ANNUAL REPORT 2017

NOK SPV

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

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

The photos used in the annual report are from the ‘Family Bank’ concept launched in 2017. Sparebanken Vest follows customers through all the important phases of life and big and small events – in short, a friend through thick and thin. Photo: Anne Lise Nordheim.

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

Key figures for the Group ...... 5 Local identity through generations...... 7 Organizational model...... 9 Corporate Management...... 11 The Board of Directors...... 12 The year 2017...... 15 Comments by CEO ...... 16 Board of Directors’ report ...... 18

Accounting and notes...... 38 Auditors Report ...... 114 Responsibility Statement ...... 119 Group Key Figures ...... 119 Corporate governance ...... 129 Subsidiaries and Associated Companies ...... 138 Branch locations ...... 139 Sparebanken Vest Annual Report 2017 Page 4 Key figures for the Sparebanken Vest Group

Amounts in NOK million 2017 2016 2015 2014 2013 INCOME STATEMENT Net interest and credit commission income 2 565 2 399 2 354 2 320 2 161 Net other operating income 761 843 594 910 768 Total operating expenses 1 450 1 270 1 443 1 470 1 428 Profit/loss before write-downs and tax expense 1 877 1 972 1 505 1 760 1 501

Net profit on tangible fixed assets 0 23 76 143 0 Write-downs and losses on loans and guarantees 33 39 185 410 280 Profit/loss before tax expense 1 844 1 956 1 396 1 493 1 221

BALANCE SHEET Assets under management 175 190 162 752 161 663 147 070 134 396

Net lending 147 073 136 099 128 927 118 643 112 024 Securities 24 194 23 144 28 563 22 627 18 889

Deposits 69 111 66 486 63 900 66 448 62 172 Subordinated loan capital 2 109 2 133 1 838 2 426 2 271 Equity 14 054 13 065 11 314 9 094 8 135

KEY FIGURES Net interest and credit commission income as % of primary capital 1,5 1,47 1,55 1,68 1,67 Pre-tax profit/loss as % of primary capital 1,07 1,19 0,92 1,08 0,94

Return on equity after tax 11,0 13,1 11,0 13,7 11,7

Loss percentage, lending 0,02 0,03 0,15 0,35 0,25

Change in net lending 8,0 5,6 8,7 5,9 4,9 Change in deposits 3,9 4,0 -3,8 6,9 3,6

Net subordinated capital (NOK) 15 122 14 135 12 434 10 706 9 541 Capital adequacy 18,7 18,7 16,9 15,6 14,3 Core capital adequacy 16,7 16,5 15,0 13,6 13,2 Core Tier 1 capital adequacy 15,0 14,9 13,7 12,2 11,2 Capital adequacy, IRB 22,8 21,2 18,6 17,9 18,1

Dividend per equity certificate (NOK) 3,75 4,50 1,10 4,00 3,00 Listed price per equity certificate at year-end (NOK) 54,5 48,4 35,0 41,6 37,3 Direct return 6,9 9,3 3,1 9,6 8,1 Effective return per equity certificate in % 21,9 41,4 -6,2 18,1 62,6 Owner fraction after the distribution of dividend 22,1 23,2 24,6 19,5 20,5

See page 38 for a full overview of key figures and definitions

Sparebanken Vest Annual Report 2017 Page 5 Sparebanken Vest Annual Report 2017 Page 6 Local identity through generations

1823 Bergens Sparebank is established

1964 Alvøen Sparebank (1877) Sparebank (1899)

1970 Os Sparebank (1926) 1971 Sparebank (1910) Sparebank (1911) 1973 Sparebank (1916) Haus Sparebank (1866) og Åsane Sparebank (1904) 1975 Lindås Sparebank (1865) Sparebank (1889) Sparebank (1901)

1982 Sparebanken Vest 1982 og Sparebank (1911) 1983 Fjære Sparebank (1875) og Sparebank (1975) Sparebank (1903) Eid sokn Sparebank (1842) 1986 Sparebank (1865) Sparebank (1858) nye Sparebank (1928) Sparebank (1874) 1989 Sparebanken (1852) Skånevik Sparebank (1863) Sparebank (1842) Sparebank (1862) Sparebank (1853) Sund og Sparebank (1896) Vikøy Sparebank (1860)

2000 Acquisition of Vår Bank og Forsikring,

2006 Establishment Haugesund and 2007 Acquisition of Fokus Banks’ business in & Fjordane 2008 Establishment Establishment 2009 Sauda Sparebank (1892) Establishment Hinna and 2011 Sparebanken (1846) 2012 Establishment Establishment Nærbø

Sparebanken Vest Annual Report 2017 Page 7 Sparebanken Vest Annual Report 2017 Page 8 Organizational model

MANAGING DIRECTOR

JAN ERIK KJERPESETH

RISK MANAGEMENT ORGANIZATION AND DEVELOPMENT FRANK JOHANNESEN TINA ØDEGÅRD

OPERATIONAL INNOVATION AND SERVICES CUSTOMER EXPERIENCE

SIREN SUNDLAND BJØRG MARIT EKNES

RETAIL MARKET CORPORATE MARKET FRANK BJØRNDAL RAGNHILD J. FRESVIK

Sparebanken Vest Annual Report 2017 Page 9 Sparebanken Vest Annual Report 2017 Page 10 Corporate Management

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

Frank H. Bjørndal (Born 1965) Executive Vice President. Head of Retail Market since 15 February 2017. Employee of Sparebanken Vest since 1985. Bjorndal has extensive management experience from various management positions in the retail market in Sparebanken Vest. Regional director in Bergen since 2006. Board member of Sparebanken Vest Boligkreditt AS and the Norwegian Handball Federation. Former board member of Eiendomsmegler Vest. Education from Handelshøyskolen BI. Has completed AFF Solstrand leadership programme for Young Leaders.

Tina Ødegård (Born 1977) Executive Vice President. Head of Organization and Development from 21.09.17. Employed 01.09.2017. Tina Ødegård has extensive experience from working with organizational and cultural development in several business sectors like petroleum, finance, transport, shipping and technology. Ødegård holds a Master of Philosophy from NTNU with a major in organizational psychology..

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

Bjørg Marit Eknes (Born 1969) Executive Vice President. Head of Innovation and Customer Experience since 15 February 2017. Director of Retail Market since 2015. Has worked for Sparebanken Vest since 1997. Has wide-ranging management experience from various positions in Sparebanken Vest. Director of Business Support and Development since 2013 and previously filled the position of managing director of Sparebanken Vest Eiendomsforvaltning AS. She has previously worked for Sparebank and the insurance company KLP Forsikring. Board member of Bank ID Norge AS, Bergen Aquarium and Banksjef C.J. Eges Stipendielegat. Has a master`s degree in business economics from the Norwegian School of Economics (NHH), and an MBA from Bond University in Australia. Has completed the MBA Brand Management module one at NHH, and the AFF Solstrand leadership programme.

Siren Sundland (Born 1971) Executive Vice President. Head of Operational Services since 21 December 2015. Director of HR and Corporate Communication since 2009. Joined the bank in 2007. She has worked in the field of brand management and strategic communication for a number of companies in Western Norway. Wide-ranging experience from various professional environments, including Bergen Academy of Art and Design, the Norwegian Broadcasting Corporation (NRK) and the newspaper Bergens Tidende. Chair of the board of Den Nationale Scene and NHH’s Advisory Board. Has a cand.philol. degree from the University of Bergen, majoring in Nordic literature and Executive MBA in Management Control at NHH.

Frank Johannesen (Born 1959) Executive Vice President. Head of Risk Management since 21 December 2015. Joined the bank in 1985. Has a very wide-ranging banking background and has held various management positions in the bank. Has been Director of Risk Management in Sparebanken Vest since 2002 and Director of Economy and Finance since 2013. Has a law degree from the University of Bergen as well as an Executive MBA in Strategic Management from the Norwegian School of Economics (NHH). He has also completed the AFF Solstrand leadership programme.

Sparebanken Vest Annual Report 2017 Page 11 The Board of Directors

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

Arild Bødal (Born 1965) – Deputy Chair of the Board Member of the Board since April 2011. Currently manages his own investment and consultancy company, and provides services in the areas of strategy and business development, asset management, acquisitions and industry consolidation, including at Norva24. Also chair of the board and board member of a number of companies. From 1997 to 2015, managed Septik24-gruppen, which is now a part of Norva24. Qualified as an authorised accountant from BI Norwegian Business School, holds a university college degree in business and administration and part of a master’s degree in business administration (MBA) from Heriot-Watt University. Further education from BI Norwegian Business School, the Norwegian School of Economics (NHH) and the Norwegian University of Science and Technology (NTNU).

Magne Morken (Born 1958) Member of the board since March 2017. CEO of Hansa Tankers Management AS. Former Managing Director of Solvang ASA, bank manager/assistant bank manager of Christiania Bank og Kreditkasse (Oslo/Stavanger/London). Master’s degree in business economics (siviløkonom) from the Norwegian School of Economics (NHH). Board member of SigCo, Bermuda. Former deputy chair of the board of Sandnes Sparebank and board member of Gard P&I Club.

Gunnar Skeie (Born 1955) Member of the board since March 2016. General manager of Sparebankstiftinga Hardanger. Former lawyer and partner in the law firm Advokatene Kvåle og Skeie ANS in Norheimsund. Has been acting court of appeal judge at Gulating Court of Appeal, lawyer affiliated with Kreditorforeningen in Bergen, assistant judge at the office of the chief local judge in Karmsund in Haugesund, assistant advocate with Advocate Tom Berge in Odda and legal adviser at Bergen Tax Office. Law degree from the University of Bergen. Has previously held the offices of head of the control committee of Eiendomskreditt AS, head of the control committee of Voss Veksel og Landmannsbank AS, and member of the board of Eiendomskreditt AS.

Richard Rettedal (Born 1971) Member of the board since April 2008. CFO of Trolltunga Robotics. Previously CFO of Sekal AS. Previously head of finance and administration at Roxar and CFO of Skanem AS. Mr Rettedal also worked in Dubai for a prolonged period. Holds an MBA with specialisation in finance from the University of Wisconsin – Madison, Florida International University and the University of Stavanger..

Birthe Kåfjord Lange (Born 1973) Member of the board since April 2012. Director of NHH Executive. Former Manager People and Leadership Development in Statoil ASA. Former member of the board of Bergen Private Gymans AS, the board of the Norwegian School of Economics (NHH) and the nomination committee of BOB. Lange has also held various other offices. She has a PhD and degree studies from NHH and a cand.mag degree from the University of Bergen/Bergen University College.

Marianne Dorthea Jacobsen (Born 1980) Member of the Board since March 2017. CEO of Knowit Experience Bergen. Previously held positions as general manager, adviser and project manager at Knowit. Previously also customer adviser in Sparebanken Vest. Holds an MBA (Strategic and Management) from the Norwegian School of Economics (NHH), a master`s degree (Brand Management) from Queensland University of Technology, Australia, as well as a bachelor`s (Economics) from Leeds Metropolitan University, UK. Strategic adviser on digitalisation, innovation and branding for several banking and Finance Companies, among others.

Fred Risløw (Born 1981) Member of the board since March 2016 as an employee representative. Has worked for Sparebanken Vest since 2007. Authorised financial adviser. Bachelor’s degree in economics from Sogn og Fjordane University College in Sogndal. The bank’s regional employee representative for the / region, member of the board of the bank’s employee representative committee. Has previously held the offices of chief employee representative for the Norwegian Border Rangers in Kirkenes, deputy member of the bank’s general meeting, and a deputy board member.

Sparebanken Vest Annual Report 2017 Page 12 The Board of Directors (cont.)

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

Anne-Marit Hope (Born 1959) Member of the board since April 2010. Chief employee representative for the Finance Sector Union of Norway. Employee representative. Has worked for Sparebanken Vest since 1977. Qualified financial adviser from BI Norwegian Business School. Authorised financial advisor. Member of the board of the Finance Sector Union of Norway.

Sparebanken Vest Annual Report 2017 Page 13 Sparebanken Vest Annual Report 2017 Page 14 Journey through 2017

HIGHLIGHTS Ranked as having the best Customers’ savings in 16% increase in the 20,000 square metres of Frende Forsikring customer service among funds reached a total of number of new retail office space granted reaches 200,000 Norwegian banks in 2017 NOK 10 billion customers Eco-Lighthouse certification customers

JANUARY MARCH MAY JULY SEPTEMBER NOVEMBER Starts the year by Accounting + Banking: End of an era when the Simplification and better Sparebanken Vest and After a period of inviting all football teams Corporate online banking last cards with one-off security as customers Eiendomsmegler Vest capital accumulation, in Western Norway solution integrated with codes for logging in can block and open continue their successful Sparebanken Vest to apply for strips. the accounting system to the online bank are cards in the online and crash courses for young changes its dividend About 19,000 strips Fiken, resulting in the phased out. mobile bank. The roll- house buyers in Western policy to ensure distributed. closest integration out of contactless Visa Norway, and the number maximum value creation between banking and cards continues, making of participants reaches for the bank’s two accounting in Norway. card payment even 3,000. classes of owners; simpler and faster. equity certificate holders and society. FEBRUARY APRIL JUNE AUGUST OCTOBER DECEMBER Sparebanken Vest The number of Launch of Sparebanken Offers a broadly The bank launches the ‘Hjertebank i julen’. becomes a part-owner processes in Vest as a family bank diversified savings fund, website www.spvnyheter.no Instead of a traditional of Vipps and starts Sparebanken Vest with a simple concept focusing on companies to give customers and other advent calendar, the offering the service to its automated by robots that provides added that stand out in the interested parties more bank’s employees can own customers. reaches 30. Robot value for customers in all main categories water and better information choose between 15 dif- worker ‘Fondus’ starts phases of life. (infrastructure/access about personal finances, ferent projects to which completing savings to clean water and technological trends each can donate NOK agreements in funds purification technology), and macroeconomic 4,000. The projects and opens depository waste handling/ developments. receive funds of a total accounts. recycling, sustainable of NOK 2.4 million. agriculture, forestry and food production, and alternative energy.

Sparebanken Vest Annual Report 2017 Page 15 Comments by CEO

This creates positive ripple effects for Sparebanken Vest in the form of a higher activity level among our customers, and a low level of provisions for losses. The bank has low direct exposure to the industries that are and have been most vulnerable to cyclical fluctuations in recent years. This, combined with careful management and high credit quality, led to considerably lower provisions for losses in 2017 than the bank had predicted at the start of the year. After several years of accumulating capital, Sparebanken Vest entered 2017 with a strong capital base that enabled the bank to be a sound financial partner for both its retail and corporate customers. With a total growth in lending of 8% in 2017, the bank has contributed to growth and necessary restructuring in Western Norway. We shall continue to contribute to profitable business opportunities and meet customers’ financial needs going forward.

SIMPLE DIGITAL SERVICES Establishing good, user-friendly solutions has been a priority for Sparebanken Vest. The bank has chosen in-house development in areas where differentiated In 2017, Sparebanken Vest has implemented a customer experiences are possible, and in the areas number of measures to put the bank in an even that the bank defines as core services. One example better position to meet changes and possibilities we here is the service whereby you can become a see coming. corporate customer in the course of two minutes online, and more than 700 corporate customers Sparebanken Vest’s operations are marked by good, have done so since September 2017. stable earnings from a healthy lending portfolio. The bank experiences a high activity level and a good In areas where it can be more challenging for the demand for its products among both new and bank to succeed on its own, strategic partnerships existing customers, stable cost development and a with other players will be an option. We compete robust financial situation. when we have to, but cooperate when we can. One example of this from early 2017 is that Sparebanken The macroeconomic situation has improved Vest became one of the owners of Vipps, and the somewhat in the second half of 2017. After a few bank is now cooperating with other Norwegian years of weaker growth in the Norwegian economy, banks on a digital wallet and mobile payment the activity level in the region is now picking up, and services. The bank’s initiative to establish the fintech the oil price has stabilised at a slightly higher level. cluster Finance Innovation, based in Bergen, This positive situation is reflected in the bank’s own together with 40 other enterprises and educational business index – the Western Norway Index. In the institutions is another example. fourth quarter 2017, it showed that business managers in Western Norway are reporting an THE CUSTOMER DECIDES increase in demand, employment, profitability and Being at the forefront of digital solutions is a investments. precondition for success. When the market is

Sparebanken Vest Annual Report 2017 Page 16 deregulated, competition increases and switching Other important results of MWB is that the bank has costs fall, customer experiences and customer succeeded in considerably reducing its response satisfaction become more important than ever. The time in its most important contact points with bank’s business model remains robust in the customers both in the corporate and retail markets. transformation the bank sector is currently We have launched fully-automated mobile phone undergoing. Sparebanken Vest shall be a digital loan processes for credit cards and consumer loans, bank with a personal signature and with a clear and more than 100 small but important everyday social commitment to Western Norway. problems reported by employees have been fixed.

In 2017, our banking advisers held more than The bank’s excellent experience of using this 46,000 complete face-to-face advisory meetings method as a strategic tool means that we are now in with customers at the bank’s 34 branch offices. In the process of drawing up new strategic battles that addition to our customers appreciating such are scheduled to commence in the first half of 2018. physical meetings in connection with important events in their lives, the bank’s customer service CULTURE AND MANAGEMENT DEVELOPMENT centre also recently won Kantar TNS’s annual If the bank is to achieve its most important, customer service prize for the bank that has overriding goals for 2018, the changes that take provided the best service in Norway in 2017. place within the bank must keep up with the changes in society. Endeavours to minimise the gap This is very pleasing and shows that the bank has between the organisational culture and the fast pace already succeeded in strengthening the customer of change in society will therefore continue with full experience in situations where the customer is in force in 2018. A major focus for Sparebanken Vest direct contact with the bank. At the same time, is developing a stronger and more change-oriented good, simple customer experiences will become an organisational culture. even more important differentiating factor in the years to come. The work on increasing customer The bank is in a good financial position for further value and strengthening the customer focus growth and development. Its financial situation is throughout the organisation will therefore be a good, and the implementation of Basel IV will priority for Sparebanken Vest in 2018. probably be advantageous to Sparebanken Vest. Furthermore, we have a cost structure, an MUST WIN BATTLES 3.0 organisational culture and a digital platform that put Throughout 2017, the bank, for the third time, used us in a good position for growth. The goal is the ‘Must Win Battles’ method as a strategic tool to therefore for the bank to win market shares within ensure that Sparebanken Vest achieves its target of its ordinary activities in 2018. a return on equity over time of 11% and good, simple customer experiences. In connection with Local connections, short decision-making paths and MWB, the bank launched a new communication user-friendly digital solutions will enable concept called ‘the Family Bank’, underlining the Sparebanken Vest to help to make life in Western fact that Sparebanken Vest is regarded as the family Norway even better in 2018. bank in our region. This is a position we have highlighted and strengthened in 2017. The bank’s focus on children and young people has also led to a 24% increase in the number of new customers under the age of 18. Jan Erik Kjerpeseth CEO

Sparebanken Vest Annual Report 2017 Page 17 Board of Directors’ report 2017

The Sparebanken Vest Group recorded a The bank has had low direct exposure to the pre-tax profit of NOK 1,844 million (1,615 industries that have been most vulnerable to mill., incl. non-recurring effects: 1,956 fluctuations in recent years. This, combined with mill.) in 2017 and a return on equity of careful management and high credit quality in the 11.0% (10.7%, incl. non-recurring effects: portfolio, led to considerably lower provisions for 13.1%). losses in 2017 than the bank expected at the start of the year. The operating profit was positively affected by an increase in net interest and credit After several years of capital accumulation, commission income, low losses and a Sparebanken Vest entered 2017 with a strong higher contribution from associated capital base that enabled the bank to be a sound companies. Weaker performance by financial partner for both its retail and corporate financial instruments reduced the profit customers. With a total growth in lending of 8% in 2017, the bank has contributed to growth and somewhat. necessary restructuring in Western Norway. The The good cost development the Group has goal is for the bank to contribute to profitable enjoyed in recent years continues. business opportunities and meet customers’ Sparebanken Vest achieved a total cost financing needs also in the time ahead. reduction of 5.6% in the parent bank from The Board is very satisfied with the bank’s 2012 to 2017, corresponding to an average development and profit performance in 2017 reduction of 1.1% per year during the period. THE NATURE OF THE BUSINESS Sparebanken Vest’s market position was Sparebanken Vest is an independent, listed financial services group that is engaged in banking and furthered strengthened in 2017. Operations financing activities in the counties of Hordaland, are marked by good, stable earnings from Rogaland and Sogn og Fjordane. The Group’s head a high-quality lending portfolio. There is a office is in Bergen, and at the end of 2017, the bank high activity level in the bank and good had 34 points of sale. demand for its products among both new and existing customers. The development The Group is engaged in estate agency business in margins is good, the cost situation is through Eiendomsmegler Vest AS and home stable and the financial situation is robust. mortgages through Sparebanken Vest Boligkreditt AS. These two limited liability companies are wholly After a few years of weaker growth in the owned by the parent bank. Norwegian economy, the activity level in the region is now picking up, and the oil Sparebanken Vest is also the largest owner of the price has risen slightly. The positive securities company Norne Securities AS, with a situation is reflected in the bank’s own holding of 47.6%, and of the insurance company business index – the Western Norway Frende Holding AS, with a holding of 39.7%. These Index. In the fourth quarter 2017, it showed companies are jointly owned with 14 other savings that business managers in Western Norway banks. The home mortgages company Verd Bolig­ are reporting increased demand, employ­ kreditt AS is jointly owned with eight independent savings banks, and it is run by Sparebanken Vest ment, profitability and investments Boligkreditt AS. In the fourth quarter, Sparebanken Vest reduced its shareholding in Verd to 9.9%.

Sparebanken Vest Annual Report 2017 Page 18 Sparebanken Vest has an ownership interest of of the future will be developed in the digital shift that 49.9% in the financing company Brage Finans AS. is now taking place, at the same time as the bank’s The company is jointly owned with 11 other savings current distinctiveness and strengths are maintained. banks. For Sparebanken Vest, this entailed another step away from being a traditional digitalised bank Balder Betaling AS is a company that, among other towards becoming a digital bank supported by things, exercises ownership of the mobile payment traditional services and a personal signature. system Vipps on behalf of Sparebanken Vest and other savings banks that are also among the owners In 2017, the bank has established a position in the of Frende Forsikring. Balder Betaling has a holding market as ‘the Family Bank’, improved its response of 12% in Vipps, and Sparebanken Vest is the time and made considerable efforts to achieve more biggest owner of Balder with an ownership interest customer-friendly self-service solutions. Spare­ of 36%. The company was established in the first banken Vest uses the ‘Must Win Battles’ theory to quar ter 2 017. realise strategic measures. This entails defining three to four ‘battles’ that must be ‘won’ during a The bank’s ownership in the associated companies specific period. The method has proved successful helps to supplement the range of services and for the bank, and it is about to start its fourth period products offered by the bank. The profit of ‘Must Win Battles’. contribution from associated companies shows a good development, and they made a total When customer expectations increase, deregulation contribution of NOK 120 (113) million in 2017. accelerates, the competition from both existing and new competitors becomes tougher and switching STRATEGIC DIRECTION barriers are reduced, the customer experience and Sparebanken Vest has implemented a number of customer satisfaction become more important than measures in 2017 to put the bank in a good position ever. Sparebanken Vest already offers very good to meet the changes and possibilities that lie ahead. customer experiences, and in 2017, at the Kunde­ servicedagene event, it received the customer Sparebanken Vest’s vision is: ‘Everything we do, we service award for the best customer service in do to make life in Western Norway even better’. The Norway in the banking category. The bar for bank’s targets in relation to its most important customer experiences is continuously being raised, stakeholders is to be among the best banks in terms however. Measures will therefore be implemented of customer satisfaction, among the two best during the next battle period that will help Spare­ savings banks on ROE, the strongest in terms of banken Vest to further increase its customer social commitment in Western Norway and the most orientation. Guided by the goal of being Norway’s exciting place to work for people who want to best savings bank, the bank will improve important develop their competence both professionally and customer experiences, both digital and analogue, personally. The sum of these targets is reflected in build a culture that is even more focused on the bank’s ambition to become Norway’s best customer orientation, build an even stronger brand savings bank. with a clear personal signature, and safeguard its freedom of action by making more out of less. The bank’s financial targets are a return on equity of 11% and a Core Tier 1 capital adequacy ratio of Sparebanken Vest is investing in hands-on, in-house around 1 percentage point above the sum of development focusing on the digital user experience. regulatory minimum requirements and buffer This means a high degree of in-house development requirements. Sparebanken Vest delivered on both in areas that provide opportunities for a different­ targets in 2017. iated customer experience and in areas that the bank defines as core services. In other areas where While the strategy remains unchanged and sets a a product or service is a ‘hygiene factor’ only, the clear direction, the bank must also address bank will purchase standard solutions. important strategic challenges to ensure that it achieves its targets also in future. The savings bank

Sparebanken Vest Annual Report 2017 Page 19 Our value proposition to our customers is to provide of 1.06 (0.96). Around 17.2 million SVEG equity simple and good digital services with a personal certificates were traded in 2017, corresponding to a signature, both digital and analogue, and to be a sales value of approx. NOK 916 million. That was an socially committed bank that cares about Western increase from approx. 9.3 million equity certificates Norway. in 2016.

Sparebanken Vest’s strategic ambition is thereby to The Board proposes that the General Meeting adopt strengthen and consolidate our market position in a cash dividend of NOK 3.75 (4.50) per equity Western Norway, create profitable growth and be certificate for 2017. This represents about 75% of one of the simplest and most forward-looking banks the equity certificate holders’ share of profits. for customers. Figure 1: Earnings (NOK) per equity certificate THE BANK’S EQUITY CERTIFICATE (TICKER SVEG) 8 The Board of Sparebanken Vest emphasises a transparent information policy with regard to the 6,32 6,24 6 bank’s financial development by providing 5,42 consistent, timely, relevant and correct information to equity certificate holders, Oslo Børs and the 4 securities market. The Board’s goal is for the bank to achieve good growth in profit per equity certificate and a return on equity on a par with or 2 better than comparable banks. This includes securing the greatest possible value creation for the

bank’s two classes of equity. The Board is also 0 concerned with ensuring that the bank continues to 2015 2016 2017 be a savings bank with a considerable degree of Figure 2: Dividend (NOK) per equity certificate1)

community ownership. 5 4,50 An investment in SVEG represents: 4 3,75 • Pure exposure to the Norwegian economy • Exposure to Norway’s most attractive region with a sound customer base and good growth 3 • Lower risk through a 76% retail market portfolio and low direct exposure to the oil and offshore 2 industry 1,10

• A solid retail market portfolio that dominates the 1 overall risk situation and provides access to favourable financing 0 • A big equity buffer with a large holding of primary 2015 2016 2017 capital • A distribution policy that provides flexibility for The Board adopted an amendment to the bank’s self-financing even with attractive dividend levels dividend policy in the fourth quarter 2017. The amendment means that the distribution percentage At the turn of the year, the market price for shall be the same for the bank’s two classes of Sparebanken Vest’s equity certificate was NOK 54.5 equity. The Board also decided that, going forward, per certificate. At year-end 2016, the price was NOK dividend will be between 25 and 50% of the equity 48.4. Sparebanken Vest paid a cash dividend of certificate holders’ share of profits. The new NOK 4.5 per certificate in 2017. At the end of the dividend policy applies from and including the 2018 year, the book equity and profit per equity certificate accounting year. were NOK 51.4 (50.6) and NOK 5.42 (6.24), 1) An equity certificate issue whereby 27.3 million new equity certificates respectively. This corresponds to a price-book ratio were issued was carried out in 2015.

Sparebanken Vest Annual Report 2017 Page 20 Sparebanken Vest’s new dividend policy is as Eleven board meetings and one board conference follows: were held in 2017. The Board’s main focus has ‘Sparebanken Vest’s objective is to achieve results that been on following up operations, strategy, risk and provide good growth in earnings and a competitive capital management, and on monitoring markets return on the bank’s equity. The profit for the year and framework conditions. The Board has adopted after tax shall be divided between the equity certifi- an annual plan for its work, and it places great cate capital and primary capital in proportion to their emphasis on ensuring that its members have the relative share of the bank’s equity (the owner fraction). requisite knowledge and expertise.

