhordland Stord 1 129 893 2 704 95 50,00 Admisenteret Jørpeland - - - - 50,00 Total 7 502 216 7 097 923 1 645 848 97 545 74
2004 SpareBank 1 Gruppen Oslo 5 540 434 5 240 082 1 183 011 22 851 15,46 SpareBank 1 Utvikling Oslo 47 713 40 713 48 288 - 20,00 SpareBank 1 Bilplan Trondheim 7 490 5 129 30 179 - 26,70 EiendomsMegler Sunnhordland Stord 1 317 1 082 3 097 371 50,00 Admisenteret Jørpeland 12 474 10 758 2 542 434 50,00 Total 5 609 428 5 297 764 1 267 117 23 656
Receivables on and liabilities to associated companies Loan Deposits Subordinated loan SpareBank 1 Gruppen 26 250 99 894 42 599 SpareBank 1 Utvikling 55 001 - - SpareBank 1 Boligkreditt - 100 281 - Admisenteret 18 179 315 - SPAREBANK 1 SR-BANK IFRS
NOTE 16 SECURITIES 2005 I) Shares and equity instruments 467 II) Certificates and bonds 3 159 Total securities 3 626
General description When a security’s fair value can be determined by using appropriate valuation techniques, it is classified as at fair value through profit or loss. This is the case for nearly all of the Group’s holdings of securities.
2005 2005 Fair value Available through p&l for sale I) Shares and securities Quoted 273 - Unquoted 187 7 Total shares and securities 460 7
II) Certificates and bonds according to sector of issuer
31 Dec 2005 Fair value through p&l Nominal value Fair value Government 7 7 Other public sector issuers 25 25 Financial institutions 1 919 1 923 Non-financial institutions 1 199 1 204 Total certificates and bonds 3 150 3 159
75 31 Dec 2004 Fair value through p&l Nominal value Fair value Other public sector issuers 175 175 Financial institutions 1 685 1 689 Non-financial institutions 1 003 1 003 Total certificates and bonds 2 863 2 867
Certificates and bonds at nominal value according to repricing intervals Average 31 Dec 2005 < 6 months 6 - 12 months 1 - 3 years 4-5 years > 5 years interest rate Government 7 - - - - 2.3 % Other public sector issuers 25 - - - - 2.0 % Financial institutions 1 919 - - - - 2.4 % Non-financial institutions 1 149 50 - - - 2.6 %
Average 31 Dec 2004 < 6 months 6 - 12 months 1 - 3 years 4-5 years > 5 years interest rate Government - - - - - 0.0 % Other public sector issuers 175 - - - - 2.4 % Financial institutions 1 685 - - - - 2.4 % Non-financial institutions 1 003 - - - - 2.8 % SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
NOTE 17 FINANCIAL DERIVATIVES General description: The fair value of financial derivatives is usually determined by using valuation techniques where the price of the underlying object, for example interest and currency rates, is obtained from the market. In the case of share options, volatility will either be the observable impli- cit volatility or a calculated volatility based on historical share price movements for the underlying instrument. If the Bank’s risk position is approximately neutral, mid-prices will be used. As an example, a neutral interest rate risk position can exist when the net exposure for a repricing interval is approximately zero. For other exposures the relevant bid/ask price is used for determining the fair value of financial instruments. For financial derivatives where the counterpart has a weaker credit rating than the Bank, the price will reflect any 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 amor- tising the price difference measured against such transactions with a lower credit risk, over the maturity period.
Currency and interest rate instruments 2005
At fair value through profit or loss Contract amount Fair value Currency instruments Financial Financial derivative derivative asset liability Currency forward contracts 1 747 17 13 Currency swaps 13 114 222 13 Total non-standardised currency contracts - - - Standardised currency contracts (futures) - - - Total currency instruments 14 861 239 26
At fair value through profit or loss Contract amount Fair value Interest rate instruments Financial Financial derivative derivative asset liability 76 Interest rate swaps 15 055 88 121 Forward rate agreements (FRA) - - - Other interest rate contracts - - - Non-standardised interest rate contracts 1 161 36 28 Standardised interest rate contracts (futures) - - - Total interest rate instruments 16 216 124 149
Hedging Contract amount Fair Value Distribute Cash flow Fair value Interest rate instruments Assets Liability hedging hedging Interest rate swaps (covers also cross currency) 5 965 156 28 - 5 965 Forward rate agreements (FRA) - - - - - Other interest rate contracts - - - - - Total non-standardised interest rate contracts - - - - - Standardised interest rate contracts (futures) - - - - - Total interest rate instruments 5 965 156 28 - 5 965
Total financial derivatives 37 042 519 203
The Group has entered into fair value hedges for some fixed-rate borrowings. Each hedge is documented with reference to the Group’s risk management strategy, a clear identification of the item being hedged, the instrument used, a description of the risk, a description of why hedging is regarded as reasonable and a description for determining the efficiency of the hedge for current and future periods. The Group has defined the hedged risk as value changes in the NIBOR component of the hedged fixed interest rates in NOK and value changes in LIBOR and/or currency components of the hedged fixed interest rates in foreign currency.
The Group uses interest rate swaps as hedging instruments when it has fixed interest rates either in NOK or a foreign currency and makes payments based upon a floating (typically 3 months) NIBOR rate. As of 31 December 2005 the net fair value of hedging instruments was NOK 92 million (NOK 250 million in assets and NOK 158 million in liabilities). SPAREBANK 1 SR-BANK IFRS
NOTE 18 CREDIT INSTITUTIONS – LOANS AND DEPOSITS 2005 2004 Loans and deposits with credit institutions Loans and deposits without agreed maturity or notice of withdrawal 43 67 Loans and deposits with agreed maturity or notice of withdrawal - - Total 43 67
Loans and deposits from credit institutions Loans and deposits from credit institutions without agreed maturity or notice of withdrawal 183 61 Loans and deposits from credit institutions with agreed maturity or notice of withdrawal 3 453 2 629 Total 3 636 2 690
Specified by currency USD 77 - EURO 3 000 2 165 NOK 543 476 Other currencies 16 49 Total 3 636 2 690
Average interest rate 1,1 % 1,1 % The average interest rate is calculated based on the period’s actual interest expense as a percentage of average loans and deposits from credit institutions.
NOTE 19 LOANS AND ADVANCES TO CUSTOMERS 2005 2004 Loans by type: Financial leasing 1 783 1 449 77 Overdraft and working capital facilities 10 239 4 485 Building loans 1 374 1 499 Amortised loans 48 352 47 000 Revaluation of fixed-rate loans carried at fair value 64 - Gross loans 61 812 54 433 Write-downs -332 -594 Loans to customers net of write-downs 61 480 53 839
Loans by markets: Retail loans 41 890 37 264 Corporate loans 19 128 16 556 Public sector 730 613 Revaluation of fixed-rate loans carried at fair value (unallocated) 64 - Gross loans 61 812 54 433 Write-downs -332 -594 Net loans 61 480 53 839
Whereof subordinated loan capital in other financial institutions 43 43
Loans and advances to employees Loans to employees 959 888 Interest rate subsidies to employees 12 11 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
(NOTE 19 continued)
2005 2004 2005 2004 2005 2004 2005 2004 By risk group: Total exposures Gross loans Individual Expected annual average Write-down net loss Lowest and low risk 66 959 55 846 56 263 49 186 - 4 28 31 Medium risk 4 647 4 306 3 044 3 480 2 7 16 21 High and highest risk 3 040 2 387 2 441 1 767 161 211 45 40 Unallocated (Revaluation of fixed-rate loans) 64 - 64 ----- Total 74 710 62 539 61 812 54 433 163 222 89 92
2005 2004 2005 2004 By risk group: Total exposure Percentage of total exposure Lowest and low risk 66 959 55 846 89.6 89.3 Medium risk 4 647 4 306 6.2 6.9 High and highest risk 3 040 2 387 4.1 3.8 Unallocated (Revaluation of fixed-rate loans) 64 - 0.1 - Total 74 710 62 539 100.0 100.0
2005 2004 2005 2004 By geographical area: Gross loans Percentage of gross loans Oslo and surrounding area 2 600 2 253 4.2 4.1 Agder counties 4 462 2 977 7.2 5.5 Rogaland 51 916 46 166 84,0 84.8 Hordaland 1 929 1 767 3.1 3.3 International 228 226 0.4 0.4 78 Other 677 1 044 1.1 1.9 Total 61 812 54 433 100.0 100.0
2005 2004 2005 2004 2005 2004 2005 2004 By commercial and other sector: Total exposures Gross loans Individual Expected annual average Write-down net loss Agriculture/forestry 2 303 2 178 1 969 1 933 9 9 6 4 Fishing/fish farming 499 818 307 411 6 14 2 11 Mining 525 651 388 499 - - 1 2 Industry 4 217 2 642 1 876 1 665 28 26 5 9 Power and water supply building and construction 2 690 2 399 1 264 1 068 2 1 4 3 Retail, hotel and restaurant industry 2 182 1 830 1 553 1 403 10 14 4 5 Foreign shipping, pipelines and other transport 1 805 2 293 1 624 2 048 10 10 4 4 Property management 9 131 6 617 7 743 5 457 14 8 37 22 Other service industries 3 432 2 392 2 179 1 787 15 47 10 10 Public administration and financial services 2 899 2 093 955 898 - - - - Unallocated (Revaluation of fixed-rate loans) 64 - 64 ----- Total sectors 29 747 23 913 19 922 17 169 94 129 73 70 Private customers 44 963 38 626 41 890 37 264 69 93 16 22 Total 74 710 62 539 61 812 54 433 163 222 89 92 SPAREBANK 1 SR-BANK IFRS
(NOTE 19 continued)
Loans and receivables to customers related to financial leasing 2005 2004
Gross receivables related to financial leasing - Maturity of less than 1 year 77 82 - Maturity between 1 and 5 years 1 206 894 - Maturity of more than 5 years 500 473 Total 1 783 1 449
Net investment related to financial leasing 1 783 1 449
NOTE 20 WRITE-DOWN OF LOANS AND GUARANTEES DUE TO IMPAIRMENT 2005 2004 Change in individual write-downs -59 -94 Change in group write-downs -8 -3 Confirmed losses for which individual write-downs was previously made 63 186 Confirmed losses for which no individual write-downs was previously made 24 12 Amortised loans -5 - Payments received on loans, guarantees etc. previously written down -85 -20 Total losses on loans and guarantees -70 81
Individual write-downs Individual write-downs on loans and guarantees as of 1 Jan 222 316 - Current period’s confirmed losses for which individual write-downs was previously made -63 -186 - Reversal of previous years’ write-downs -43 -66 + Increase in write-downs for loans and guarantees for which individual write-downs have been made previously 13 57 + Write-downs on loans and guarantees for which no individual write-down have been made previously 34 101 79 = Individual write down on loans and guarantees as of 31 Dec 163 222
Group write-downs Group write-down for impairment losses on loans and guarantees as of 1 Jan 176 375 + Current period’s group write-down for impairment losses on loans and guarantees -7 -3 = Group write-down for impairment losses on loans and guarantees as of 31 Dec 169 372
Due to implementation of IAS 39 as of 1 Jan 2005 figures for 2005 are not comparable with previous years’ figures.
Of the total write-down for impairment losses as of 31 Dec 2005 NOK 16 million relates to leasing activities. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
(NOTE 20 continued)
Losses specified by sector and industry 2005 2004 Proportion Proportion SECTOR/ INDUSTRY of losses Losses of losses Losses Agriculture/forestry -3 % 2 2 % 2 Fishing/fish farming 6 % -4 58 % 47 Mining 0 % - 2 % 2 Industry -26 % 18 56 % 45 Power and water supply/building and construction 1 % -1 -5 % -4 Retail, hotel and restaurant industry 1 % -1 6 % 5 Foreign shipping, pipelines and other transport -3 % 2 -11 % -9 Property management -7 % 5 -4 % -3 Other service industries 120 % -84 -2 % -2 Transferred from group allowance of impairment 11 % -8 -4 % -3 Retail customers -1 % 1 1 % 1 Total 100 % -70 100 % 81
Non-performing loans and loans at risk 2005 2004 2003 2002 2001 Non-performing loans 130 203 426 316 307 Other loans at risk 331 386 419 751 421 Total non-performing loans and loans at risk 461 589 845 1 067 728 Individual write-downs for impairment losses 163 222 316 396 290 Net non-performing loans and loans at risk 298 367 529 671 438
Interest income from non-performing loans and loans at risk is NOK 15 million.
2005 2004 80 NOTE 21 DEPOSITS FROM CUSTOMERS Proportion Deposits Proportion Deposits Deposits from and liabilities to customers without agreed maturity 27 206 22 990 Deposits from and liabilities to customers with agreed maturity 10 324 10 072 Total deposits 37 530 33 062 Average interest rate 1.5 % 1.5 %
Deposits by commercial and other sectors: Agriculture/forestry 1.9 % 712 2.0 % 663 Fishing/fish farming 0.1 % 55 0.2 % 68 Mining 1.6 % 619 1.1 % 368 Industry 3.8 % 1 441 3.1 % 1 037 Power and water supply/building and construction 3.7 % 1 387 3.3 % 1 106 Retail, hotel and restaurant industry 3.7 % 1 383 3.5 % 1 141 Foreign shipping, pipelines and other transport 3.4 % 1 273 3.5 % 1 160 Property management 5.8 % 2 172 4.7 % 1 539 Other service industries 6.8 % 2 568 8.0 % 2 645 Public administration and financial services 22.5 % 8 456 19.8 % 6 548 Total sectors 53.5 % 20 066 49.2 % 16 275 Retail customers 46.5 % 17 464 50.8 % 16 787 Total deposits by commercial and other sectors 100.0 % 37 530 100.0 % 33 062
Deposits by geographical area: Oslo and surroundings 15.9 % 5 986 16.1 % 5 312 Agder counties 3.9 % 1 448 3.8 % 1 257 Rogaland 75.7 % 28 395 75.3 % 24 898 Hordaland 3.2 % 1 209 3.2 % 1 072 International 0.8 % 282 1.0 % 343 Other 0.6 % 210 0.5 % 180 Total deposits by geographical area 100.0 % 37 530 100.0 % 33 062 SPAREBANK 1 SR-BANK IFRS
NOTE 22 DEBT SECURITIES ISSUED 2005 2004 Certificates and other short-term loans 1 400 2 000 Bonds 16 651 15 111 Total debt securities issued 18 051 17 111
Average interest rate 2.4 % 2.2 %
Bonds issued by maturity year: 2005 - 3 349 2006 1 543 1 365 2007 6 022 6 057 2008 1 560 1 664 2009 1 293 1 266 2010 5 053 500 2011 684 605 2012 120 - 2014 296 305 2035 80 - Bonds issued 16 651 15 111
The average interest rate is calculated based on actual interest expense for the year, including interest rate on interest rate and currency swaps, as a percentage of average securities issued.