The equity certificate holders’ share of the profit will The Board has appointed four committees as part of be divided between dividend and the equalisation its work: reserve. Sparebanken Vest will distribute a cash • The Audit Committee is charged with ensuring that dividend to the equity certificate holders that will Sparebanken Vest has an independent and normally amount to 25–50% of their share of the effective external and internal audit function, and profit. The distribution of primary capital’s share of financial and risk reporting that is in accordance the profit will be the same percentage as for equity with laws and regulations. certificate holders. • The Risk Committee is charged with ensuring that Sparebanken Vest’s risk and capital management The potential for development and growth that underpins the bank’s strategic development and creates value for the bank’s owners, the expected goal attainment, while at the same time ensuring profit development in a normalised market situation, financial stability and acceptable asset external framework conditions and the need for core management. capital will be taken into account when determining • The Board’s Credit Committee, which deals with dividend. The bank’s dividend policy will form the credit matters under the authorisation of the Board. basis for the resolutions proposed by the Board at • The Remuneration Committee, which is tasked the General Meeting.’ with ensuring that the bank has a competitive, but not leading, pay policy that complies with the An overview of the bank’s 20 biggest equity regulations for financial undertakings, and is seen certificate holders is available in Note 38. as motivating by the bank’s management in relation to implementing the adopted strategy and CORPORATE GOVERNANCE achieving the goals set. Sparebanken Vest’s principles and policy for corporate governance are based on the current A full account of corporate governance in version of the Norwegian Code of Practice for Sparebanken Vest is provided in a separate article in Corporate Governance issued by the Norwegian the annual report. Corporate Governance Board (NUES), as well as applicable regulations in the area. STATEMENT CONCERNING THE ANNUAL ACCOUNTS Sparebanken Vest’s strategy, policies, procedures, The annual accounts have been prepared on the principles and articles of association are intended to basis of the going concern assumption and the ensure that its corporate governance is in accord- accounts for 2017. ance with generally accepted and recognised perceptions and standards, and in compliance with Sparebanken Vest’s consolidated and company laws and regulations. Moreover, the bank’s corpo- accounts for 2017 have been prepared in rate governance shall ensure good cooperation accordance with International Financial Reporting between its different stakeholders, such as equity Standards (IFRS), the Financial Supervisory certificate holders, lenders, customers, employees, Authority of Norway’s Regulations relating to annual governing bodies, management and society as a reports and accounts, and the Regulations relating whole. In the Board’s view, the bank’s corporate to the accounting treatment of loans and guarantees. governance is satisfactory and in compliance with In the company accounts, the bank exercises its its principles and policy. right to use a simplified form of IFRS. Consequently,

Sparebanken Vest Annual Report 2017 Page 21 dividend/group contributions from subsidiaries are deliver good results. Brage Finans has also helped included in the basis for the parent bank’s dividend to increase the bank’s income. in the same year as they are earned. The good cost development the Group has enjoyed The annual accounts have been prepared in accord- in recent years continues. Sparebanken Vest ance with applicable regulations. In the Board’s view, achieved a total cost reduction of 5.6% in the parent they provide a true and fair picture of the Group’s bank from 2012 to 2017, corresponding to an profit performance and financial position. average reduction of 1.1% per year during the period. The Group’s operating expenses amounted PROFIT PERFORMANCE to NOK 1,450 million (1,445, incl. non-recurring The Sparebanken Vest Group recorded a pre-tax effects: 1,270) in 2017. A plan change effect of profit of NOK 1,844 million (1,615 mill, incl. non-re- NOK 243 million in the bank’s pension scheme, curring effects: 1,956 mill.) in 2017. That corre- restructuring costs of NOK 68 million in 2016 and sponds to a return on equity of 11.0% (10.7%, incl. financial tax of NOK 31 million in 2017 largely non-recurring effects: 13.1%). explain the change.

The profit for 2017 was positively affected by an Write-downs on loans and losses on guarantees increase in net interest and credit commission amounted to NOK 33 (39) million in 2017. Adjusted income, low losses and an improved contribution for the sale of a monitored portfolio for NOK 58 from associated companies. A weaker result for million in 2016, the loss expenses were NOK 64 financial instruments, on the other hand, had the million lower than in 2016. Group write-downs in the opposite effect. Corrected for non-recurring effects, corporate market were reduced by NOK 55 million banking operations showed an improvement in 2017 in the fourth quarter 2017 due to the improved with a net profit of NOK 1,416 million (1,256 mill., quality of the lending portfolio and better market incl. non-recurring effects: 1,521 mill.). The parent conditions in Western Norway. bank recorded a pre-tax profit of NOK 1,744 million (1,528 mill., incl. non-recurring effects: 1,869 mill.). The Group’s return on equity was 11.0% (10.7%, incl. non-recurring effects: 13.1%). The profit per In a highly competitive market, the bank has equity certificate was NOK 5.42 (6.24). The diluted maintained its margin in the retail and corporate profit is the same. markets, at the same time as both segments show good growth in lending during the year. The Group’s assets under management amounted to NOK 175.2 (162.8) billion, an increase of NOK 12.4 The contribution from financial instruments was billion compared with 2016. The parent bank’s negative in the amount of NOK 7 (123) million. The assets under management alone amounted to NOK main reason for the increase from the year before is 111.5 (108.3) billion a gain of NOK 108 million, received as dividend, in connection with Visa Inc. buying Visa Europe. INCOME Net interest and credit commission income The bank’s customer brokerage and interest rate Net interest income amounted to NOK 2,565 and currency trading activities show good develop­ (2,399) million, corresponding to an increase of ment and contributed NOK 44 (35) million. The NOK 166 million from 2016 to 2017. The increase is positive development is the result of targeted work in largely ascribed to an increase in volume and lower relation to new and existing customers. financing costs due to a lower money market mark-up in 2017. The parent bank’s net interest Net commission income amounted to NOK 442 income amounted to NOK 1,867 (1,869) million. (415) million in 2017. The increase is due to higher Net interest income for the Group amounted to fees and higher income from savings and 1.50% (1.47) of average assets under management. investment products. The profit contribution from Gross lending increased by NOK 11.0 billion to NOK associated companies amounted to NOK 120 (113) 148.1 (137.1) billion, corresponding to year-on-year million in 2017. Frende Forsikring continues to growth of 8.0%. The growth in lending breaks down

Sparebanken Vest Annual Report 2017 Page 22 as 6.9% in the retail market segment and 11.4% in work in relation to new and existing customers. the corporate market segment. Of this growth in the Net income from banking services, including corporate market, 1.3 percentage points is the result commission income, savings and investments and of the re-classification of retail market customers as fees from payment transfers, amounted to NOK 442 corporate market customers, and thus does not (415) million. The income from Eiendomsmegler represent an increase in lending for the bank. The Vest’s estate agency activities amounted to NOK parent bank’s gross lending amounted to NOK 71.7 195 (188) million. billion, down by NOK 6.8 billion from 2016. This must be seen in conjunction with the transfer of The profit contribution from associated companies loans to the bank’s subsidiary Sparebanken Vest amounted to NOK 120 (113) million in 2017. The Boligkreditt AS. increase is due to a continued good performance by Frende Forsikring, and increased income from The Group’s lending margin measured against the Brage Finans. 3-month NIBOR rate increased by an average of 27 basis points in 2017. The margin development must OPERATING EXPENSES be seen in connection with a lower 3-month NIBOR The Group’s operating expenses amounted to NOK rate throughout the year and disciplined pricing. 1,450 million (1,445, incl. non-recurring effects: 1,270) in 2017. Payroll expenses for 2017 amounted Deposit volumes increased by 3.9% in 2017, to NOK 616 (691) million. The reduction of NOK 75 corresponding to NOK 2.6 billion. Deposits from million is largely due to restructuring costs in retail customers increased by NOK 1.2 billion, or connection with staff downsizing in 2016, and 2.9%. Deposits from corporate customers increased slightly lower costs in general. Costs as a percentage by NOK 1.4 billion, or 5.9%. The deposit margin of income excl. financial instruments (C/I) measured against the 3-month NIBOR rate was constituted 44.1% (41.2). The Group employed 693 reduced by an average of 32 basis points in 2017, full-time equivalents at the end of 2017, compared because the 3-month NIBOR rate was lower with 714 in 2016. throughout the year. WRITE-DOWNS ON LOANS AND GUARANTEES Net other operating income Write-downs on loans and losses on guarantees Net other operating income amounted to NOK 761 amounted to NOK 33 (39) million, corresponding to (843) million. The decrease is due to a dividend of 0.02% (0.03) of gross lending. Adjusted for the sale NOK 108 million received in connection with Visa of a monitored portfolio, the loss cost for 2016 Inc. buying Visa Europe in 2016. Commission amounted to NOK 97 million, which is NOK 64 income and contributions from associated million higher than in 2017. companies show a positive development. Individual write-downs in the retail market segment The contribution from financial instruments was amounted to NOK 30 (28) million. The risk in the negative in the amount of NOK 7 (123) million in retail market portfolio is still low and stable, however. 2017. The main reason for the decrease from 2016 About 96% of the retail market portfolio consists of is the above-mentioned Visa dividend. Positive loans secured by residential mortgage with a low effects of the tightening of credit spreads in the loan-to-asset value ratio. bank’s liquidity portfolio amounted to NOK 93 (91) million, while changes in the value of basis swaps Individual write-downs in the corporate market had a negative effect of NOK 113 (-76) million. The segment amounted to NOK 549 (517) million. market regulation of items valued at fair value Group write-downs in the corporate market produced a negative effect of NOK 60 million. amounted to NOK 384 (439) million, and were reduced by NOK 55 million in 2017 due to improved The bank’s customer brokerage and interest rate quality in the lending portfolio and better market and currency trading activities show good conditions in Western Norway. development and contributed NOK 44 (35) million. The positive development is the result of targeted

Sparebanken Vest Annual Report 2017 Page 23 THE PARENT BANK’S ALLOCATION OF PROFIT 76% of the portfolio, and approx. 96% of this The parent bank’s profit after tax in 2017 amounted portfolio consists of loans secured by residential to NOK 1,357 (1,526) million. With a deduction for mortgage. The risk in the retail market portfolio is the payment of interest on hybrid capital and an still deemed stable and low, despite the slight allocation to the reserve for unrealised gains, the increase in expected losses. The bank’s lending basis for dividend amounts to NOK 1,283 million. policy for the financing of housing loans was already largely in line with the new mortgage regulations. The owner fraction before the allocation of profit in The regulations represent a certain tightening of 2017 was 23.2%. The Board proposes a cash lending practices, however, especially for people in dividend of NOK 3.75 (4.50) per equity certificate the establishment phase with low income and for 2017. That means a total dividend payment of limited capital. Sparebanken Vest has emphasised NOK 221 (266) million, which corresponds to a that the possibility of deviating from the regulations’ distribution percentage of 74.4% (71.9). At the requirements (up to 10% of new loans) should general meeting, the Board of Directors will primarily be considered for the younger age groups. recommend that the dividend for 2017 be paid as a cash dividend or as equity certificates. Lending margins in the retail market have been strengthened in 2017, while deposit margins have The Board of Directors also proposes that NOK 150 shown a decreasing trend. This must be seen in (100) million be spent on donations for the public connection with the repricing of the portfolio in benefit. That is equivalent to a distribution early/mid-2017 and the falling NIBOR rate. Although percentage of 15.2% (8.9). After allocation of the the bank has higher growth ambitions for 2018, the profit for the year, the owner fraction will be 22.1%. Board will prioritise margins over growth to achieve The total retained profit is NOK 912 million in the the bank’s ROE target. parent bank and amounts to 71.1% (75.6). The macroeconomic situation improved in 2017. RISK AND CAPITAL MANAGEMENT Good risk selection and disciplined pricing Risk and capital management underpins the bank’s combined with macroeconomic developments have strategic development and ambitions and is one of led to low losses and stable lending margins in the the Board of Directors’ priority areas. Based on corporate market portfolio. The risk profile is stable quarterly reports, the Board evaluates the bank’s and moderate. Sparebanken Vest also has relatively risk and capital situation in relation to adopted moderate exposure to industries vulnerable to control parameters. The exposure lies within the cyclical fluctuations. To ensure that the lending bank’s defined risk profile. In the Board’s view, the portfolio is diversified, the bank now prioritises small bank’s guidelines and processes for risk and capital and medium-sized enterprises in the corporate management function well. market.

The bank’s risk and capital tolerance is specified Commitments in default and potential bad debt in through targets and parameters. Through the bank’s the corporate market amounted to a total of internal risk and capital assessments (ICAAP), capital buffers and capital adequacy targets are set NOK 1,261 (1,218) million. The increase in 2017 is in order to safeguard the bank’s operations also largely related to currency effects. The volume in under stressed market conditions. The bank’s default in the corporate market is mainly related to liquidity needs and risk profile, including the potential bad debt commitments identified in stipulation of the bank’s risk tolerance through previous years, and the percentage provided for on targets and limits, are analysed and the analysis these commitments is more than 50%. considered as a separate board item (ILAAP2). Commitments in default and potential bad debt in the retail market amount to a total of NOK 280 Credit risk (223) million. Relatively speaking, the volume is at The structure of Sparebanken Vest’s lending the same level as at the end of 2016. Commitments portfolio is largely the same as at the end of 2016. At year-end, the retail market accounted for approx. 2) ILAAP Internal Liquidity Adequacy Process

Sparebanken Vest Annual Report 2017 Page 24 in default and potential bad debt in the retail market Authority of Norway’s circular 12/2016, and amount amounted to a total of NOK 280 (223) million. to NOK 236 million or around 29 basis points of the Relatively speaking, the volume is at the same level calculation basis. This is more or less unchanged as at the end of 2016. compared with the calculations from the same period the year before. The Board is satisfied with the risk and price development in the lending portfolio in 2017. Figure 4: Write-downs

0,9 1200

Figure 3: Defaults and other potential bad debt 0,77 % 0,77 % 0,77 % 0,8 0,75 % 1600 5 % 0,70 % 1000 0,7

1400 0,6 800 4 %

1200 0,5 499 503 506 506 445 600

1000 0,4 3 % Capitalised write-downs (MNOK) 0,3 400 800 Write-downs as % of gross lendings 1.218 1.274 1.321 1.326 1.261 0,2 2 % 600 200 0,1 547 565 589 579 588 400 0,92 % 0,96 % 0,97 % 0,96 % 0,92 % 1 % 0,0 0 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 200 Individual write-downs Group write-downs Write-downs as % of gross lendings 223 247 243 253 280

0 0 % Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Retail Corporate % of total Market risk The Board’s prognoses and performance/capital The bank’s interest rate and currency risk is estimates for the bank were based on normalised managed within limits adopted by the Board and is losses in 2017. The bank’s estimate to the market considered to be low. was therefore a loss in the amount of NOK 200 million. The quality and composition of the bank’s The bank is exposed to credit spread risk, primarily portfolio combined with the improved macroeco- through the management of interest-bearing nomic situation led to considerably lower losses for securities in the bank’s liquidity portfolio, and to a Sparebanken Vest in 2017. The effect on the very limited extent through proprietary trading. The offshore sector and other industries has also proven portfolio mainly consists of securities issued by to be less significant than previously expected. Norwegian banks, residential mortgage companies, Sparebanken Vest’s losses were therefore consider- municipalities, county authorities, the Norwegian ably lower than expected. Total losses on lending state and non-financial enterprises. The bank’s and guarantees amounted to NOK 33 million in reported credit spread risk is reduced in relation to 2017, and the total percentage provided for in the the end of 2016, at NOK 256 (279) million. portfolio was somewhat reduced. The bank’s total stock market exposure (excluding From and including 2018, Sparebanken Vest will subsidiaries and associated companies) at the end recognise impairment losses in accordance with of the fourth quarter amounted to NOK 416 (451) new requirements (IFRS 9). The change means that million. provisions will be made for expected losses for the whole lending portfolio. The loss expense will be Through its capital planning process, the bank has based on the expected value of various outcomes. calculated Pillar II capital held for market risk. The Sparebanken Vest’s total write-downs at 1 January calculations are based on the Financial Supervisory 2018 under IFRS 9 are on a par with recognised Authority of Norway’s circular 12/2016, and amount losses at 31 December 2017. to NOK 524 million or around 65 basis points of the calculation basis. This is more or less unchanged Through its capital planning process, the bank has compared with corresponding calculations from the calculated Pillar II capital held for credit risk. The same period the year before. calculations are based on the Financial Supervisory

Sparebanken Vest Annual Report 2017 Page 25 Operational risk wholly owned subsidiary Sparebanken Vest Sparebanken Vest’s management of operational risk Boligkreditt AS are used in the capital market shall ensure that the bank’s risks resulting from financing. inadequate or failing internal processes or systems, human error or external events are consistent with Sparebanken Vest Boligkreditt carried out three the risk level adopted by the Board. Operational risk public issues in 2017. One of the issues was in EUR, also includes compliance risk. The compliance work while two were in NOK. The EUR emission shall ensure that statutory and regulatory require- amounted to EUR 500 million, while the NOK ments are met. The compliance risk shall be low. emissions amounted to NOK 5 billion each. Altogether, the company has issued covered bonds Management and control of operational risk in for NOK 16.4 billion in 2017. The total volume of Sparebanken Vest can be described at three levels: covered bonds issued by Sparebanken Vest Boligkreditt AS at year-end 2017 was approximately • Operational management and control, exercised by NOK 60.2 billion. the line organisation • Overall risk management and control, attended to The total amount of senior bonds issued by by the Risk Management unit Sparebanken Vest in 2017 was NOK 9.53 billion. Of •.Internal audit control this amount, 15 issues (including the expansion of an existing bond issue) were in NOK. Sparebanken Key processes involved in the management of Vest also issued loans in EUR in the amount of EUR operational risk are risk assessment, implementa- 419 million and in USD in the amount of USD 85 tion and follow-up of measures, and reporting. million. This includes a public issue of EUR 300 Overriding risk assessments are conducted million, the bank’s first public issue in the euro annually or as needed. Incidents and non-conform- market. The transaction was well received in the ities are reported to the management and the market. Board at least quarterly, along with defined meas- ures where the level of risk is considered to exceed The key interest rate has remained at 0.5% the tolerance limit. throughout 2017. The money market interest rate (3-month NIBOR) was on average about 40 basis Non-conformities registered in 2017 have been at a points above the key interest rate. The corre­ stable low level and have not had a significant sponding figure in 2016 was 50 basis points. impact on the bank’s activities. Two IT-related incidents were so serious, however, that they were The credit spreads (the interest rate mark-up on reported to the Financial Supervisory Authority in 3-month NIBOR) for the bank’s borrowing in the accordance with the regulations. bond market were reduced during the year. At year-end 2017, the credit spread for five-year senior The complexity of the bank’s business is increasing bond issues by Sparebanken Vest was at a lower in some areas. At the same time, there is increased level than at the beginning of 2017 – a tightening focus on risk management and compliance from a from approximately 85 basis points to approximately market and regulatory perspective. This is also 65 basis points. largely due to new regulations in banking and finance. The Board is concerned with ensuring that Sparebanken Vest’s dependence on capital market the bank’s management in this area is adapted to financing is increasing. This is due to good growth in new guidelines and requirements that are lending and a low interest rate level, which means introduced. that a larger proportion of households and companies’ savings are channelled into other forms Liquidity and financing of saving than deposits. The Board is concerned In addition to deposits, Sparebanken Vest uses with keeping the bank’s liquidity risk at a moderate capital market financing to finance the bank’s level, with a differentiated structure in relation to activities. Senior bond loans issued by the parent markets, sources, maturity etc. The Board annually bank and covered bonds issued by the bank’s considers the bank’s liquidity analyses (ILAAP) and

Sparebanken Vest Annual Report 2017 Page 26 discusses and decides the bank’s risk tolerance in Sparebanken Vest’s Core Tier 1 capital adequacy liquidity and financing. ratio, taking into account the Basel I floor, is up 0.1 percentage point from the fourth quarter 2016, to The total capital market financing amounts to NOK 15.0%. The bank meets the current combined 84.6 (80) billion. The bank’s relative proportion of minimum and buffer requirement of 12% and the covered bonds at the end of 2017 accounted for statutory Pillar II requirement of 1.8%, in total approx. 71% (69) of the bank’s capital market 13.8% Core Tier 1 capital, by a very good margin. financing. The proportion of financing with a The management buffer adopted by the Board is remaining term to maturity of more than three years also met. was approx. 51% (41) at year-end. The bank wishes to meet regulatory minimum The Group’s liquidity situation at year-end 2017 was requirements through maximum use of hybrid good and is managed at the overall level using the capital (1.5%) and supplementary capital (2%). At Liquidity Coverage Ratio (LCR), stress tests and the year-end 2017, the level of hybrid capital was 1.6% deposits/loans ratio. At year-end 2017, the Group and supplementary capital 2.1%. The overall capital had an LCR of 158%. The Net Stable Funding Ratio adequacy is 18.7%. (NSFR) has not yet been introduced in Norway, but is expected to enter into force in connection with the Figure 5: Capital adequacy, Basel I floor completion of Basel III, probably during 2018. The deposits/loans ratio continued to fall to 46% (49) as 20 % 18.7% 18.4% 18.3% 18.4% 18.7% a result of low interest rates, good growth in lending 18 % 2.2% and increased interest in alternative savings 2.1% 2.1% 2.0% 2.1% 16 % investments. The Group’s liquidity portfolio 1.6% 1.5% 1.5% 1.5% 1.6% amounted to NOK 20.3 (20) billion at the end of 14 % 2017. The portfolio is well diversified and comprises covered bonds, bonds issued by municipalities and 12 % county authorities and government/ government- 10 % guaranteed bonds. The majority of the securities are denominated in NOK. 8 % 14.9% 14.8% 14.7% 14.9% 15.0%

6 % Rating Sparebanken Vest is rated by Moody’s. On 10 July 4 % 2017, Moody’s changed the outlook for 2 % Sparebanken Vest and most other Norwegian banks’ 0 % rating from ‘A1 Stable’ to ‘A1 Negative’. The reason 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 given by Moody’s for the change is the Total Capital 18.7% 18.4% 18.3% 18.4% 18.7% Tier Capital 2.2% 2.1% 2.1% 2.0% 2.1% implementation of the Crisis Management Directive Add. Tier 1 Cap. 1.6% 1.5% 1.5% 1.5% 1.6% in Norwegian law. Core Tier 1 Capital 14.9% 14.8% 14.7% 14.9% 15.0%

Bonds issued by Sparebanken Vest Boligkreditt AS In a letter of 9 February 2017, the Financial are rated by Moody’s and have an AAA rating with a Supervisory Authority announced that Sparebanken stable outlook. Vest was granted approval to use the advanced IRB method (AIRB) to calculate regulatory capital Capital adequacy requirements for credit risk. The approval applies to The Board annually discusses and decides the the corporate market. The bank has already been bank’s risk and capital tolerance (ICAAP). As well as granted such approval for the retail market. meeting all regulatory minimum and buffer Combined with improved quality in the bank’s requirements for Core Tier 1 capital adequacy, the corporate market lending portfolio, the approval Board has decided that the bank shall hold a helped to ensure that the bank’s Core Tier 1 capital management buffer on top of these requirements. under the IRB method increased by 1.4 percentage This buffer makes up about one percentage point. points in 2017.

Sparebanken Vest Annual Report 2017 Page 27 The Board is satisfied with the Financial Supervisory Leverage ratio Authority’s approval, and considers it a sign of The leverage ratio at year-end 2017 was 7.3%, quality. The approval was granted on certain unchanged from 2016. Sparebanken Vest meets the conditions relating to safety margins in the models. regulatory minimum requirement (3%) and the Transitional rules involving a Basel I floor of 80% are buffer requirement (2%), in total 5%, applicable still binding on the bank, however. from 30 June 2017, by a good margin.

The bank has calculated Pillar II capital held for Figure 7: Leverage ratio owner risk to Frende Forsikring based on a proposal 8 from the Financial Supervisory Authority. The calculations are based on the difference between the solvency capital requirement and actual 6 solvency capital, adjusted for the book value of the asset. This amounts to NOK 250 million or around 4 30 basis points of the calculation basis. 7,3 % 7,1 % 7,2 % 7,3 % 7,3 %

In the fourth quarter 2017, the bank conducted a quantitative impact study from the Financial 2 Supervisory Authority with respect to the consequences of the completion of Basel III. The 0 proposal includes a revised standard method for Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 credit risk, revised IRB methods and a new floor for the calculation basis for IRB banks of 72.5% of the new standard method for credit risk. The proposal THE RETAIL MARKET from the Basel Committee is expected to increase Sparebanken Vest has seen positive development in Sparebanken Vest’s Core Tier 1 capital adequacy the retail market throughout 2017. At the end of the ratio by around three percentage points. year, the bank had 272,945 retail customers, and had made great progress in prioritised customer Figure 6: Capital adequacy, IRB segments.

24 % 22.9% 23.3% 22.8% 22.4% 21.2% The number of retail customers increased by about 22 % 2.6% 2.6% 2.5% 2.6% 3.4% in 2017, and the growth in lending was 6.9%. 20 % 2.5% 1.9% 1.9% 2.0% 1.9% This is slightly higher than the general credit growth 18 % 1.8% in the economy. Loans to retail customers constitute

16 % 76% of the bank’s lending portfolio, corresponding

14 % to NOK 112 (105) billion at 31 December 2017. Deposits in the retail market have increased by 12 % 2.9%, and amounted to NOK 44 (42) billion at 10 % year-end.

8 % 16.9% 18.0% 18.5% 18.9% 18.3% Increased diversification of income has been an 6 % important part of the bank’s strategy in recent years. 4 % Saving in funds has shown strong growth in 2 % particular in 2017, and the bank’s fund portfolio exceeded NOK 10 billion. The bank’s growth in 0 % 2017 Q1 2017 Q2 2017 Q3 2017 Q4 AIRB corp. AIRB corp. AIRB corp. AIRB corp. 2016 Q4 portfolio portfolio portfolio portfolio funds is stronger than the general market growth in Total Capital 21.2% 22.4% 22.9% 23.3% 22.8% funds in Norway. Tier 2 Capital 2.5% 2.6% 2.6% 2.6% 2.5% Add. Tier 1 Cap. 1.8% 1.9% 1.9% 1.9% 2.0% Core Tier 1 Capital 16.9% 18.0% 18.5% 18.9% 18.3% The bank’s own quarterly surveys show that the level of customer satisfaction is still high. This is reflected in the bank being perceived as an easy bank to use,

Sparebanken Vest Annual Report 2017 Page 28 and in our customers having a positive impression The competition situation in the bank market was of our advisers. characterised by intensive competition throughout 2017, largely driven by the biggest banks. This The trend towards increased use of digital banking increased competition means stronger pressure on and banking services has gained further ground. the bank’s margins, which is assumed to continue in Digital sales of products that can be bought via 2018. Creating even better customer experiences in self-service solutions are really taking off. The all customer channels, working more efficiently mobile banking app is the bank’s most frequent through automation and robot technology and point of contact with customers, and their use introducing new solutions quickly on the market will increases when new functions are launched. When be priority areas in the retail market segment in solutions are easy to use, we see that customers Sparebanken Vest also in 2018. immediately start using the services without us having to market them. In 2017, further adaptations THE CORPORATE MARKET have been made to our office network with the The development in the corporate market has been decision to close one branch office. good in 2017 in terms of growth in assets, profitability and portfolio quality. Intense competition and associated pressure on margins, tighter regulation and changed customer The growth in lending ended at 11.4% in 2017, a behaviour all require further rationalisation and cost result of both targeted efforts to bring in new adjustments. Throughout 2017, the bank developed customers and the fact that the investment rate for new self-service solutions that customers demand. existing customers has increased in line with a The bank also launched new services in 2017 better macroeconomic outlook. whereby parents can order a card, use the online banking solution and the mobile banking app, and A total of 2,100 new corporate customers joined open accounts for their children. In 2017, around Sparebanken Vest in 2017 – the highest number 80% of the bank’s loans to retail customers were since 2011. The growth is spread across segments confirmed by electronic signature. In parallel, work and industries. Customer losses were also low and has continued at our branch offices to offer training on a par with 2016. in the use of self-service solutions to customers who need it. At the start of 2018, the bank has experienced good access to sound financing projects for companies in The focus on family customers was strong in 2017. Western Norway. The lending growth target in the In addition to new digital solutions, the bank has corporate market for 2018 is 6%, which exceeds increased its focus on families through funds for the the expected credit growth among businesses. At public benefit and marketing measures. This has the end of 2017, gross lending to corporate created a sense of pride among the bank’s customers amounted to NOK 35.9 (32.2) billion. employees and resulted in a lot of positive feedback from customers. Deposits from the corporate market also increased in 2017 – by 5.9%. At the end of 2017, the deposits Although customers mostly have digital contact with portfolio amounted to NOK 25.4 (24.0) billion. the bank, Sparebanken Vest’s customers are still interested in being able to talk to or meet with an In parallel with good growth in lending, risk-weighted adviser by phone or in person when they need balance sheet assets were reduced in 2017. This advice on important events in their lives. Fewer supports the view that the growth was in projects meetings with customers because they use more that represent an acceptable risk for the bank, and self-service solutions means that each meeting that there has been a positive development in the becomes even more important. The bank has made existing portfolio. In 2017, the bank was also systematic efforts throughout the year to ensure granted approval to use the advanced IRB method good customer experiences in their encounters with to calculate capital in the corporate market. us. This work will continue in 2018.

Sparebanken Vest Annual Report 2017 Page 29 The lending margin remained stable throughout the in less than two minutes. The solutions were quickly year, despite good growth. The risk-adjusted return taken into use by customers, and the feedback has in the corporate market is therefore good and been very positive. The priority given to digital satisfies the bank’s required rate of return. development in the corporate market will be intensified in 2018, and a new self-service credit The downturn in the oil industry was finally replaced solution for small and medium-sized companies will by a mood of growing optimism among businesses also be launched some time before summer. in Western Norway in 2017. According to the bank’s own business barometer, the Western Norway Index, When the needs of less complex corporate the last time the same level of optimism prevailed customers are met by Direct Bank CM, this frees up was when the oil price exceeded USD 100 a barrel. more time for proactive, value creating advisory Targeted work to strengthen the credit quality in the services for medium-sized and large customers corporate market portfolio has been high on the provided by a dedicated group of general and agenda in recent years. Combined with a more specialist advisers who are in close contact with positive macroeconomic outlook, this has resulted in customers. The Board believes that this will set the low losses in 2017 as well. Total losses on loans bank apart also in a more digital future amounted to NOK 33 (39) million in 2017. EQUITY INVESTMENTS There has also been extensive customer-oriented Sparebanken Vest’s equity investments are intended activity in the Markets area in 2017, which showed to make a positive contribution to the bank’s continued positive development. Total customer earnings by delivering a return on equity that is in revenues from currency and fixed-interest products accordance with the bank’s goals. Sparebanken ended at NOK 41 (35) million in 2016. The new Vest has decided to gradually reduce this type of e-commerce solution for currency trading was well investment, and has sold several shareholdings in received in 2017, and combined with targeted 2 017. efforts to bring in more Markets customers, this creates expectations of further growth in the Equity investments amounted to NOK 416 (451) business area. million at 31 December 2017. In addition, NOK 4,333 (3,307) million was paid into subsidiaries as Direct Bank CM was launched in 2016 – a equity. This primarily concerns the infusion of comprehensive advisory concept for the smallest capital in Sparebanken Vest Boligkreditt AS. NOK and least complex corporate customers. In 2017, 787 (746) million was invested in associated the Direct Bank really got under way – and more companies in which the bank has holdings of and more customers are contacting the Direct Bank between 20% and 50%. looking for faster response time, better accessibility and all the services in one place. Customer CORPORATE SOCIAL RESPONSIBILITY satisfaction among customers who are in contact Sparebanken Vest’s vision is to help to make life in with Direct Bank CM is measured on a daily basis. Western Norway even better. The bank wants to set The current score is just above a solid 85/100. an example for how businesses can contribute to social development in Western Norway, and The bank also increased its focus on digital recognises that its role as a member of society is development in the corporate market in 2017, with a more important than what follows from regulatory dedicated development team that cooperates requirements. Sparebanken Vest will contribute closely with Direct Bank CM. Among other things, a through our own processes, the projects and new online banking solution was launched, featuring customers we choose to finance and how we new self-service solutions. The bank also entered conduct ourselves in relation to customers, society into cooperation with the accounting system Fiken and the environment. on a closely integrated accounting solution for small and medium-sized enterprises. A new fully-digital As a company, we need to see the link between our process was launched in summer 2017 that enables business activities, society and the environment. Our new customers to register as a corporate customer most important contribution is to develop a

Sparebanken Vest Annual Report 2017 Page 30 responsible, profitable business through banking The Code of Ethics applies to all employees of the operations and to help businesses and individuals to Sparebanken Vest Group, including temporary gain access to resources, make use of technology employees and others acting on the bank’s behalf, and create jobs, revenues and prosperity. To ensure regardless of their function or position. The Code of that this is economically sustainable, however, we Ethics also applies to members or deputy members also need to take social and environmental of Sparebanken Vest’s elected bodies, and considerations into account. corresponding functions in the bank’s subsidiaries. All employees are also subject to a duty of secrecy, ACTIVITIES AND DONATIONS FOR THE PUBLIC which also applies in relation to other colleagues. BENEFIT Sparebanken Vest’s historical roots in the savings Sparebanken Vest has established a dedicated bank model and its ownership structure mean it has Code of Ethics for all employees of the bank. This two distinctly different but closely linked purposes. document shall be reviewed and signed as part of The first is purely commercial activities through the the appointment process. The guidelines shall also banking operations, the purpose of which is to be discussed with all new employees as part of the achieve financial results. The other is the goal of induction to the bank. contributing to the public benefit through the allocation of the bank’s profit. A stronger financial The bank’s Code of Ethics forms part of the result increases the potential for donations, at the employment contract and is an important topic in same time as good selection and management of performance evaluation and planning discussions projects for the public benefit can strengthen the between managers and employees. The Code of bank’s reputation and position. Ethics and ethical dilemmas are addressed during these discussions. All authorised and approved Activities and donations for the public benefit are an advisers must also take an annual ethics update test important differentiating factor for the bank. The as part of the annual competence updating process. bank is engaged in these activities in different The content of the annual ethics training and update arenas, from local festivals to measures that support is provided by the Finance Industry Authorisation education and upbringing. Furthermore, the bank schemes (FinAut). shall contribute to growth in businesses in Western Norway by creating meeting places across Ethics training is important in order to strengthen industries and by facilitating entrepreneurship and the bank’s competence and raise awareness of necessary restructuring. The Board proposes to ethical risks. Everyone who is directly involved in allocate NOK 150 million to activities and donations investment decisions or the granting or loans or for the public benefit for the 2017 financial year. credit to businesses shall be familiar with the bank’s The bank’s gift fund amounted to NOK 150 million principles for socially responsible financing. The at 31 December 2017. principles guide what we grant loans for, invest in, and how the bank should act and influence joint ETHICS investment decisions in companies where the bank Trust is essential to our business. The bank is does not hold a dominant position. Ethics and good dependent on customers, public authorities and advisory practices are also a key part of the society in general seeing Sparebanken Vest as a authorisation scheme for financial advisers. company with high ethical standards. All of Sparebanken Vest’s employees shall have high No breaches of the Code of Ethics were reported in ethical standards, and each employee shall inspire 2 017. confidence, be honest and fair and act in accordance with the norms, rules and laws that CORRUPTION AND ANTI-MONEY LAUNDERING apply in society. The bank’s Code of Ethics is thus a Sparebanken Vest has zero tolerance for corruption description of Sparebanken Vest’s conduct and and takes a very serious view of corruption in what is expected of the bank’s employees and relation to employees, customers and business others acting on the bank’s behalf. associates. Internally, corruption violations are covered by the bank’s Code of Ethics, while in

Sparebanken Vest Annual Report 2017 Page 31 relation to lending, violations are covered by special HUMAN RIGHTS provisions in the bank’s credit policy. Sparebanken Vest supports and respects the protection of international human rights. Some Sparebanken Vest has developed a set of issues in this context may be more relevant in the procedures intended to identify corruption violations, supplier chain than in the company’s own business. and follows the regulations applicable at all times. For example, forced and child labour will be less relevant in the company’s own business, while the The bank has a robust system for preventing money risk may be high in parts of the supplier chain. This laundering that is implemented and complied with is underpinned by the Group’s strategy to report on in day-to-day operations. As recently as autumn corporate social responsibility, as well as by policies 2017, the bank’s employees took mandatory courses and requirements for suppliers and other parties. on the topics of terrorism financing, money laundering and anti-corruption. THE NATURAL ENVIRONMENT AND CLIMATE CHANGE No matters that can be defined as corruption have Through the UN Global Compact, Sparebanken Vest been reported in 2017. has undertaken to apply the ‘better safe than sorry’ principle in relation to environmental challenges, to Work to combat money laundering and terrorism take the initiative to promote increased environ­ financing is an important part of the bank’s mental awareness and to encourage the develop­ corporate social responsibility. The bank therefore ment and use of environmentally friendly technology. makes systematic efforts to uncover and combat In the Paris Agreement, the world’s leaders agreed such crimes. The work takes a risk-based approach, that global warming must be kept well under 2 is business-oriented and forms part of the bank’s degrees – and preferably 1.5 degrees – to avoid risk management. All employees must regularly take dangerous climate change. This will require change a mandatory e-learning programme as part of this and adaptation in many areas of society. work. In addition, theme-based training activities are organised annually for a large number of employees. Work to reduce greenhouse gas emissions is an important part of the global responsibility. Western In its lending activity, Sparebanken Vest shall act Norway will be particularly affected by changes in responsibly and in accordance with internationally the global climate. Sparebanken Vest works recognised principles for corporate social systematically on environmental measures in its day- responsibility and sustainability, including the UN’s to-day operations, and has initiated a number of 10 principles on human and labour rights, measures to reduce its own direct and indirect environmental protection and anti-corruption set out greenhouse gas emissions. The head office in in the UN Global Compact. Jonsvoll was certified as an Eco-Lighthouse in September 2017 and is working to achieve environ­ The bank shall not provide financing to customers/ mental certification for the whole Group. The businesses that: Eco-Lighthouse certification is an external - there is reason to believe do not comply with the verification of Sparebanken Vest that confirms that bank’s Code of Ethics, or in other ways conduct the bank meets a set of criteria and implements their business in conflict with the generally measures to achieve more environmentally friendly accepted view of what constitutes good ethical operations and a good working environment. conduct. - have acted dishonestly in relation to the bank, or In connection with the certification, Sparebanken are known to have acted dishonestly in relation to Vest has initiated an extensive mapping process and other parties, or if they are known to be/have been a plan for internal environmental improvements. involved in criminal activity. - operate in conflict with official laws, regulations and EMPLOYEES environmental requirements, or without necessary As of 31 December 2017, the Group had 693 approval from public environmental authorities. full-time equivalents, 589 of whom were affiliated to Sparebanken Vest.

Sparebanken Vest Annual Report 2017 Page 32 The financial industry is facing both great opportuni- bank has continued its focus on management ties and challenges, and the right expertise among development at all managerial levels. Various all employees is important to ensure further growth gatherings have been held for 90 managers, and profitability. In 2017, Sparebanken Vest recruit- focusing on strategy, change management, ed new expertise, mainly in IT and product develop- coaching and performance management. The ment, in order to further develop the company in the gatherings have been held locally in the bank’s demanding, dynamic climate that prevails in the market area, providing a nice setting for the financial market. More customer advisers were participants. recruited in 2017. In total, Sparebanken Vest advertised 42 vacancies externally in 2017. Continuity is important in the management development programmes, and they will be Sparebanken Vest spends a great deal of resources continued and further developed in 2018. The and keeps a strong focus on being at the forefront of development seminars are organised for all technology development. This is underpinned by managerial levels, and in 2017, two two-day considerably more resources being spent on systems management seminars were held for all managers. management and systems development, in addition Two seminars were also held for level-2 managers to customer insight and service development. (managers who report to the corporate management) and two for level-3 managers Sparebanken Vest works continuously to ensure that (managers who report to level 2). Each of these its employees have the necessary competence. In seminars lasted two days. The CEO also hosts a recent years, the bank has devoted extensive number of informal breakfast meetings at which resources to ensuring that its financial advisers meet employees are invited to share their experience and the requirements of the authorisation scheme for opinions. financial advisers (AFR) and that those who sell and give advice on insurance meet the requirements of WORKING ENVIRONMENT the approval scheme for general insurance (GOS). Sparebanken Vest has conducted organisational This is in order to ensure that customers are given surveys (Gallup Q12) in 2017, corresponding to the correct information and that financial advisers have one conducted in 2016. Q12 is a survey that the right attitudes and skills. focuses on what managers and employees can actually improve and control. The questions are Competence updating has been carried out in 2017 closely linked to the company’s results: profitability, in ethics, AFR, GOS and interdisciplinary topics. turnover, productivity and customer satisfaction. The Moreover, several new members of the bank’s staff bank scores particularly well on employees’ have qualified as authorised financial advisers. It is satisfaction with the workplace, that they have Sparebanken Vest’s goal that all its retail market colleagues that are dedicated to a high-quality work advisers are authorised under both AFR and GOS. performance and that they have colleagues who care about each other. The bank has continued its work of rationalising and modernising its training channels by increasing the The survey provided valuable feedback confirming focus on e-learning, webcasts and the use of video, that the company is developing in the right direction. among other things. Examples of this include the The findings of the survey have been used actively ‘AD-Update’, where the bank’s CEO regularly shares at all levels to ensure that we enhance what is good thoughts, information and raises current topics with and improve the areas that need it. Work is now employees through a live webcast. Videoconfe­ under way at the different levels in relation to the rencing has also become a common meeting topics addressed in the organisational survey, and channel, which means that geographical distance is each department is working actively to improve in no longer an obstacle to efficient sharing of the different areas. Topics and tools used in con- information. nection with the survey will also be used actively in management development programmes going Management and employee development are key forward, to ensure that the bank’s working environ- topics in organisational development. In 2017, the ment continues to develop in a positive direction.

Sparebanken Vest Annual Report 2017 Page 33 In 2017, as before, the bank spent substantial SICKNESS ABSENCE AND INCLUSIVE resources on joint activities aimed at encouraging WORKPLACE and promoting team spirit in the organisation. The Overall sickness absence in Sparebanken Vest was bank is still investing in various social activities for 4.3% in 2017, up by 0.2 percentage points from its employees, including a company sports 2016. Of the total, 3.08% was long-term absence association, a walking group and a company and 1.24% short-term absence. The bank has a orchestra. Towards the end of the year, a new good system of cooperation on sickness absence employee exercise agreement was signed with Sats and a strong focus on reducing the proportion of Elixia in an effort to further improve the good employees on long-term sick leave, including working environment. through close cooperation with the corporate health service and NAV. Sparebanken Vest in Jonsvoll recently passed an extensive environmental certification process in The company is bound by the Inclusive Workplace 2017 and is proud to be able to call itself an (IA) Agreement. Through its participation in the Eco-Lighthouse. The Eco-Lighthouse scheme is the agreement, it is important for the bank to work most common Norwegian certificate for enterprises systematically on reducing and following up that wish to document their environmental sickness absence. The bank’s target is to have a commitment. work attendance rate of at least 96.5% in 2018.

The certification process addresses everything from By taking a proactive role and cooperating with the procurement procedures, waste recycling, the use corporate health service, the bank is able to offer of air travel, the working environment etc. The bank employees guidance on exercise, diet and health. has established good, measurable figures that The bank also makes arrangements for employees enable it to measure the effect of different who, for various health reasons, require adaptations environmental measures. Sparebanken Vest looks to be made in the workplace. for other certified businesses as partners, and for the bank’s customers, the certification is a Sparebanken Vest has a comprehensive plan for its guarantee that the bank applies stringent work on HSE (health, safety and the environment) environmental criteria in relation to the working with a dedicated HSE manual and the IA agreement, environment, procurements, energy, transport, which it discusses with safety delegates, the waste, emissions and aesthetics. corporate health service, employee representatives and NAV. The HSE Calendar ensures continuity in All new employees are informed about the Eco- the bank’s HSE work and shows how partners are Lighthouse principles, and what they entail for the involved. The good, strong cooperation and dialogue bank and for individual employees. the bank enjoys with NAV and the corporate health service were maintained in 2017. The bank plans to continue the certification process for all its branch offices. The Eco-Lighthouse GENDER EQUALITY certification entails a review of several issues that Sparebanken Vest makes determined efforts to are addressed in connection with safety rounds, a promote gender equality and prevent discrimination, focus on and procedures for the working and it takes its duties under the law and collective environment, the natural environment and agreements seriously. One of the measures initiated performance evaluation and planning discussions. in 2017 was ‘Women in Leadership’, a tailored This helps to ensure that each branch office management development programme for women. supports the commitment, team spirit and sense of The programme ran throughout the year and community in the organisation. Goals relating to the included 12 female managers. climate, the working environment and the natural environment are shared throughout the organisation. In 2017, the breakdown between female and male employees in the bank was 52% and 48%, respectively. The average age was 46 years. The bank’s Board consists of ten members. Four of the

Sparebanken Vest Annual Report 2017 Page 34 elected members are women. The corporate POST BALANCE SHEET EVENTS management team consists of seven members, four No significant events that affect the annual accounts of whom are women. have taken place since the balance sheet date.

Number of women by job level 2016 2017 OUTLOOK Corporate management 42,86% 57,14% The macroeconomic situation Level 2 16,00% 21,43% The global economic upturn is continuing, and is Level 3 43,14% 44,23% now more synchronised than before. Growth is Other employees 55,94% 54,22% picking up in the EU and in emerging economies. This is helping to reduce unemployment and push Women’s pay as a percentage of up wages and inflation, and further increase men’s by job level 2016 2017 demand for goods and services. A natural Level 1 (excl. CEO) 109,32% 112,20% consequence of the persistent, synchronised upturn Level 2 110,04% 111,04% is that the national banks increase their key interest Level 3 88,15% 89,53% rates. This process has already started in the USA, Other employees 83,64% 84,53% and the Federal Reserve increased its rate to 1.5% in December last year. Four further hikes may take Parental leave taken, number of days 2016 2017 place in the USA before the end of the year. In the 1,007 871 eurozone, the key interest rate is still negative, but, Men days days in the course of 2018, the European Central Bank 2,872 2,610 Women days days will probably signal whether we can expect to see an increase already in spring 2019.

Sickness absence 2016 2017 Men 2,9% 2,8% Economic growth has also picked up here in Women 5,8% 5,9% Norway. This has been driven by higher oil prices, a Total 4,2% 4,3% weak krone and more optimistic households. In our estimate for 2018, we expect to see economic

Absence due to child sickness (total growth of just over 2% (mainland GDP) in 2018. number of days) 2016 2017 That is slightly higher than our estimate for 2017. 155.5 102.5 However, we believe that the factors expected to Men days days contribute to the economic growth in 2018 may be 260.5 182.5 subject to change. Public demand will be fairly Women days days moderate in the coming years, and there will be less expansive spending of oil revenues. Growth in Proportion of part-time employment 2016 2017 private consumption is expected to be the same as Men 3,01% 3,41% last year, at around 2.2%. Wage growth will be Women 4,51% 3,25% slightly higher, however, at around 2.5%. House prices will continue to fall for a few more months. WHISTLEBLOWING Our preliminary best estimate is until Easter. We see In order to make it easier for employees to report signs of the fall in house prices in Oslo levelling off. matters warranting criticism, the bank has, in In Bergen, we see that the number of new addition to its internal whistleblowing procedures, completed house-building projects will peak in April, entered into an agreement with an external third and then level off and fall. party that can receive and consider notifications. The purpose is to ensure anonymity and impartiality. The NOK exchange rate and the oil prices, which It is important for the bank to have good have closely followed each other since the fall in oil whistleblowing procedures in place, and they are prices in 2013, went their separate ways in autumn easily available to employees through the bank’s 2017. The price of oil has risen by around 25% HSE manual (on the intranet). The notifications since then, while the NOK exchange rate has fallen received are treated confidentially, and by around 7%. A lot of the uncertainty concerning whistleblowers are protected against retaliation. the value of the krone has been due to the risk of a

Sparebanken Vest Annual Report 2017 Page 35 sharp fall in house prices. We expect the euro to Strong competition indicates slightly lower interest cost slightly less over the course of spring, and margins going forward, while revenues from envisage a EUR/NOK exchange rate of 9.45 in six payment transfers may be subject to pressure. months’ time. The krone is expected to climb during Digitalisation, changed customer behaviour and new autumn, but one euro is still expected to cost NOK 9 regulatory requirements are still making great at the end of the year. We expect Norges Bank to demands in relation to changes. In 2018, defer an interest rate increase until spring 2019. Sparebanken Vest will continue transforming its operations to adapt to new framework conditions. Western Norway Investments in new technology, changed expertise Western Norway is expected to drive growth in the and new processes will feature strongly in this work. Norwegian economy in 2018. The Western Norway The goal is for the cost level to remain flat, nominally Index 4/2017 shows that growth is picking up in speaking, in 2018. Rogaland. The enterprises in the county are reporting an increase in demand, employment, Organisational and culture work will be a priority in profitability and investments. Enterprises that have a the development of the bank’s activities. New more moderate proportion of turnover from oil and modules will be added to the management gas-related activities are driving the positive development programme the bank has used for a development in the county. This may indicate that number of years. Improving customer value and the the enterprises that have adapted and diversified customer promise will be an important element in are now seeing the results of this restructuring this context. process. Careful management, good credit quality and low We expect industries exposed to competition to exposure to industries vulnerable to cyclical contribute the most to increased growth in 2018. A fluctuations have led to low losses for the bank in broad upturn in the global economy and among our recent years. New growth signals in the trading partners, combined with a weaker krone, macroeconomic situation will be positive for mean that we expect to see an increase in corporate business and industry and for households in investments. Oil investments will increase by around Western Norway, and would help to keep losses low. 5%, while industrial production will follow the The Board therefore still expects losses to be low. development in oil investments. Mainland exports However, the prognosis for 2018 is based on will also make a positive contribution as a result of normalised losses, which means losses of around the growth outside Norway and the weak krone. NOK 200 million.

Sparebanken Vest At the end of 2017, the Board adopted an Sparebanken Vest’s financial targets are a return of amendment to the bank’s dividend policy that will equity over time of 11% and Core Tier 1 capital of apply from and including the 2018 financial year. around 1 percentage point above all regulatory The change entails equal allocation to equity minimum and buffer requirements (including Pillar II certificate capital and primary capital, and that the stipulated by the Financial Supervisory Authority of cash dividend shall be between 25 and 50% of the Norway). The Board expects to reach the ROE goal equity certificate holders’ share of profits. The in 2018, at the same time that the bank meets the dividend for the 2018 financial year is expected to target for Core Tier 1 capital. be in the lower part of this interval.

The bank is in a good financial position for further BOARD OF DIRECTORS growth and development. The capital targets have Arild Bødal and Kristin Axelsen (employee been met, and the implementation of Basel IV will representative) were re-elected for two years in be advantageous to Sparebanken Vest. The goal is 2017. Magne Morken and Marianne Dorthea for the bank to win market shares within its ordinary Jacobsen were elected as new board members for activities in 2018, and contributions from two years. Arild Bødal was elected Deputy Chair of subsidiaries and associated companies are also the Board for one year. expected to increase.

Sparebanken Vest Annual Report 2017 Page 36 THANKS TO CUSTOMERS, BUSINESS ASSOCIATES, OFFICERS OF THE COMPANY, THE MANAGEMENT AND EMPLOYEES The Board of Directors wishes to thank the bank’s employees and officers for their great enthusiasm, good work effort and constructive cooperation in a year characterised by demanding restructuring processes. The Board also wishes to thank the bank’s customers, equity certificate holders and other partners for their continued support for Sparebanken Vest in 2017. The Board will work actively to continue this positive cooperation in the time ahead.

Bergen, 31 December 2017 / 23 February 2018 The Board of Directors of Sparebanken Vest

Trygve Bruvik Arild Bødal Kristin Axelsen Chair of the Board Deputy Chair of the Board

Anne-Marit Hope Marianne Dorthea Jacobsen Birthe Kåfjord Lange

Magne Morken Richard Rettedal Fred David Risløw

Gunnar Skeie Jan Erik Kjerpeseth CEO

Sparebanken Vest Annual Report 2017 Page 37 Accounting and notes

Income statement ...... 39 Statement of comprehensive income ...... 39 Balance sheet...... 40 Cash flow statement...... 42 Changes in equity...... 43 Note 1 Accounting principles...... 44 Note 2 Accounting estimates and discretionary assessments...... 48 Note 3 Segment information...... 50 Note 4 Classification of financial instruments ...... 52 Note 5 Fair value of financial instruments valued at amortised cost ...... 54 Note 6 Valuation hierarchy for financial instruments at fair value...... 55 Note 7 Financial risk management ...... 56 Note 8 Risk classification of the credit portfolio ...... 58 Note 9 Lending broken down by type of receivable and geographical area .... 60 Note 10 Commitments broken down by industry and the retail market ...... 61 Note 11 Capitalised write-downs of commitments ...... 63 Note 12 Development in losses and commitments in default ...... 64 Note 13 Secured debt ...... 66 Note 14 Loans to and receivables from credit institutions ...... 66 Note 15 Guarantees and secured debt ...... 67 Note 16 Certificates and bonds ...... 68 Note 17 Shareholdings in subsidiaries and associated companies ...... 70 Note 18 Market risk ...... 72 Note 19 Interest rate sensitivity ...... 73 Note 20 Currency positions ...... 74 Note 21 Financial derivatives ...... 75 Note 22 Shares ...... 76 Note 23 Liquidity risk/ remaining term to maturity ...... 78 Note 24 Net interest and credit commission income ...... 79 Note 25 Interest on individual balance sheet items ...... 80 Note 26 Net other operating income ...... 81 Note 27 Operating expenses ...... 82 Note 28 Pensions ...... 83 Note 29 Tax ...... 86 Note 30 Intangible assets ...... 88 Note 31 Tangible fixed assets...... 90 Note 32 Debt to credit institutions ...... 90 Note 33 Offsetting ...... 91 Note 34 Deposits from customers ...... 92 Note 35 Securitised debt ...... 93 Note 36 Subordinated loan capital and subordinated bond loans ...... 95 Note 37 Capital adequacy ...... 96 Note 38 The equity certificate ...... 99 Note 39 Transactions with related parties ...... 102 Note 40 Disputes ...... 106 Note 41 Description of IFRS 9 ...... 107 Note 42 Description of the impairment model under IFRS 9 ...... 109 Note 43 Transition to IFRS 9 ...... 110 Auditor’s Report ...... 114 Responsibility Statement ...... 119 Group key figures – 5 years ...... 120 Group key figures – per quarter for two years ...... 127 Corporate governance ...... 129 Subsidiaries and Associated Companies ...... 138 Regional map...... 139

Sparebanken Vest Annual Report 2017 Page 38 Income statement

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2016 2017 Notes 2017 2016 2 902 2 858 Interest income and similar income 4 378 4 272 1 033 991 Interest expenses and similar expenses 1 813 1 873 1 869 1 867 Net interest and credit commission income 24 2 565 2 399

505 870 Commission income and income from banking services 528 505 89 84 Commission expenses and expenses relating to banking services 85 90 361 177 Income from shareholdings in subsidiaries and associated companies 17 120 113 260 186 Net gain/(loss) on financial instruments -7 123 2 4 Other operating income 206 192 1 039 1 152 Net other operating income 26 761 843 2 908 3 019 Net operating income 3 326 3 242

733 921 Payroll and general administration expenses 28,39 1 072 894 118 125 Depreciation 30,31 128 121 156 203 Other operating expenses 250 255 1 007 1 249 Total operating expenses 27 1 450 1 270 1 901 1 770 Profit/loss before write-downs and tax expense 1 877 1 972

0 0 Net profit on tangible fixed assets 0 23 32 26 Write-downs of loans and losses on guarantees 12 33 39 1 869 1 744 Profit/loss before tax expense 1 844 1 956

343 387 Tax expense 29 427 435 1 526 1 357 Profit/loss for the financial year 1 416 1 521

6,26 5,19 Profit/diluted profit per equity certificate 5,42 6,24

Allocations -266 -221 Dividend on equity certificates 0 -37 Transferred to/from reserve for unrealised gains -1 027 -836 Transferred to primary capital -104 -76 Transferred to equalisation reserve -100 -150 Transferred to gift fund -30 -37 Transferred to hybrid capital -1 526 -1 357 Total allocations

Statement of comprehensive income

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2016 2017 2017 2016 1 526 1 357 Profit/loss for the period 1 416 1 521 -95 3 Estimate variance, pensions 28 3 -95 23 -1 Tax effect of estimate variance, pensions 29 -1 23 -72 2 Other profit/loss elements that will not be reclassified to profit or loss after tax 2 -72 40 0 Other profit/loss elements that will be reclassified to profit or loss after tax 0 40 -32 2 Total other profit/loss elements in the period 2 -32 1 494 1 359 Total profit/loss for the period 1 418 1 489

Sparebanken Vest Annual Report 2017 Page 39 Balance sheet

PARENT BANK GROUP 31/12-16 31/12-17 Notes 31/12-17 31/12-16 Assets 658 685 Cash in and receivables from central banks 685 658 5 836 14 104 Loans to and receivables from credit institutions 14 1 588 1 331 77 463 70 722 Net lending 8,9,10,11,12,13 147 073 136 099 411 376 Shares at fair value through profit or loss 22 376 411 40 40 Shares available for sale 40 40 18 336 19 066 Certificates and bonds 16 19 191 18 996 679 669 Financial derivatives 21 4 587 3 697 3 307 4 333 Shareholdings in group companies 17 700 787 Shareholdings in associated companies 17 1 022 863 93 32 Deferred tax asset 29 71 102 0 37 Pension assets 28 40 2 268 275 Other intangible assets 30 289 282 125 106 Tangible fixed assets 31 110 148 61 226 Prepaid expenses 58 61 327 7 Other assets 59 62 108 304 111 464 Total assets 175 190 162 752