NOTE 23 SUBORDINATED LOAN CAPITAL 2005 2004 With definite maturities: Loan 1 (2010 - 3 months Nibor + margin) - 300 Loan 2 (2012 - 3 months Nibor + margin) 40 40 Loan 3 (2014 -EURO 65 million - 3 months Libor + margin) 517 532 81 Loan 4 (2035 -YEN 13 000 million - 3 months Libor + margin) 782 - Total with definite maturities 1 339 872
Perpetual: Loan 5 (USD 75 million - 3 months Libor + margin) 491 436 Total perpetual 491 436
Perpetual classified as Tier 1 Capital Loan 6 (USD 75 million - 3 months Libor + margin) 506 452 Total perpetual classified as Tier 1 Capital 506 452
Total subordinated loan capital 2 336 1 760
Subordinated loan capital in foreign currency (USD 150 million, EURO 65 million and Yen 13 000 million as of 31 December 2005) is inclu- ded in the Group’s total currency position to eliminate any currency risk associated with these loans. There is a prepayment option to repay subordinated loan capital of Yen 13 000 million in 2012 and NOK 40 million in 2007. All subordinated loan capital is included as Tier 2 capital as of 31 December 2005, except for the perpetual capital included as Tier 1 capital. Premiums and discounts on subordinated debt are included in the calculation of amortised cost. Subordinated loan capital can at most constitute 15 percent of total core (Tier 1) capital. Any excess is included as perpetual subordinated loan capital in Tier 2 capital. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
NOTE 24 OTHER LIABILITIES 2005 2004 Pension liabilities (note 25) 451 387 Accounts payable 170 159 Tax deductions 25 25 Settlement accounts 165 39 Other liabilities 290 217 Accrued holiday benefits 39 36 Accrued interest 204 169 Other accrued expenses 145 119 Total 1 489 1 151
Guarantee commitments (guaranteed amounts) 2005 2004 Payment guarantees 1 514 1 058 Contract guarantees 1 331 868 Other loan guarantees - 1 Guarantees for taxes 47 28 Other guarantee commitments 277 323 Total guarantee commitments 3 169 2 278
Mortgage The Group does not have material mortgages.
Ongoing lawsuits The Group is involved in several lawsuits. The total financial effects are regarded as insignificant as the Group has already made provisions for lawsuits where it is considered more likely than not that a loss will be incurred.
82 Operational leasing The period for the Group’s operational leasing contracts is 3 years. The annual expense is approximately NOK 4 million. SPAREBANK 1 SR-BANK IFRS
NOTE 25 PENSIONS (WITH DIRECT RECOGNITION CHANGES IN ESTIMATES) The SpareBank 1 SR-Bank Group has a joint occupational pension scheme for its employees. The pension schemes for SpareBank 1 SR- Bank, SR-Forvaltning ASA and EiendomsMegler 1 Rogaland AS are covered by the bank’s pension fund, whereas SpareBank 1 SR-Finans AS administers its pension scheme through SpareBank 1 Livsforsikring AS.
SpareBank 1 SR-Bank, SR-Forvaltning ASA and EiendomsMegler 1 Rogaland AS have identical benefit schemes, and employee with 30 years of pensionable service will receive a pension of 70 percent of his/her salary on 1 January beginning the year the employee turns 67 years old. The pension scheme also includes disability pension and pension for spouses and dependant children. All pension benefits are coordi- nated with the expected benefits from the National Insurance Scheme. In the case that social security benefits from the National Insurance Scheme are reduced, this reduction will not be compensated for by the pension scheme. As of 31 December 2005 there were 998 active members and 245 pensioners in the pension scheme.The pension scheme of SpareBank 1 SR-Finans AS has the same requirements for years of pensionable service, but with somewhat lower salary coverage than the schemes covered by the pension fund. The pension scheme of SpareBank 1 SR-Finans AS has 21 active members and 12 pensioners.
In addition to the pension obligations covered through the insurance schemes, the Group has unfunded pension commitments that can- not be covered by plan assets in the joint pension schemes. These obligations applies to people who are not enrolled in the joint pension scheme, have supplementary pensions exceeding 12G, ordinary early pensions and/or early pensions through the AFP scheme (contracted early retirement scheme).
Estimates are used in the valuation of plan assets and gross pension obligations. These estimates are adjusted each year in accordance with actual plan assets, statements of plan assets in case of transfer from the insurance company/pension fund and actuarial calculations of gross pension obligations. Calculations of future pensions are based on the following assumptions:
2005 2004 Assumptions Discount rate 3.9 % 4.5 % Expected rate of return on plan assets 6.0 % 6.0 % Future wage and salary developments 3.0 % 3.0 % Adjustment of the basic social security amount (G) 3.0 % 3.0 % 83 Increase in current pensions 3.0 % 3.0 % Social security tax 14.1 % 14.1 %
The calculations are based on standardised assumptions about developments in life expectancy and the number of people receiving disabi- lity benefits, as well as other demographic factors compiled by the Norwegian Insurance Association. It is also assumed that there will be turnover of 2 percent of employees aged 45 or younger and 0 percent of employees aged 45 years and older. Calculations of the AFP liabili- ty are based on the assumption that 25 percent of all employees entitled to benefits will make use of early retirement at the age of 62 years and another 25 percent at 64 years.
Pension liabilities related to defined benefit plans 2005 2004 Present value of pension liabilities as of 1 Jan 845 695 Pension earned in the period 38 34 Interest expense on accrued pension liabilities 38 35 Actuarial gains and losses (changes in estimates) 95 104 Pension payments -23 -23 Net present value of pension liabilities as of 31 Dec 993 845 Funded plans 831 694 Unfunded plans 162 151
Plan assets Plan assets as of 1 Jan 497 438 Expected return on plan assets 31 28 Actuarial gains and losses (changes in estimates) 23 15 Employer’s contributions 69 48 Pension payments -22 -22 Plan assets as of 31 Dec 598 507 SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
(NOTE 25 continued)
Net pension liabilities in the balance sheet 2005 2004 Net present value of pension liabilities as of 31 Dec 993 845 Plan assets as of 31 Dec 598 507 Net pension liabilities as of 31 Dec 395 338 Social security liabilities 56 49 Net pension liabilities in the balance sheet 451 387
Pension cost for the year Pension cost related to defined benefit plans 38 34 Interest expense of accrued pension liabilities 38 35 Expected return on plan assets -31 -28 Net pension cost related to defined benefit schemes excluding social security tax 45 41 Accrued social security tax 6 6 Net pension cost related to defined benefit plans 51 47 Pension cost related to unfunded benefit plans - - Pension cost for the year recognised in the income statement 51 47
Actuarial gains and losses Actuarial gains and losses for the period recognised through equity 80 102 Accumulated actuarial gains and losses recognised through equity 181 102
Expected return on plan assets is calculated to: 31 28 Actual return on plan assets was: 65 42
Developments in the defined-benefit scheme over the last two years: Net present value of pension liabilities as of 31 Dec 993 845 Plan assets as of 31 Dec 598 507 84 Net 395 338 SPAREBANK 1 SR-BANK IFRS
NOTE 26 CAPITAL ADEQUACY 2005 2004 Primary Capital Certificates 1 131 905 - Primary Capital Certificates held by the Group -3 - Premium fund 21 20 Saving Bank’s Fund 1 505 1 313 Dividend equalisation fund 673 858 Donations 109 69 Total equity capital 3 436 3 165
Excess funding of pension liabilities - -101 Deferred tax asset, goodwill and other intangible assets -46 -52 Proportion of unamortized changes in estimates on pensions 155 - Subordinated loan capital qualifying as core capital 506 452 Total core capital 4 051 3 464
Supplementary capital in excess of core capital Perpetual subordinated loan capital 491 436 Definite subordinated loan capital 1 339 872 Subordinated loan capital in other financial institutions -34 -15 Capital adequacy reserve -509 -346 Net core capital and supplementary capital 5 338 4 411
Assets not included in the trading portfolio 41 159 35 716 Off-balance sheet items not included in the trading portfolio 2 900 1 555 Currency risk and items in the trading portfolio 1 914 1 821 Deductions: Subordinated loan capital in other financial institutions -34 -15 Write-down for impairment losses -332 -595 85 Capital adequacy reserve -509 -346 Total asset base for calculations 45 098 38 136
Capital adequacy ratio 11.84 % 11.57 % Core capital ratio 8.98 % 9.08 % Supplementary capital ratio 2.85 % 2.48 %
The note shows the capital adequacy ratio of SpareBank 1 SR-Bank Group. The capital adequacy ratio is required to be at least 8 percent. Definite subordinated loan capital is reduces by 20 percent in value every year during the last 5 years prior to maturity. To the extent that the Group holds more than 2 percent of subordinated loan capital in another financial institution, the excess value will reduce the Group’s own subordinated loan capital directly with the same amount.
If the Group has subordinated loan capital in other financial institutions which is less than 2 percent of these financial institutions’ subordi- nated loan capital, the total amount of such capital will be deducted in the Group’s subordinated loan capital with the amount that exceeds 10 percent of the Group’s own subordinated loan capital. In cases where the Group has been required to maintain 100 percent capital ade- quacy reserve for certain assets, an amount equivalent to the asset’s book value should be deducted from the core and supplementary capi- tal and from the asset base used for calculation. The asset base used for calculation is weighted according to risk. There are 5 risk categori- es: 0, 10, 20, 50 and 100 percent, in which the percentage indicates what proportion of a balance sheet item that should be included in the asset base for calculation.
The Group’s capital adequacy ratio is calculated according to NGAAP. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
NOTE 27 RELATED PARTIES Senior management BoD Control committee Associated companies Other related parties 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 Loans Outstanding loans as of 1 Jan 20 357 15 389 15 220 14 978 1 707 1 717 2 147 2 333 1 680 1 802 Loans issued during the period 6 558 9 782 3 590 5 809 1 126 484 33 40 3 445 1 789 Repayments 7 109 7 521 14 951 5 634 1 172 488 600 255 3 274 2 173 Outstanding loans as of 31 Dec 19 806 17 650 3 859 15 153 1 661 1 713 1 580 2 118 1 851 1 418
Interest income 303 283 221 564 49 55 25 39 33 26
Deposits - - - - - Deposits as of 1 Jan 4 126 4 052 352 82 650 949 1 089 1 166 1 111 950 Additional deposits during the period 16 984 14 056 2 148 6 973 2 637 2 823 5 217 3 626 3 745 6 053 Withdrawals 19 674 14 483 2 294 6 746 2 657 2 599 4 645 3 820 3 977 6 034 Deposits as of 31 Dec 1 436 3 625 206 309 630 1 173 1 661 972 879 969
Interest expense 61 67 - - 4 13 9 6 8 9
Remuneration to management 2005 2004 Salary and other short-term benefits 10 298 8 160
86 Board of Directors Remuneration to the Board of Directors 1 318 1 178
NOTE 28 PRIMARY CAPITAL CERTIFICATES AND OWNERSHIP STRUCTURE Primary Capital Certificates Sparebank 1 SR-Bank has Primary Capital Certificates of NOK 1,130,729,250, consisting of 22,614,585 Primary Capital Certificates, each with a nominal value of NOK 50. In April 2005 a PCC split and a dividend issue were performed, resulting in the transfer of NOK 226.1 mil- lion from the Dividend Equalisation Fund and the issue of 4,522,917 new Primary Capital Certificates with issue price and a nominal value of NOK 50. One new, additional Primary Capital Certificate was granted for each four original certificates held. Primary Capital Certificates have been issued in the following way and at the following points in time:
Year Change Change in Total Number of Primary Capital Certificates Primary Capital Certificates Primary Capital Certificates 1994 Public issue 744,0 744,0 7 440 000 2000 Employee issue 5,0 749,0 7 489 686 2001 Employee issue 4,8 753,8 7 538 194 2004 Stock dividend issue 150,8 904,6 9 045 834 2005 Stock dividend issue/PCC split 226,1 1 130,7 22 614 585
In addition to the PCC capital, owners of the Primary Capital Certificates are also entitled to a share of SpareBank 1 SR-Bank’s equity, the Dividend Equalisation Fund, which consists of retained earnings that will no be paid as this years dividend. This equity capital is should be used to stabilise cash dividends or for stock dividend issues. Other equity consists of the Savings Banks’ Fund, Premium fund and the fund for valuation differences. Up to 25 percent of the amount transferred to the Savings Banks’ Fund can be allocated to the fund for donations.
PCC-owners’ share of profit/loss Earnings per PCC is calculated by dividing profit/loss allocated to the owners of the PCCs by the average number of outstanding PCCs. PCC owners’ share of profit/loss corresponds to the proportion of the sum of PCC capital, Dividend Equalisation Fund and Premium fund to the bank’s total equity, minus the fund for valuation differences. SPAREBANK 1 SR-BANK IFRS
(NOTE 28 continued)
Purchase/sale of own PCCs in 2005: (figures in 1000) Holdings as of 31 Dec 2004 57 Change in holdings 2005 2 892 Holdings as of 31 Dec 2005 2 949
The 20 owners with the largest holdings of Primary Capital Certificates as of 31 Dec 2005 Percentage Owner PCC share Swedbank, Sweden 2 225 850 9.80 % Folketrygdfondet 1 028 300 4.50 % State Street Bank & Trust, USA 805 341 3.60 % Trygve Stangeland 300 940 1.30 % Tveteraas Finans AS 300 010 1.30 % Brown Brothers Harriman & Co, USA 288 914 1.30 % Frank Mohn AS 280 205 1.20 % Clipper AS 260 000 1.10 % JP Morgan Chase Bank, UK 258 440 1.10 % Otto B. Morcken 195 000 0.90 % Audley AS 194 532 0.90 % Solvang Shipping AS 180 000 0.80 % Westco AS 162 650 0.70 % Forsand kommune 152 295 0.70 % Trondheim kommune 120 450 0.50 % Arne B. Corneliussen Invest AS 120 000 0.50 % Ringerike Sparebank 102 400 0.50 % MP Pensjon 99 900 0.40 % 87 Terra Utbytte 93 250 0.40 % Olav T. Stangeland 90 000 0.40 % Sum 20 largest 7 258 477 32.10 % Other owners 15 356 108 67.9 % Outstanding Primary Capital Certificates 22 614 585 100.0 %
The total number of PCC owners as of 31 Dec 2005 is 10,361, which is an increase of 2,281 since 31 Dec 2004. The share of PCCs in owned by individuals and companies in the Rogaland and Agder counties is 44.8 percent, and the share of foreign owners is 19.4 percent. Reference is made to specification of PCC owners in the Board of Directors and Board of Representatives. For more details about PCCs, see the separate chapter in the annual report.