Liabilities and equity 5 213 4 843 Liabilities to credit institutions 32 4 023 2 539 66 492 69 145 Deposits 34 69 111 66 486 19 477 19 619 Securitised debt 35 83 873 76 032 1 215 1 070 Financial derivatives 21 1 070 1 427 220 199 Accrued expenses and pre-paid income 213 240 61 66 Pension obligations 28 70 63 0 1 Other provisions for liabilities 1 1 377 330 Tax liabilities 29 401 528 2 133 2 109 Subordinated loan capital 36 2 109 2 133 576 619 Other liabilities 266 238 95 764 98 001 Total liabilities 161 135 149 687

1 476 1 476 Equity certificates 38 1 476 1 476 0 0 Own equity certificates 0 0 617 617 Premium reserve 617 617 587 663 Equalisation reserve 884 852 2 680 2 755 Total equity certificate capital 2 977 2 945

8 716 9 551 Primary capital 9 701 8 816 150 150 Gift fund 150 150 14 14 Compensation fund 14 14 8 880 9 716 Total primary capital 9 866 8 980

0 37 Reserve for unrealised gains 0 0 Other equity 257 160 980 955 Hybrid capital 36 955 980

12 540 13 463 Total equity 14 054 13 065

108 304 111 464 Total liabilities and equity 175 190 162 752

Sparebanken Vest Annual Report 2017 Page 40 Bergen, 31 December 2017 / 23 February 2018 The Board of Directors of Sparebanken Vest

Trygve Bruvik Arild Bødal Kristin Axelsen Chair of the Board Deputy Chair of the Board

Anne-Marit Hope Marianne Dorthea Jacobsen Birthe Kåfjord Lange

Magne Morken Richard Rettedal Fred David Risløw

Gunnar Skeie Jan Erik Kjerpeseth CEO

Sparebanken Vest Annual Report 2017 Page 41 Cash flow statement

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2016 2017 2017 2016 Cash flows from operations 3 162 3 491 Interest, commission and customer fees received 4 927 4 769 -691 -671 Interest, commission and customer fees paid -668 -696 389 389 Interest received on other investments 302 325 -642 -600 Interest paid on other borrowings -1 456 -1 450 -489 -551 Payments to other suppliers for goods and services -591 -631 -602 -633 Payments to employees, pension schemes, empl. Nat. Ins. contr., tax withholdings etc. -759 -728 -238 -375 Payment of taxes -527 -416 0 1 Dividend received for securities held for trading purposes 1 0 3 17 Payments made/received on purchase/sales of securities held for trading purposes 17 3 892 1 068 Net cash flow from operations 1 246 1 176

Cash flows from investments -4 098 6 723 Payments made/received on loans to customers -10 997 -7 481 -557 -8 268 Payments made/received on receivables and tied-up loans to financial institutions -256 828 126 11 Dividend received for securities not held for trading purposes 11 126 -35 45 Payments made/received on purch./sales of shares not held for trading purposes 45 -36 Payments made/received on purch./sales of other securities not held for trading 2 320 -669 purposes -151 2 467 478 370 Dividend/group contributions received from group companies 48 39 183 19 Payments received from sales of associated companies/subsidiaries 0 144 -617 -1 116 Payments made relating to investments in associated companies/subsidiaries -86 -92 5 1 Payments received from sales of operating assets etc. 27 53 -123 -115 Payments made on purchases of operating assets etc. -116 -124 -2 318 -2 999 Net cash flow from investments -11 476 -4 076

Cash flows from financing activities 2 563 2 656 Payments made/received on customer deposits 2 628 2 603 -1 132 -28 Payments made/received on deposits from Norges Bank and other financial institutions 1 830 -2 675 700 650 Payments received relating to subordinated loan capital and subordinated bonds 650 700 0 -698 Payment made relating to redemption of subordinated loans and subordinated bonds -698 0 3 510 9 467 Payments received on issuing bond debt 26 299 14 520 -4 069 -9 729 Payments made on redemption of bond debt -20 092 -12 102 -119 -360 Dividends paid / Donations for the public benefit -360 -119 1 453 1 958 Net cash flows from financing activities 10 257 2 927

27 27 Net cash flow for the period 27 27

27 27 Net change in cash and cash equivalents 27 27 631 658 Cash and cash equivalents at beginning of period 658 631 658 685 Cash and cash equivalents at end of period 685 658

Sparebanken Vest Annual Report 2017 Page 42 Changes in equity

Own Equity equity Equalisa- Compen- certifi- certifi- Premium tion Primary Gift sation Other Hybrid GROUP cates cates reserve reserve capital fund fund equity capital Total Equity at 31 Dec. 2015 1 476 0 617 555 7 733 175 14 166 577 11 314

Profit/loss 2016 369 1 127 -5 30 1 521 Other comprehensive income -8 -24 -32 Purchase/sale of own equity certificates 0 0 0 Distributed dividend and donations -65 -20 -85 Issue of new hybrid capital 400 400 Interest paid on hybrid capital -38 -38 Tax on hybrid capital interest, directly against equity 10 10 Donations from gift fund -25 -25 Equity at 31 Dec. 2016 1 476 0 617 852 8 816 150 14 160 980 13 065

Profit/loss 2017 297 986 96 37 1 416 Other comprehensive income 0 2 2 Purchase/sale of own equity certificates 0 0 -2 -2 Distributed dividend and donations -266 -100 -366 Redemption of hybrid capital -325 -325 Issue of new hybrid capital 300 300 Interest paid on hybrid capital -49 -49 Tax on hybrid capital interest, directly against equity 12 12 Equity at 31 Dec. 2017 1 476 0 617 884 9 701 150 14 257 955 14 054 Own Reserve Equity equity Equalisa- Compen- for un- certifi- certifi- Premium tion Primary Gift sation realised Hybrid PARENT BANK cates cates reserve reserve capital fund fund gains capital Total Equity at 31 Dec. 2015 1 476 0 617 490 7 713 175 14 0 577 11 063

Profit/loss 2016 369 1 127 0 30 1 526 Other comprehensive income -8 -24 -32 Purchase/sale of own equity certificates 0 0 0 Allocated dividend and donations -266 -100 -366 Issue of new hybrid capital 400 400 Interest paid on hybrid capital -38 -38 Tax on hybrid capital interest, directly against equity 10 10 Donations from gift fund -25 0 -25 Equity at 31 Dec. 2016 1 476 0 617 587 8 716 150 14 0 980 12 540

Profit/loss 2017 297 986 37 37 1 357 Other comprehensive income 0 2 2 Purchase/sale of own equity certificates 0 0 -2 -2 Allocated dividend and donations -221 -150 -371 Redemption of hybrid capital -325 -325 Issue of new hybrid capital 300 300 Interest paid on hybrid capital -49 -49 Tax on hybrid capital interest, directly against equity 12 12 Equity at 31 Dec. 2017 1 476 0 617 663 9 551 150 14 37 955 13 463

Sparebanken Vest Annual Report 2017 Page 43 Note 1 Accounting principles

GENERAL INFORMATION the management to make discretionary assessments. Areas that to The consolidated accounts for Sparebanken Vest comprise the a great extent involve such discretionary estimates, a high degree parent bank Sparebanken Vest and the wholly owned subsidiaries of complexity, or areas in which assumptions and estimates have a Eiendomsmegler Vest AS, with its subsidiary, and Sparebanken material bearing on the parent bank or consolidated accounts, are Vest Boligkreditt AS. They also include Frende Holding AS, Norne described in Note 2. Eierselskap AS, Brage Finans AS, Jonsvollskvartalet AS and Balder Betaling AS associated companies. See Note 17 for more details. CHANGES IN ACCOUNTING PRINCIPLES The Group has not applied any new standards or amendments of Unless otherwise specified, all amounts in the accounts and existing standards in 2017 that have a material bearing on the notes to the accounts are stated in NOK million. The consolidated annual accounts. accounts have been prepared on the basis of the going concern assumption. CONSOLIDATION PRINCIPLES The consolidated accounts include the parent bank, subsidiaries Sparebanken Vest’s equity certificates are listed on Oslo Børs. The and associated companies, including underlying subsidiaries. The bank is located in the counties of Hordaland, Sogn og Fjordane accounting principles are applied consistently to the recognition of and Rogaland, and its head office is in Bergen. The address of the shareholdings in subsidiaries (and associated companies) and are head office and subsidiaries is Jonsvollsgaten 2, NO-5011 Bergen. based on the same reporting periods as for the parent company. Intercompany transactions and outstanding accounts, including The 2017 annual accounts for the Sparebanken Vest Group were intercompany profit and unrealised gains and losses, are elimi- considered and adopted at a board meeting on 23 February 2018. nated when the consolidated accounts are prepared.

The General Meeting is the bank’s supreme governing body. Subsidiaries Subsidiaries are defined as companies in which the parent bank BASIS FOR THE PREPARATION OF THE ANNUAL ACCOUNTS has a controlling influence over the company’s operations (actual The consolidated accounts have been prepared in accordance with control). A controlled company is one in which the investor has International Financial Reporting Standards (IFRS) as adopted by power over the investee, is exposed or has rights to variable the EU and published by the International Accounting Standards returns from the investee, and has the power to control the Board (IASB), and which are mandatory from 31 December 2017. activities of the investee that materially affect the return. The concept of control means that a consolidation obligation must The consolidated accounts are based on the principles of historical also be considered for companies in which the bank does not have cost accounting. a majority shareholding. In addition, a consolidation obligation can arise in certain situations as a result of a loan, if the loan Amortised cost is used for the valuation of financial assets and agreement entails such extensive rights that they could result in liabilities, with the exception of financial instruments at fair value control. Such rights must be distinguished from ordinary rights the through profit or loss (including financial derivatives) and financial bank has to protect its loans. instruments designated for hedge accounting. Subsidiaries are included in the consolidated accounts from the date on which actual control is transferred to the Group. Invest- Amortised cost is defined as the amount the instrument is initially ments in subsidiaries are recognised in the company accounts in measured at in the accounts (cost price) minus repayments of accordance with the cost method. principal, with an addition or deduction for accumulated amortisa- tion of all differences between cost price and the nominal amount, Associated companies minus all write-downs. An associated company is a unit in which the Group has con- siderable influence, but not a controlling interest. Considerable Fair value is defined as the price that would be received for selling influence is deemed to exist if an enterprise directly or indirectly an asset or paid for transferring a liability between independent (e.g. through subsidiaries) controls 20% or more of the voting market participants on the measurement date. rights in the enterprise invested in, unless it can clearly be established that this is not the case. Conversely, if an enterprise For financial instruments subject to hedge accounting, the hedging directly or indirectly (e.g. through subsidiaries) controls less instruments are recognised at fair value and the hedged items at than 20% of the voting rights in the enterprise invested in, the fair value for the hedged risks. enterprise is not deemed to have considerable influence unless it can clearly be established that the enterprise has such influence. The consolidated accounts have been prepared on the basis of However, the fact that an investor owns a significant holding or a uniform accounting principles for similar transactions and events majority holding does not preclude another enterprise from having under otherwise identical circumstances. considerable influence. Investments in associated companies are recognised in the consolidated accounts in accordance with Sparebanken Vest’s company accounts have been prepared in the equity method, and in the company accounts in accordance accordance with a simplified form of IFRS. The same principles with the cost method. On the acquisition date, the investment is apply when using simplified IFRS for the company accounts as recognised at acquisition cost. under IFRS, with the exception of the recognition of dividends, group contributions and other distributions relating to the result Business combinations for the financial year. In the company accounts, the proposed Business combinations are recognised in accordance with the dividend and donations for distribution are recognised in the year acquisition method. The consideration is measured at fair value on that forms the basis for the distribution. the acquisition date. Direct acquisition costs are expensed as they arise, with the exception of issue costs and expenses relating to Preparing annual accounts and using IFRS require the use of esti- the raising of loans. mates. The application of the international standards also requires

Sparebanken Vest Annual Report 2017 Page 44 Acquired assets and liabilities are recognised in the balance sheet cases where a write-down has been carried out. Interest income at fair value in the Group’s opening balance. If the consideration on written-down loans is recognised using the original effective exceeds the value of identifiable assets and liabilities, the interest rate and on the basis of the written-down loan. Changes difference is recognised as goodwill. For more details relating to in a loan’s interest rate that reflect changes in the market interest how goodwill is treated for accounting purposes, see the separate rate do not affect the value of the loan. section under intangible assets. If the acquisition cost is lower than the value of identifiable assets and liabilities (badwill), the Financial liabilities at floating interest rates are recognised in the difference is recognised on the date of the transaction. Badwill balance sheet at amortised cost. The liability is initially valued at is entered under the accounting line ‘Net gain/(loss) on financial fair value with the addition of direct transaction costs. In periods instruments’. after the initial measurement, the loan is valued at amortised cost based on the effective interest rate method. Contingent considerations are classified as a liability pursuant to IAS 39 and recognised at fair value in subsequent periods. The Financial instruments at fair value through profit or loss adjustment of contingent considerations in subsequent periods is recognised in accordance with relevant standards. This category has two sub-categories: financial instruments held for trading purposes, and financial instruments initially classified SEGMENT INFORMATION for recognition at fair value through profit or loss. The Group’s activities are divided into the following segments: the Corporate Market (CM), the Retail Market (RM), Treasury Financial instruments held for trading purposes and Estate Agency activities. Operating expenses are allocated The bank has classifiedshares and bonds acquired for short-term directly, with the exception of IT expenses, staff-related costs and gain, or that are of such a nature that a sale would be considered depreciation. The classification is based on internal management in the event of an attractive offer, in the category financial reporting and resource allocation. instruments held for trading purposes. Derivatives are also classified in this category insofar as they are not designated for RECOGNITION OF INTEREST AND FEES hedging purposes. Interest income is taken to income using the effective interest rate method. This entails recognising nominal interest and amortisation Derivatives are recognised in the balance sheet at fair value of establishment fees after the deduction of direct establishment when the derivative contract is entered into, and thereafter at the costs, as they arise. The effective interest rate method is used current fair value. For more information about the scope and use for the recognition of interest for both balance sheet items valued of derivatives in the Group, see Note 21. at amortised cost and balance sheet items valued at fair value through profit or loss. Financial instruments classified for recognition at fair value through profit or loss Fees that are direct payment for services rendered are taken to Financial instruments classified for recognition at fair value income as the services are delivered. The accounting item ‘Net through profit or loss are recognised at fair value excluding other operating income’ includes fees and commission from transaction costs. Fair value is also used in subsequent valuations. payment transfer, the issuing of guarantees, estate agency and insurance sales. See Note 26 for further specification. Financial instruments are classified in this category if one of the following criteria is met: FINANCIAL ASSETS AND LIABILITIES • The classification eliminates or significantly reduces accrual Financial assets and liabilities are valued and classified in accounting differences for gains and losses on hedging instru- accordance with IAS 39, and presented in accordance with IFRS ments and hedged items in connection with financial hedging. 7. Note 4 specifies the volume for each main group of financial • The financial instruments are part of a portfolio that is managed instruments classified in the different measurement categories. and valued on the basis of fair value in accordance with a documented risk management or investment strategy. Recognition and derecognition Financial assets and liabilities are recognised in the balance sheet Financial assets initially classified for recognition at fair value when the Group becomes a party to the instrument’s contractual through profit or loss includefixed-interest loans, investments terms. Financial assets and financial liabilities are derecognised in certificates and bonds, as well as shares. Financial liabilities when the advantage or liability that follows from the contractual at fixed interest rates are also assigned to this category. This terms is met, cancelled or terminated. includes debt to credit institutions, deposits, securitised debt and subordinated loans and subordinated bonds at fixed interest rates. Financial instruments valued at amortised cost Financial assets recognised at fair value through profit or loss are Loans and receivables at floating interest rates are valued at recognised at fair value on acquisition, and transaction costs are amortised cost. Loans and receivables are defined as non-deriv- charged to income. Subsequent measurement is at fair value. The ative financial assets with fixed or determinable payments that fair value of listed investments is based on the market price on are not traded in an active market. Loans are initially valued at the balance sheet date. In the case of unlisted securities where fair value with the addition of direct transaction costs. In periods there is no active market, the Group values bonds and certificates after the initial measurement, loans are valued at amortised cost using prices from Nordic Bond Pricing AS. The fair value of other based on the effective interest rate method. If there is objective securities is stipulated using various valuation techniques. The evidence of a decline in the value of individual loans or groups of valuations are based on the last issue price, traded prices known loans, the loans are written down. The amount of the write-down to the Group and discounted cash flows. In the case of securities is calculated as the difference between the balance sheet value in which there is no trading, the value is based on available and the current value of future expected cash flows, based on the accounting information, mainly in order to test for the need for expected life of the loan. Write-downs are recognised in the period write-downs and any obvious excess values. the objective evidence arises, and are classified as a loss expense. The value of the fixed-interest loans is estimated by discounting Interest income from loans is recognised under net interest also in the cash flows using a risk-adjusted discount factor that takes

Sparebanken Vest Annual Report 2017 Page 45 market players’ preferences into account. The discount factor is The Group’s properties are considered to be operating assets for calculated on the basis of an observable swap interest rate with own use, and the accounting treatment is in accordance with the addition of a margin requirement. IAS 16. The properties are initially valued at historical cost and depreciated over their expected useful life. Different elements The fair value of financial instrument liabilities is calculated by with different useful lives must be differentiated and depreciated discounting the cash flow from the loans using the required rate separately. of return derived from the zero coupon curve. The credit spread on interest-bearing securities is changed on the basis of an Ordinary depreciation is based on the cost price, and assets are overall assessment that takes account of observed trading in the depreciated on a straight-line basis over the useful life of the asset. market, credit margin reports from various brokers, and internal The depreciation period and method are assessed every year to evaluations. A change in the credit spread will affect the required ensure that they are in accordance with the economic realities of rate of return in that the supplement added to the zero coupon the fixed assets in question. curve will change. The ordinary depreciation for the year is included in operating The buy-back of securities issued by the bank is netted against expenses for the year. securities debt in the balance sheet. On derecognition, any gains or losses are recognised under ‘Net Realised gains/losses and changes in the value of financial profit on tangible fixed assets’. instruments at fair value through profit or loss, including dividends, are presented in the accounts under ‘Net gain/(loss) on financial INTANGIBLE ASSETS instruments’ in the period in which they arise. Developed software Software development is recognised in the balance sheet and Financial instruments available for sale classified as an intangible asset when the value is deemed to The shareholding in Visa Norge is classified as available for sale. be material and the asset is expected to have lasting value. In For this category, the financial asset is valued at fair value on connection with software development, the use of own resources initial recognition (as described in the previous paragraph), while is capitalised insofar as expenses incurred can be measured subsequent changes in value are presented in other comprehen- in a reliable manner. Costs relating to, among other things, sive income. pre-planning, implementation and training are expensed as they arise. Capitalised software that has been developed by the bank is Financial instruments designated for hedge accounting depreciated using the straight-line method over its expected useful The Group uses hedge accounting to achieve an accounting life. Depreciation commences on the date the software is available treatment that reflects how interest rate risk and currency risk are for use in the company, so that software under development is managed for long-term borrowings relating to the housing credit recognised at cost price until the development is completed. company. This leads to a comparison in the income statement of gains and losses on bonds issued at fixed interest rates and/or Whether a write-down is necessary as a result of the expected foreign currency (hedged item) with gains and losses on pertaining economic benefits being less than the balance sheet value is interest rate and currency swaps (hedging instrument). This is continuously assessed. recognised as fair value hedging. Goodwill Formal earmarking and documentation of the hedging relationship Goodwill is the difference between the acquisition cost of a takes place when the hedging relationship is established. There is business and the fair value of the Group’s share of net identifiable a clear, direct and documented connection between fluctuations in assets in the business on the acquisition date. Each goodwill item the value of the hedged item that are due to the hedged risk and in the balance sheet is allocated to cash-flow-generating units fluctuations in the value of the financial derivatives. The hedging that benefit from the purchased asset. The choice of assessment is documented with reference to the Group’s risk management unit is based on whether it is possible to identify and separate strategy, clear identification of the hedged item and the hedging cash flows relating to the business in question. Goodwill is tested instrument, a clear description of the hedged risk and a descrip- annually for possible value depreciation and is recognised in the tion of why the hedging is expected to be effective. The hedging balance sheet at acquisition cost minus write-downs. The write- instruments are valued at fair value and entered under ‘Net gain/ down test of capitalised goodwill is carried out by discounting (loss) on financial instruments’ in the income statement. expected future cash flows from the assessment units.

CURRENCY Acquired customer portfolio The Group’s presentation currency is Norwegian kroner. It is also The value of the customer portfolio is included in the cost price the functional currency of the parent company, subsidiaries and of acquisitions. The value is set as the future cash flow, without associated companies. taking into account the customer’s right to renewal. The customer portfolio is depreciated using the straight-line method over the The bank’s receivables and liabilities in foreign currency are expected contract period. translated at the exchange rate on the balance sheet date. Currency items are largely hedged by matching them with TAX corresponding items on the other side of the balance sheet, or by Deferred tax and deferred tax assets are recognised in the balance using derivatives. sheet in accordance with IAS 12 Deferred Tax.

Income and expenses in foreign currency are translated into NOK The tax expense in the income statement includes both the at the rates on the transaction date. tax payable for the period and the change in deferred tax. The deferred tax/deferred tax asset is calculated at a rate of 25% of TANGIBLE FIXED ASSETS net temporary differences between accounting and tax values Tangible fixed assets are valued at historical cost and depreciated at the end of the financial year. Tax-increasing and tax-reducing over the asset’s expected useful life. temporary differences that are reversed or can be reversed in the same period are offset and entered net. Some companies in the

Sparebanken Vest Annual Report 2017 Page 46 Group that are not covered by the financial tax calculate the above not recognised in the consolidated financial accounts, but whose based on 23% of net temporary differences. nature makes them material to assessing the business.

The deferred tax asset is capitalised on the basis of expectations CASH FLOW STATEMENT of taxable income through earnings in future years. The cash flow statement is broken down into cash flows from operations, investment activities and financing activities. Tax payable in the balance sheet is the tax payable on the profit for the year, tax payable on capital assets and tax payable on group Cash flows from operations are defined as current interest, contributions received. commission and fees related to lending, borrowings and deposits, interest relating to liquidity, unpaid operating expenses and direct PENSION OBLIGATIONS and indirect taxes paid. Liquidity flows relating to securities held Pension obligations are calculated in accordance with IAS 19. for trading purposes are also classified here. The pension expense for the year is entered net in the income statement under ‘Payroll and general administration expenses’. Investment activities are defined as cash flows from changes in the nominal lending volume, cash flows from securities transac- See Note 28 for more details. tions not held for trading purposes and investments in operating assets and real property. The Company has both a defined benefit and a defined contri- bution pension scheme, which meet the requirements of the Act Cash flows relating to the volume of borrowings, the raising and relating to Mandatory Occupational Pensions. repayment of subordinated loans and bond debt and equity are defined as financing activities. Defined benefit scheme It was decided to wind up the defined benefit scheme, which EQUITY was closed to new members in 2007, and to derecognise it for Equity consists of equity certificate capital, primary capital, the accounting purposes in the third quarter 2016. As of 1 January reserve for unrealised gains, other group equity and hybrid capital. 2017, all employees, except partially disabled employees and employees on sick leave, became members of the common The equity certificate capital includes paid-up capital linked defined contribution scheme. This represented a pension plan to equity certificates, own holdings of equity certificates, the change that was recognised through profit or loss. This means premium reserve and the equalisation reserve. The primary capital that relatively large sums are taken to income as a plan change includes paid-up and retained primary capital, the gift fund and effect in the pension expense in the comparative figures. As of compensation fund. 1 January 2017, 22 members remained in the defined benefit scheme, because it was not possible to transfer them to the new In the parent bank, the reserve for unrealised gains consists of the scheme at that time. As of 31 December 2017, some of these increase in the value of financial instruments where the principles members had also changed their pension plan, which has entailed used for valuation pursuant to IFRS deviate from the principles set some plan change effects in 2017 as well. Five active and nine out in Norwegian GAAP. partially disabled employees remain in the defined benefit scheme. Following the derecognition of the defined benefit scheme, the Other group equity consists of retained equity in subsidiaries and remainder is deemed insignificant and the presentation of the note associated companies after the establishment of the Group, and has therefore been simplified somewhat. the effect of equity eliminations in the consolidated accounts.

Defined contribution scheme When buying own equity certificates, the purchase price including Sparebanken Vest has an ordinary defined contribution scheme direct costs will be recognised as a reduction in equity. The and an individual compensatory scheme for members who nominal value of own equity certificates is entered as a negative lost their defined benefit pension. Annual agreed deposits are amount on a separate line under equity certificate capital. Any transferred to securities funds in connection with the latter purchase price in excess of the nominal value is deducted from scheme. The contributions to the securities funds consist of an the bank’s primary capital. asset furnished as security for the company, and a corresponding gross pension obligation for the employees. Employer’s National Hybrid capital consists of subordinated bonds that do not satisfy Insurance contributions and financial tax are calculated and a pro- the definition of ‘financial liability’ in IAS 32. Interest accrued on vision made from the sum of contributions and the development in hybrid capital is allocated to the hybrid capital as it accrues. value of the securities funds. The items are presented gross. The profit for the year is allocated to the equity certificate holders CONTINGENT LIABILITIES/ PROVISIONS and primary capital in proportion to the ratio between the equity A provision has been made for contingent liabilities in accordance certificate capital and the primary capital. The part of the with IAS 37. For a provision to be made, a contingent liability year’s profit that is allocated to equity certificate capital and not must exist as a result of previous events, and it must be highly distributed as dividend is transferred to the equalisation reserve. likely that the liability will have to be met. The provision has been calculated as the present value of future payments required to In the consolidated balance sheet, the proposed dividend and meet the liability. distribution of donations are classified as part of equity until the final resolution has been adopted by the General Meeting. The proposed dividend and donations for distribution had not been formally decided on the balance sheet date and thus do not meet UPCOMING AMENDMENTS TO STANDARDS AND the criteria for being defined as a liability under IAS 37. In the INTERPRETATIONS company accounts, dividends and donations are recognised in the Below is an overview of standards and amendments to existing financial year that forms the basis for the allocation. standards that have not entered into force, and where the Group has not chosen early application. The matters discussed focus POST BALANCE SHEET EVENTS on amendments that are expected to have consequences for the Events that occur after the balance sheet date are disclosed in Group’s future reporting. accordance with IAS 10. The information concerns events that are

Sparebanken Vest Annual Report 2017 Page 47 IFRS 9 Financial Instruments January 2018. The standard has been approved by the EU. IFRS 9, which replaces today’s IAS 39, is implemented from 1 January 2018. This will affect Sparebanken Vest’s accounts for IFRS 16 – Leases future periods. The following notes concern the implementation of The standard proposes to remove the distinction between oper- IFRS 9: ational and financial leasing because both types of agreements • Note 41 contains a general explanation and description. transfer the right to use a specific object from the lessor to the • Note 42 describes the bank’s impairment model for financial lessee for a specific period. For the lessor, the provisions of IAS assets that are debt instruments and that are not classified at fair 18 are largely retained. The standard has been approved by the value through profit or loss. EU and is expected to take effect for the financial year starting 1 • Note 43 specifies the transition effects of implementation. January 2019.

IFRS 15 – Revenue from Contracts with Customers The standard will have some effect in that leases (primarily office The standard introduces a new model for the recognition of premises) are included in the balance sheet. revenue from customer contracts. IFRS 15 replaces IAS 11 and IAS 18. The standard is expected to have a limited effect on the Group, and it will enter into force for the financial year starting 1

Note 2 Accounting estimates and discretionary assessments

When preparing the annual accounts in accordance with IFRS, the need for write-downs, the loans are broken down into groups the Group’s management has used estimates and assumptions with similar risk properties. The assessment is based on objective that affect the amounts recognised for assets, liabilities, equity indications of a fall in value having occurred on the balance sheet and profit/loss. The estimates used are based on discretionary date that can be linked to the Group. The calculation of the need assessments and assumptions that were deemed to be realistic on for write-downs is based on the bank’s risk classification system, the balance sheet date. New information and future events may which is intended to identify impaired payment status based on lead to significant changes in estimates, with pertaining changes observable and registered data. Any impairment in the portfolio in recognised amounts. The Group’s most important estimates and as a result of macroeconomic factors that have not been taken assumptions are discussed below. into account in the models shall be identified by reviewing loss events at industry and geographical level. Based on qualitative Losses on loans and guarantees assessments performed by the customer divisions, necessary If there is objective evidence of one or more events having adjustments are estimated for industry and geographical factors in occurred since the initial recognition of the asset that are expected the bank’s risk classification system. to entail a risk of reduced debt-servicing ability, an individual loss assessment is carried out for the commitment. Objective events Fair value of financial instruments could be default of payment, illiquidity or other material financial The fair value of financial instruments that are not traded in an problems on the part of the debtor. active market is determined using various valuation techniques. This is based on assumptions about what the market will use as The bank’s loss assessments will be the result of a process that the basis for the valuation of corresponding financial instruments involves the business areas and important credit environments. and the information available on the balance sheet date. See the notes on financial instruments and the statement on accounting The amount of the write-down is determined based on an principles for a description of the techniques used. Considerable assessment of the difference between the balance sheet value discretion must be exercised in the valuation of financial instru- (loan principal + accrued interest on the valuation date) and the ments that are not traded in an active market. present value of future cash flows discounted on the basis of the effective interest rate over the useful life of the loan. Write-downs Fixed-interest loans: are classified as a loss expense in the income statement. Pursuant to IFRS, the valuation shall be based on an assessment of what an external investor would have assumed when investing Estimates of future cash flows are based on experience data and in corresponding loans. A well-functioning market does not exist discretion based on conditions that existed on the balance sheet for the buying and selling of fixed-interest loans between market date. When estimating write-downs on individual customers, both players. The value of the fixed-interest loans is estimated by the current and expected future financial position is taken into discounting the cash flows using a risk-adjusted discount factor account. For commitments in the corporate market, the market that takes market players’ preferences into account. The discount situation for the customer, the market conditions in the sector factor is calculated on the basis of an observable swap interest in question and general market conditions of significance to the rate with the addition of a margin requirement. commitment are taken into account. The possibilities for restruc- turing, refinancing and recapitalisation are also assessed. The When estimating the margin requirement, the bank looks at overall assessment of these factors forms the basis for estimating observable market interest rates for corresponding loans. The future cash flows. The discounting period is estimated on an swap interest rate element of the discount factor fluctuates individual basis or based on experience data about the period up continuously, while the observable market interest rates for until a solution is found to the conditions that have led to a fall in corresponding loans does not change as frequently. The market the value of the commitment. players’ margin requirement is thereby not directly observable, and it is estimated on the basis of the difference between the Commitments that are not identified by individual valuations or observable market interest rates and the swap interest rate over that have been subject to an individual assessment, and for which a given period. Since the margin requirement is not directly no individual write-down has been carried out, will be included observable, there is uncertainty attached to the calculation of the in the assessment unit for group write-downs. When assessing fair value of fixed-interest loans.

Sparebanken Vest Annual Report 2017 Page 48 Basis swaps: The choice of assessment unit is made on the basis of whether The subsidiary Sparebanken Vest Boligkreditt AS uses basis it is possible to identify and separate cash flows relating to the swaps as hedging instruments to convert payment commitments business in question. Future cash flows are based on historical in foreign currencies into Norwegian kroner. The price of entering results and, if relevant, they take into account expectations into basis swaps varies, which means that the hedging is not of future conditions. The estimation of future cash flows will a perfect hedge. This affects the fair value of the derivative. therefore include assumptions and estimates relating to highly In addition, CSA agreements have been entered into on the uncertain factors. furnishing of security that clearly favour the bond owners. This has a price, because the counterparties face potentially large The required rate of return is based on a discretionary assessment commitments if, for example, they are downgraded. This price of the required rate of return in the market for the type of business is called a credit charge and may also vary over time. There is the assessment unit involves. The required rate of return chosen uncertainty associated with the calculation of fair value for such shall seek to reflect the risk in the business being assessed and it financial instruments. shall be based on information available on the balance sheet date.

For the volume of financial instruments classified at level 3 Reference is made to Note 30 for comments relating to the (subjective elements in the valuation), reference is made to Note individual assessment units. 6. It also provides information about sensitivity relating to the parameters used in the calculations. Transition effects of implementation of IFRS 9 The application of IFRS 9 Financial Instruments requires a number Impairment of goodwill of assumptions and estimates. Note 43 shows the transition For all assessments units, tests are carried out to test for possible effects of implementation, and Notes 41-42 provide descriptions impairment of goodwill. Write-down tests are performed when of the standard and the impairment model. there is an indication of a fall in value, and at least once a year.

Sparebanken Vest Annual Report 2017 Page 49 Note 3 Segment information

The management has evaluated the segments that it is appropriate staff costs and depreciation. Net interest income is allocated to report in relation to corporate governance. The segments are: based on internally calculated interest based on 3-month NIBOR. Corporate Banking, Retail, Treasury and Real Estate Markets. Operating expenses are allocated, with the exception of IT costs,

Banking operations Estate Unal- Corporate Retail Agency located by Market Market Treasury activities segment Total GROUP 2017 Profit/loss Net interest 871 1 644 50 0 0 2 565 Net other operating income 174 328 64 195 0 761 Operating expenses -126 -378 -14 -187 -745 -1 450 Write-downs of loans and losses on guarantees -15 -18 0 0 0 -33 Pre-tax profit 904 1 576 100 8 -745 1 844 Tax expense -427 Profit/loss for the year 1 416

Balance sheet Net lending 32 190 114 883 0 0 0 147 073 Deposits 20 769 46 213 2 130 0 0 69 111

2016 Profit/loss Net interest 843 1 447 108 1 0 2 399 Net other operating income 161 309 78 187 108 843 Operating expenses -122 -382 -11 -198 -557 -1 270 Write-downs of loans and losses on guarantees 23 23 Loss -81 42 0 0 0 -39 Pre-tax profit 801 1 416 175 -10 -426 1 956 Tax expense -435 Profit/loss for the year 1 521

Balance sheet Net lending 29 208 106 891 0 0 0 136 099 Deposits 19 617 44 822 2 047 0 0 66 486

Sparebanken Vest Annual Report 2017 Page 50 Note 3 Segment information (contd.)

Banking operations

Corporate Retail Unallocated Market Market Treasury by segment Total PARENT BANK 2017 Profit/loss Net interest 870 1 065 -68 0 1 867 Net other operating income 174 328 650 0 1 152 Operating expenses -126 -378 -14 -731 -1 249 Write-downs of loans and losses on guarantees -12 -15 0 0 -26 Pre-tax profit 906 1 000 568 -731 1 744 Tax expense -387 Profit/loss for the year 1 357

Balance sheet Net lending 32 013 38 709 0 0 70 722 Deposits 20 769 46 211 2 165 0 69 145

2016 Profit/loss Net interest 841 1 070 -42 0 1 869 Net other operating income 161 309 461 108 1 039 Operating expenses -122 -382 -11 -492 -1 007 Write-downs of loans and losses on guarantees -81 49 0 0 -32 Pre-tax profit 799 1 046 408 -384 1 869 Tax expense -343 Profit/loss for the year 1 526

Balance sheet Net lending 28 969 48 494 0 0 77 463 Deposits 19 617 44 821 2 054 0 66 492

Sparebanken Vest Annual Report 2017 Page 51 Note 4 Classification of financial instruments

Financial instruments at fair value through profit or loss Financial instr. Held for designated Recognised GROUP trading Recognised Available for hedge at amortised 31 DEC. 2017 purposes at fair value for sale accounting 1) cost Total Assets Cash in and receivables from central banks 685 685 Loans to and receivables from credit institutions 1 588 1 588 Lending 30 013 117 059 147 073 Shares 23 353 40 416 Certificates and bonds 116 19 075 19 191 Financial derivatives 631 3 956 4 587 Total 770 49 441 40 3 956 119 332 173 540

Liabilities Liabilities to credit institutions 0 4 023 4 023 Deposits 581 68 530 69 111 Securitised debt 7 605 34 910 41 358 83 873 Financial derivatives 1 070 0 1 070 Subordinated loan capital 455 1 654 2 109 Total 1 070 8 641 34 910 115 565 160 186

31 Dec. 2016 Assets Cash in and receivables from central banks 658 658 Loans to and receivables from credit institutions 1 331 1 331 Lending 26 884 109 215 136 099 Shares 17 394 40 451 Certificates and bonds 129 18 867 18 996 Financial derivatives 662 3 035 3 697 Total 808 46 145 40 3 035 111 204 161 232

Liabilities Liabilities to credit institutions 2 539 2 539 Deposits 313 66 173 66 486 Securitised debt 4 262 34 611 37 159 76 032 Financial derivatives 1 213 214 1 427 Subordinated loan capital 454 1 679 2 133 Total 1 213 5 029 34 825 107 550 148 617 1) The Group uses hedge accounting to manage interest rate risk and currency risk for long-term financial liabilities relating to the housing credit company. For financial liabilities designated for hedge accounting, the hedged risks are recognised at fair value, while the rest is recognised at amortised cost. The hedging derivatives are valued at fair value.

The Group does not have financial instruments in the category ‘held to maturity’.

Sparebanken Vest Annual Report 2017 Page 52 Note 4 Classification of financial instruments (contd.)

Financial instruments at fair value through profit or loss

Held for Recognised PARENT BANK trading Recognised Available at amortised 31 Dec. 2017 purposes at fair value for sale cost Total Assets Cash in and receivables from central banks 685 685 Loans to and receivables from credit institutions 14 104 14 104 Lending 10 629 60 093 70 722 Shares 23 353 40 416 Certificates and bonds 116 18 950 0 19 066 Financial derivatives 669 669 Total 808 29 932 40 74 882 105 662

Liabilities Liabilities to credit institutions 0 4 843 4 843 Deposits 581 68 564 69 145 Securitised debt 7 605 12 015 19 619 Financial derivatives 1 070 1 070 Subordinated loan capital 455 1 654 2 109 Total 1 070 8 641 0 87 076 96 786

31 Dec. 2016 Assets Cash in and receivables from central banks 658 658 Loans to and receivables from credit institutions 5 836 5 836 Lending 21 084 56 379 77 463 Shares 17 394 40 451 Certificates and bonds 129 18 207 18 336 Financial derivatives 679 679 Total 825 39 685 40 62 873 103 423

Liabilities Liabilities to credit institutions 0 5 213 5 213 Deposits 313 66 179 66 492 Securitised debt 4 262 15 215 19 477 Financial derivatives 1 215 1 215 Subordinated loan capital 454 1 679 2 133 Total 1 215 5 029 88 286 94 530

The parent bank has no financial instruments designated for hedging purposes or classified in the category ‘held to maturity’.

Sparebanken Vest Annual Report 2017 Page 53 Note 5 Fair value of financial instruments recognised at amortised cost

31 Dec. 2017 31 Dec. 2016

GROUP Balance Balance Notes sheet value Fair value sheet value Fair value Cash in and receivables from central banks 685 685 658 658 Loans to and receivables from credit institutions 14 1 588 1 589 1 331 1 332 Loans to customers 9 117 059 117 059 109 215 109 215 Total assets recognised at amortised cost 119 332 119 333 111 204 111 205

Debt to credit institutions 32 4 023 4 023 2 539 2 539 Customer deposits 68 530 68 531 66 173 66 174 Securitised debt 35 41 358 42 073 37 159 37 211 Subordinated loan capital 36 1 654 1 684 1 679 1 691 Total liabilities recognised at amortised cost 115 565 116 311 107 550 107 615

Securities debt designated for hedge accounting 34 910 35 013 34 611 34 509

PARENT BANK

Cash in and receivables from central banks 685 685 658 658 Loans to and receivables from credit institutions 14 14 104 14 105 5 836 5 837 Loans to customers 9 60 093 60 093 56 379 56 379 Total assets recognised at amortised cost 74 882 74 883 62 873 62 874

Debt to credit institutions 32 4 843 4 843 5 213 5 213 Customer deposits 68 564 68 565 66 179 66 180 Securitised debt 35 12 015 12 575 15 215 15 218 Subordinated loan capital 36 1 654 1 684 1 679 1 691 Total liabilities recognised at amortised cost 87 076 87 667 88 286 88 302

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

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

Loans to customers For loans at amortised cost, the deviations between fair value and amortised cost are non-material, since any changes in value are reflected in the portfolio’s group and individual write-downs.

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

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

Sparebanken Vest Annual Report 2017 Page 54 Note 6 Valuation hierarchy for financial instruments at fair value

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

31 Dec. 2017 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 9 30 013 30 013 Shares 22 23 85 308 416 Certificates and bonds 16 1 100 18 091 19 191 Financial derivatives 21 631 631 Financial derivatives designated for hedge accounting 21 3 956 3 956 Total 1 123 22 763 30 321 54 207

Liabilities Liabilities to credit institutions 32 0 0 Customers deposit 34 581 581 Securitised debt 35 7 605 7 605 Financial derivatives 21 1 070 1 070 Financial derivatives designated for hedge accounting 0 0 Subordinated loan capital 36 455 455 Total 9 711 9 711

Loans to customers Shares Financial instruments valued at level 3 at 1 Jan. 2017 26 884 371 Additions/acquisitions 6 743 15 Sale/redemption/repayment -3 579 -64 This year’s value adjustment -35 -14 Reclassification between levels 2 and 3 0 0 Financial instruments valued at level 3 at 31 Dec. 2017 30 013 308 An increase in the discount rate of 10 basis points for loans valued at fair value will lead to a reduction in value of NOK 47 million.

Sparebanken Vest Annual Report 2017 Page 55 Note 6 Valuation hierarchy for financial instruments at fair value (contd.)

31 Dec. 2016 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 9 26 884 26 884 Shares 22 17 63 371 451 Certificates and bonds 16 681 18 315 18 996 Financial derivatives 21 662 662 Financial derivatives designated for hedge accounting 21 3 035 3 035 Total 698 22 075 27 255 50 028

Liabilities Liabilities to credit institutions 32 0 0 Customers deposit 34 313 313 Securitised debt 35 4 262 4 262 Financial derivatives 21 1 213 1 213 Financial derivatives designated for hedge accounting 21 214 214 Subordinated loan capital 36 454 454 Total 6 456 6 456

Loans to customers Shares Financial instruments valued at level 3 at 1 Jan. 2016 23 857 268 Additions/acquisitions 5 578 94 Sale/redemption/repayment -2 273 -8 This year’s value adjustment -278 17 Reclassification between levels 2 and 3 0 0 Financial instruments valued at level 3 at 31 Dec. 2016 26 884 371

Note 7 Financial risk management

Risk and capital management defines the bank’s targets and limits in all risk areas, including Good risk and capital management is a key strategic instrument in adopting guidelines for the bank’s risk and capital management. Sparebanken Vest’s value creation process. Good risk and capital Reporting in relation to targets and limits takes place quarterly to management contributes to profitability and a satisfactory rating the Board. and ensures that the bank has good access to the capital market. For more detailed information about risk and capital management, The Board’s Credit Committee deals with credit matters within the see the Pillar III document on the bank’s website. bounds of the authorisations granted by the Board.

Sparebanken Vest has established its own risk strategies that The Audit Committee is charged with ensuring that Sparebanken specify control parameters for the individual risk areas. These Vest has an independent and effective external and internal audit strategies are reviewed at least once a year in connection with the function, and financial and risk reporting that is in accordance bank’s overall planning process. The control parameters are in- with laws and regulations. tended to help to ensure the bank’s profitability, financial strength and liquidity in the short and long term. The Risk Committee is charged with ensuring that Sparebanken Vest’s risk and capital management underpins the bank’s strategic The Board delegates authority to the CEO within each of the risk development and goal attainment, while at the same time ensuring areas. Decision support and portfolio management systems have financial stability and acceptable asset management. been established for both the retail market and the corporate market. The CEO is responsible for the bank’s overall risk and capital man- agement, including ensuring that the bank, at all times, has good Organisation and responsibility models and frameworks for management and control. Normally, Responsibility for, and performance of, the bank’s risk and capital unless the matter is considered by the bank’s Board, all decisions management and control is divided between the bank’s Board, relating to risk and capital management are made by the CEO in management and business units. consultation with other members of the bank’s management.

The Board of Sparebanken Vest is responsible for stipulating the Risk Management attends to important functions relating to bank’s overall risk tolerance. The Board shall also ensure that management, control, reporting and analysis. Risk Management is the bank has sufficient own funds in relation to the stipulated also responsible for the bank’s models and frameworks for risk and risk tolerance and the bank’s operations and that it is sufficiently capital management. capitalised in relation to regulatory requirements. The Board also

Sparebanken Vest Annual Report 2017 Page 56 The Validation Committee, which is chaired by the CEO, deals with Insurance risk. The associated company Frende is exposed to both model validation and validation relating to the application of insurance risk. Sparebanken Vest is affected by this risk through the bank’s credit systems and regulations. The bank uses internal its holding in the company. measurement methods (IRB) to calculate capital in relation to credit risk. Validation is a cornerstone of the IRB system that is Estimated capital, liquidity and financing needs intended to ensure that the system is adapted to the portfolios to The bank’s process for assessing its capital, liquidity and financing which it is applied. An annual validation report is prepared for the needs (ICAAP and ILAAP) is rooted in its business strategy (vision, Board. goals and business idea) and strategic measures that are given priority in order to reach the bank’s goals. The targeted devel- The Credit Committee, which is chaired by the CEO, deals with opment three years hence is used as the basis for assessing the major commitments and matters of an unusual nature. Major bank›s capital buffer and capital tolerance. The targeted develop- commitments that involve risk are reviewed quarterly by the Credit ment one year hence is used as the basis for assessing the bank›s Committee. liquidity buffer and self-financing. The scenarios are intended to give direction to and set a level for the bank’s budget, and the risk All managers in Sparebanken Vest are responsible for manag- and capital analysis can set constraints and limitations based on ing risk and ensuring good internal control in their own areas of the bank’s financial and operational capacity, as well as external responsibility in accordance with the risk profile adopted by the framework conditions. bank. In order to ensure good financial and administrative man- agement, all managers must have the requisite knowledge about The bank’s capital adequacy and capital adequacy targets, and its material risk factors within their own areas. liquidity and liquidity targets, are tested by exposing the income statement and balance sheet to various stress scenarios. The cap- The role of the internal audit function is to monitor the bank’s ital adequacy target is formulated as a margin (buffer capital) over overall risk and capital management and internal control on and above the minimum requirement. The purpose of performing behalf of the Board. The internal audit function is also tasked the stress tests is to confirm that the buffer capital is sufficient for with checking whether procedures and guidelines are complied the bank to also satisfy the regulatory minimum requirement in an with and with assessing whether the bank’s models for risk and economic situation that is realistic but not very probable. capital management provide a correct picture of the bank’s overall risk and capital situation. The internal audit function prepares an In addition to calculating regulatory capital, the bank also esti- annual internal control report that also contains assessments of mates its internal capital need (economic capital). It differs from the bank’s IRB system and the bank’s capitalisation and liquidity the regulatory capital in that it is based solely on a business eco- processes (ICAAP and ILAAP). nomics perspective and has fewer limitations in relation to which methods are applied. Economic capital is used in the bank’s day- Risk areas to-day management and forms the basis for commercial decisions. The bank’s risk and capital management mainly relates to four risk areas: For credit risk purposes, Sparebanken Vest uses internal systems to estimate economic capital. Expected losses and economic cap- Credit risk is the risk of a loss being incurred if the bank’s cus- ital are calculated on the basis of the following three components: tomers / counterparties fail to meet their commitments relating to probability of default, exposure and loss given default. The bank loans, credit facilities, guarantees and similar. For a more detailed operates with a confidence level of 99.9% for a timeframe of one description of credit risk, see Notes 8 to 17. year, which corresponds to an A rating. The same model has been implemented for pricing the bank’s commitments. Market risk is defined as the risk of losses on open positions in fi- nancial instruments as a result of changes in market variables and/ The bank also calculates economic capital for the concentration or market conditions within a specified time frame. This includes in the credit portfolio. For the concentration risk resulting from stock market, interest rate, currency and credit spread risk. For a individual commitments and industry/sector concentration, capital more detailed description of market risk, see Notes 18 to 22. needs are estimated using the Financial Supervisory Authority’s methods described in circular 12/2016. Liquidity risk consists of two elements – refinancing risk and price risk. By refinancing risk is meant the risk of not being able to For market risk purposes, economic capital is estimated using the refinance debt and not being able to finance an increase in assets. Financial Supervisory Authority’s methods described in circu- By price risk is meant the risk of not being able to refinance com- lar 12/2016 for stock market, interest rate, currency and credit mitments without incurring considerable extra costs in the form of spread risk, respectively. unusually expensive financing or a fall in the price of assets that must be realised. For a more detailed description of liquidity risk, For owner risk, capital is only calculated for associated companies see Note 23. that are not consolidated gross. For the holding in Frende Holding AS, capital is calculated based on the relationship between solven- Operational risk is the risk of losses as a result of inadequate cy capital and the capital adequacy requirement of the insurance internal processes or systems or of a failure in such processes or enterprise, adjusted for SPV’s book value of its holding in the systems, human error or external events. enterprise.

Other risk areas: For operational risk, regulatory capital is also used for the bank’s Owner risk is defined as the risk of losses or of necessary infu- internal economic capital. sions of new capital into companies where the bank has a strategic ownership interest, as a result of the underlying risk in such com- panies. Compliance risk is managed as part of operational risk.

Sparebanken Vest Annual Report 2017 Page 57 Note 8 Risk classification of the credit portfolio

Credit risk iii) Loss given default (LGD) indicates the loss ratio on a Credit risk is the risk of losses if the bank’s customers fail to meet commitment in default expressed as a percentage of EAD. For the their commitments to the Group. retail market (RM) and corporate market (CM), it is calculated on the basis of internal models. The type and value of loan security Credit risk arises through loans, credit facilities, guarantees, and the probability of recovery are key parameters in calculating documentary credit and various derivative transactions with retail the loss ratio. In addition to calculating the expected loss ratio, market and corporate market customers. Credit risk relating to adjustments are made for periods of economic downturn by derivative transactions is quantified using conversion factors that calculating a ‘downturn LGD’. Since the bank has gained AIRB depend on the contract type and term to maturity. approval, a downturn LGD from the bank’s internal models is utilised in the calculation of capital adequacy for both RM and CM. Risk classification of loans and guarantees The measurement of credit risk is based on the following main The scorecard models are statistical models for predicting future components: i) probability of default (PD), ii) expected exposure outcomes. They use data from internal and external sources, at default (EAD) and iii) loss given default (LGD). and all commitments are risk-classified monthly. The bank has a system for automatic capture of risk data for all commitments. i) Probability of default (PD) is defined as the probability of a For corporate commitments, it also carries out manual follow-up customer defaulting on a loan within the next 12 months. A and updating. The frequency depends on the size and risk of the default can be default of payment in excess of 90 days or other commitment. The risk classification results in key figures that play concrete circumstances (‘unlikeliness to pay’, cf. Basel II) that a central role in the bank’s management. affect the customer’s ability to service the debt. The probability of default is calculated using statistical models (scorecards) based on logistic regression. Eleven risk classes from A to K are used in order to group the credit portfolio in Sparebanken Vest by debt- servicing ability. Risk class K comprises commitments in default. ii) Expected exposure at default (EAD) is an estimated amount that shows the expected exposure in relation to the customer at the time of default. EAD is estimated as the actual utilisation of credit plus the expected utilisation of unutilised drawing rights (CF).

Risk classes based on probability of default

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

Sparebanken Vest Annual Report 2017 Page 58 Note 8 Risk classification of the credit portfolio (contd.)

PARENT BANK GROUP Individual Individual Lending broken down by risk class Commitments 1) write-downs 2) Commitments 1) write-downs 2) 31/12-17 31/12-16 31/12-17 31/12-16 31/12-17 31/12-16 31/12-17 31/12-16 Corporate market A-D 19 584 16 001 0 0 20 414 16 631 0 0 E-H 20 461 20 920 0 0 20 767 21 140 0 0 I-J 829 628 0 0 839 637 0 0 K 1 257 1 216 550 518 1 261 1 218 550 518 Corporate market total 42 131 38 765 550 518 43 281 39 626 550 518

Retail market A-D 38 987 48 993 0 0 117 685 110 892 0 0 E-H 3 194 3 337 0 0 5 620 5 070 0 0 I-J 314 248 0 0 472 359 0 0 K 184 165 30 24 280 223 38 29 Retail market total 42 679 52 743 30 24 124 057 116 544 38 29 Total 84 810 91 508 580 542 167 338 156 170 588 547

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

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

Sparebanken Vest Annual Report 2017 Page 59 Note 9 Lending broken down by type of receivable and geographical area

PARENT BANK GROUP

31/12-16 31/12-17 Lending broken down by type of receivable 31/12-17 31/12-16 6 170 6 445 Overdraft facilities 20 768 20 731 1 321 1 645 Building loans 1 645 1 321 49 799 52 881 Instalment loans 95 463 88 038 148 165 Accrued interest 244 194 -22 -27 Amortisation (fees etc.) -27 -22 57 416 61 109 Gross loans to and receivables from customers at amortised cost 118 093 110 261 20 898 10 578 Loans to and receivables from customers at fair value 29 915 26 670 23 15 Accrued interest 41 29 161 36 Adjustment to fair value 57 184 21 084 10 629 Gross loans to and receivables from customers at fair value 30 013 26 884 78 498 71 739 Gross loans to and receivables from customers 148 106 137 145 -542 -580 Individual write-downs on loans -588 -547 -493 -437 Group write-downs on loans -445 -499 77 463 70 722 Net loans to and receivables from customers 147 073 136 099

Loans to customers recognised at fair value 17 972 21 084 Balance sheet value at 1 Jan. 26 884 23 847 3 348 -10 331 Net additions/disposals 3 164 3 315 -236 -124 Value change in period -35 -278 21 084 10 629 Book value at 31 Dec. 30 013 26 884

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

GROUP

31/12-16 31/12-17 Proportion Individual Gross Lending broken down by Gross Individual Proportion net lending write-downs lending geographical area lending write-downs net lending 69,4 447 95 202 Hordaland 101 769 472 68,7 7,9 10 10 815 Sogn og Fjordane 12 378 18 8,4 16,6 22 22 688 Rogaland 25 016 26 16,9 5,8 20 7 968 Rest of Norway 8 367 20 5,7 99,7 499 136 673 Total, Norway 147 530 536 99,6 0,3 48 472 Abroad 575 52 0,4 100,0 547 137 145 Total, geographical areas 148 106 588 100,0

PARENT BANK

31/12-16 31/12-17 Proportion Individual Gross Lending broken down by Gross Individual Proportion net lending write-downs lending geographical area lending write-downs net lending 64,6 443 50 823 Hordaland 44 897 465 62,4 9,4 10 7 330 Sogn og Fjordane 7 419 18 10,4 18,9 22 14 734 Rogaland 14 297 25 20,1 6,6 19 5 198 Rest of Norway 4 632 20 6,5 99,5 494 78 085 Total, Norway 71 245 528 99,4 0,5 48 413 Abroad 494 52 0,6 100,0 542 78 498 Total, geographical areas 71 739 580 100,0

Sparebanken Vest Annual Report 2017 Page 60 Note 10 Commitments broken down by industry and the retail market

Defaults and Unused credit Total other potential Individual 2017 Lending facilities Guarantees commitment 1) bad debt write-downs GROUP Primary industries 4 775 564 7 5 346 9 0 Manufacturing and mining 1 170 497 100 1 767 12 4 Power and water supply 1 997 137 14 2 148 78 22 Building and construction industry 4 039 806 722 5 567 42 38 Commerce 1 584 704 149 2 437 16 3 International shipping and transport 5 100 181 812 6 093 791 444 Hotels and restaurants 534 68 7 609 10 2 Property management 13 662 873 123 14 658 184 21 Service sector 2 866 479 162 3 507 66 15 Public administration 16 290 0 306 0 0 Other financial undertakings 152 72 56 280 0 0 Total business and industry 35 895 4 671 2 152 42 718 1 209 549 Retail customers 112 211 12 182 12 124 405 301 38 Total gross commitments 148 106 16 853 2 164 167 123 1 510 588 - Individual write-downs, corporate segment -550 0 -1 -551 - Individual write-downs, retail customers -38 0 0 -38 - Group write-downs, CM -384 0 0 -384 - Group write-downs, RM -62 0 0 -62 Total net commitments 147 073 16 853 2 163 166 088

PARENT BANK Primary industries 4 610 552 7 5 169 9 0 Manufacturing and mining 1 134 491 100 1 725 12 4 Power and water supply 1 997 137 14 2 148 78 22 Building and construction industry 3 815 783 722 5 320 42 38 Commerce 1 506 697 149 2 352 16 3 International shipping and transport 4 884 167 812 5 863 791 444 Hotels and restaurants 505 67 7 579 10 2 Property management 13 643 873 123 14 639 184 21 Service sector 2 577 447 207 3 231 66 15 Public administration 16 290 0 306 0 0 Other financial undertakings 152 72 56 280 0 0 Total business and industry 34 839 4 576 2 197 41 612 1 209 549 Retail customers 36 900 5 925 12 42 837 203 31 Total gross commitments 71 739 10 501 2 209 84 449 1 412 580 - Individual write-downs, corporate segment -550 0 -1 -551 - Individual write-downs, retail customers -30 0 0 -30 - Group write-downs, CM -384 0 0 -384 - Group write-downs, RM -53 0 0 -53 Total net commitments 70 722 10 501 2 208 83 431

Sparebanken Vest Annual Report 2017 Page 61 Note 10 Commitments broken down by industry and the retail market (contd.)