NOTE 29 RESTRICTED FUNDS As of 31 December 2005 the total value of restricted funds in the SpareBank 1 SR-Bank Group is NOK 25,099,016. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
NOTE 30 IFRS - IMPLEMENTATION From 1 January 2005 all publicly listed companies within the EU (including EEC countries) are required to prepare quarterly and annual reports in accordance with IFRS. SpareBank 1 SR-Bank Group has presented its quarterly reports as well as the annual report for 2005 in accordance with IFRS. Permission, for the time being, has not been granted to present the annual report for the parent bank in accordance with IFRS. Separate quarterly and annual reports will be prepared in accordance with NGAAP for the parent bank.
IFRS has been implemented retrospectively as of 1 January 2004. Comparable figures for one year are shown in the income statement, balance sheet and notes, with the exception of items related to IAS 39. This standard is exempt from the requirement of reporting compa- rable figures for one year. For the SpareBank 1 SR-Bank Group this pertains to items related to loans/impairment losses on loans, securiti- es and other financial instruments. For these items comparable figures are presented in accordance with NGAAP.
Briefly summarised, implementation of IFRS resulted in an increase in equity of NOK 129 million from 31 December 2003 to 1 January 2005. According to IFRS dividends is classified as equity until final approval is given by the Board of Representatives. As of 1 January 2005 this amount was NOK 208 million. Excluding the aforementioned dividend effect, net effect on equity was a reduction of NOK 79 million. As of 31 March 2005 these figures were NOK 180 and NOK 28 million respectively. The reason for these changes was adjustments in the figures from SpareBank 1 Gruppen AS, as well as changes in the interpretation of regulations for structured products. All effects on equity have been allocated to the Dividend Equalisation Fund and the Saving Banks’ Fund in accordance with the PCC percentage as of 31 December 2004.
Reconciliation between the NGAAP and IFRS figures in the balance sheet from 31 December 2003 to 1 January 2004 and from 31 December 2004 to 1 January 2005 is shown in the tables below. There is also a specification of differences in the income statement for 2004 between NGAAP and IFRS. Details relating to individual items are described in footnotes. The accounting principles applied to the individual items are described in note 2.
IFRS OPENING BALANCE AS OF 1 JAN 2004 Balance Pension Effect from owners Balance 88 31 Dec.2003 Reclassified. Corridor share SpareBank 1 Issued 1.1.2004 after NGAAP profit against equity Gruppen AS div. sales after IFRS 1) 2) 3) 4) Cash and balances with central banks 545 545 Loans and deposits with credit institutions 149 149 Loans to customers net of write-downs 48 183 48 183 Certificates, bonds and other securities with a fixed rate-of-return 2 375 2 375 Shares and other securities with a variable rate-of-return 364 364 Investment in associated companies 253 -43 210 Fixed tangible assets 353 353 Other assets 420 -57 -3 360 Total assets 52 642 -57 -43 -3 52 539
Loans and deposits from credit institutions 4 912 4 912 Deposits from customers 28 266 28 266 Securities issued 13 660 13 660 Other liabilities 1 118 -152 137 -12 1 091 Subordinated loan capital 1 875 1 875 Total liabilities 49 831 49 804 Primary Capital Certificates 754 754 Holdings of own Primary Capital Certificates -4 -4 Premium reserve 18 18 Dividend equalisation fund *) 872 -109 -24 5 744 Dividends - 151 151 Saving Banks Fund *) 1 132 -85 -19 4 1 032 Other equity 37 37 Minority interests 2 1 3 Total equity 2 811 2 735 Total liabilities and equity 52 642 - -57 -43 -3 52 539 SPAREBANK 1 SR-BANK IFRS
(NOTE 30 continued)
1) Re-classification of dividends: According to IFRS, dividends are classified as equity until approved by the Bank’s most senior decision- making body, the Board of Representatives. Therefore, in the opening balance the provision for dividends of NOK 152 million was re-classi- fied from liabilities to equity as of 1 January 2004. 2) The pension corridor: According to IAS 19, which is the IFRS standard for pensions, IAS 1 (standard regulating implementation) gave the possibility to recognise unrecognised actuarial gains and losses (the corridor) against equity as of 1 January 2004. This effect amounted to NOK 194 million after tax for the SpareBank 1 SR-Bank Group. 3) Ownership interest SpareBank 1 Gruppen AS: SSpareBank 1 SR-Bank recognises its ownership interest in the SpareBank 1 Gruppen AS according to the equity method of accounting. SpareBank 1 Gruppen’s implementation of IFRS as of 1 January 2004 affected book values because of the recognition of the pension corridor. This amounts to NOK 43 million and reduces the book value of the ownership interest in SpareBank 1 Gruppen AS. 4) Reversal of miscellaneous provisions: SpareBank 1 SR-Bank has reversed provisions for expenses made in accordance with NGAAP, because such provisions are not in accordance with IFRS. This effect amounts to NOK 9 million after tax.
IFRS OPENING BALANCE AS OF 1 JAN 2005:
Balance IFRS effects Effect from Effect on Balance sheet through equity ownership interests gain/loss sheet 31.12.2004 1.1.04 Reclass.of Change Change Sparebank1 Actuarial profit 2004 1.1.2005 NGAAP (excl dividends) dividends fin.instr. loans/loss Gruppen AS Pension NGAAP/IFRS acc.to IFRS 1) 2) 3) 4) 5) 6) 7) Cash and balances with central banks 942 942 Loans and deposits with credit institutions 67 67 Loans to customers net of write-down 53 839 181 54 020 Certificates, bonds and other securities with a fixed rate of return 2 867 2 867 Financial derivatives - 492 492 Shares and other securities with a variable rate-of-return 347 44 391 89 Ownership interests 314 -43 9 20 301 Tangible fixed assets 309 309 Other assets 513 -60 -4 -50 29 -3 424 Total assets 59 198 -103 - 532 131 9 29 17 59 813
Loans and deposits from credit institutions 2 690 2 690 Deposits from customers 33 062 33 062 Securities issued 17 111 17 111 Financial derivatives - 488 488 Other liabilities 1 408 125 -211 -9 102 -12 1 403 Subordinated loan capital 1 760 1 760 Total liabilities 56 031 56 514 Primary Capital Certificates 905 905 Premium reserve 20 20 Dividend Equalisation Fund *) 858 -128 30 73 5 -41 16 813 Dividends - 208 208 Saving Banks’ Fund *) 1 313 -100 23 58 4 -32 13 1 279 Donations 69 69 Minority interests 2 3 5 Total equity 3 167 3 299 Total equity and liabilities 59 198 -103 - 532 131 9 29 17 59 813
*) The percent used for allocation of effects through equity as of 1 Jan 2004 and 1 Jan 2005 is 56.32% to the Dividend Equalisation Fund and 43.68% to the Saving Banks’ Fund. SpareBank 1 SR-Bank Annual Report 2005
SPAREBANK 1 SR-BANK IFRS
(NOTE 30 continued)
1) This column summarises IFRS effects as of 1 Jan 2004, except the reclassification of dividends deducted from equity before the balance sheet date. 2) Reclassification of dividends: According to IFRS, dividends are classified as equity until approved by the Bank’s most senior decision- making body, the Board of Representatives. Therefore, in the opening balance the provision for dividends of NOK 211 million was re-classi- fied from liabilities to equity as of 1 January 2004. 3) Effect on financial instruments: The largest item in this column relating to financial instruments, with the exception of loans, is fair value measurement of long-term shareholdings according to IAS 39. These have previously been measured at historical cost. As a consequence of a fair value measurement in accordance with IFRS 39, book value of the shares increased by NOK 44 million. The remaining items in this column, which have an effect on equity, are: net present value of fixed-rate loans increased equity by NOK 16.4 million and provisions for margins on interest rate swaps reduced equity by NOK 7.2 million. Net change in equity is NOK 53 million. 4) Effect on loans/impairment losses: IAS 39 also regulates loans and impairment losses. The effect of IAS 39 on these items is an increase in equity by NOK 131 million. Provisions for unspecified losses were reversed by NOK 141 million after tax (reduction in equity). This effect was after a review of new regulations and new models for the write-down of losses. Otherwise, long-term non-performing loans of NOK 11.7 million (increase in equity) are carried in the balance sheet as well as loan fees of NOK 21 million, which were previously recognised in the income statement (reduction of equity). 5) Ownership interest SpareBank 1 Gruppen: SpareBank 1 SR-Bank recognises its ownership interest in SpareBank 1 Gruppen AS accor- ding to the equity method of accounting. SpareBank 1 Gruppen’s implementation of IAS 39 as of 1 January 2005 led to an increase in the book value of the ownership interest in the SpareBank 1 Gruppen AS of NOK 9 million. Amongst others this relates to reversal of unspecifi- ed losses in the wholly owned subsidiary Bank 1 Oslo AS. 6) Unrecognised actuarial gains and losses: The Group has chosen to book the implementation effect of IAS 19 on the Group’s pension lia- bilities directly through equity. For SpareBank 1 SR-Bank Group this effect amounted to NOK 73 million after tax. 7) Differences in profit for the year according to NGAAP/IFRS: Reference is made to reconciliation below concerning the implementation of IFRS in the income statement for 2004.
Reconciliation of profit for the year according to NGAAP/IFRS for 2004:
Profit/ loss Ownership Profit/ loss 90 31.12.2004 interest SB1 Tax 31.12.2004 NGAAP Pension Goodwill Gruppen effect IFRS 1) 2) 3) 4) Interest income 2 143 2 143 Interest expense 1 014 1 014 Net interest income 1 129 1 129 Fee and commission income 405 405 Fee and commission expense 64 64 Other operating income 190 190 Net commission and other income 531 531 Dividends 14 14 Income from associated companies 25 20 45 Net change in value of financial investments measured at fair value through P/L 131 131 Net return on financial investments 170 190 Total income 1 830 1 850 Personnel expense 527 -5 522 Administrative expense 242 242 Impairment/changes in value of non-financial assets 57 -8 49 Other operating expenses 135 135 Total operating expenses 961 948 Profit before loss 869 901 Losses on loans and guarantees 81 81 Profit before tax and minority interests 788 820 Income tax 202 4 206 Minority interests 3 3 Profit 583 612 SPAREBANK 1 SR-BANK IFRS
(NOTE 30 continued)
1) Pension: As an effect of implementing IAS 19 in the consolidated Group accounts for 2004 pension costs were reduced by NOK 4.7 milli- on. This was due to different actuarial assumptions used in the two accounting frameworks. 2) Goodwill: According to IFRS goodwill is not depreciated, as it is under NGAAP, but is subject to an impairment test. This implies that there is no goodwill depreciation in the IFRS annual accounts for 2004 and profit for the year is NOK 8.2 million higher than according to NGAAP. 3) Ownership interest SpareBank 1 Gruppen AS: There is a difference in profit for the year between NGAAP and IFRS for SpareBank 1 Gruppen AS. The main difference is related to depreciation of goodwill in accordance with NGAAP, but not in accordance with IFRS. According to IFRS goodwill is subject to an impairment test. As a consequence the profit according to IFRS is NOK 19.6 million higher than according to NGAAP. 4) Taxes: Income tax will be different due to changes in taxable profit for the year, as mentioned above (ownership interest in SpareBank 1 Gruppen AS is included after tax).
NOTE 31 EVENTS AFTER THE BALANCE SHEET DATE There have been no events after the balance sheet date of 31 December 2005 that has had an effect on the Group’s annual accounts.
91 SpareBank 1 SR-Bank Annual Report 2005
Auditor’s report for 2005
We have audited the annual financial statements of amounts and disclosures in the financial statements. An audit Sparebanken Rogaland as of December 31, 2005, showing a also includes assessing the accounting principles used and profit of NOK 840 million for the parent company and a profit significant estimates made by management, as well as of NOK 862 million for the group. We have also audited the evaluating the overall financial statement presentation. To the information in the directors' report concerning the financial extent required by law and auditing standards an audit also statements, the going concern assumption, and the proposal comprises a review of the management of the Company's for the allocation of the profit. The annual financial statements financial affairs and its accounting and internal control comprise the financial statements of the parent company and systems. We believe that our audit provides a reasonable the group. The financial statements of the parent company basis for our opinion. comprise the balance sheet, the statements of income and cash flows and the accompanying notes. The financial state- In our opinion, ments of the group comprise the balance sheet, the statement • the financial statements of the parent company have been of income and cash flows, the statement of changes in equity prepared in accordance with the law and regulations and and the accompanying notes. The regulations of the Norwegian give a true and fair view of the financial position of the accounting act and accounting standards, principles and company as of December 31, 2005, and the results of its practices generally accepted in Norway have been applied in operations and its cash flows for the year then ended, in the preparation of the financial statements of the parent accordance with accounting standards, principles and company. IFRSs as adopted by the EU have been applied in practices generally accepted in Norway the preparation of the financial statements of the group. • the financial statements of the group have been prepared These financial statements are the responsibility of the in accordance with the law and regulations and give a Company’s Board of Directors and Managing Director. Our true and fair view of the financial position of the group as responsibility is to express an opinion on these financial of December 31, 2005, and the results of its operations statements and on other information according to the require- and its cash flows and the changes in equity for the year ments of the Norwegian Act on Auditing and Auditors. then ended, in accordance with IFRSs as adopted by the EU • the company's management has fulfilled its duty to produce We conducted our audit in accordance with laws, regulations a proper and clearly set out registration and documentation 92 and auditing standards and practices generally accepted in of accounting information in accordance with the law and Norway, including standards on auditing adopted by The good bookkeeping practice in Norway Norwegian Institute of Public Accountants. These auditing • the information in the directors' report concerning the standards require that we plan and perform the audit to financial statements, the going concern assumption, and obtain reasonable assurance about whether the financial the proposal for the allocation of the profit are consistent statements are free of material misstatement. An audit inclu- with the financial statements and comply with the law and des examining, on a test basis, evidence supporting the regulations
Stavanger, 23 February 2006 Note: This translation from Norwegian has been prepared for PricewaterhouseCoopers AS information purposes only. Torbjørn Larsen, State Authorised Public Accountant (Norway)
The Audit Committee’s statement for 2005
The Audit Committee has carried out its duties in accordance The annual report and accounts have been submitted in with the (Norwegian) Saving Banks Act and the instructions accordance with the regulations of the (Norwegian) Saving for the committee. The bank’s activities in 2005 were in Banks Act and of the Norwegian Banking, Insurance and accordance with the (Norwegian) Saving Banks Act, the Securities Commission. The Supervisory Board may adopt the bank’s Articles of Association, and other provisions the bank profit and loss account and the balance sheet as the bank’s is obliged to follow. accounts for 2005.
Stavanger, 17 March 2006
Odd Rune Torstrup Odd Broshaug Kåre Hansen Chairman
Svein Hodnefjell Vigdis Wiik Jacobsen Primary capital certificates
PRIMARY CAPITAL results in order to ensure a high level of confidence in the At the end of 2005 SpareBank 1 SR-Bank’s primary capital investor market. The bank communicates information through amounted to NOK 1,128 million, dispersed on 22,555,609 quarterly investor presentations, web pages, press releases outstanding pcc’s, each with a nominal value of NOK 50. The and accounting reports. The bank regularly gives presentations number of issued certificates is 22,614,585. In addition, the to international partners, lenders and investors, mainly in capital of the equalisation reserve attributable to the primary London. capital certificate owners was NOK 673 million, as well as NOK 21 million of the share premium account. INFORMATION ADDRESSES SpareBank 1 SR-Bank is also accessible via the Internet, with On 1 April 2005, the primary capital certificates were split in information for investors, media and the broker business: 93 two and this was followed by a capitalisation issue whereby four certificates entitled owners to one new (free) certificate. • SpareBank 1 SR-Bank’s homepage is www.sr-bank.no A total of 4,522,917 new primary capital certificates where • Other links for financial data: www.huginonline.no thus issued, and NOK 226,145,850 was transferred from the equalisation reserve to the primary capital. The total number FINANCIAL CALENDAR FOR 2006 of primary capital certificates after the split and subsequent • Ex dividend date: 31 March 2006 capitalisation issue was 22,614,585. • First quarter: 27 April 2006 • Second quarter: 8 August 2006 DIVIDEND POLICY • Third quarter: 26 October 2006 The financial objective of Sparebanken Rogaland is to attain • The accounting figures for 2006 will be published in profits giving good, stable return on the bank’s total equity, February 2007 thus creating values for the primary capital certificate owners by delivering competitive dividends and value appreciation on OWNERSHIP the primary capital certificates. The bank’s profit for the year It is the objective of SpareBank 1 SR-Bank to attain good will be divided between the primary capital certificate owners liquidity in its primary capital certificates, and attain a high and the savings bank’s fund in concurrence with their level of owner diversification, representing customers and respective percentage of the bank’s equity. In the pro rata regional investors, as well as Norwegian and foreign distribution between cash dividend and the equalisation institutions. Over the course of 2005, the bank has bought net reserve, there may be variations due to emphasis placed on 57,541 own primary capital certificates and as of 31 December consideration of the bank’s equity development. 2005 the bank had a reserve of 58,976 primary capital certificates. The bank uses purchase and sale of its own The profit per primary capital certificate for 2005 was NOK 21. primary capital certificates as a measure to improve liquidity. Based on the bank’s dividend policy and other assessments, the Board proposes paying a dividend of NOK 14 per primary In 2005, as in previous years, the bank made use of the capital certificate for 2005. authority from the Supervisory Board to sell its own primary capital certificates (a total of 146,447 certificates) to its INVESTOR POLICY employees at a discount, instead of increasing the primary The bank place great emphasis on presenting correct,relevant capital in connection with an employee placement. and updated information on the bank’s development and SpareBank 1 SR-Bank Annual Report 2005
At the end of 2005, 10,361 owners of the bank’s primary RISK-ADJUSTMENT capital certificates were registered. This is an increase of 2,281 Adjusting the taxable original cost for Norwegian owners (corresponding to 28.2 per cent) owners from the end of using the RISK rules (RISK stands for “adjustment of original 2004. The share of the primary capital certificates owned by cost of shares by taxed profit”) will take place for the last time foreigners was 19.4 per cent (14.4 per cent), while 44.8 per in 2005. The RISK amount as of 1 January 2005 has been set cent (47.2 per cent) were resident in Rogaland and Agder. at NOK 6.06 per primary capital certificate (adjusted for split The 20 largest owners controlled 32.1 per cent (30.3 per cent) and the capitalisation issue in April 2005), while the RISK of the primary capital at the end of the year. amount as of 1 January 2006 is calculated at NOK 1.79 per primary capital certificate. The following overview shows the ten largest owners of primary capital certificates as of 31 December 2005: RETURN ON THE BANK’S PRIMARY CAPITAL CERTIFICATES IN 2005 Ten major primary certificate owners Number Share At the end of 2005 the price of the bank’s primary capital 1. Swedbank, Sweden 2,225,850 9.8 % certificates was NOK 230, compared to NOK 144 at the end of 2. Folketrygdfondet 1,028,300 4.5 % 2004 (adjusted for the split and capitalisation issue on 1 April 3. State Street Bank & Trust, USA 805,341 3.6 % 2005). Including paid dividends, the bank’s primary capital 4. Trygve Stangeland 300,940 1.3 % certificate has yielded in an effective return of 66.1 per cent in 5. Tveteraas Finans AS 300,010 1.3 % 2004. For purposes of comparison, the primary capital 6 Brown Brothers Harriman & Co, USA 288,914 1.3 % certificate index at the Oslo Stock Exchange (GFBX) has risen 7. Frank Mohn AS 280,205 1.2 % by 47.4 per cent in the same period. 8. Clipper AS 260,000 1.1 % 9. JP Morgan Chase Bank, UK 258,440 1.1 % The liquidity in the primary capital of SpareBank 1 SR-Banks 10. Otto B. Morcken 195,000 0.9 % was relatively high in 2005. 36.1 per cent of the issued primary Total ten largest owners 5,943,000 26.3 % capital certificates were traded in 2005, compared with 27.2 per cent in 2004. The ownership structure as of 31 December for the past five years has been as follows: KEY FIGURES See separate table 94 2005 2004 2003 2002 2001 Rogaland share 1) 45% 47% 49% 46% 47% CREDIT RATING Other Norwegian owners 36% 39% 34% 37% 38% Moody’s Investor Service maintained its rating of Foreign owners 19% 14% 17% 17% 15% Sparebanken Rogaland (Long Term Bank Deposit) in 2005 at Number of owners 10,361 8,080 7,065 6,412 6,438 A2, while the Short Term Deposit was maintained at Prime 1. Fitch IBCA maintained its rating of Sparebanken Rogaland at 1) Including Agder in 2003-2005. A- (long-term) and F2 (short-term) in 2005.
ROGG Price performance for 2005
Indexed/rebased
Dec 2004 Mar 2005 Jun 2005 Sep 2005 Dec 2005 KEY FIGURES 2005 2004 2003 2002 2001 Market price 31 December 230,0 144,0 107,7 60,0 82,2 Taxable price as of 1 January following year 149,18 93,60 69,66 59,67 81,50 Dividend per certificate 14,0 9,2 6,7 3,3 6,3 Direct return 1) 6,1 % 6,4 % 6,2 % 5,6 % 7,7 % Effective return 2) 66,1 % 40,0 % 85,0 % -19,3 % 8,1 % Book value per certificate 3) 80,8 72,3 72,8 68,8 72,8 Earnings per certificate 4) 21,0 15,2 10,9 -0,9 8,2 Allocated to equalization reserve per certificate 6,9 5,8 4,2 -0,9 3,5 Payout ratio, net 5) 67 % 61 % 61 % -357 % 77 % Primary capital certificate percentage 6) 53,0 % 56,3 % 58,4 % 60,2 % 61,2 % RISK amount as of 1 January following year 1,79 6,06 4,31 -0,97 3,15 Number of issued primary capital certificates 31 Dec. 22 614 585 22 614 585 22 614 585 22 614 585 22 614 585 Own primary capital certificates 31 December 58 976 1 435 115 985 206 670 168 000 Number of primary capital certificates outstanding 31 December 22 555 609 22 613 150 22 498 600 22 407 915 22 446 585 Primary capital certificates traded per year (in of issued certificates) 36 % 27 % 31 % 27 % 20 %
1) Dividend as a percentage of the Stock Exchange price at the end of the year.
2) Price rise during the year, plus paid dividends, as a percentage of the Stock Exchange price at the beginning of the year. 3) Book equity multiplied by the primary capital certificate percentage, divided by the number of outstanding certificates 4) Dividend per certificate as a percentage of profit per certificate 5) Dividend per certificate as a percentage of profit per certificate 6) The primary capital, the equalisation reserve and the share premium account as a percentage of the parent bank's equity at the end of the year (excluding the revaluation reserve) 95 All figures have been revised in accordance with the split and capitalisation issue carried out on 1 April 2005.
Trading volume for the bank´s Return on the bank´s primary capital primary capital certificates certificates Percent Percent
2001 2002 2003 2004 2005 2001 2002 2003 2004 2005
Effective return OSEBX SpareBank 1 SR-Bank Annual Report 2005
KEY IGURES DURING THE PAST YEARS IFRS IFRS NGR NGR NGR Key figures in SpareBank 1 SR-Bank group 2005 2004 2003 2002 2001 Profit and loss account Net interest income 1 113 1 129 1 095 1 050 979 Net exchange and capital gains/losses 192 131 163 -115 32 Other operating income 733 590 469 278 365 Total operating income 2 038 1 850 1 727 1 213 1 376 Total operating costs 1 012 948 922 838 785 Profit before losses and write-downs 1 026 902 805 375 591 Losses and write-downs 236 357 169 Tap på utlån og garantier -70 81 Result of ordinary activities 1 096 821 569 18 422 Taxes 234 206 160 51 127 Profit for the year 862 615 409 -33 295 Including minority interests 6 3111 Majoritetsinteresser 856 612 408 -34 294
Profit and loss account (% of average total assets) Net interest income 1,76 % 2,03 % 2,12 % 2,13 % 2,13 % Net change in fair market value of securities 0,30 % 0,24 % 0,32 % -0,23 % 0,07 % Other operating income 1,16 % 1,06 % 0,91 % 0,56 % 0,80 % Total operating income 3,22 % 3,33 % 3,34 % 2,46 % 3,00 % Total operating costs 1,60 % 1,71 % 1,78 % 1,70 % 1,71 % Profit before losses and write-downs 1,62 % 1,62 % 1,56 % 0,76 % 1,29 % Losses and write-downs 0,46 % 0,72 % 0,37 % Tap på utlån og garantier -0,11 % 0,15 % Result of ordinary activities 1,73 % 1,48 % 1,10 % 0,04 % 0,92 % Taxes 0,37 % 0,37 % 0,31 % 0,10 % 0,28 % 96 Profit for the year 1,36 % 1,11 % 0,79 % -0,07 % 0,64 %
Volumes (NOK million) Total assets 67 237 59 140 52 642 49 538 48 471 Loans to retail customers 41 890 37 264 33 353 29 819 27 935 Loans to corporate sector 19 858 17 169 15 521 15 626 15 831 Deposits from retail customers 17 464 16 787 15 944 15 375 13 815 Deposits from corporate sector 20 066 16 275 12 322 12 259 10 196 Growth in loans to retail customers % 12,4 11,7 11,9 6,7 8,4 Growth in loans to corporate sector % 15,7 10,6 -0,7 -1,3 16,3 Growth in deposits from retail customers % 4,0 5,3 3,7 11,3 10,7 Growth in deposits from corporate sector % 23,3 32,1 0,5 20,2 5,7
Equity (NOK million) Primary-capital-certificate capital 1 128 905 750 747 748 Savings bank’s reserve 1 536 1 194 1 132 1 002 967 Dividend equalization reserve 1 029 913 872 775 796 Other equity 130 89 55 32 175 Minority interests 7 5222 Total equity 3 830 3 106 2 811 2 558 2 688
Key-figures Return on equity % 24,7 20,2 15,2 -1,3 11,2 Costs as a percentage of income 53,0 53,2 57,0 61,8 56,9 Number of man-years 862 813 829 818 807 Gross non-performing loans as a percentage of loans 0,2 0,4 0,9 0,7 0,7 Net non-performing loans as a percentage of loans 0,2 0,2 0,6 0,4 0,4 Unspecified loss provisions as a percentage of loans 0,27 0,68 0,77 0,83 0,81 Capital adequacy ratio % 11,84 11,57 12,32 10,81 12,69 Core capital ratio % 8,98 9,08 9,11 7,24 7,92 Average total assets 63 376 55 581 51 725 49 351 45 866 Profit and loss Man years, group NOK million
2001 2002 2003 2004 2005
Result of ordinary activities Losses and write-downs
Deposits and loans Equity and subordinated loan
97 NOK million NOK million
Gross loans Subordinated loan Deposits Other funds Dividend equalization Primary capital certificate capital Saving banks reserve
Return of equity Total operating costs Percent Percent of average total assets
2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 SpareBank 1 SR-Bank Annual Report 2005
A group willing and able to contribute
Through its activities the SpareBank 1 SR-Bank Group creates A BANK WILLING TO MAKE USE OF THE LOCAL considerable values. In 2005, we created measurable values BUSINESS COMMUNITY worth almost NOK 1.7 billion. In addition to direct value creation, the Group’s activities also create spill-over effects by creating a demand for goods and • 35 per cent (approx. NOK 590 million) returned to services from local businesses. the community through taxes and special charges paid by the company and its employees, and gifts for public In the course of/During the past year the SpareBank 1 SR- benefit. Bank Group purchased of various goods and services amounted • 20 per cent (approx. NOK 340 million) goes to the to more than NOK 450 million. In addition to consuming IT 98 employees, in the form of net wages, pensions and services on a large scale, the Group expends large sums on benefits. communication (telecommunication, postage and freight • 28 per cent (approx. NOK 470 million) is distributed to charges) and marketing – both services and materials. The our primary capital certificate owners in the form of cash Group’s considerable number of buildings located throughout dividends and allocations to the equalisation reserve. the Group’s market area also requires maintenance work, • 17 per cent (approx. NOK 275 million) is retained in the giving work to craftsmen of all trades. In as far as possible, we savings bank's fund with a view to prepare for further use local suppliers of goods and services, provided they are growth in our market area. competitive. Our willingness to make use of local business resources implies that most of the overall goods and services we require are supplied by local players.
A BANK THAT CONTRIBUTES TO THE COMMUNITY The SpareBank 1 SR-Bank Group is among Rogaland County's Allocation of value creation 2005 largest taxpayers. Almost NOK 230 million of last year’s profit goes to the community through taxes. In accordance with the SpareBank 1 Storting’s tax decisions, these funds are channelled to public SR-Bank Group Employees 20 % 17 % authorities. The autorities goes on to distribute these assets among a number of public services. The services we help fund in this manner therefore depend on the decisions made by our elected representatives. In addition to tax, the Group also pays significant amounts in charges and fees, mostly in the form of value added tax. The amount is well above NOK 60 million. The community PCC-owners 35 % 28 % A BANK THAT IS WILLING AND ABLE TO SUPPORT ITS LOCAL COMMUNITY The SpareBank 1 SR-Bank Group has earmarked NOK 92 million of its 2005 profit for serving the public good in our district. This is the maximum amount we are allowed to allocate to such ends under the applicable regulations. In total, we have allocated NOK 200 million to be endowed on/upon worthy organisations and projects over the last 5 years. In the presence of Sandnes mayor Jostein Rovik, the manager of Sandnes Museum og Vitensenter, Gro Persson receives a gift cheque of NOK 10.2 million for the Knowledge Centre from Inglen Haugland in SpareBank 1 SR-Bank.