Unused Defaults and credit Total other potential Individual 2016 Lending facilities Guarantees commitment1) bad debt write-downs GROUP Primary industries 3 487 392 5 3 884 4 0 Manufacturing and mining 1 164 358 113 1 635 16 6 Power and water supply 1 578 177 16 1 771 56 18 Building and construction industry 3 486 626 735 4 847 32 23 Commerce 1 497 607 157 2 261 21 9 International shipping and pipeline transport 5 297 293 442 6 032 765 411 Hotels and restaurants 537 46 6 589 1 0 Property management 12 516 390 112 13 018 246 41 Service sector 2 494 781 209 3 484 38 9 Public administration 31 0 0 31 0 0 Other financial undertakings 131 1 0 132 0 0 Total business and industry 32 218 3 671 1 795 37 684 1 179 517 Retail customers 104 927 11 875 13 116 815 234 30 Total gross commitments 137 145 15 546 1 808 154 499 1 414 547 - Individual write-downs, corporate segment -518 0 -1 -519 - Individual write-downs, retail customers -29 0 0 -29 - Group write-downs, CM -439 0 0 -439 - Group write-downs, RM -60 0 0 -60 Total net commitments 136 099 15 546 1 807 153 451

PARENT BANK Primary industries 3 393 383 5 3 781 4 0 Manufacturing and mining 1 136 352 113 1 601 16 6 Power and water supply 1 578 177 16 1 771 56 18 Building and construction industry 3 312 601 735 4 648 32 23 Commerce 1 439 600 157 2 196 21 9 International shipping and pipeline transport 5 125 283 442 5 850 765 411 Hotels and restaurants 516 46 6 568 1 0 Property management 12 505 390 112 13 007 246 41 Service sector 2 269 759 254 3 282 38 9 Public administration 31 0 0 31 0 0 Other financial undertakings 131 1 0 132 0 0 Total business and industry 31 435 3 592 1 840 36 867 1 178 517 Retail customers 47 063 5 882 13 52 958 175 25 Total gross commitments 78 498 9 474 1 853 89 825 1 354 542 - Individual write-downs, corporate segment -518 0 -1 -519 - Individual write-downs, retail customers -24 0 0 -24 - Group write-downs, CM -439 0 0 -439 - Group write-downs, RM -54 0 0 -54 Total net commitments 77 463 9 474 1 852 88 789

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

Sparebanken Vest Annual Report 2017 Page 62 Note 11 Capitalised write-downs of commitments

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

PARENT BANK GROUP

31/12-16 31/12-17 Individual write-downs of loans 31/12-17 31/12-16 562 542 Individual write-downs of loans at 1 Jan. 547 562 -23 -55 Reversal of write-downs as a result of confirmations in the period -55 -23 17 33 Increased write-down of loans previously written down 33 17 96 52 Write-downs of loans not previously written down 56 100 -90 -23 Reversal of individual write-downs in the period -24 -90 -20 30 Exchange rate adjustment 30 -20 542 580 Individual write-downs of loans 588 547

Group write-downs 430 493 Write-downs of groups of loans at 1 Jan. (nominal values) 499 435 63 -55 Change in group write-downs in the period -54 64 493 437 Write-downs of groups of loans 445 499 1035 1017 Total write-downs of loan commitments 1033 1046

Provision for bad debt rel. to guarantees 2 1 Provision for bad debt to cover losses on guarantees at 1 Jan. 1 2 -1 0 Changes in write-downs on guarantees in the period 0 -1 1 1 Specified provision for bad debt to cover losses on guarantees 1 1

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

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

Loans that are not covered by the criteria for individual valuations, or loans that have been subject to an individual assessment and for which no individual write-down has been carried out, will be included in the assessment unit for group write-downs. If there is objective evidence of a loss in value for a group of commitments with similar risk properties, the write-down reflects the loss that exists in the outstanding loans on the balance sheet date. The loss is calculated by measuring the difference between the book value of the assets and the present value of the estimated future cash flows.

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

Reference is made to the accounting principles in Note 1 and accounting estimates and discretionary assessments in Note 2 for further information about losses on loans and guarantees.

Sparebanken Vest Annual Report 2017 Page 63 Note 12 Development in losses and commitments in default

PARENT BANK GROUP

31/12-16 31/12-17 Losses on loans, guarantees etc. 31/12-17 31/12-16 0 8 Changes in individual write-downs for the period 11 5 17 59 Confirmed losses in the period with previous individual write-down 59 17 26 15 Confirmed losses in the period without previous individual write-down 16 26 -72 0 Recoveries in previously confirmed write-downs 0 -72 -30 82 Net effect on profit/loss from individual write-downs 86 -25 63 -56 Change in group write-downs in the period -53 65 33 25 Losses on loans in the period 33 40

0 0 Confirmed losses on guarantees 0 0 -1 0 Changes in write-downs on guarantees in the period 0 -1 -1 0 Confirmed losses on guarantees in the period 0 -1

32 26 Total write-downs of loans and guarantees 33 39

The Group’s net loss expense in 2017 corresponded to 0.02% of average gross loans of NOK 142.5 billion.

Expected losses for the next 12 months are expected to be approx. 0.12%, compared with the long-term average, which is estimated to be approx. 0.20% of commitments.

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

PARENT BANK GROUP 31/12-17 31/12-17 Retail Corporate Retail Corporate market market Total market market Total 143 79 222 Loans in default more than 90 days 222 79 301 60 1 130 1 190 Other potential bad debt 79 1 130 1 209 203 1 209 1 412 Total defaults and potential bad debt 301 1 209 1 510 -30 -550 -580 - Individual write-downs on loans -38 -550 -588 173 658 831 Net defaults and potential bad debt 263 659 922

PARENT BANK GROUP 31/12-16 31/12-16 Retail Corporate Retail Corporate market market Total market market Total 120 164 284 Loans in default more than 90 days 166 165 331 55 1 014 1 070 Other potential bad debt 68 1 014 1 083 175 1 178 1 354 Total defaults and potential bad debt 234 1 179 1 414 -24 -518 -542 - Individual write-downs on loans -29 -518 -547 151 661 812 Net defaults and potential bad debt 205 661 866

Sparebanken Vest Annual Report 2017 Page 64 Note 12 Development in losses and commitments in default (contd.)

Age breakdown of defaults of payment The table shows the book value of loans registered in default, where the amount in default exceeds NOK 1,000 in one of the commitment’s accounts and is not due to payment delays.

PARENT BANK GROUP 31/12-17 31/12-17 Retail Corporate Retail Corporate market market Total market market Total 221 315 536 Up to 30 days 476 315 791 64 23 87 31–60 days 100 23 123 26 1 27 61–90 days 34 1 35 143 79 222 More than 90 days 222 79 301 454 418 872 Gross loans in default 832 418 1 250

PARENT BANK GROUP 31/12-16 31/12-16 Retail Corporate Retail Corporate market market Total market market Total 314 252 566 Up to 30 days 492 252 743 41 17 58 31–60 days 68 17 85 22 16 38 61–90 days 32 16 48 120 164 284 More than 90 days 166 165 331 498 449 946 Gross loans in default 759 450 1 208

Sparebanken Vest Annual Report 2017 Page 65 Note 13 Secured debt

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

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

PARENT BANK GROUP 31/12-17 31/12-17 Retail Corporate Retail Corporate market market Total Security level market market Total 9,6% 33,1% 20,4% 0%–50% 20,8% 33,1% 23,7% 4,6% 36,3% 19,2% 50%–75% 46,2% 36,3% 43,9% 57,0% 12,0% 36,3% 75%–90% 22,0% 12,0% 19,6% 11,7% 2,5% 7,5% 90%–100% 4,5% 2,5% 4,0% 6,4% 12,2% 9,1% 100%– 2,8% 12,2% 4,9% 0,8% 0,0% 0,4% Other security 0,3% 0,0% 0,2% 9,9% 4,0% 7,2% Unsec. 3,5% 4,0% 3,6% 100,0% 100,0% 100,0% Total 100,0% 100,0% 100,0%

31/12-16 31/12-16 Retail Corporate Retail Corporate market market Total Security level market market Total 17,4% 35,6% 24,0% 0%–50% 23,3% 35,6% 26,1% 26,8% 33,0% 29,0% 50%–75% 45,7% 33,0% 42,8% 35,6% 12,7% 27,3% 75%–90% 20,0% 12,7% 18,4% 8,0% 2,8% 6,1% 90%–100% 4,3% 2,8% 4,0% 4,1% 11,9% 7,0% 100%– 2,5% 11,9% 4,7% 0,8% 0,0% 0,5% Other security 0,4% 0,0% 0,3% 7,3% 4,0% 6,1% Unsec. 3,7% 4,0% 3,8% 100,0% 100,0% 100,0% Total 100,0% 100,0% 100,0%

Note 14 Loans to and receivables from credit institutions

PARENT BANK GROUP

31/12-16 31/12-17 31/12-17 31/12-16 5 771 13 714 No agreed term to maturity or period of notice 1 198 1 266 65 390 With an agreed term to maturity or period of notice 390 65 5 836 14 104 Loans to and receivables from credit institutions 1 588 1 331

Geographical areas 4 929 12 936 Hordaland 421 424 61 435 Rest of Norway 435 61 846 733 Abroad 733 846 5 836 14 104 Total, geographical areas 1 588 1 331

Sparebanken Vest Annual Report 2017 Page 66 Note 15 Guarantees and secured debt

PARENT BANK GROUP

31/12-16 31/12-17 Breakdown by guarantee type 31/12-17 31/12-16 719 1 143 Payment guarantees 1 143 719 788 733 Contract guarantees 733 788 0 0 Loan guarantees 0 0 2 15 Guarantees for taxes 15 2 344 318 Other guarantee liabilities 273 299 1 853 2 209 Guarantee liabilities in relation to customers 2 164 1 808 56 555 64 711 Intercompany liquidity facility 0 0 58 408 66 920 Total guarantee liabilities 2 164 1 808

Secured debt 10 921 12 487 Nominal value of bonds deposited in Norges Bank 12 487 10 921 10 921 12 487 Total secured debt 12 487 10 921

Sparebanken Vest Annual Report 2017 Page 67 Note 16 Certificates and bonds

GROUP 31/12-17 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 7 127 130 1 % Covered bonds 222 12 470 12 620 66 % Municipalities and county authorities 19 3 269 3 298 17 % Enterprises etc. 8 118 116 1 % Government 0 2 986 3 027 16 % Certificates and bonds 256 18 970 19 191 100 %

Average Listed/unlisted int. rate Listed 0,98 % 16 372 16 579 86 % Unlisted 1,32 % 2 598 2 612 14 % Certificates and bonds1) 2) 18 970 19 191 100 %

31/12-16 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 22 3 460 3 482 18 % Covered bonds 225 12 014 12 086 64 % Municipalities and county authorities 20 1 890 1 917 10 % Enterprises etc. 13 861 830 4 % Government 0 654 682 4 % Certificates and bonds 279 18 878 18 996 100 %

Average Listed/unlisted int. rate Listed 1,52 % 17 533 17 647 93 % Unlisted 2,05 % 1 345 1 349 7 % Certificates and bonds1) 2) 18 878 18 996 100 %

Sparebanken Vest Annual Report 2017 Page 68 Note 16 Certificates and bonds (contd.)

PARENT BANK 31/12-17 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 56 1 201 1 223 6 % Covered bonds 216 11 972 12 121 64 % Municipalities and county authorities 19 2 952 2 981 16 % Enterprises etc. 8 118 116 1 % Government 0 2 593 2 625 14 % Certificates and bonds 299 18 836 19 066 100 %

Average Listed/unlisted int. rate Listed 0,99 % 15 173 15 370 81 % Unlisted 1,72 % 3 663 3 696 19 % Certificates and bonds1) 2) 18 836 19 066 100 %

31/12-16 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 502 4 535 4 560 25 % Covered bonds 211 10 769 10 836 59 % Municipalities and county authorities 20 1 890 1 917 10 % Enterprises etc. 13 580 550 3 % Government 0 451 473 3 % Certificates and bonds 745 18 224 18 336 100 %

Average Listed/unlisted int. rate Listed 1,52 % 15 804 15 908 87 % Unlisted 3,46 % 2 420 2 428 13 % Certificates and bonds1) 2) 18 224 18 336 100 %

1) Includes NOK 58.7 (80.3) million in subordinated loans in the Group and NOK 1,152 (1,159) million in the parent bank. 2) Of which NOK 2,415 (2,712) million in foreign certificates and bonds in the Group and NOK 2,164 (2,712) million in the parent bank.

The average interest rate is calculated by identifying the discount rate that gives a calculated value equal to the market value. The spread risk is the risk of negative changes in value as a result of changes in the issuer of the interest rate instrument›s credit risk. The spread risk in the table above is calculated based on the underlying instrument’s duration and the issuer’s credit rating, so that high credit risk securities are assigned higher weight than low credit risk securities. The spread risk is calculated based on the model prepared by the Financial Supervisory Authority.

Sparebanken Vest Annual Report 2017 Page 69 Note 17 Shareholdings in subsidiaries and associated companies

Balance sheet Balance sheet Subsidiaries value in sub-group value in parent bank Holding (balance sheet value, parent bank) No of shares (%) 31/12-17 31/12-16 31/12-17 31/12-16 Sparebanken Vest Boligkreditt AS 4 250 000 100 4 250 3 250 Sparebanken Vest Eiendom Stord AS (sold in 2017) 100 0 3 Sparebanken Vest Eiendom Sauda AS (sold in 2017) 100 0 2 Eiendomsmegler Vest AS 1 200 100 83 53 SPV Næringsmegling AS 1 500 100 3 3 Vestlandskonferansen AS 100 100 0 0 Total group companies in parent bank 4 333 3 307

Associated companies Holding (balance sheet value, parent bank) No of shares (%) 31/12-17 31/12-16 Frende Holding AS 2 684 911 39,72 323 323 Norne Eierselskap AS 87 512 964 49,00 18 18 Brage Finans AS 39 184 740 49,90 332 294 Jonsvollskvartalet AS 34 34,00 65 65 Balder Betaling AS 7 208 36,04 49 Total shares in associated companies 787 700

Frende Norne Holding AS Eier- Brage Jonsvolls- Balder Associated companies (balance sheet value, Group) 2017 Group selskap AS Finans AS kvartalet AS Betaling AS Total Balance sheet value at beginning of period 466 10 321 67 0 863 Capital increase/acquisition 37 49 86 Dividend -48 -48 Share of profit for the year 99 2 22 2 -4 120 Balance sheet value at end of period 517 12 380 68 45 1 022

Frende Norne Holding AS Eier- Verd Bolig- Brage Jonsvolls- Associated companies (balance sheet value, group) 2016 Group selskap AS kreditt AS Finans AS kvartalet AS Total Balance sheet value at beginning of period 400 18 97 255 71 841 Capital increase/acquisition 40 50 2 92 Sales -137 -137 Capital reduction -7 -7 Dividend -32 -7 -39 Share of profit for the year 97 -7 7 16 113 Balance sheet value at end of period 466 10 0 321 67 863

Sparebanken Vest Annual Report 2017 Page 70 Note 17 Shareholdings in subsidiaries and associated companies (contd.)

Associated companies (company information) Jonsvolls- Frende Holding Norne Brage kvartalet Associated companies – company information – 2016 1) AS GROUP Eierselskap AS Finans AS AS Total Cash and cash equivalents 57 0 82 12 151 Other current assets 621 0 47 0 668 Fixed assets 6 046 34 4 382 685 11 147 Total assets 6 724 34 4 512 696 11 966 Short-term financial liabilities 0 0 800 0 800 Other short-term liabilities 313 5 41 11 370 Long-term financial liabilities 5 204 0 3 010 657 8 871 Other long-term liabilities 78 0 17 2 97 Equity 1 128 29 643 26 1 826 Total equity and liabilities 6 724 34 4 512 696 11 965

Operating income 756 0 108 54 918 Depreciation -32 0 -6 -11 -49 Other operating expenses -450 -1 -59 -2 -512 Interest income 39 0 0 0 39 Interest expenses 0 0 0 -37 -37 Tax expense -67 0 -10 -1 -78 Total profit/loss after tax 246 -1 33 4 282

Dividend received from associated company (Sparebanken Vest’s share) 48 0 0 0 48

1) The table shows accounting figures for associated companies from the last official accounts at 31 Dec. 2016.

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

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

Brage Finans AS was formed at the end of 2010 as a collaboration between Sparebanken Vest and 11 independent savings banks. The company offers customised financing products with the main emphasis on the leasing of all types of operating equipment, plus loans secured by the purchased object. Sparebanken Vest owns 49.9% of the shares in the company.

Balder Betaling AS was established in 2017 and is a company that exercises ownership of the mobile phone payment system Vipps on behalf of Sparebanken Vest and 105 other savings banks. Sparebanken Vest is the biggest owner of Balder Betaling AS with a holding of 36%.

After completion of the construction project for Jonsvollskvartalet AS, the bank sold 64% of the shares in the company. The company was thus derecognised as a subsidiary and is now presented as an associated company in which the bank has an ownership interest of 34%. The sale took place with effect from 1 Dec. 2015.

Sparebanken Vest Annual Report 2017 Page 71 Note 18 Market risk

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

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

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

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

Note 19 shows the sensitivity of the bank’s interest rate risk to the effect of a parallel shift in the yield curve. The sensitivity of the bank’s exchange rate risk is shown in Note 20. The sensitivity of the bank’s stock market risk to a percentage fall in all share prices is shown in Note 22. Note 16 shows the sensitivity expressed as credit spread risk.

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

The total capital need relating to market risk can be summed up as follows: 31 Dec. 2017 31 Dec. 2016 Market risk 567 595

The bank expresses market risk based on the calculations and methods described in circular 12/2016 from the Financial Supervisory Authority.

Sparebanken Vest Annual Report 2017 Page 72 Note 19 Interest rate sensitivity

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

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

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

The changes in value in the tables assume a parallel shift in the yield curve for all durations. The changes are calculated by taking into account the average remaining term to maturity of the positions, positions on the balance sheet date and the assumed change in the interest rate. The tables below show the financial consequences of a 1% interest rate increase for the Group and the parent bank’s balance sheet total broken down by time intervals and balance sheet items. By balance sheet total is meant all balance sheet items that entail an interest rate risk as well as contract amounts of derivatives.

Interest rate sensitivity

More than 5 GROUP 0–3 months 3–12 months 1–3 years 3–5 years years Total 31 Dec. 2017 Change in value, bal. sheet total 48,3 12,5 -24,7 -7,1 -23,1 5,9 31 Dec. 2016 Change in value, bal. sheet total 34,0 -8,7 -37,0 -10,4 -9,4 -31,5

More than 5 PARENT BANK 0–3 months 3–12 months 1–3 years 3–5 years years Total 31 Dec. 2017 Change in value, bal. sheet total 21,9 12,6 -31,1 11,9 -27,0 -11,7 31 Dec. 2016 Change in value, bal. sheet total 29,9 -7,9 -21,5 -16,1 -6,0 -21,6

Interest rate sensitivity broken down by balance sheet items

PARENT BANK GROUP

31/12-16 31/12-17 Balance sheet 31/12-17 31/12-16 -459,2 -175,5 Fixed-interest loans -464,5 -577,4 -77,6 -82,2 Other loans -131,9 -128,4 -210,1 -144,5 Bonds/certificates -167,7 -213,9 - -12,1 Other - - -746,9 -414,3 Total assets -764,1 -919,7 1,9 1,9 Fixed-interest deposits 1,9 1,9 110,8 118,5 Other customer deposits 118,6 110,8 159,5 358,9 Bonds/certificates 1 434,6 1 165,8 1,6 3,3 Other borrowings 3,3 1,6 273,8 482,6 Total liabilities 1 558,4 1 280,1 451,5 -80,0 Derivatives -788,4 -391,9 -21,6 -11,7 Total 5,9 -31,5

Sparebanken Vest Annual Report 2017 Page 73 Note 20 Currency positions

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

Currency USD EUR GBP CHF DKK SEK Other Aggregated Net currency exposure at 31 Dec. 2017 53 17 -7 -27 1 -48 2 -8 Effect on profit and equity of change in exchange rates of 5% 3 1 0 -1 0 -2 0 0 Net currency exposure at 31 Dec. 2016 32 43 -4 -9 -49 -29 3 -13 Effect on profit and equity of change in exchange rates of 5% 2 2 0 0 -2 -1 0 -1

Sparebanken Vest Annual Report 2017 Page 74 Note 21 Financial derivatives

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

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

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

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

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

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

Portfolio guarantee The bank participated in a guarantee arrangement against risk relating to the volatility of the value of Eksportfinans’s liquidity portfolio. The guarantee remained in force until 31 Dec. 2017. The bank’s share is NOK 0 (15) million.

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

31/12-17 31/12-16 Nominal Positive Negative Nominal Positive Negative GROUP value market value market value value market value market value Interest swap agreements 68 752 499 859 67 468 620 985 Options/Cap/Floor/Collar/Swaption 47 0 0 30 0 0 Total interest rate instruments 68 799 499 859 67 498 620 985

Interest rate derivatives designated for hedging 3 100 391 0 9 542 557 11 Interest rate and curr. derivatives designated for hedging 31 134 3 565 0 29 120 2 478 203 Total derivatives designated for hedging 34 234 3 956 0 38 662 3 035 214

Portfolio guarantee 0 0 0 15 2 0

Interest rate and currency derivatives 5 572 29 182 1 544 7 29 Instalments 7 819 103 29 2 521 33 199 Total interest rate and currency-related contracts 13 391 132 211 4 065 40 228

Total OTC derivatives 116 424 4 587 1 070 110 240 3 697 1 427

Sparebanken Vest Annual Report 2017 Page 75 Note 21 Financial derivatives (contd.)

31/12-17 31/12-16 Nominal Positive Negative Nominal Positive Negative PARENT BANK value market value market value value market value market value Interest swap agreements 87 952 537 859 67 468 637 988 Options/Cap/Floor/Collar/Swaption 47 0 0 30 0 0 Total interest rate instruments 87 999 537 859 67 498 637 988

Portfolio guarantee 0 0 0 15 2 0

Interest rate and currency derivatives 5 572 29 182 1 544 7 29 Instalments 7 819 103 29 2 521 33 198 Total interest rate and currency-related contracts 13 391 132 211 4 065 40 227

Total OTC derivatives 101 390 669 1 070 71 578 679 1 215

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

Interest rate and currency derivatives designated for hedge accounting exclusively concern the subsidiary Sparebanken Vest Boligkreditt AS.

Note 22 Shares

The majority of the shareholding is classified at fair value through profit or loss Cost price 31/12-17 31/12-16 Shares valued at fair value through profit or loss are divided between the following portfolios Trading portfolio (listed) 13 23 17 Recognised at fair value 389 353 394 Shares recognised at fair value through profit or loss 376 411 Valuation method Listed 23 17 Shares valued on the basis of the OTC list 85 63 The companies’ own valuation based on EVCA 1) 53 40 Shares valued on the basis of other valuation techniques 2) 215 291 Shares recognised at fair value through profit or loss 376 411

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

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

The committed amount relating to share investments for 2016 amounted to NOK 98 million, NOK 81 million of which was paid-up. The Group has committed itself to paying further equity relating to the following ordinary share investments and venture investments in 2017.

Comm. amount Paid up Fjord Invest Sørvest AS 14 11 Contango Ventures 5 5 Sarsia Seed AS 26 26 Sarsia Seed II AS 40 4 SåkornInvest AS 3 2 Committed amounts relating to share investments 88 49

Sparebanken Vest Annual Report 2017 Page 76 Note 22 Shares (contd.)

Shares available for sale Shares available for sale consist of the estimated value of the bank’s holding in Visa Norge and amount to NOK 40 million.

Specification of shares, units and funds as of 31 Dec. 2017 Balance sheet value in NOK 1,000 No of shares Holding (%) Bal. sheet value

Bank Axept AS 3 471 0,0 % 1 736 Bankid Norge AS 1 460 2,9 % 2 311 Bergensavisen AS 315 840 9,8 % 6 317 Christian Michelsen Research AS 1 400 5,0 % 6 987 Contango Ventures II IS 5 202 4,5 % 2 653 Eksportfinans AS 2 638 1,0 % 69 810 Epsis AS 20 202 6,7 % 2 020 Ez Systems AS 805 904 5,0 % 8 865 Filmfondet Fuzz AS 4 910 831 17,9 % 4 911 Fjordinvest AS 17 000 16,5 % 1 003 Fjordinvest Sørvest AS 11 290 647 17,3 % 7 903 Icon Capital III AS 18 184 9,1 % 2 156 K.F.S. Egenkapitalbevis 4 140 8,3 % 4 140 Lifecare AS 16 458 333 8,3 % 1 646 Music Interactive Technology AS 93 778 6,8 % 9 378 Nordic Credit Rating AS 10 000 5,0 % 2 500 Norsk Innovasjonskapital II AS 3 342 9,5 % 22 057 Novel Diagnostics AS 1 250 512 5,6 % 2 501 Oslo Børs VPS Holding ASA 700 000 1,6 % 85 050 Osmolife AS 24 250 000 9,6 % 2 425 Osmolife Holding AG 3 562 757 17,8 % 1 781 Sandnes Sparebank 425 790 1,9 % 23 206 Sarsia Development AS 201 851 10,1 % 6 459 Sarsia Seed AS 6 487 999 16,9 % 6 488 Sarsia Seed Fond II AS 4 705 882 15,3 % 4 000 Sorbwater Technology AS 229 191 11,9 % 13 190 Verd Boligkreditt AS 37 125 9,9 % 39 637 Wellis AS 93 193 18,9 % 3 495 Other companies 31 707 Total investments in shares, units and funds 376 331

Sparebanken Vest Annual Report 2017 Page 77 Note 23 Liquidity risk / remaining term to maturity

Liquidity risk is the risk of the bank being unable to service its debt as it falls due or being unable to finance an increase in assets. The bank’s liquidity risk is assessed on the basis of an evaluation of the bank’s balance sheet structure, including the bank’s dependence on financing from sources other than its customers, and the additional costs involved in raising long-term funds from the capital market. Sparebanken Vest manages its liquidity risk in accordance with a number of targets and parameters. The most important are the Liquidity Coverage Ratio (the bank’s ability to cover its liquidity needs in a 30-day perspective) and the liquidity indicator (stable financing) with maturity more than one year hence in relation to illiquid assets). With effect from 2017, the bank has also used the Net Stable Funding Ratio (NSFR) as a control parameter.

Most of the bank’s long-term financing with more than one year until the final due date has agreed interest terms based on fixed short- term interest rates. This is in order to reduce the interest rate risk associated with long-term borrowings.

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

GROUP More than Residual time to maturity at 31 Dec. 2017 0–1 month 1–3 months 3–12 months 1–5 years 5 years Total Liabilities to credit institutions 3 274 0 186 559 0 4 019 Interest disbursements 0 0 18 26 0 44

Customer deposits 68 019 126 924 35 0 69 105 Interest disbursements 4 0 3 0 0 7

Securitised debt 484 0 11 933 59 639 11 013 83 069 Interest disbursements 139 173 603 2 019 273 3 207

Loan approvals and unused credit facilities 16 853 0 0 0 0 16 853

Subordinated loan capital and subordinated bonds 1) 0 0 0 0 2 050 2 050 Interest disbursements1) 0 0 32 131 2 242 2 405

Total disbursements 88 773 299 13 699 62 409 15 578 180 759

Financial derivatives Outgoing contractual cash flows 1 877 2 023 6 625 25 734 5 381 41 640 Incoming contractual cash flows 1 920 1 805 7 442 26 993 5 949 44 109

GROUP More than Residual time to maturity at 31 Dec. 2016 0–1 month 1–3 months 3–12 months 1–5 years 5 years Total Liabilities to credit institutions 1 755 0 0 780 0 2 535 Interest disbursements 0 0 19 42 0 61

Customer deposits 65 432 855 143 51 0 66 481 Interest disbursements 0 0 2 1 0 3

Securitised debt 1 290 0 16 823 50 230 6 386 74 729 Interest disbursements 158 124 680 1 781 345 3 088

Loan approvals and unused credit facilities 15 546 0 0 0 0 15 546

Subordinated loan capital and subordinated bonds 1) 0 375 0 0 1 700 2 075 Interest disbursements1) 4 11 63 299 2 353 2 730

Total disbursements 84 185 1 365 17 730 53 184 10 784 167 248

Financial derivatives Outgoing contractual cash flows 98 875 6 189 24 042 6 424 37 628 Incoming contractual cash flows 166 425 7 168 23 572 6 762 38 093

1) Only the liquidity of subordinated bonds classified as debt is included in subordinated bonds. Interest disbursements are included up until 2099.