What do your children know about sine, cosi- ne and tangent? The Sandnes Knowledge Centre is one of six such centres nationwide, scheduled for completion in 2008. The centre necessary for our district to remain a good and attractive is to be a popular science experience centre, place to live. especially aimed at stimulating the interest of children and young people in science subjects, subjects which will be crucial to the business In 2005 the employees paid a total of NOK 138 million in community in the years to come. SpareBank 1 taxes. These tax assets are in addition to the almost NOK 230 SR-Bank has contributed NOK 10.2 million million paid by the group, and also help maintain a well- from its endowment fund to the establishment developed range of services offered by the public authorities of the centre. in the region.
A BANK THAT GIVES ITS OWNERS SOLID RETURNS 99 A significant percentage of the equity the SpareBank 1 SR- Bank Group requires to run its operations has been gathered by issuing primary capital certificates. Almost half of these These are resources that benefit many people living in our primary capital certificates are owned by people, companies local community – directly and indirectly. The funds have and institutions in Rogaland and Agder. In order to make been distributed among a large range of activities, from sup- owning these primary capital certificates attractive, it is port to NGOs to building civic institutions on a larger scale. important that we offer competitive rates of return. This The funding of the Sandnes Knowledge Centre with NOK 10.2 requires that we continually achieve solid profits. These million and the Concert House in Stavanger with NOK 25 profits raise the value of the primary capital certificates and million are examples of the latter. In total, the group funded allow us to pay a competitive dividend - both through cash different activities for the public good by NOK 51 million dividends and allocations to the equalisation reserve that can directly from its endowment fund in 2005. ensure the payment of competitive cash dividends in times with less solid results. In 2005, a total of NOK 473 million Every single year, numerous local associations and societies was allocated to primary capital certificate owners, of which receive large and small amounts in order to maintain their NOK 317 million was cash dividends, and NOK 156 million level of activities. This type of support is important because it was allocated to the equalisation fund. contributes to diversity in organisational and cultural life. In 2005 we awarded about NOK 12 million to organisational and A BANK THAT IS WILLING AND ABLE TO CONTINUE cultural life through sponsor agreements and supportive GROWING advertising. These are charged to the Group’s current The SpareBank 1 SR-Bank Group shall, through its activities, activities and come in addition to the NOK 92 million set further the continued growth and development of Rogaland, aside for projects serving the public good in 2006. Agder counties and now also Hordaland County. We shall be a group with a local identity, a bank that is able and willing to JOBS shoulder its share of the responsibility for further developing Almost 940 employees work for the SpareBank 1 SR-Bank Rogaland, Agder and Hordaland as vigorous, attractive regi- Group. In total the employees received over NOK 340 million ons to live in. In order to achieve this, we must be able to in net wages, pensions and benefits in 2005. We are among grow in tune with the development of the local community we the largest employers in our district. We place great emphasis serve. That is why we have allocated more than NOK 275 on being an attractive employer, attracting knowledgeable and million of our profits to ensuring that the Group continues to able people. Our presence as a large, locally based financial have the strength to expand in the future. In addition comes institution contributes to the diversity in the business the allocation of NOK 156 million to the equalisation reserve. SpareBank 1 SR-Bank Annual Report 2005
Corporate governance
The corporate governance of SpareBank 1 SR-Bank include the ween cash dividend and the equalisation reserve, there may be goals and main principles according to which the Group is variations in the emphasis on the bank’s equity development.” managed and controlled in order to ensure that the interests of the primary capital certificate owners, the depositors, and The required return on net capital is equivalent to the net other groups are safeguarded. The management of the long-term government bond rate, with the addition of six Group’s operations shall ensure prudent asset management percentage points for risk premium. and greater assurance that communicated goals and strategies are attained and realised. A STRUCTURE THAT SECURES GOAL-ORIENTED AND INDEPENDENT MANAGEMENT AND CONTROL 100 SpareBank 1 SR-Bank has therefore adopted the following The Group’s management structure is founded on the bank’s overall principles for stockholder management and corporate vision, goals, strategies and value base. governance. These are built on the three principal pillars of openness, predictability and transparency. Management and control include all processes and control measures implemented by the Group’s management in order • Creation of value for the primary capital certificate owners to ensure effective business operations and implementation of and other interest groups the Group’s strategies. In order to create greater assurance that • A structure that ensures goal-oriented and independent primary capital certificate owners and the other interest groups management and control receive correct information on business and financial matters, • Systems that ensure measurement and accountability the Group has several independent supervisory bodies. • Effective risk management • Well set-out, easily understandable and up-to-date The Group’s management and supervisory bodies therefore information have their respective tasks and objectives, and the roles and • Equal treatment of primary capital certificate owners and responsibility of the various bodies are ultimately defined by well-balanced relations with other interest groups (Norwegian) law, regulations and the Articles of Association. • Compliance with laws, regulations and ethical standards • The Group’s corporate governance are based on the MANAGEMENT BODIES recommendations provided in the “Norwegian Code of The Supervisory Board Practice for Corporate Governance” The Supervisory Board’s principal tasks include the following: • Supervising the Board of Directors’ management of VALUE CREATION FOR PRIMARY CAPITAL CERTIFICATE operations OWNERS AND OTHER INTEREST GROUPS • Adopting the accounts • Election of members to the bank’s Board of Directors, SpareBank 1 SR-Bank's dividend policy: the Audit Committee and the Election Committee ”The financial objective of Sparebanken Rogaland’s activities is to • Choosing an external auditor attain profits giving good and stable return on the bank’s total funds, thus creating values for the primary capital certificate In joint meetings with the Board of Directors, the Supervisory owners through competitive dividends and value appreciation for Board makes decisions on the following matters: the primary capital certificates. The bank’s profit for the year will • Appointment of the Chief Executive Officer be divided between the primary capital certificate owners and the • Establishing and shutting down branch offices in saving bank’s reserve, in concurrence with their respective municipalities where the bank does not have its principal percentage of the bank’s equity. In the pro rata distribution bet- office, other branches or department offices • Allocation of the amount which may, pursuant to Section • The election of the members and the deputy members to 28 of the (Norwegian) Saving Banks Act, be used for the the Board of Directors, not including the employees’ public good representatives • Taking up subordinated loan capital • The election of the members and deputy members to the Audit Committee • The election of the members and deputy members to the Election Committee
INDEPENDENT In its work, the Election Committee shall consider the fact GOVERNING BODIES CONTROL BODIES that the Supervisory Board, the Audit Committee, the Election Supervisory Board Audit Committee Committee and the Board of Directors should have the skills and expertise required for their tasks. In addition, the Election Election External Auditor Committee shall work towards a degree of district Committee representation, and ample representation of both genders. Board Internal Auditor The Board of Directors
CEO The Board of Directors is elected by the Supervisory Board and consists of nine members. One of these is elected by the
Overall Risk Management employees. The Chief Executive Officer is a member of the Board, cf. Section 14 of the Saving Banks Act and the bank’s Articles of Association. The first deputy member and the first deputy member for the employees’ representative have the right to appear and speak before the Board. When preparing the Supervisory Board’s meetings, the bank shall ensure that all members receive notice of the meeting by All elected members of the Board of Directors are elected for mail, not later than eight days before the meeting, cf. Section a term of two years. Deputy members are elected for a term of 11 of the Saving Banks Act. The Supervisory Board may not one year. Both members and deputy members may be re- make decisions in matters other than those specifically listed elected. In order to ensure continuity in board membership, in the notice of the meeting. half of the Board’s members are elected every other year. 101
The Supervisory Board has 56 members and 56 deputy The Board of Directors has the paramount responsibility for members, representing the following groups as follows: the management and organisation of the Group in accordance • Primary capital certificate owners: 22 members and 22 with the law, the Articles of Association and regulations issued deputy members by the Supervisory Board. The Board is responsible that the • The municipalities in Rogaland and Aust- and Vest-Agder: assets managed by the Group are managed in a safe and 10 members and 10 deputy members appropriate manner. It follows from this that the Board is also • Depositors: 10 members and 10 deputy members obliged to ensure that accounting and asset management are • Staff: 14 members and 14 deputy members supervised in a reassuring manner. In exercising their respon- sibility and carrying out their tasks, the members of the Board The Supervisory Board normally has three meetings per year. shall exhibit prudence and discretion. Minutes from the Supervisory Board’s meetings of the past three years are published on www.sr-bank.no. The Board also has the following principal tasks: determining instructions for day-to-day management, strategy, budget, Election committee market and organisational objectives; and appointing and The Supervisory Board elects the Election Committee among discharging the manager of the internal audit. the members of the Supervisory Board. The Election Committee consists of five members, two of whom represent At regular intervals, the Board receives reports on profit the primary capital certificate owners. The following groups performance; market developments; management, personnel are represented with one member each: publicly elected and organisational development, and risk picture and risk representatives, depositors and employees. From each group, exposure trends for the Group. one deputy member is elected. The term of office is two years at a time. In addition to the above, the Chief Executive Officer’s score cards containing financial, organisation, market and quality The election committee prepares: targets are presented periodically. • The election of the chairman and deputy chairman to the Supervisory Board The Group’s ethical rules state that “representatives and • The election of members and deputy members for the employees shall not participate in considering and decision- primary capital certificate owners and the depositors to the making in cases if this may places the person’s impartiality in Supervisory Board doubt.” None of the board members elected by the Supervisory Board shall have any employee or commissioned SpareBank 1 SR-Bank Annual Report 2005
relationship to the Group beyond their office as SUPERVISING BODIES representatives. Unit for overall risk management The unit is independent of the customer units, and is When considering commitments in which the Board members responsible for: hold office or are stakeholders, the person in question shall declare himself or herself disqualified and leave the meeting. • Further development of the Group’s overall risk management framework The members of the Board are defined as primary insiders, • Overall risk management and follow-up and must comply with the Group’s regulations with regard to acquiring primary capital certificates in SpareBank 1 SR-Bank A separate controller function has been set up to cover the and the SpareBank 1 Alliance banks. This also applies to the areas of credit risk, operational risk and currency and finance purchase of shares in companies that are in a customer risk. relationship with SpareBank 1 SR-Bank. The Audit Committee Pursuant to Norwegian law, the Board of Directors is jointly The Audit Committee is elected by the Supervisory Board and responsible for the decisions made. In view of this, the Board consists of five members and two deputy members. The has not appointed any standing sub-committees. Instead, the members’ term of office is two years. The Audit Committee’s Board appoints ad hoc committees as required. These prepare chairman is elected by the Audit Committee. individual cases for consideration by the Board, for instance in connection with considering remuneration schemes in the The Audit Committee shall supervise that the Group’s operati- organisation. ons are conducted in an appropriate and reassuring manner in accordance with the law and regulations, Articles of The Board members receive an annual remuneration that is Association, guidelines determined by the Supervisory Board, determined by the Supervisory Board. No remuneration is as well as orders from the Financial Supervisory Authority of paid in addition to this. Further information on remuneration Norway. and loans to Board members is supplied in the annual accounts. The Audit Committee normally has 11 meetings per year.
102 The Board’s work is regulated in the Board Regulations, and The External Auditor annual plans are drawn up for the Board’s work. Every year, The external auditor’s principal task is to assess whether the the Board assesses its work. This self-assessment evaluates Group’s annual accounts have been submitted in accordance work procedures, case processing, meeting structure and the with laws and regulations. The external auditor shall also priority given to various issues. assess whether the assets are managed in a reassuring As a rule, the Board has eleven meetings per year. manner and with prudent supervision. The external auditor is chosen by the Supervisory Board. The Chief Executive Officer The Chief Executive Officer is responsible for the day-to-day The external auditor reports to the Supervisory Board and the management of the Group’s operations in accordance with Audit Committee on these matters. the law, the Articles of Association, authorities and instructions. Cases that are of an unusual nature in relation The Internal Auditor to the Group’s activities or are of great significance are The internal audit is a board and management tool for presented to the Board. monitoring that the risk management processes are goal- oriented, effective, and working as planned. The Group’s inter- If provided with authority by the Board, or if waiting for a nal audit operations are handled by an external supplier of board decision would imply a significant disadvantage to the audit services, ensuring independence, expertise and capacity. Group, the Chief Executive Officer may, however, decide In terms of the organisation the internal audit reports to the certain matters. Board. The internal audit’s reports and recommendations on improving the Group’s risk management are continually The Chief Executive Officer shall implement the Group’s reviewed in the Group. strategy, as well as, in cooperation with the Board, further develop its strategy. Systems that ensure measurement and accountability Effective management by objectives is necessary to help the Every month, the Chief Executive Officer briefs the Board on Group continually measure whether it is attaining its strategic the Group’s operations, its position and profit performance, objectives. The Group has developed guidelines and effective and participates as a member of the board in the Board’s measured values according to which the business units are consideration of cases. The Board annually stipulates the measured and managed. Other effective management tools salary and other remuneration to the Chief Executive Officer. used in the Group are strategic planning, forecasting and budget management.
Accountability is ensured through clear communication of business plans and adopted objectives to the employees. This Group’s, and thus the primary capital certificate owners’, is carried out via clearly defined roles, responsibilities and long-term interests in all connections and regards. expectations, in which the managers are made accountable for goal attainment within the various fields of responsibility. The Group shall, through continuous dialogue, give all prima- Remuneration schemes are based on the management’s and ry capital certificate owners the opportunity of expressing their employees’ performance in relation to these measured values views on the bank’s operations and development. The Group’s profile shall give it trustworthiness and predictability in the EFFECTIVE RISK MANAGEMENT market, and it shall aim for long-term and competitive rates of Effective risk management is an important factor in assuring return. In order to ensure a balanced and correct valuation of that the Group attains its strategic objectives. Risk manage- the primary capital certificates, SpareBank 1 SR-Bank shall ment is an integrated part of the management’s decision- provide the market with relevant and extensive information. making processes, and a crucial factor in organisation, procedures and systems. Depositors One of the Board’s principal tasks is to secure the depositors’ The Group carries out analyses, management and follow-up of assets. This shall be done through financial development, significant risks as part of its continuous risk management resulting in prudent asset management, and not taking any process. This is to ensure that its operations are in accordance risks that are greater than is prudent on the basis of the with the approved risk profile and adopted strategies. The Group’s earnings and capital adequacy ratio. Board and the management review the Group’s risk profile at least once per year with regard to strategic, operational and Lenders transactional matters. At regular intervals, the development of Through the overarching objective of solid and sound bank the risk picture is reported to the Chief Executive Officer and operations that enable the Group to meet its future the Board. commitments, the Group’s strategy for liquidity management attends to the Group’s as well as the lenders’ interests. In WELL SET-OUT, EASILY UNDERSTANDABLE AND addition, the strategy shall help reduce the likelihood of UP-TO-DATE INFORMATION questions being raised or uncertainty emerging regarding the Well set-out, easily understandable and up-to-date information Group’s solidity. cements the relationship of trust among the owners, the Board and the management, and ensures that the Group’s Customers 103 interest groups are continuously given the opportunity to In order to create the best possible foundation for the assess the Group and relate to it at the same time. Group’s development, the Group shall engage in active dialogue with its customers. This shall be part of normal The Group’s information policy therefore emphasises an customer contact. In addition, user surveys and customer extensive dialogue with various interest groups. Openness, panels will be used. All customer contact shall be based on dependability and transparency are essential in this dialogue. business-like principles, the Group’s value base, ethical guidelines and the vision of the recommended bank. SpareBank 1 SR-Bank also gives importance to inspiring the investor market with trust through correct, relevant and up- By giving the value base a concrete, practical meaning in day- do-date information on the Group’s performance and results. to-day life, the Group wishes to promote collaboration among Quarterly investor presentations are held in order to keep the its various employees and units – with the objective of market informed. In addition, the Group regularly gives providing its customers with optimum solutions, and high presentations for international partners, lenders and quality of service. investors. All quarterly reports, press releases and presentations are available on www.sr-bank.no. It is the Board’s responsibility to ensure that the Group facilitates and maintains effective, appropriate and ethically EQUAL TREATMENT OF PRIMARY CAPITAL CERTIFICATE justifiable products and advice, thus building the best pos- OWNERS AND A WELL-BALANCED RELATIONSHIP WITH sible customer relations. OTHER INTEREST GROUPS General The employees The Group’s relations with its interest groups, including The Group’s value base states how the Group’s employees primary capital certificate owners, depositors, lenders, shall act with a view to ethics and conduct. Management and customers, employees and society at large, shall build on the collaboration are rooted in the Group’s value base, procedures, bank’s vision, goals, strategies and value base. The value base guidelines and work regulations. In order to succeed, all the shall be realised through a long-term approach, openness, employees shall have expertise and quality in everything they and honesty, and by acting responsibly, showing respectful- do. ness, and willingness and ability to improve. The Group shall have a corporate culture that supports and Primary capital certificate owners further develops the organisation’s employees to become a The Board’s most important objective is to safeguard the dynamic winning team. The Group places great emphasis on SpareBank 1 SR-Bank Annual Report 2005
a corporate culture that promotes well-being, pleasure in insider trading. The instructions describe the laws and work, and a good working environment. This is measured regulations that apply to all employees, temporary staff and through quarterly surveys. representatives, both internally and in relation to the Group’s interest groups. The ethical guidelines are communicated The Group’s employees shall act in a dependable manner, clearly within the organisation and define desirable and have high ethical standards and show respect for the bank’s undesirable conduct. All employees are bound to tradition as a regional and locally-rooted savings bank. confidentiality and shall sign a promise of confidentiality. The obligation to maintain confidentiality shall not impede Security for employees and customers is designed with a view employees from notifying the appropriate bodies if there are 104 to protecting the employees and customers against physical matters within the Group that they assume to be in breach of and mental harm, as well as protecting the assets the Group applicable laws, regulations and instructions. If employees manages. become aware of matters that are in breach of regulations, this shall be reported to the immediate superior. The promise Social responsibility of confidentiality and the ethical guidelines are re-examined by With its regional identity and its network of branches, all employees every other year through a verification of their SpareBank 1 SR-Bank is an integrated part of the local com- understanding, acceptance and compliance. Breach of the munity, and is actively involved in creating and participating guidelines and routines are not accepted, and serious matters in local and regional meeting places. Profitability is a precon- are automatically reported to the police. dition for contributing to local development projects. As a savings bank, SpareBank 1 SR-Bank is able to allocate parts of The Group’s intranet contains a security gateway that deals its profits for the benefit of the public good by placing them in with regulations and emergency preparedness plans. the bank’s endowment fund. This is used purposefully to promote growth and development in the region.
Gifts and sponsor contributions shall be grounded in the bank’s vision and business idea, and shall be distributed in a manner that supports wide coverage and diversity.
COMPLIANCE WITH LAWS, REGULATIONS AND ETHICAL STANDARDS Ethics and morals are important preconditions for long-term profitability and goal attainment. Compliance with laws, regulations and ethical standards are further preconditions for sound bank operations. The Group has drawn up ethical guidelines and internal instructions for own transactions and Risk and capital management
For several years, SpareBank 1 SR-Bank has put substantial calculating expected loss and risk-adjusted capital, but in resources into developing methods, processes and risk some cases the calculations nevertheless require expert management systems on a par with the top comparable opinions. international banks. The return on risk-adjusted capital is one of the most The Group’s risk management shall sustain the Group’s important strategic performance indicators in the internal strategic development and goal achievement. Risk manage- management of SpareBank 1 SR-Bank. This implies that the ment shall also ensure financial stability and prudent asset business units receive capital in accordance to the calculated management. This shall be attained through: risks related to the business, and that return on capital is monitored continuously. Calculating risk-adjusted capital 105 • A sound risk culture, characterised by a high level of risk allows the Group to compare risk across risk categories and management awareness business units. In addition, risk is measured and followed up • A good understanding of which risks that drive earnings through measuring, among other things, limit use and and risk costs, and, create a better decisionmaking basis important portfolio risk indicators. • Aim for optimum capital allocation within the adopted business strategy The Group follows up overall risk exposure and risk develop- • Avoiding unexpected negative events that could be ment through periodical risk reports to the management and detrimental to the Group’s operations and market reputation the Board of Directors. The risk management department • Utilising of synergy and diversification effects carries out the overall risk monitoring and reporting. The department is independent of the Group’s various business The Group has a moderate risk profile. According to the units. Independent risk reporting is an important risk profile, no single event shall be able to damage the Group’s management principle in SpareBank 1 SR-Bank. financial position seriously. The Group has the objective of at least maintaining its current international rating. This is to RESPONSIBILITY FOR RISK MANAGEMENT encure long-term, good access to ordinary funding from the AND CONTROL capital markets. The size of the Group’s subordinated capital Risk management and control are a part of SpareBank 1 SR- corresponds with this ambition. Bank’s management of operations described in the chapter “Corporate governance.” Great weight has been attached to The Group’s risk is quantified in calculations of expected loss responsibility through personal authorities, and independence and the need for risk-adjusted capital (economicial capital) among the business units and organisational units in order to cover unexpected loss. Expected loss and risk- monitoring the business units. In order to ensure effective adjusted capital are calculated for all principal risk categories, risk management in SpareBank 1 SR-Bank, the responsibility and for all the Group’s business areas. Expected loss describes is divided among different roles in the organisation, as shown the amount the Group must, statistically, expect to lose over in the diagram below: a twelve-month period. Risk-adjusted capital describes how much capital the Group believes it will require in order to cover the actual risk it has assumed. As safeguarding against all losses is impossible, the Group has stipulated that the risk-adjusted capital shall cover 99.9% of all possible, unexpected loss. Statistical methods have been used for SpareBank 1 SR-Bank Annual Report 2005
independent of the business units. The department reports Board of Directors directly to the Chief Executive Officer. The department is Stipulates the overall risk profile and ensures that the Group responsible for the Group’s risk models and for further has sufficient subordinated capital in accordance with the level developing effective risk management systems. The department of risk taken and the demands placed upon us by the authorities. is also responsible for independent risk assessment, risk reporting and overall risk monitoring in the Group. Chief Executive Risk Internal Officer, Business management audit Internal audit is a Board and management tool for monitoring units and department Support Dep. that the risk management process is goal-oriented, effective and working according to plan. The Group’s internal audit 1. Line of 2. Line of 3. Line of function is handled by an external supplier. This ensures defence defence defence independence, expertise and capacity. In organisational terms, Day-to-day Overall risk Independent risk management, including confirmation the internal audit reports to the Board. The internal audit’s management reporting responsibility reports and recommendations for improvements in the and supervision Group’s risk management are continually reviewed in the
Instructions, limits and authorisations Formal reports Group.
By and large, there are two committees within the risk management field that assist the Chief Executive Officer with providing a basis for making decisions and following up: SpareBank 1 SR-Bank’s Board of Directors is responsible for ensuring that the Group’s equity prudent in view of the Credit Committees. The Group has separate credit adopted risk profile and regulatory requirements. The Group’s committees for the corporate market, the retail customer Board stipulates the overall objectives, such as the risk profile, market and subsidiaries. required rates of return and how the assets shall be allocated among the various business units. The Board also stipulates The credit committees are responsible for submitting an the overall limits, authorities and guidelines for risk manage- independent recommendation to the authorised unit or ment in the Group, as well as all significant aspects of the risk person. They carry out their work as follows: management models and decision-making processes. 106 • Assessment of loan and credit applications in accordance with applicable credit strategies, credit policy, granting The Boards of Directors in the various subsidiaries attend to regulations and credit processing procedures their tasks in the individual companies in concurrence with • Placing special emphasis on identifying risk in connection decisions made by the Group’s Board of Directors. with individual applications and carrying out an independent credit risk assessment The Chief Executive Officer is responsible for risk manage- • Ensuring that the potential consequences of the various ment. This means that the Chief Executive Officer is risks have been clarified responsible for effective risk management systems being implemented in the Group and the risk exposure being The Balance Sheet Committee is responsible for considering monitored. The Chief Executive Officer is also responsible for matters in connection with asset structure and liquidity risk, delegating authorities and reporting to the Board. market risk, transfer pricing of capital and compliance with the limits adopted by the Board. The business units are responsible for the day-to-day risk management within their areas of responsibility and they ASSET MANAGEMENT shall, at all times, ensure that the risk management and risk SpareBank1 SR-Bank’s objective in connection with asset exposure are within the limits and overall management management is to ensure that financing is obtained and principles that have been adopted by the Board or the Chief deployed effectively, and that the Group has a prudent capital Executive Officer. adequacy ratio. This is secured through an appropriate process for planning and follow-up of the Group’s asset Credit support is a support function within the business management: segments responsible for ensuring that decision-making • The process is risk-driven and comprises all significant risk processes (and the basis for making these decisions) in types for the Group connection with loan and credit applications are in accordance • The process is an integrated part of the business strategy, with credit policy and credit processing procedures. The the management process and the decision-making department draws up proposals for credit strategy indicators structure and guidelines. In addition, the department handles all • The process is forward-looking commitments in which the debtor is subject to winding-up • The process is based on recognised and reassuring proceedings, or where it follows from the Group’s procedures methods and procedures for risk measurement that compulsory winding-up or collection shall be implemented. • The process is reviewed regularly, and at least once annually year by the Board of Directors The risk management department is organised so as to be The adopted business strategy includes the long-term objective SpareBank 1 SR-Bank’s default categories that funds shall, in as far as possible, be allocated the segments that give the highest risk-adjusted rate of return. Default category Minimum limit Maximum limit A - 0.10% The Group’s objective is a core capital adequacy ratio of 8% B 0.10% 0.25% and a capital adequacy ratio of 12%. At the end of 2005, the C 0.25% 0.50% capital adequacy ratio for the Group was 11.84%, of which D 0.50% 0.75% 8.98% was core capital. E 0.75% 1.25% F 1.25% 2.50% CREDIT RISK G 2.50% 5.00% Credit risk is defined as the risk of loss due to customers or H 5.00% 10.00% counterparts being unable or unwillig to meet their I 10.00% 99.99% commitments to the Group. In addition, the Group has two default categories (J and K) for Credit risk is managed via the Group’s credit strategies, credit customers with commitments that have been defaulted on policy guidelines and the procedures for granting loans. and/or written down.
The credit strategy is adopted by the Board of Directors once Below, the distribution of the commitment volumes within the per year. The Group’s credit strategy concentrates on risk- various default categories is given in percentages (excluding sensitive indicators and limits. These are put together such as commitments that have been defaulted on and written down). to manage the Group’s risk profile in the credit segment as The commitments include all types of capital services appropriately and effectively as possible. This is primarily provided customers by the Group in the form of loans, done by linking indicators and limits to risk-adjusted capital, credits, guarantees including letters of credit, accrued, unpaid risk-adjusted rate of return and expected loss respectively. In interest and commissions and forward transactions with addition, the credit strategy stipulates limits to exposure and currency and interest rate instruments. Approved, but not risk profile at portfolio level, for industries and in relation to utilised limits have also been included. individual customers.
The Board is responsible for the Group’s granting of loans Distribution of loans within the defined 107 and credit. Within certain limits, the Board delegates authority default classifications* to the Chief Executive Officer, giving him the operational responsibility for decisions on loan and credit matters. The Chief Executive Officer can, within his authorities, delegate these authorities to others. The delegated authorities are linked to expected loss and probability of default on commitments.
The Group actively uses risk classification systems, risk Percentage pricing models and a newly-developed portfolio management system to manage and monitor the lending portfolio in accordance with credit strategies, credit policy guidelines and the procedures for granting loans. Together with the credit consideration procedures, this entails explicit requirements to credit consideration processes and risk assessments. The Default classifications above-mentioned risk management systems cover customers both in the corporate and retail market. The risk models that Ex. defaults and write-downs form the basis for the risk management systems are based on statistical calculations, and are continually further developed and tested. The models are based on three components: 2. Exposure at default. This is a calculated quantity showing the 1. Probability of default. Customers are classified in default extent of exposure in the event of customer default. categories on the basis of their probability of defaulting on their commitments within a twelve-month period. Probability 3. Loss given default. This is an assessment of how much the of default is calculated on the basis of historical data series Group stands to lose if the customer defaults on commit- for financial key figures, as well as non-financial criteria such ments. The assessment takes into account the collateral as conduct and age. In order to group customers by default provided by the customer and the Group’s costs in connection probability, nine default categories (A - I) are used. The table with collecting on defaulted commitments. These amounts below shows the intervals for default probability for each of are stipulated on the basis of the Group’s historical experi- the default categories. ence. SpareBank 1 SR-Bank Annual Report 2005
Seven categories (1 - 7) are used to classify loss given default. Group’s restrictive practice in connection with granting high- risk commitments, the positive financial trend in the Group’s The three above-mentioned components also form the basis market segment and the low level of interest rates. The Group for the Group’s portfolio classification and statistically based has a low risk profile within the credit field. calculations for expected loss and the need for risk-adjusted capital. The objective of the portfolio classification is to provide LIQUIDITY RISK information on the level and development of the overall credit Liquidity risk is the risk that the Group will be unable to re- risk in the overall portfolio, and the portfolio is therefore finance its debt or be unable to finance asset increases divided into five risk categories: minimum, low, medium, high without significant extra cost. The management of the and maximum risk. The grouping into risk categories takes Group’s financing structure is based on an overall liquidity place on the basis of statistical calculations for expected loss strategy. This is reviewed and adopted by the Board of for each commitment, based on the commitment’s probability Director minimum once per year. The liquidity risk is reduced of default, exposure at default and loss given default. by spreading funding among different markets, funding sources, instruments and terms. The Group’s currency/ SpareBank 1 SR-Bank’s risk categories financial department is responsible for managing liquidity, while the risk management department monitors and reports Minimum limit Maximum limit limit use in accordance with the liquidity strategy of the Risk category for expected loss for expected loss management and the Board of Directors. Minimum 0.00% 0.04% Low 0.04% 0.20% The Group’s customer deposits are its main source of funding. Medium 0.20% 0.75% The capital adequacy ratio of deposits has remained at a high, High 0.75% 1.25% stable level throughout 2005, and was 60.7% at the end of Maximum 1.25% 100% 2005. This level corresponds to that of the end of 2004.