Sparebanken Vest Annual Report 2017 Page 78 Note 24 Net interest and credit commission income

PARENT BANK GROUP

2016 2017 2017 2016 55 86 Interest and similar income from loans to and receivables from credit institutions 9 15 Interest and similar income from loans to and receivables from customers 2 103 2 100 - valued at amortised cost 3 505 3 383 451 405 - valued at fair value 612 599

Interest and similar income from certificates, bonds and other interest-bearing securities 6 0 - valued at amortised cost 0 6 287 267 - valued at fair value 252 269 2 902 2 858 Interest income and similar income 4 378 4 272

Interest and similar expenses on liabilities to credit institutions 45 54 - valued at amortised cost 27 24 7 0 - valued at fair value 0 7 Interest and similar expenses on customers deposits 542 529 - valued at amortised cost 529 541 3 9 - valued at fair value 9 3 Interest and similar expenses on issued securities 152 144 - valued at amortised cost 485 472 132 105 - valued at fair value 105 132 - designated for hedge accounting 503 536 Interest and similar expenses on subordinated loan capital 55 49 - valued at amortised cost 49 55 32 32 - valued at fair value 32 32 12 18 Other interest expenses and similar expenses 1) 22 18 53 52 Fee to the Saving Banks’ Guarantee Fund 52 53 1 033 991 Interest expenses and similar expenses 1 813 1 873 1 869 1 867 Net interest and credit commission income 2 565 2 399

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

Sparebanken Vest Annual Report 2017 Page 79 Note 25 Interest on individual balance sheet items

Average interest rate Average as percentage1) volume GROUP 2017 2016 2017 2016 Assets Loans to and receivables from credit institutions 0,04 0,15 2 158 2 636 Loans to customers 2,92 3,01 140 933 132 132 Certificates and bonds 1,36 1,47 18 578 18 697

Liabilities Liabilities to credit institutions 0,77 0,60 3 156 4 218 Customer deposits 0,79 0,83 68 436 65 370 Securities debt 1,43 1,56 77 500 73 653

PARENT BANK Assets Loans to and receivables from credit institutions 1,07 0,98 8 106 5 648 Loans to customers 3,42 3,53 77 758 76 938 Certificates and bonds 1,50 1,61 17 838 18 209

Liabilities Liabilities to credit institutions 0,92 0,86 5 875 6 044 Customer deposits 0,79 0,83 68 470 65 377 Securities debt 1,44 1,57 17 877 18 926

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

Sparebanken Vest Annual Report 2017 Page 80 Note 26 Net other operating income

PARENT BANK GROUP

2016 2017 2017 2016 33 44 Guarantee provision 44 33 269 278 Fees from payment transfers 278 269 104 95 Income from insurance 95 104 51 66 Income from savings and investments 66 51 0 342 Commission income from group companies 48 45 Other commissions and fees 45 48 505 870 Commission income and income from banking services 528 505

77 76 Fees, payment transfers 76 77 5 3 Expenses relating to savings and investments 3 5 7 5 Other commissions and fees 7 8 89 84 Commission expenses and expenses relating to banking services 85 90

322 129 Income from shareholdings in subsidiaries 39 48 Income from shareholdings in associated companies 120 113 361 177 Income from shareholdings in group companies and associated companies 120 113

126 13 Dividend 13 126 88 107 Gain/(loss) on certificates and bonds 1) 93 91 -2 16 Gain/(loss) on shares 16 -3 11 14 Gain/(loss) on financial derivatives 1) 14 11 41 47 Gain/(loss) on currency 47 41 Net gain/(loss) on financial instruments, recognised at fair value1) 2) 3 25 - lending -12 -17 0 0 - deposits 0 0 7 0 - debt to credit institutions 0 7 -7 -38 - securitised debt -39 -7 -7 10 - subordinated loan capital 10 -7 -35 -20 - gain/loss on change in credit spread, own liabilities -20 -35 Net gain/(loss) on financial instruments, recognised at amortised cost 35 13 - securitised debt -4 -11 Net gain/(loss) on financial instruments relating to hedge accounting - derivatives earmarked for hedge accounting 1 218 -2 723 - securitised debt, hedged -1 344 2 650 260 186 Net gain/(loss) on financial instruments 3) -7 123

Brokerage commission 195 188 2 4 Other operating income 11 4 2 4 Other operating income 206 192 1 039 1 152 Net other operating income 761 843

1) The result of derivatives used to manage interest and currency risk is distributed between the financial instruments they are managed together with. 2) See Notes 9, 35 and 36

3) Of which trading portfoli 0 1 Dividend 0 0 2 5 Gain/(loss) on shares 5 2 -4 5 Gain/(loss) on certificates and bonds 5 -4 10 11 Gain/(loss) on currency 11 10

Sparebanken Vest Annual Report 2017 Page 81 Note 27 Operating expenses

PARENT BANK GROUP

2016 2017 2017 2016 561 504 Payroll expenses including empl. Nat. Ins. contributions 616 691 59 77 Pension expenses 85 67 -243 -15 Effect on profit/loss relating to change in pension plan1) -15 -243 51 47 Other personnel expenses 58 47 49 64 External fees 67 54 210 199 ICT expenses 210 221 46 44 Marketing 51 57 733 921 Payroll and general administration expenses 1 072 894

118 125 Depreciation 128 121

108 100 Operating expenses, premises 112 120 14 16 Wealth tax 16 14 34 87 Other operating expenses 122 121 156 203 Other operating expenses 250 255 1 007 1 249 Total operating expenses 1 450 1 270

1) See Note 28

The average number of employees measured in full-time equivalents in 2017 was 599 (644) in the parent bank and 701 (752) in the Group.

Fee for elected auditor (NOK 1,000)

PARENT BANK GROUP

2016 2017 2017 2016 961 1 289 Audit fee 1 703 1 404 85 128 Attestation services 377 153 123 101 Tax advice 106 133 23 135 Other services 135 237 1 192 1 653 Total fees 2 321 1 927

Sparebanken Vest Annual Report 2017 Page 82 Note 28 Pensions

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

1 A defined contribution scheme for 724 (parent bank 608) persons.

2 A compensatory scheme for 288 (parent bank 265) employees. In addition to ordinary defined contribution pension, the Group has established a compensatory scheme for employees who previously had a defined benefit pension scheme (see point 3 below). The scheme is contribution-based. The annual agreed contribution is transferred to securities funds. The contributions to the securities funds consist of an asset furnished as security for the company, and a corresponding gross pension obligation for the employees. Employer’s National Insurance contributions and financial tax are calculated and a provision made from the sum of contributions and the development in value of the securities funds. The net pension obligation relating to this point thereby corresponds to the allocated contributions. The funds are disbursed to the members upon retirement, when they leave their employ, in the event of disability or death. A total of NOK 37.8 million (parent bank 36.7) was paid into the schemes 2017. A one-off payment for a previously unsecured pension scheme for pay in excess of 12 times the National Insurance basic amount (G) accounts for NOK 17.5 million of this amount. Provision for the latter has been made in the accounts in previous years and does not represent an expense in 2017.

3 .A defined benefit scheme applicable up to and including the 2016 financial year. The scheme, which was closed to new members in 2007, paid members with full earnings entitlement a pension of almost 70% of their final salary given today’s National Insurance (maximum 12 times the National Insurance basic amount (G)). It was decided to wind up the defined benefit scheme and derecognise it for accounting purposes in the third quarter 2016. As of 1 January 2017, all employees, except partially disabled employees and employees on sick leave, became members of the common defined contribution scheme This represented a pension plan change that was recognised through profit or loss. This means that relatively large sums are taken to income as a plan change effect on the pension expense in the comparative figures. As of 1 January 2017, 22 members remained in the defined benefit scheme, because it was not possible to transfer them to the new scheme at that time. As of 31 December 2017, some of them had changed their pension plan, which entailed a plan change effect of NOK 15 million. Five active and nine partially disabled employees remain in the defined benefit scheme.

Following the derecognition of the defined benefit scheme, the remainder is deemed insignificant. The notes that follow have therefore been simplified by, among other things, removing asset allocation of pension funds and sensitivity calculations.

4 A scheme for senior executive personnel covering eight employees, with the option of retiring at the age of 65. The CEO is entitled, and, should the Board so desire, obliged to take early retirement at the age of 62.

5 In addition to the above-mentioned schemes, the company pays premiums to the joint AFP scheme. The AFP scheme is a benefit-based multi-enterprise pension scheme that is financed through premiums stipulated as a percentage of employees’ pay. For accounting purposes, the scheme is treated as a defined contribution scheme in which premiums are expensed as they are paid. Contributions in 2017 amounted to NOK 8.1 million (parent bank 7.0).

Financial assumptions used to calculate pension expenses and obligations

Expenses Obligations Prosent 2017 2016 31/12-17 31/12-16 Discount rate 2,70 2,60 2,30 2,70 Annual wage growth 2,30 2,25 2,20 2,30 Annual pension adjustment 0,00 0,00 0,40 0,00 Regulation of Nat. Insurance basic amount 2,40 2,25 2,25 2,40 Turnover (over/under 40 years) 0–8.00 0–8.00 0–8.00 0–8.00 Tendency to withdraw pension under AFP 50,00 50,00 50,00 50,00 Tariff K2013 K2013 K2013 K2013

Sparebanken Vest Annual Report 2017 Page 83 Note 28 Pensions (contd.)

GROUP 2017 2016 Pension expenses Secured Unsec. Total Secured Unsec. Total Pension earnings for the year 0 1 2 22 3 25 Net interest expense 0 0 0 4 1 5 Administration expenses 1 0 1 0 0 0 Recognised plan change -13 0 -13 -212 1 -212 Net pension expense -12 1 -11 -186 4 -182 Employer’s National Insurance contributions -2 0 -2 -28 1 -27 Recognised pension expense, defined benefit pension -14 2 -13 -214 5 -209 Recognised premiums paid to the defined contribution scheme, incl. AFP 83 33 Total pension expenses 70 -176

2017 2016 Estimate variances relating to gross pension obligations recognised through comprehensive income -2 66 Estimate variances relating to pension assets recognised through comprehensive income -2 8 Employer’s National Insurance contributions 0 13 Administration expenses 1 7 Total pensions recognised through comprehensive income -3 95

31/12-17 31/12-16 Pension obligation Secured Unsec. Total Secured Unsec. Total Present value of earned pension obligation – defined benefit scheme 26 17 43 44 32 76 Fair value of pension assets – defined benefit scheme -24 0 -24 -25 0 -25 Net pension obligation 2 17 19 19 32 51 Employer’s National Insurance contributions and financial tax 0 3 4 4 6 10 Capitalised pension obligation – defined benefit scheme 2 20 22 23 39 61 Capitalised pension obligation – comp. scheme See point 2 47 47 2 2 Capitalised pension obligation 49 20 70 25 39 63 Capitalised pension assets (securities funds) 40 2

Change in pension obligation during the year (defined benefit scheme) 2017 2016 Pension obligation at 1 Jan. 76 1 142 Pension earnings for the year 2 25 Interest expense on pension obligations 1 29 Plan change -15 -1 147 Estimate variance as a result of financial assumptions 4 4 Estimate variance as a result of other variables -5 62 Pension payments -2 -38 Transferred to the defined contribution scheme -17 0 Pension obligation at 31 Dec. 43 76

Change in pension assets during the year (defined benefit scheme) Pension assets (market value) at 1 Jan. 25 943 Interest income on pension assets 1 25 Estimate variances relating to pension assets 3 -19 Return on pension assets excl. interest income 0 11 Premiums paid/ to premium fund 0 35 Administration expenses -2 -7 Plan change -2 -924 Pension payments -1 -38 Pension assets (market value) at 31 Dec. 24 25

Sparebanken Vest Annual Report 2017 Page 84 Note 28 Pensions (contd.)

PARENT BANK 2017 2016 Pension expenses Secured Unsec. Total Secured Unsec. Total Pension earnings for the year 0 1 2 22 3 25 Net interest expense 0 0 0 4 1 5 Administration expenses 1 0 1 0 0 0 Recognised plan change -13 0 -13 -212 1 -212 Net pension expense -12 1 -11 -186 4 -182 Employer’s National Insurance contributions -2 0 -2 -28 1 -27 Recognised pension expense, defined benefit pension -14 2 -13 -214 5 -209 Recognised premiums paid to the defined contribution scheme, incl. AFP 75 25 Total pension expenses 62 -184

2017 2016 Estimate variances relating to gross pension obligations recognised through comprehensive income -2 66 Estimate variances relating to pension assets recognised through comprehensive income -2 8 Employer’s National Insurance contributions 0 13 Administration expenses 1 7 Total pensions recognised through comprehensive income -3 95

31/12-17 31/12-16 Pension obligation Secured Unsec. Total Secured Unsec. Total Present value of earned pension obligation – defined benefit scheme 26 17 43 44 32 76 Fair value of pension assets – defined benefit scheme -24 0 -24 -25 0 -25 Net pension obligation 2 17 19 19 32 51 Employer’s National Insurance contributions and financial tax 0 3 4 4 6 10 Capitalised pension obligation – defined benefit scheme 2 20 22 22 39 61 Capitalised pension obligation – comp. scheme See point 2 44 44 Capitalised pension obligation 46 20 66 Capitalised pension assets (securities funds) 37

Change in pension obligation during the year – defined benefit scheme 2017 2016 Pension obligation at 1 Jan. 76 1 142 Pension earnings for the year 2 25 Interest expense on pension obligations 1 29 Plan change -15 -1 147 Estimate variance as a result of financial assumptions 4 4 Estimate variance as a result of other variables -5 62 Pension payments -2 -38 Transferred to defined contribution scheme -17 0 Pension obligation at 31 Dec. 43 76

Change in pension assets during the year – defined benefit scheme Pension assets (market value) at 1 Jan. 25 943 Interest income on pension assets 1 25 Estimate variances relating to pension assets 3 -19 Return on pension assets excl. interest income 0 11 Premiums paid/ to premium fund 0 35 Administration expenses -2 -7 Plan change -2 -924 Pension payments -1 -38 Pension assets (market value) at 31 Dec. 24 25

Sparebanken Vest Annual Report 2017 Page 85 Note 29 Tax

PARENT BANK GROUP

2016 2017 Tax expense for the year 2017 2016 363 314 Tax payable 1) 385 514 0 0 Paid withholding tax and correction of previous years’ tax assessment -1 2 0 0 Effect of change in tax rules 2 0 10 12 Tax effect of interest on hybrid capital entered directly against equity 12 10 -30 61 Change in deferred tax through profit or loss 30 -91 343 387 Tax expense for the year 427 435 1) Tax payable in the balance sheet also includes wealth tax in the amount of NOK 16 million (NOK 14 million)

1 869 1 744 Profit/loss before tax expense 1 844 1 956 25% tax on: 467 436 Pre-tax profit/loss for accounting purposes 461 489 0 0 Share of profit/loss from associated company -30 -28 3 4 Expensed wealth tax, non-deductible 4 3 -133 -67 Non-taxable income -21 -39 5 13 Non-deductible expenses 13 5 0 0 Effect of change in tax rules 2 1 Different tax rate in subsidiaries (23% vs 25%) -2 0 1 0 Insufficient/(excess) provision for tax payable 0 4 343 387 Tax expense 427 435

18 % 22 % Effective tax rate 23 % 22 %

Change in capitalised deferred tax: -38 -93 Capitalised deferred tax (tax asset) at 1 Jan. -102 12 -30 61 Recognised in the period 30 -91 -1 0 Correction of deferred tax previous year -1 1 0 0 Effect of change in tax rules 1 0 -24 1 Tax on pension expenses through comprehensive income 1 -24 -93 -32 Capitalised deferred tax (tax asset) at 31 Dec. -71 -102

Sparebanken Vest Annual Report 2017 Page 86 Note 29 Tax (contd.)

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

31/12-16 31/12-17 Deferred tax asset 31/12-17 31/12-16 11 11 Tangible fixed assets 11 10 122 78 Financial instruments 105 119 15 7 Pension obligations 7 15 24 15 Other liabilities 17 26 0 0 Tax loss carryforward 4 5 172 111 Total deferred tax asset 144 175

31/12-16 31/12-17 Deferred tax 31/12-17 31/12-16 1 1 Profit and loss account 1 1 0 0 Tangible fixed assets 0 0 18 18 Goodwill 18 18 7 5 Other intangible assets 5 7 53 55 Financial instruments 48 47 79 79 Total deferred tax 73 73

-93 -32 Net deferred tax (tax asset) -71 -102

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

2016 2017 Deferred tax recognised 2017 2016 0 0 Profit and loss account 0 0 0 0 Tangible fixed assets -1 -1 0 -1 Goodwill and other intangible assets -1 0 -88 46 Financial instruments 13 -145 65 8 Pension obligations 8 65 -7 8 Other liabilities 9 -5 0 0 Tax loss carryforward 2 -5 -30 61 Total change in deferred tax 30 -91

Sparebanken Vest Annual Report 2017 Page 87 Note 30 Intangible assets

PARENT BANK GROUP

Excess Excess value value Software customer Software customer and licences portfolio Goodwill Total and licences portfolio Goodwill Total At 31 Dec. 2015 519 167 109 795 Acquisition cost 527 167 130 824 415 117 0 532 Accumulated depreciation 420 117 8 545 Balance sheet value 105 50 109 263 at 31 Dec. 2015 107 50 122 279

The 2016 financial year Balance sheet value at 105 50 109 263 1 Jan. 2016 107 50 122 279 91 0 0 91 Additions during the year 91 0 0 91 72 15 0 87 Depreciation during the year 73 15 0 88 Balance sheet value 124 35 109 268 at 31 Dec. 2016 125 35 122 282

At 31 Dec. 2016 610 167 109 886 Acquisition cost 619 167 130 916 486 132 0 618 Accumulated depreciation 494 132 8 634 Balance sheet value 124 35 109 268 at 31 Dec. 2016 125 35 122 282

The 2017 financial year Balance sheet value at 124 35 109 268 1 Jan. 2017 125 35 122 282 103 0 0 103 Additions during the year 103 0 0 103 81 14 0 95 Depreciation during the year 82 14 0 96 Balance sheet value 146 21 109 275 at 31 Dec. 2017 146 21 122 289

At 31 Dec. 2017 432 167 109 708 Acquisition cost 441 167 130 738 286 146 0 432 Accumulated depreciation 295 146 8 449 Balance sheet value 146 21 109 275 at 31 Dec. 2017 146 21 122 289

Software/licences are depreciated on a straight-line basis over their expected useful life, which is estimated to be 3 years.

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

Sparebanken Vest Annual Report 2017 Page 88 Note 30 Intangible assets (contd.)

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

PARENT BANK GROUP

31/12-16 31/12-17 Assessment unit Grounds for the choice of assessment unit 31/12-17 31/12-16 Goodwill from the acquisition of Fokus Bank in Retail and corporate market Sogn og Fjordane is included in the total activity 82 82 Region Sogn og Fjordane of Region Sogn og Fjordane. 82 82 Goodwill from the acquisition of Sauda Spare- Retail and corporate market bank is included in the total activity of Region 27 27 Region Rogaland/Sunnhordland Rogaland/Sunnhordland. 27 27 Ottesen & Dreyer and Herland Eiendom AS 0 0 Eiendomsmegler Vest AS (merged into Eiendomsmegler Vest AS). 13 13 109 109 Total goodwill 122 122

Testing of values The write-down test of capitalised goodwill is carried out by discounting expected future cash flows from the assessment units. The cash flows are based on historical results from each assessment unit. The discount factor is based on an assessment of what the required rate of return is in the market for the type of activity that is included in the assessment unit. The required rate of return reflects the risks associated with the activity. The write-down tests are performed on cash flows after tax. The tests have not uncovered any need to write down goodwill in the parent bank or Group as of 31 Dec. 2017.

Key assumptions for the write-down test

Assessment unit Required rate of return after tax Retail and corporate market Region Sogn og Fjordane 10,00 % Retail and corporate market Region Rogaland/Sunnhordland 10,00 % Eiendomsmegler Vest AS (Ottesen & Dreyer, Herland Eiendom AS) 12,50 %

Sparebanken Vest Annual Report 2017 Page 89 Note 31 Tangible fixed assets

PARENT BANK GROUP

Machinery, Machinery, fixtures and fixtures and means of Land and means of Land and transport buildings Total transport buildings Total At 31 Dec. 2015 521 10 531 Acquisition cost 552 70 622 401 0 401 Accumulated depreciation 426 19 445 120 10 130 Balance sheet value at 31 Dec. 2015 126 51 177

The 2016 financial year 120 10 130 Balance sheet value at 1 Jan. 2016 126 51 177 31 0 31 Additions during the year 33 0 33 2 3 5 Disposals during the year 5 24 29 31 0 31 Depreciation during the year 32 1 33 118 7 125 Balance sheet value at 31 Dec. 2016 122 26 148

At 31 Dec. 2016 270 7 277 Acquisition cost 298 33 331 152 0 152 Accumulated depreciation 176 7 183 118 7 125 Balance sheet value at 31 Dec. 2016 122 26 148

The 2017 financial year 118 7 125 Balance sheet value at 1 Jan. 2017 122 26 148 12 0 12 Additions during the year 13 0 13 1 0 1 Disposals during the year 1 19 20 30 0 30 Depreciation during the year 31 0 31 99 7 106 Balance sheet value at 31 Dec. 2017 103 7 110

At 31 Dec. 2017 224 7 231 Acquisition cost 253 7 260 125 0 125 Accumulated depreciation 150 0 150 0 0 0 Accumulated write-downs 0 0 0 99 7 106 Balance sheet value at 31 Dec. 2017 103 7 110

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

Note 32 Debt to credit institutions

Debt to credit institutions is classified as recognised at amortised cost.

PARENT BANK GROUP

31/12-16 31/12-17 31/12-17 31/12-16 4 428 1 675 No agreed term to maturity 2 963 1 754 785 3 168 With agreed term to maturity 1 060 785 5 213 4 843 Total debt to credit institutions 4 023 2 539

Sparebanken Vest Annual Report 2017 Page 90 Note 33 Offsetting

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

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

Gross Amount offset Balance Other Amount after balance sheet in the balance sheet Netting security/ possible net GROUP value sheet 1) value agreements 1) collateral settlement 31/12-2017 Loans to and receivables from credit institutions 1 588 0 1 588 0 726 862 Financial derivatives – assets 4 587 0 4 587 243 2 108 2 236 Liabilities to credit institutions 4 023 0 4 023 0 2 108 1 915 Financial derivatives – liabilities 1 070 0 1 070 243 726 101

31/12-2016 Loans to and receivables from credit institutions 1 331 0 1 331 0 811 520 Financial derivatives – assets 3 697 0 3 697 508 1 443 1 746 Liabilities to credit institutions 2 539 0 2 539 0 1 443 1 096 Financial derivatives – liabilities 1 427 0 1 427 508 811 108

Gross Amount offset Balance Other Amount after balance sheet in the balance sheet Netting security/ possible net PARENT BANK value sheet 1) value agreements 1) collateral settlement 31/12-2017 Loans to and receivables from credit institutions 14 104 0 14 104 0 726 13 378 Financial derivatives – assets 669 0 669 243 0 426 Liabilities to credit institutions 4 843 0 4 843 0 0 4 843 Financial derivatives – liabilities 1 070 0 1 070 243 726 101

31/12-2016 Loans to and receivables from credit institutions 5 836 0 5 836 0 811 5 025 Financial derivatives – assets 679 0 679 294 0 385 Liabilities to credit institutions 5 213 0 5 213 0 0 5 213 Financial derivatives – liabilities 1 215 0 1 215 294 811 110

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

Sparebanken Vest Annual Report 2017 Page 91 Note 34 Deposits from customers

Breakdown of deposits from and debt to customers.

PARENT BANK GROUP

31/12-16 31/12-17 31/12-17 31/12-16 NOK % NOK % Breakdown of term to maturity NOK % NOK % 44 375 66,7 45 279 65,5 No agreed term to maturity 45 279 65,5 44 375 66,7 22 117 33,3 23 866 34,5 With agreed term to maturity 23 832 34,5 22 111 33,3 66 492 100,0 69 145 100,0 Total deposits from customers 69 111 100,0 66 486 100,0

31/12-16 31/12-17 31/12-17 31/12-16 NOK % NOK % Breakdown by industry NOK % NOK % 2 243 3,4 2 855 4,1 Primary industries 2 855 4,1 2 243 3,4 1 770 2,7 1 825 2,6 Manufacturing and mining 1 825 2,6 1 770 2,7 286 0,4 737 1,1 Power and water supply 737 1,1 286 0,4 2 471 3,7 2 735 4,0 Building and construction industry 2 735 4,0 2 471 3,7 1 796 2,7 1 708 2,5 Commerce 1 708 2,5 1 796 2,7 2 149 3,2 2 098 3,0 International shipping and transport 2 098 3,0 2 149 3,2 256 0,4 279 0,4 Hotels and restaurants 279 0,4 256 0,4 3 517 5,3 3 418 4,9 Property management 3 383 4,9 3 510 5,3 5 150 7,7 5 647 8,2 Service sector 5 647 8,2 5 150 7,7 1 801 2,7 1 459 2,1 Public administration 1 459 2,1 1 801 2,7 2 570 3,9 2 688 3,9 Other financial undertakings 2 688 3,9 2 570 3,9 24 009 36,1 25 449 36,8 Total business and industry 25 414 36,8 24 002 36,1 42 483 63,9 43 696 63,2 Retail customers 43 697 63,2 42 484 63,9 66 492 100,0 69 145 100,0 Total corporate and retail customers 69 111 100,0 66 486 100,0

Geographical breakdown 50 646 76,2 53 062 76,7 Hordaland 53 028 76,7 50 640 76,2 6 308 9,5 6 638 9,6 Sogn og Fjordane 6 638 9,6 6 308 9,5 5 237 7,9 5 399 7,8 Rogaland 5 399 7,8 5 237 7,9 3 782 5,7 3 483 5,0 Rest of Norway 3 483 5,0 3 782 5,7 65 973 99,2 68 582 99,2 Total, Norway 68 548 99,2 65 967 99,2 519 0,8 563 0,8 Abroad 563 0,8 519 0,8 66 492 100,0 69 145 100,0 Total geographical breakdown 69 111 100,0 66 486 100,0

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

Sparebanken Vest Annual Report 2017 Page 92 Note 35 Securitised debt

Securitised debt is classified as valued at amortised cost, designated for hedge accounting or recognised at fair value. The accounting treatment of hedge accounting is specified in Note 1, the value of the hedging instruments in Note 4, while recognised hedge ineffectiveness is specified in Note 26.

GROUP 31/12-17 31/12-16 Nominal Balance sheet Balance sheet Recognised at amortised cost value value value NOK 35 840 35 864 29 468 EUR 426 4 198 6 411 USD 85 699 690 SEK 550 550 522 Accrued interest 47 68 41 358 37 159 Designated for hedge accounting NOK 3 100 3 361 4 732 EUR 3 106 30 768 29 592 GBP 50 556 0 Accrued interest 225 287 34 910 34 611 Recognised at fair value NOK 3 919 3 927 3 204 EUR 369 3 616 954 Value adjustment, interest rate and exchange rate 42 34 Value adjustment, credit spread – opening balance -18 11 Value adjustment, credit spread – this period -28 -18 Accrued interest 66 76 7 605 4 262 Securitised debt 83 873 76 032

Balance Matured/ Change in Other Balance sheet Issued redeemed exchange rate changes sheet Change in securities debt 31/12-16 2017 2017 2017 2017 31/12-17 Bonds, nominal value 74 729 26 329 -20 707 2 718 83 069 Value adjustments 1 303 -499 804 Total securities debt 76 032 26 329 -20 707 2 718 -499 83 873

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

Sparebanken Vest Annual Report 2017 Page 93 Note 35 Securitised debt (contd.)