In addition, there is a separate risk category for commitments As at 31 December 2005, the Group’s liquidity situation is that have been defaulted or written down. good. International and national sources of funding are evenly distributed. The Group also has undrawn, committed drawing The graph below shows the distribution of commitment rights. The liquidity indicator of Norges Bank, the Norwegian 108 volumes (excluding commitments that have been defaulted Central Bank, is used as a parameter in liquidity management. on or written down) in percentages, within the various risk The liquidity indicator is arrived at by dividing the Group’s categories. The commitments include all types of capital stable funding with its non-liquid assets. Stable financing services offered customers through loans, credits, guarantees includes gross lending to the public, other receivables, seized including letters of credit, accrued, unpaid interest and com- assets, fixed-asset investments and real capital. As at 31 missions and forward transactions with currency and interest December 2005, the indicator value was 100.8%, as compared rate instruments. Approved but not utilised limits have also with 97.3% at the end of 2004. been included. MARKET RISK The underlying credit risk in the corporate and retail market Market risk is the risk of loss due to changes in observable portfolio has performed well in 2005. This is linked to the market variables such as interest rates, exchange rates and security markets. The risk of security price changes owing to changes in general credit prices and credit risk tied to Distribution of loans within the defined individual securities is also considered market risk. default classifications* In SpareBank 1 SR-Bank market risk largely arises from the Group’s investments in bonds, certificates and shares, and as a consequence of activities that are carried out to support bank operations, such as funding, and interest rate and currency trading.
Market risk is measured and monitored using limits that have Percentage been adopted by the Board. The limits are reviewed and renewed annually. The limits are stipulated on the basis of stress tests and analyses of negative market trends. SpareBank 1 SR-Bank has moderate exposure to market risk.
Lowest Low Medium High Highest Interest rate risk is the risk of loss arising from changes in Level of Risk interest rate levels. This is measured and monitored using the Ex. defaults and write-downs above-mentioned framework. Interest rate risk largely comes from fixed interest rate lending and funding in fixed-rate securities. The interest rate risk for all interest rate positions can be expressed by looking at the change in value of interest SpareBank 1 SR-Bank gives great importance to risk manage- rate instruments in the event of an interest rate change of ment and adapting to the new capital adequacy ratio 1%. The Group’s analyses show the effect of the above-menti- regulations. SpareBank 1 SR-Bank has therefore applied to the oned change in interest rates for different term limits, and Financial Supervisory Authority of Norway for permission to there are separate limits for interest rate exposure within the allow internal measuring methods (Internal Rating Based individual periods. Interest terms on the Group’s instruments Approach - Foundation) for credit risk as of 1 January 2007. are usually short and its interest rate risk is therefore low. For those banks that are approved and are given permission to use internal measurement methods, the regulatory Exchange rate risk is the risk of loss caused by exchange rate minimum requirement for capital adequacy ratio as of 2007 changes. The Group measures currency risk in net positions will be based on the bank’s internal risk assessments. This in different currencies. The limits for exchange rate risk are will make the regulatory minimum requirement for capital defined as limits for maximum aggregated currency positions adequacy ratio more risk-sensitive, so that the capital and maximum positions in individual currencies. The Group’s adequacy ratio will correspond better with the risk in the currency risk is well within the position limit stated in the underlying portfolios. In order to be approved and be given regulations, and the currency risk is low. permission to use internal measuring methods by the Financial Supervisory Authority, the banks must satisfy Security price risk is the risk of loss following from changes in extensive requirements with regard to organisation, expertise, the value of the Group’s investments in bonds, certificates risk models and risk management systems. The Financial and equity securities. The value of these securities depends Supervisory Authority plans to have completed most of the on factors that are specific to the individual issuers and on application reviews by the autumn of 2006. general market fluctuations. The Group’s risk exposure to this form of risk is governed by maximum investment limits for It is SpareBank 1 SR-Bank’s ambition to use the standard the various portfolios. method for calculating the minimum capital adequacy ratio for operational risk from 2007. OPERATIONAL RISK Operational risk can be defined as the risk of loss following In accordance with this ambition for risk management, from: SpareBank 1 SR-Bank has over several years invested • Human error and inadequate expertise considerable funds and resources in the work to further • ICT system failure develop expertise, risk models and risk management systems, 109 • Imprecise policy, strategy or procedures all with a view to adapting to the above-mentioned • Crime and internal irregularities requirements. • Other internal and external causes The department for risk management has the overall The Group’s risk management and monitoring processes are responsibility for risk picture follow-up and reporting in the so effective that no single operational risk event shall be able Group and the further development of risk management to seriously damage the Group’s financial position. systems. In order to further strengthen the risk area, the SpareBank 1 Alliance has set up a special Centre of Excellence The risk strategy for operational risk is approved minimum for Credit Models. This is the Alliance’s own professional once per year by the Board of Directors. The risk strategy community for credit models. The Competence Centre is concentrates on risk-sensitive indicators, such as expected responsible for rating, pricing, analysis and portfolio loss and calculations of risk-adjusted capital. The Group has management models for all the SpareBank 1 banks. Both the a moderate operational risk profile. department for risk management and the Centre of Excellence for Credit Models are independent of the business units. This Through the use of systematic risk analyses and implementation ensures independence in risk follow-up and reporting. of new, preventive measures, the Group has reduced its operational risk in 2005. The Group uses its own system for SpareBank 1 SR-Bank expects long-term gains from its invest- reporting and follow-up of undesired events, so that the ment in risk management: Group can, on the basis of these reports, continually improve • Lower performance volatility, as a result of improved risk its processes. management and better credit quality • Increased profits, as a result of better profitability and New rules for capital adequacy ratio (Basel II) capital allocation models. It is planned that the EU’s new directive for capital adequacy • Better application of equity, in that the minimum capital ratio will be introduced to Norway as of 1 January 2007. The adequacy ratio will correspond more closely to risk in the new regulatory framework is based on proposals for a new underlying operations. standard for capital adequacy ratios from the Bank for International Settlements (BIS). The new regulatory frame- work will allow banks with sound risk management and risk management systems to use their own models in calculating capital adequacy ratio. SpareBank 1 SR-Bank Annual Report 2005
Corporate market division
STRATEGY FACTS It is the objective of SpareBank 1 SR-Bank to help our customers Number of customers: approx. 4,200 create values. In this manner we want to help put into practice Growth in lending: 16.5 per cent the bank’s vision of being "the recommended bank." We Growth in deposits: 27.7 per cent believe in being present at the local level, and being well Gross lending: MNOK 15,419 acquainted with the region we serve. SpareBank 1 SR-Bank is Deposits: MNOK 16,225 the only local financial group with a full range of products.
EMPLOYEES 110 EVENTS IN 2005 Overall, the corporate market division employs 125 man-years. SpareBank 1 SR-Bank had strong growth in the number of This includes 23 employees in SpareBank 1 SR-Finans AS and new corporate customers, both in Rogaland and the Agder 6 employees working with the sale of commercial real estate counties. in Eiendomsmegler 1 Rogaland AS. 33 of the employees are women. There are four women in managerial positions. In The group has strengthened its position in most business 2005, 23 new man-years with a high level of expertise were segments, especially in real estate brokering through the recruited externally, of which 8 are employed in the corporate development and facilitation for sale of real estate projects. insurance market department, which is affiliated with the The target group is investors looking for long-term placements. bank's pension market efforts.
The group strengthened its position in leasing and special CUSTOMERS AND MARKETS financing, under the direction of SpareBank 1 SR-Finans AS. We have more than 4,200 customers in the business market division. Overall, more than 40 per cent of the businesses in Sale of mandatory occupational pension to corporate Rogaland are our customers. The number of corporate market customers is an important focus area. Resources allocated to customers in Agder has risen to 200 since we started our this effort have been increased significantly in 2005. business there in earnest in the autumn of 2002. In 2005, it was decided that SpareBank 1 SR-Bank will open a branch in The group has made a systematic effort to further enhance its Bergen. This will increase our availability for corporate market employees' expertise, in order to be even better prepared to customers in Hordaland. meet the customers' needs for advice and follow-up. The corporate market division has experienced growth in all WE CREATE VALUES AT THE LOCAL LEVEL segments, most notably in the large customer segment, The business market division serves customers from where several of the listed companies in the region have Hordaland in the north to Aust-Agder in the south. We are chosen SpareBank 1 SR-Bank as their new main bank. Among represented in the market by our six regional business market the bank's existing customers, a large proportion of them are divisions and 50 local offices. In addition, customers are small businesses with a need for traditional and standardised served via our website (www.sr-bank.no) and through a newly- financial products and services. In 2005, it was decided to established corporate customer centre (tel. +47 02008), where make a special effort towards this segment. SpareBank 1 SR- telephone and email are the most important channels. In Bank is increasing its focus on product development and total, SpareBank 1 SR-Bank has business relations with 9,700 allocating resources to local branches, close to where the business customers, including the SME segment. customers do their business. We wish to produce useful channels for professional communication and discussion for the business in our market area. On Friday 7 March 2006, the Governor of the Norwegian central bank, Mr. Svein Gjedrem gave a presentation on Norwegian monetary policy and the current economic situation, based on Norges Bank’s inflation report.
In March 2006, we will launch a recently developed market PRODUCTS AND SERVICES concept for this segment. The concept is named Pro - As the region’s leading financial supplier within the corporate "Because working hours are money". market we are preoccupied with having state-of-the-art expertise on our customer’s activities. This provides the foundation we As in previous years, we carried out a number of marketing need to offer our customers the right solutions. In tune with measures in 2005. We have published four issues of “Tett på our customers’ changing needs, we have built up expertise næringslivet”. This publication is distributed to more than and skills in a number of new fields during the past years. 15,000 businesses, and highlights businesses in different sectors. So far, our customers have responded with positive Our long tradition has given us a sound understanding of feedback to this effort. different financing solutions. During recent years we have also 111 developed broad expertise within various placement Together with our highly valued partners, we organised three alternatives for our customers. In connection with this, we different events within the ARENA concept iin 2005. Overall, work closely with our investment management company, SR- these events have gathered a total of 1,700 business Forvaltning ASA. executives for lectures and discussions on a number of interesting topics. Through our wholly owned subsidiary Eiendomsmegler 1 Rogaland AS we offer commercial and project real estate As in previous years, we have published the ”Konjunktur- brokering. The company is the market leader in Rogaland. Our barometeret for Rogaland”. This was done in collaboration customers are offered leasing and special financing through with Rogaland County, the Norwegian Federation of Trade SpareBank 1 SR-Finans AS. Unions (LO), the Norwegian Confederation of Business and Industry (NHO), the Labour Market Administration (Aetat), Through a number of internationally oriented customers, we ARNE and Innovation Norway. This year, we also published have developed considerable knowledge over some time "Konjunkturbarometeret for Agder". In the “Barometer” we within different services directed abroad. This applies both to focus on macro-economic trends that are of relevance for payment solutions, currency trade, letters of credit and businesses in our market area. The presentations of the general consulting services. cyclical barometer attracted 450 people in the course of the year. In 2005, we entered a cooperation agreement in international payment solutions with ING Group NV, one of Europe's In 2005, the bank also made a retail analysis for Rogaland, leading banks in this area. This service will enable our focusing on where the flow of retail trade in the region goes. customers to further rationalise their processes in their international efforts. As in previous years, we organised several breakfast meetings in the bank’s premises in Bjergsted in 2005. In connection As of 2002, SpareBank 1 has engaged in the sale of insurance with this, customers have met both the Governor of Norges solutions. Through this effort we have built up expertise both Bank, the Norwegian Central Bank, and government ministers within life and non-life insurance. Through 2005, a special for discussions. In connection with these breakfast meetings, effort has been made selling mandatory occupational pension, we have also cooperated with players such as Skagen and we see that the customers choose us on the basis of our Fondene and ODIN. concept of counselling tightly interwoven with our branch SpareBank 1 SR-Bank Annual Report 2005
network. The bank aims to offer this product to all our in a goal-oriented fashion. There has been significant growth corporate customers before the end of the year. in these risk categories.
For a long time, traditional payment solutions constituted the Through 2005, net reverse losses of NOK 72 million were bank’s core expertise. SpareBank 1 SR-Bank has expanded its entered in the accounts of the corporate market division. Gross expertise in this business area in order to offer more future- defaults at the end of the year were 0.2 per cent of the average oriented solutions and tailor these to the customers' needs. lending volume, compared to 0.7 per cent of the average In 2005, we supplied new payment solutions connected to the lending volume at the same time in the preceding year. new "Kolumbus" card, which has been introduced in public transportation in Rogaland. Another important effort is the OUTLOOK FOR 2006 development and sale of solutions in connected to safe We expect the positive development in the business market to authentication on the internet (BankID). continue in 2006. Business and industry are signalling increased activity. For a number of enterprises, the shortage CREDIT RISK TRENDS of qualified labour will be a major challenge in the time ahead. The group has developed risk classification systems, risk The business community in the region is on the offensive, pricing models and a portfolio management system which are and we expect increased activity in connection with mergers in active use in managing the lending portfolio. This, combin- and take-overs in 2006. ed with the credit handling routines, sets down clear require- ments to the credit handling process and risk assessments. Lending activities are expected to rise at the same rate as in 2005. We will continue to closely follow ongoing risk The percentage of high risk has been greatly reduced over the development. course of the year. This share of the portfolio amounts to 4.3 per cent in 2005, compared to 7.1 per cent in 2004. The bank The bank expects a positive response from its customers to focuses on customers within the low to middle risk categories its service pension efforts.
112
Most of the business are small. Via our local branches SpareBank 1 SR-Bank has 5.562 smallsized corporate customers. Often these business do not have a dedicated employee for financial affairs and contact with the bank. Nontheless they are the foundation of added value in local communities. Good advice as well as effective banking products and services are critical for the business activities of these customers. The Retail market division
offices which form the core of its distribution network. At the FACTS recommendation of the bank, more and more customers are Number of retail customers with SpareBank 1 SR-Bank using a combination of our Internet and telephone banking as their main banking connection: 186,860 facilities and our call centre to handle simple, everyday Number of agricultural customers: 3,009 banking transactions. Our call centre handles all incoming Number of small and medium-sized businesses: 5,562 calls and communication via the Internet bank. During 2005, Number of clubs and associations: 2,192 we saw a strong growth in electronic communication, which Number of customers with savings agreements: 22,100 will continue to increase strongly in the time ahead. Customer Number of customers with investments satisfaction is high among call centre users. in ODIN funds: 41,408 113 Number of customers with general insurance: 67,700 EMPLOYEES Lending: NOK 43,118 million At the end of 2005, the Retail market division had 440 Deposits: NOK 20,819 million employees, of which 62 per cent were women and 38 per cent Off-balance sheet savings investments: NOK 8,351 million were men. This is an increase of 7 man-years from 2004. The average employee is 45 years old. In managerial positions, there are 16 women. STRATEGY SpareBank 1 SR-Bank is construed as a professional advisor The financial advisors in the branch network are close to the and total supplier of financial services with a product range customers, know their local community well, have a high level which covers the customers' needs through the different of expertise and actively seek out the customers for follow up. phases of their lives. The development of services and Together with the financial advisors in the branch network, products adapted to ever more differentiated customer needs the advisors in the call centre play an increasingly important is given a high level of priority in the organisation. The bank's role in connection with giving advice via email and telephone. multi-channel strategy is designed to give the customers a The group has made a systematic effort to streamline feeling of familiarity, a high degree of availability and effective operations and adapt its expertise to changed customer interaction between the channels. Internet and telephonic behaviour patterns tending towards increased self-service. banking, a call centre and, in time, mobile services are under One of our objectives is to offer increased expertise and continuous development, and are at the forefront of the capacity for advisory and proactive sales efforts. market in terms of quality. EVENTS IN 2005 Close interaction between the different business units in the Further development of the branch network: group and the product suppliers provide the customers with • Opening a new branch in Grimstad in May 2005 added value and consequently increased business volumes. • Decision to establish a new branch in Farsund in March 2006 The pension, savings and investment market is growing fast. • Preparing for opening a new branch in Bergen in May 2006 The effort to attain a higher profile in this market is given • New contract with Avinor regarding the operation of priority. a branch at Sola Airport. This branch represents something new as regards bank branches in Norwegian MULTI-CHANNEL BANK - THE CUSTOMER'S CHOICE airports. At the end of the year, SpareBank 1 SR-Bank had 50 branch SpareBank 1 SR-Bank Annual Report 2005
New business areas/products: per cent, or NOK 16.8 million, which is satisfactory. • Car mortgages were launched by SpareBank 1 SR-Finans AS in May 2005 and are distributed in the Retail DEFAULTS AND LOSSES market division with very good results Gross defaults have been at a stable and historically low level • Investment fund account with insurance element and fund throughout the year, and were 0.33 per cent in December. switch without tax payment was launched by SpareBank 1 Low interest rate levels, stable and low unemployment rates Liv AS in May. Sales have been good combined with close follow-up of the customers are the main • A new youth concept was launched in June, based on 30 causes. Losses have been marginal, NOK 2 million, or 0.02 customer focus groups. More than 500 youths helped per cent of the lending portfolio. The quality of the portfolio is outline the premises for the development of the concept, good. which was very well received • Loans with an interest rate cap, were launched in early EXTERNAL CONDITIONS summer. This is a product which complements our product The Norges Bank key interest rate has increased from 1.75 per range in financing without having yielded any large cent to 2.25 per cent over two interest rate adjustments of volumes as of yet 0.25 percentage points each in 2005. The rise, combined with • The compulsory service pension effort was initiated in signals for further adjustments in 2006 of up to 1 percentage close cooperation with the Corporate market division point, has not had any tangible effect on the optimism of • The sale of shares in 4 real estate syndicates was facilitated Norwegian households, something which is amply illustrated in cooperation with the Corporate market division. by the strong growth in borrowing. The share market rising The target group is customers who want a diversified and 39.65 per cent has led to many selling off shares to secure long-term investment portfolio. profits and finance the purchase of capital goods and holiday • New products for the Norwegian Confederation of homes and improving their homes. Trade Unions (LO) customers (LO Favør Bil og Hjem) were launched in June and were well received in the market SUMMARY OF THE DIVISION'S SUB-AREAS Retail customers FINANCIAL DEVELOPMENT The number of customers who define SpareBank 1 SR-Bank The division's profitability is good, with a risk-adjusted as their main banking connection has increased by a total of dividend of 23.8 per cent after taxes. Volume growth in the 2,980, to 192,412. Approximately 50 per cent of the growth 114 balance sheet, good cross-sales, very low losses and good comes in the Agder counties. The development is satisfactory, cost control characterise the development. For further and particularly so, when taking into account the increasingly segment information, see Note 5 in the IFRS accounts. fierce competition from new and existing players. Customer satisfaction is at a high and stable level. DEPOSITS AND LENDING A growth in deposits of 4 per cent is satisfactory when seen in Agriculture connection with the low interest rate level. Due to changes in Structural changes and large turnover of properties, farming the regulations on wealth tax, customers transferred NOK 250 land and milk quotas have characterised 2005. Demand has millions to money market funds in December. The 12.4 per been larger than supply and changed tax regulations coming cent growth in lending was 1 percentage point below total into force in 2006 have boosted this development and has market growth. Due to fiercer competition, price adjustments lead to strong pressure on prices. were made in the spring which created growth for the rest of the year. Margins have been under pressure and have fallen Increased prices on agricultural properties are a challenge to by a total of 47 basis points. An interest rate buffer of five per both farmers who are considering larger investments and for cent is used in the liquidity assessments of set to the the bank as a qualified advisor and financial backer. customers, which is in the upper market range, leading to a somewhat subdued growth in certain segments. The pressure For the tomato sector and the pork production sector, 2005 on the margins has been compensated through increased was a far better year than 2004. No forms of production have growth. The effort to secure other operating income and been especially exposed in 2005, but the pressure on product maintain good cost control remains a priority. prices is generally increasing. The ongoing WTO negotiations make the need for restructuring more obvious. The need for OTHER OPERATING INCOME capital is ever increasing and the expertise in relation to The growth in total other income was 7.5 per cent, or NOK 20 evaluating customers and projects is an important driver in million. The income from payment transactions shows a order to be seen as the recommended agricultural bank in our moderate growth of 1.3 per cent due to a decline in manual market areas. The bank has taken a clear position in the debate services and consequent growth in self-service, very low-priced on the development of agriculture as an industry. The bank's electronic services. This trend will continue. Insurance income market position has been further strengthened in 2005. showed a growth of 0.6 per cent, NOK 0.4 million. Strong price pressure and reduced bonus in connection with the loss The Small business market ratio have given weaker growth than expected. The income About 5,562 small businesses are connected to the Retail from the savings and investment segment has grown by 31 market division through the individual branch offices. The 115
There are many dreams, and good banking solutions are what it takes to realise them. Being close to the customers and good advice from our employees are the pillars of our operations and a precondition for our vision of being the recommended bank. businesses are typically organised as sole traders, with a low and investment markets will continue. The market is expected level of complexity and risk from the bank's point of view. If to provide sales of the bank's products and services on a par the organisation of the business changes, it is transferred to with 2005. the Corporate Market Division, which can provide specialist expertise. Developments in this market were satisfactory in Capacity build-up in the financial industry will continue. This, 2005. combined with a more differentiated and demanding market, will challenge the ability of the organisation to restructure and THE OUTLOOK AHEAD to focus on business-oriented priorities. This also demands a The households' financial status is sound and they are clear strategy on market activities and the development of new optimistic regarding the future. Unemployment is low, and is services/products. A very tight labour market will make the expected to fall further. According to our forecasts, interest competition for good employees even harder. The Retail rate levels will rise by approximately 1 percentage point in market division is well prepared to meet increased competition, 2006, which is not expected to influence the will and ability of and a positive development is expected in 2006 as well. the households to take up loans. The growth in the savings SpareBank 1 SR-Bank Annual Report 2005
Overview of our offices
Bergen
116
Sauda
Ølen Vindafjord Sand Haugesund Aksdal Karmsund Kopervik Sjernarøyane Bokn Fister Finnøy Årdal Skudeneshavn Tau Kvitsøy Rennesøy Randaberg Jørpeland Stavanger Tananger Sola Forsand Sandnes Klepp Bryne Ålgård Nærbø Vikeså Tonstad Varhaug Vigrestad
Egersund Lund Grimstad
Sokndal Flekkefjord
Farsund Kristiansand Lyngdal Mandal Governing bodies
The Supervisory Board Members elected from and by the employees (The figures in the brackets state how many primary capital Berland Bjørn, Stavanger (2 387) certificates the person in question owned in the Sparebanken Clausen Janne, Mandal Rogaland as at 31 December 2005. We have also included pri- Ellingsen Kirsten Siv, Stavanger (282) mary capital certificates owned by close family members and Erga Morten, Jæren known companies in which the person has decisive influence, Halvorsen Arnt Eivind Roth, Finnøy (1 222) cf. Section 1-2 of the Companies Act. We have also included Hamre Harald Utvik, Stavanger (2 089) primary capital certificates belonging to the institution that Hegrestad Ragnhild, Egersund (1 400) has elected the person as its representative.) Kvale Anne Nystrøm, Stavanger (2 207) Markhus Lars Magne, Stavanger (4 737) Members elected by primary capital certificate owners Solheim Vibeke, Stavanger (722) Andersson Bjarne, Oslo (1 028 300) Throndsen Astrid H., Finnøy (947) Apeland Bjørn, Tysvær (81 785) Trædal Erling, Ølen (1 269) Egenäs Ulf, Sverige (2 225 850) Wells Eli Lunde, Stavanger (1 237) Erevik Alf, Hønefoss (106 900) Østhus Grethe Berge, Vedavågen Gudmestad Martha, Stavanger (50) Haugan Finn, Trondheim (20 870) The Board of Directors Hedberg Per, Stavanger (47 597) General Manager Geir Worum, Chairman of the Board Hystad Anne Elise, Karmøy (5 100) Ship ownerr Kristian Eidesvik, Deputy Chairman Jacobsen Trygve, Stavanger (173 672) of the Board (3 000) Kolnes Mona Iren, Stavanger (4 900) Managing Director John Peter Hernes Kræmer Hanne Karoline, Tromsø (13 450) Controller Ingrid Landråk Larre Erik Sture, Oslo (49 500) Managing Director Magne Vathne Nysted Terje, Forsand (152 295) Attorney Anne Elisabeth Kroken Næsheim Birte, Stavanger (10 800) Asset manager Gunn Jane Håland 117 Næss Knut, Jørpeland (188 000) CEO Terje Vareberg (22 669) Skjæveland Randi Larsen, Stavanger (25 400) Employee representative Torstein Plener (2 527) Risa Bjarne, Nærbø (8 250) Deputy member for the employees (regulary attends board Risa Einar, Leder, Stavanger (30 000) meetings) Birte Wereide (1 441) Stangeland Torbjørg, Sola (110 000) Deputy member (regulary attends board meetings) Stave Torill, Oslo (261 500) Lise Hansson Tandberg Øyvind Andreas, Hønefoss Tveteraas Kristine, Oslo (300 010) The Audit Committee Attorney Odd Rune Torstrup, Chairman of the Board Members elected from and by the depositors Head of Division Odd Broshaug, Deputy Chairman Bakke Synnøve I., Hauge i Dalane of the Board Byberg Odd, Klepp Manager Svein Hodnefjell Hansen Kåre, Egersund Exploration Manager Vigdis Wiik Jacobsen Hovland Mandrup, Aksdal Technical director Kåre Hansen Igland Karl Endre, Lyngdal Nordtveit Sølvi Lysen, Vats Group management Reke Mette, Sola (600) CEO Terje Vareberg (22 669) Valskår Terje, Kløfta Deputy CEO, CFO Sveinung Hestnes (2 117) Vaage Anbjørn, Suldal Acting CFO Gro Tveit (1 507) Østensjø Inger, Stavanger (900) Executive Group Controller, CRO Frode Bø (365) Executive Vice President Retail Market Rolf Aarsheim (4 847) Members appointed by the municipalities Executive Vice President Corporate Market Tore Medhus (2 907) Alvestad Svein Ove, Bokn (966) Executive Vice President Human Resources Eikeland Peder, Bjerkreim Arild Langberg Johannessen (2 507) Fredriksen Kjell H., Egersund Executive Vice President Public Relations Haram Per, Stavanger (600) Thor-Christian Haugland (842) Hidle Terjer, Nord Hidle (960) Executive Vice President, Business Support, IT and Security Maudal Arne, Forsand Svein Ivar Førland (1 302) Sølhusvik Lars Johan, Haugesund Søyland Svein Kj., Gjesdal External auditor Aarenes Hans Greger, Flekkefjord PricewaterhouseCoopers DA Aass Tor Syvert, Nærbø Attn. state-authorised public accountant Torbjørn Larsen SpareBank 1 SR-Bank Annual Report 2005
Organisational chart (simplified)
Supervisory Board External Audit committee auditor
Board Internal auditor CEO Terje Vareberg EiendomsMegler 1 SR-Forvaltning SB1 SR-Finans SR Investering Johannes Vold Dag Sønsterud Knut Sirevåg Tor Dahle
Deputy CEO Sveinung Hestnes
Personell div. Finance Arild L. Johannessen Stian Helgøy
Public Relations Thor-Chr. Haugland 118 Acting CFO Gro Tveit
Accounting Group Risk Controller Gro Tveit Frode Bø
Company Secratary Jan Friestad Analysis Catherine Hauge
Corporate Market Retail Market Business support Tore Medhus Rolf Aarsheim Svein Ivar Førland SpareBank 1 SR-Bank
CENTRAL SWITCHBOARD +47 02002
HEAD OFFICE/ADMINISTRATION: Bjergsted Terrasse 1, P.O. Box 218 4001 Stavanger, Norway Fax +47 51 88 22 78 E-mail: [email protected] Website: www.sr-bank.no Melvær&Lien The Idea Entrepreneur Print: Bryne Offset