Recognised at Recognised at fair value or amortised cost designated for hedging Total Maturity date, securities debt NOK Currency NOK Currency 2018 3 890 2 273 642 5 612 12 416 2019 7 400 2 924 507 4 923 15 754 2020 7 050 246 1 550 5 110 13 956 2021 6 100 0 1 100 5 178 12 378 2022 6 400 0 2 720 8 432 17 552 2023 5 000 0 0 0 5 000 2024 0 0 0 5 021 5 021 2027 500 500 2031 492 492 Total securities debt, nominal value 83 069

PARENT BANK 31/12-17 31/12-16 Nominal Bal. sheet Bal. sheet Recognised at amortised cost value value value NOK 6 544 6 560 7 574 EUR 426 4 198 6 411 USD 85 699 690 SEK 550 550 522 Accrued interest 8 18 12 015 15 215 Recognised at fair value NOK 3 919 3 927 3 235 EUR 369 3 612 951 Accrued interest 66 76 7 605 4 262 Securitised debt 19 619 19 477

Sparebanken Vest Annual Report 2017 Page 94 Note 36 Subordinated loan capital and subordinated bond loans

Bal. sheet value Year of issue Nominal value Interest Redemption right 31/12-2017 31/12-2016 Ordinære ansvarlige lån 2012 Subordinated loan NOK 375 mill 3 month NIBOR + 3,50% call opsjon 9/2-17 0 377 2013 Subordinated loan NOK 500 mill 3 month NIBOR + 1,85% call opsjon 10/10-18 502 501 2014 Subordinated loan NOK 500 mill 3 month NIBOR + 1,50% call opsjon 27/6-19 499 499 2016 Subordinated loan NOK 300 mill 3 month NIBOR + 2,80% call opsjon 12/5-21 301 302 2017 Subordinated loan NOK 350 mill 3 month NIBOR + 1,70% call opsjon 9/2-22 351 0

Subordinated bond loan 1) 2010 Subordinated bond loan NOK 400 mill Fixed interest 8.05% call opsjon 19/5-20 455 454 Ansvarlig lånekapital 2 109 2 133

Change in subordinated loans and sub. Matured/ Other bond loans 31/12-16 Issued redeemed changes 31/12-17 Ordinary subordinated loan capital, nominal value 1 675 350 -375 1 650 Subordinated bond loan, nominal value 1) 400 0 400 Value adjustments 58 1 59 Total sub. loans and sub. bond loans 2 133 350 -375 1 2 109

31/12-17 31/12-16 Bal. sheet Bal. sheet Recognised at amortised cost Nominal value value value NOK 1 650 1 648 1 671 Accrued interest 6 8 1 654 1 679

Recognised at fair value NOK 400 395 395 Value adjustment, interest rate 43 27 Value adjustment, credit spread – opening balance 3 9 Value adjustment, credit spread – this period -6 3 Accrued interest 20 20 455 454 Subordinated loan capital 2 109 2 133

Effective interest rate for subordinated loans recognised at fair value in 2017: 4.08% (2016: 5.21%)

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

Subordinated bonds classified as equity1) Subordinated bonds that do not satisfy the definition of a financial liability pursuant to IAS 32 are classified as equity.

Bal. sheet value Year of issue Nominal value Interest Redemption right 31/12-2017 31/12-2016

2012 Subordinated bond loan NOK 325 mill 3 month NIBOR + 5,0% call opsjon 9/2-17 0 327 2013 Subordinated bond loan NOK 250 mill 3 month NIBOR + 3,65% call opsjon 10/10-18 252 252 2016 Subordinated bond loan NOK 400 mill 3 month NIBOR + 4,50% call opsjon 08/09-21 401 0 2017 Subordinated bond loan NOK 300 mill 3 month NIBOR + 3,30% call opsjon 08/09-21 302 401 Subordinated bonds classified as hybrid capital (cf. the presentation of equity) 955 980

1) Subordinated bonds classified as equity are in their entirety included in the bank’s core capital, while subordinated bonds classified as liabilities are included in the amount NOK 364 million of a nominal value of NOK 400 million.

Sparebanken Vest Annual Report 2017 Page 95 Note 37 Capital adequacy

Risk and capital management The bank classifies all commitments covered by the IRB system Banking operations entail risk in many areas, and good risk and every month. Quantification of the risk parameters takes place in capital management is a key strategic instrument in Sparebanken the same operation, and they are also updated each month. In the Vest’s value creation. For further information about risk and capital retail market, the value of furnished security is updated annually management, see Note 7 and the Group’s Pillar III document. The or when a new commitment starts. In the corporate market, the latter is available on Sparebanken Vest’s website. value of furnished security is updated as part of the procedure for monitoring commitments. The bank applies the definition of For regulatory capital purposes, the transitional arrangement default used in the Capital Adequacy Regulations, which is when between the Basel I and CRD IV regulations still applies. It an account has been overdrawn for 90 days or more for amounts stipulates that the risk-weighted volume cannot be reduced to less of NOK 1,000 or more. Default can also be deemed to exist than 80% of the corresponding figure calculated pursuant to the based on an ‘unlikeliness to pay’ criterion, such as insolvency, if Basel I regulations. The Basel I regulations thereby still represent information to this effect is received. a ‘floor’ as regards the minimum requirement for own funds. Sparebanken Vest uses a template-based method for operational Calculation of economic capital and regulatory capital risk, while market risk is calculated using the standard method. The bank’s capital assessment is based on a quantification of economic capital for the individual risk areas. Stress tests The minimum requirement for own funds is 8%, of which 4.5% simulate the effects of situations that are unlikely to arise, but that must be Core Tier 1 capital. The remaining 3.5% of the minimum could result in large unexpected losses for the bank. Qualitative requirement must be 1.5% subordinated bonds (core capital) assessments supplement the quantitative assessments. and 2% subordinated loans (supplementary capital). Other buffer requirements, including a systemic risk buffer (3%), conservation In 2007, Sparebanken Vest was given permission by the Financial buffer (2.5%), countercyclical capital buffer (2.0%) and the Pillar Supervisory Authority to use internal methods to calculate credit II requirement for 2017 (1.8%), are met by Core Tier 1 capital. risk (IRB) and has since met the regulatory requirements for this Sparebanken Vest’s total capital requirement will thus be 17.3%, approval. One condition for IRB approval is that the IRB system included an addition for Pillar II – 13.8% of which must be met by and its use are validated at least once a year. In Sparebanken Vest, Core Tier 1 capital. The Board of Sparebanken Vest has adopted the results of the validation are considered by the bank’s Validation a management buffer of around 1 percentage point in Core Tier 1 Committee. An annual validation report is submitted to the Board capital above the regulatory minimum and buffer requirements for for consideration. The internal audit function regularly audits 2018. the system and its use, including compliance with the Capital Adequacy Regulations. The IRB system is audited at least once a year, and a report is submitted to the Board for consideration. The parameters and processes used by the bank to manage and control the IRB system follow from its credit strategy, policy and procedures.

When calculating capital in relation to credit risk, all of the bank’s customers who are covered by the IRB system shall be scored using the bank’s internal score models. The bank calculates its own values for Loss Given Default (LGD) for both retail market customers and corporate market customers. The bank was granted approval by the Financial Supervisory Authority to calculate its own LGD values (AIRB method) for corporate market customers in February 2017. The bank does not use external rating, nor does it have self-determined risk parameters beyond those that are used to set the basis for the calculation of and the amount of expected losses. The value of any security furnished is taken into account when calculating LGD and in the scoring of retail market customers.

Sparebanken Vest Annual Report 2017 Page 96 Note 37 Capital adequacy (contd.)

PARENT BANK GROUP

31/12-16 31/12-17 31/12-17 31/12-16 Weighted calculation basis 22 260 19 719 Enterprise – SME 19 895 22 416 2 367 1 859 Enterprise – Specialised 1 860 2 367 3 478 3 178 Enterprise – Other 3 179 3 478 256 264 Mass market with mortgage secured by property – SME 462 409 11 490 9 569 Mass market with mortgage secured by property – not SME 22 623 21 281 60 67 Mass market – Other SMEs 67 60 1 902 2 027 Mass market – Other not-SMEs 2 057 1 921 3 045 3 107 Equity positions, IRB 0 0 44 858 39 790 Total credit risk, IRB 50 143 51 932

672 971 Position risk, debt instruments 971 672 34 46 Position risk, equity instruments 46 34 3 557 3 896 Operational risk 5 391 5 273 14 460 18 459 Commitment pursuant to the standard method 7 997 7 256 274 643 Risk of credit valuation adjustment for counterparty (CVA) 1 903 1 518 63 855 63 805 Total weighted calculation basis before correction to transitional arrangement 66 451 66 685

0 0 Correction to transitional arrangement 14 290 8 776 63 855 63 805 Weighted calculation basis pursuant to the transitional arrangement 80 741 75 461

Own funds 1 476 1 476 Equity certificates 1 476 1 476 0 0 - Own equity certificates 0 0 617 617 Share premium reserve 617 617 8 716 9 551 Primary capital 9 701 8 816 14 14 Compensation fund 14 14 150 150 Gift fund 150 150 587 663 Equalisation reserve 884 852 0 37 Other equity 257 160 11 560 12 507 Total book equity excluding hybrid capital 13 099 12 085

Deductions -243 -252 Goodwill and other intangible assets -278 -268 including effect of gross consolidation of associated companies -13 -10 11 26 Value adjustment, own liabilities 26 11 -47 -40 Value adjustment for requirement for justifiable valuation -60 -53 -67 -155 Expected loss in IRB portfolio -285 -155 Allocated dividend/donations -371 -366 11 215 12 086 Total Core Tier 1 capital 12 131 11 254 1 209 1 313 Subordinated bonds 1 313 1 209 12 424 13 399 Core capital 13 444 12 463 1 671 1 678 Own funds contributed 1 678 1 671 1 671 1 678 Supplementary capital 1 678 1 671 14 095 15 077 Own funds 15 122 14 135

Sparebanken Vest Annual Report 2017 Page 97 Note 37 Capital adequacy (contd.)

PARENT BANK GROUP

31/12-16 31/12-17 31/12-17 31/12-16 Minimum requirement 5 108 5 104 Minimum capital adequacy requirement: 8% 6 459 6 037 8 986 9 973 Surplus own funds 8 663 8 098 8 355 9 215 including surplus Core Tier 1 capital to meet buffer requirements 8 498 7 872 Buffer requirements 1 596 1 595 Conservation buffer: 2.5% 2 019 1 887 1 916 1 914 Systemic risk buffer: 3.0% 2 422 2 264 958 1 276 Countercyclical buffer: 2.0% (from 31 Dec. 2017) 1 615 1 132 4 470 4 785 Total buffer requirement, Core Tier 1 capital 6 056 5 282 3 885 4 430 Surplus Core Tier 1 capital 2 442 2 590

17,6 % 18,9 % Core Tier 1 capital adequacy 15,0 % 14,9 % 1,9 % 2,1 % Subordinated bonds 1,6 % 1,6 % 2,6 % 2,6 % Supplementary capital 2,1 % 2,2 % 22,1 % 23,6 % Capital adequacy, transitional arrangement 18,7 % 18,7 %

17,6 % 18,9 % Core Tier 1 capital adequacy 18,3 % 16,9 % 1,9 % 2,1 % Subordinated bonds 2,0 % 1,8 % 2,6 % 2,6 % Supplementary capital 2,5 % 2,5 % 22,1 % 23,6 % Capital adequacy, IRB 22,8 % 21,2 %

31/12-16 31/12-17 Leverage ratio 31/12-17 31/12-16 108 304 111 464 Balance sheet items incl. gross consolidation of associated companies 178 185 164 396 13 169 18 121 Off-balance-sheet items 6 685 6 474 1 168 1 199 Other adjustments -57 1 013 122 641 130 784 Calculation basis for leverage ratio 184 813 171 883 12 424 13 399 Core capital 13 444 12 463

10,1 % 10,2 % Leverage ratio 7,3 % 7,3 %

Sparebanken Vest Annual Report 2017 Page 98 Note 38 The equity certificate

The equity certificate capital at 31 Dec. 2017 consisted of 59,034,017 equity certificates, each with a nominal value of NOK 25.

Owner fraction Figures for parent bank (NOK 1,000) 31/12-17 31/12-16 Equity certificates 1 475 850 1 475 850 Own equity certificates -153 -218 Share premium reserve 616 995 616 995 Equalisation reserve 662 761 586 644 Total equity certificate capital (A) 2 755 453 2 679 271

Primary capital 9 551 391 8 715 864 Compensation fund 14 378 14 378 Gift fund 150 000 150 000 Total primary capital (B) 9 715 769 8 880 242

Reserve for unrealised gains 36 904 0 Hybrid capital 954 763 979 630 Equity 13 462 889 12 539 143

Owner fraction after the distribution of dividend (A /(A+ B)) 22,1 % 23,2 %

Weighted owner fraction through the year 23,2 % 24,7 %

Dividend per equity certificate 3,75 4,50

Total dividend on 59,034,017 equity certificates (NOK 1,000) 221 378 265 653

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

2017 2016 Number of own equity certificates at 1 Jan. 8 720 1 468 Equity certificates purchased 370 000 106 000 Equity certificates sold 372 597 98 748

Number of own equity certificates at 31 Dec. 6 123 8 720

Effective return per equity certificate 2017 2016 Listed price at 31 Dec. 54,50 48,40 Dividend paid during the year 4,50 1,10 Listed price at 1 Jan. 48,40 35,00 Effective return in NOK 10,60 14,50 Effective return as a percentage 21,90 41,43

Sparebanken Vest Annual Report 2017 Page 99 Note 38 Equity certificates (contd.)

Proportion of The twenty largest owners No of ECs EC capital % SPAREBANKSTIFTINGA HARDANGER 12 954 394 21,94 PARETO AS 4 097 368 6,94 SPAREBANKSTIFTELSEN SAUDA 3 700 354 6,27 VPF NORDEA NORGE VERDI 3 039 003 5,15 METEVA AS 2 720 699 4,61 CAPE INVEST AS 1 589 192 2,69 MP PENSJON PK 1 485 158 2,52 VPF EIKA EGENKAPITALBEVIS 1 166 334 1,98 BERGEN KOMMUNALE PENSJONSKASSE 1 085 000 1,84 LANDKREDITT UTBYTTE 1 000 000 1,69 BERA AS 1 000 000 1,69 WENAASGRUPPEN AS 929 035 1,57 SPAR SHIPPING AS 743 480 1,26 VPF NORDEA AVKASTNING 724 234 1,23 STATE STREET BANK AND TRUST COMP 686 971 1,16 VPF NORDEA KAPITAL 677 928 1,15 FONDSFINANS NORGE 600 000 1,02 LARRE EIENDOM 2 AS 450 000 0,76 WENAAS KAPITAL AS AKSJEBEHOLDNING 390 000 0,66 JAL HOLDING AS 371 740 0,63 Total 39 410 890 66,76

Breakdown by number Volume intervals No of ECs Percentage No of owners Percentage 1 - 100 16 157 0,03 306 7,08 101 - 1 000 952 105 1,61 1 955 45,21 1 001 - 5 000 3 312 445 5,61 1 439 33,28 5 001 - 10 000 2 140 674 3,63 293 6,78 10 001 - 15 000 000 52 612 636 89,12 331 7,65 Total 59 034 017 100,00 4 324 100,00

Sparebanken Vest Annual Report 2017 Page 100 Note 38 Equity certificates (contd.)

Equity certificates owned by the CEO, executive personnel, members of the Board, members of the General Meeting, and persons closely related to the aforementioned, as defined in Section 7-26 of the Accounting Act and Section 8-20 of the Supplementary Regulations to the Act.

No of ECs Jan Erik Kjerpeseth, CEO 89 669 Frank H Bjørndal, Director of Retail Market 5 327 Bjørg Marit Eknes, Director of Innovation and Customer Experience 29 474 Ragnhild Janbu Fresvik, Director of Corporate Market 14 597 Frank Johannesen, Director of Risk Management 36 281 Siren Sundland, Director of Operational Services 39 887 Tina Ødegård, Director of Organisation and Development 5 912 Trygve Bruvik, Chair of the Board 116 893 Arild Bødal, Deputy Chair of the Board 22 230 Gunnar Skeie, board member 7 300 Kristin Axelsen, board member 3 552 Anne Marit Hope, board member 5 310 Fred David Risløw, board member 983 Inger Johanne Westad Thraning, deputy board member 424 Bente Moore, deputy board member 703 Stig Standal Taule, deputy board member 4 209 Anne Grethe Grøttvedt, member of the General Meeting 1 625 Bodil Digranes, member of the General Meeting 3 126 Jostein Lid, member of the General Meeting 569 Arvid Eriksen, member of the General Meeting 1 311 Kirsten Guldbrandsen, member of the General Meeting 1 379 Jens Petter Helland, member of the General Meeting 3 645 Unni Grethe Brakedal Våge, member of the General Meeting 3 416 Wenche W Anglevik, member of the General Meeting 1 180 Solfrid Hagen, member of the General Meeting 1 573 Kjell Gunnar Lilleøren, member of the General Meeting 4 572 Trond Mohn, member of the General Meeting 43 098 Widar Slemdal Andersen, member of the General Meeting 3 322 Eivind Lunde, member of the General Meeting 19 058 Tone Haaland, member of the General Meeting 4 518 Jan Øverbø, member of the General Meeting 17 455 Åsmund Skår, member of the General Meeting 600 Anne Maria Langeland, member of the General Meeting 3 298 Frode Høyland, member of the General Meeting 9 832 Jon Askeland, member of the General Meeting 676 Ove Ellingsen, member of the General Meeting 21 067 Mona Vikøyr, deputy member of the General Meeting 530 Ørjan Askeland, deputy member of the General Meeting 6 935 Trond Dreyer, deputy member of the General Meeting 281 Lillian Lægreid, deputy member of the General Meeting 2 332 Roger Klakegg, deputy member of the General Meeting 1 031 Siri Birkeland, deputy member of the General Meeting 449 Brigt O Gåsdal, deputy member of the General Meeting 1 858 Anne-Kristin Heggøy, deputy member of the General Meeting 750 542 237

Sparebanken Vest Annual Report 2017 Page 101 Note 39 Transactions with related parties

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

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

Shareholdings in group companies and associated companies are specified in Note 17.

Transactions with related parties are conducted in accordance with generally accepted business terms and principles.

Sub- Associated Key Intragroup transactions 2017 (NOK 1,000) sidiaries companies personnel Profit/loss Interest from loans to customers 90 946 45 514 Interest on interest-bearing securities 43 019 -546 Interest and similar expenses on deposits from customers -31 810 -3 664 Interest on financial derivatives 4 305 Commission income received relating to distribution 104 453 Group dividend/contributions received 129 000 47 661 Pay, pension and fees to executive personnel and officers of the company 2 486 0 30 696 Rent -1 379 -44 822 Management fees 342 175 1 444 Fees received for the sale of services 6 055 2 667 Fees paid for the purchase of services 0 -1 470

Balance sheet Shares in subsidiaries, associated companies (capital increases): 10 030 000 86 151 Group contributions/dividend receivable 129 000 Net loans transferred to the housing credit company, present year 17 702 254 Loans transferred to the housing credit company, accumulated 76 350 770 Loans to related parties at 31 Dec. 12 515 431 1 061 070 Deposits from related parties 2 963 441 292 000 Holding of covered bonds issued by Sparebanken Vest Boligkreditt AS 456 981 0 Holding of subordinated loans and bonds issued by Sparebanken Vest Boligkreditt AS 1 076 525 Holding of senior bonds issued by the parent company 32 297 Holding of subordinated loans issued by associated companies 9 000

Sparebanken Vest Annual Report 2017 Page 102 Note 39 Transactions with related parties (contd.)

Sub- Associated Key Intragroup transactions 2016 (NOK 1,000) sidiaries companies personnel Profit/loss Interest from loans to customers 57 187 46 670 Interest on interest-bearing securities 41 092 6 886 Interest and similar expenses on deposits from customers -27 485 -5 344 Interest on financial derivatives -7 486 Commission income received relating to distribution 114 424 Gain/(loss) on financial instruments -23 113 Group dividend/contributions received 322 000 38 974 Pay, pension and fees to executive personnel and officers of the company 23 287 Rent -4 060 -40 442 Management fees 53 562 Fees received for the sale of services 7 508 7 630 Fees paid for the purchase of services -727 -2 506

Balance sheet Shares in subsidiaries, associated companies (capital increases): 500 000 89 900 Group contributions/dividend receivable 322 000 Financial derivatives (assets in parent bank) 15 276 Net loans transferred to the housing credit company, present year 3 231 049 Loans transferred to the housing credit company, accumulated 58 648 516 Loans to related parties at 31 Dec. 4 517 107 1 072 914 Deposits from related parties 4 124 993 182 868 Holding of covered bonds issued by Sparebanken Vest Boligkreditt AS 0 14 559 Holding of subordinated loans and bonds issued by Sparebanken Vest Boligkreditt AS 1 076 637 Holding of subordinated loans issued by associated companies 9 315

Subsidiaries mainly refer to Eiendomsmegler Vest AS and Sparebanken Vest Boligkreditt AS.

Internal transactions with the estate agency company are limited and mainly consist of interest on deposits and loans with associated balance sheet items.

Sparebanken Vest Boligkreditt AS is a wholly owned company that manages housing loans financed by the issuing of covered bonds. Sparebanken Vest sells loans to the company, which in turn finances its activities by issuing covered bonds. In addition, the subsidiary has both deposits and liabilities as well as derivative agreements in relation to the parent company on which interest is calculated in accordance with the arm’s length principle. Sparebanken Vest Boligkreditt pays management fees for transferred loans and buys administrative services from Sparebanken Vest.

Associated companies comprise Frende Forsikring, Norne Securities, Brage Finans, Balder Betaling and Jonsvollskvartalet AS. Sparebanken Vest sells general and life insurance through Frende Forsikring on a commission basis. Leasing products are sold through Brage Finans in a corresponding manner.

Loans transferred to Sparebanken Vest Boligkreditt are specified above. The contractual relationship between the parent bank and Sparebanken Vest Boligkreditt AS indicates that the parent bank has no further involvement in transferred housing loans, since all credit risk relating to the loans has been transferred to the housing credit company. These are loans that are within 75% of the objects’ value. The housing credit company has a rolling liquidity facility linked to the maturing of bonds in the next 12 months. The latter is exclusively an intercompany agreement between the parent bank and the housing credit company. The realisation of such a facility will provide access to issued bonds and non-transferred assets (loans).

Sparebanken Vest Annual Report 2017 Page 103 Note 39 Transactions with related parties (contd.)

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

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

Pay and Total payments in Bonus remunera- Pension 2017– Executive personnel at 31 Dec. kind paid tion expense Jan Erik Kjerpeseth – CEO 3 983 921 4 904 1 417 Frank Johannesen – Director of Risk Management 2 201 451 2 652 818 Ragnhild Janbu Fresvik – Director of Corporate Market 2 367 408 2 775 328 Frank Bjørndal – Director of Retail Market 1 825 133 1 958 378 Siren Sundland – Director of Operational Services 1 994 449 2 443 564 Bjørg Marit Eknes – Director of Retail Market 2 025 443 2 468 410 Tina Ødegård – Director of Organisation and Development (from 1 Sept. 2017) 636 0 636 86

During 2017, the Director of CSR concluded that his state of health was not compatible with his role in the corporate management team. The bank has therefore agreed on a solution whereby the Director of CSR will be assigned a new position that reports to the Director of Operational Services. This employment relationship will continue until 1 July 2018 with subsequent severance pay for nine months. The above entails severance pay remuneration of a total of NOK 1,380,000. In addition, agreed earnings in the pension schemes up until the age of 65 have been recognised in the amount of NOK 2,064,000.

Ordinary pay and payments in kind for 2017 amounted to NOK 1,962,000, in addition to a bonus of NOK 486,000.

Pay and Total payments in Bonus remunera- Pension 2016– Executive personnel at 31 Dec. kind paid tion expense Jan Erik Kjerpeseth – CEO 3 878 629 4 507 1 218 Frank Johannesen – Director of Risk Management 1 997 312 2 308 745 Ragnhild Janbu Fresvik – Director of Corporate Market 1 888 208 2 095 209 Hallgeir Isdahl – Director of CSR 2 021 353 2 374 512 Siren Sundland – Director of Operational Services 1 970 312 2 282 576 Bjørg Marit Eknes – Director of Retail Market 1 943 260 2 203 466 Nina Nordby – Director of Innovation and Customer Experience 1 127 0 1 127 39

On the recommendation of the Remuneration Committee, the Board decides the salary of the CEO. The CEO determines the remuneration of other executive personnel after consultation with the Remuneration Committee.

A provision of NOK 3.3 (3.6) million has been made for the 2017 financial year for bonuses to be distributed among executive and key personnel following a thorough assessment.

Members of the corporate management team, the heads of Sparebanken Vest Boligkreditt AS and Eiendomsmegler Vest AS have a reciprocal period of notice of six months and a non-competition clause that applies for a further six months. With respect to the CEO, a mutual period of notice of six months applies. The Board can decide to terminate the employment relationship earlier without a reduction in pay. In the case of termination by Sparebanken Vest, salary is retained for a period of 18 months with a deduction for any pay received during that period. Members of the corporate management team, the heads of Sparebanken Vest Boligkreditt AS and Eiendomsmegler Vest AS also have an early-retirement agreement that applies from the age of 65. It gives them a right and an obligation to retire on 66– 70% of their pay until they reach the age of 67. The CEO is entitled to, and, should the Board so wish, obliged to take early retirement at the age of 62. Over and above this, there are no service contracts between members of the Board, the management or supervisory bodies and Sparebanken Vest or Sparebanken Vest’s subsidiaries that provide for remuneration on termination of the employment relationship.

Sparebanken Vest Annual Report 2017 Page 104 Note 39 Transactions with related parties (contd.)

Remuneration of officers of the company (in whole NOK) 2017 2016

Directors’ Additional Total remu- Total remu- Styret fee fee neration neration Trygve Bruvik Chair of the Board 375 000 57 000 432 000 419 200 Arild Bødal From March 2017 Deputy Chair of the Board 179 375 28 200 207 575 180 000 Øyvind A Langedal Until March 2017 Deputy Chair of the Board 46 875 12 800 59 675 201 775 Richard Rettedal 155 000 64 000 219 000 187 000 Marianne D Jacobsen From March 2017 116 250 6 400 122 650 0 Magne Morken From March 2017 116 250 41 600 157 850 0 Berte-Elen R Konow Until March 2017 38 750 5 000 43 750 175 000 Birthe Kåfjord Lange 155 000 8 400 163 400 155 000 Marit Solberg Until March 2016 0 0 0 75 675 Gunnar Skeie 155 000 76 800 231 800 138 650 Anne Marit Hope 155 000 6 400 161 400 155 000 Kristin Axelsen 155 000 0 155 000 155 000 Fred David Risløw 155 000 0 155 000 116 250 Arnulf Ingvaldsen Deputy member 45 000 0 45 000 35 500 Bernt Bergheim Deputy member 35 500 0 35 500 73 500 Inger Johanne W Thraning Deputy member 0 0 0 0 Bente Moore Deputy member 0 0 0 0 Stig Standal Taule Deputy member 0 0 0 0 Totalt 1 883 000 306 600 2 189 600 2 067 550

Directors’ fees and additional fees for participating in committees are decided by the General Meeting.

Remuneration of the parent bank’s General Meeting amounted to NOK 70,750 (87,752). Meeting attendance fees of NOK 731,300 (466,800) come in addition.

Sparebanken Vest Annual Report 2017 Page 105 Note 39 Transactions with related parties (contd.)

Loans and security furnished to executive personnel, employees and officers of the company

PARENT BANK GROUP Loans and security furnished to the corporate management team (NOK 1,000) 2017 2016 2017 2016 CEO Jan Erik Kjerpeseth 2 858 8 7 858 7 906 Other members of the corporate management team 9 296 10 882 15 733 17 147 Loans furnished on standard terms for employees 12 154 10 890 23 591 25 053

Loans and security furnished to officers of the parent bank (NOK 1,000) Board Marianne D Jacobsen 1 036 6 582 Arnulf Ingvaldsen, deputy member 0 0 0 88 Kristin Axelsen, employee representative 0 0 2 409 2 475 Anne Marit Hope, employee representative 18 0 1 061 938 Fred David V Risløw, employee representative 573 4 366 4 883 4 366 Inger Johanne Thraning, deputy employee repr. 8 2 394 2 289 2 394 Bente Moore, deputy employee repr. 20 9 1 390 1 381 Stig Standal Taule, deputy employee repr. 437 2 612 2 789 2 612 Loans are furnished on standard customer terms, with the exception of loans to employee representatives 2 092 9 381 21 403 14 254

General Meeting Rune Stavenes, Chair of the General Meeting 482 879 Other members of the General Meeting, with the exception of employee representatives 17 440 10 060 38 203 26 724 Loans are furnished on standard customer terms 17 922 10 060 39 082 26 724

Total loans and security furnished to employees 1) (NOK 1,000) 428 759 630 951 1 644 218 1 346 522

1) Excluding the corporate management team and employee representatives on the Board.

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

Note 40 Disputes

As of 31 December 2017, Sparebanken Vest was not involved in any lawsuits or legal disputes of material financial significance to the Group’s activities. There are at all times various claims against the bank relating to its activities. Provision for bad debt has been made where it has been deemed necessary.

Sparebanken Vest Annual Report 2017 Page 106 Note 41 Description of IFRS 9

GENERAL INFORMATION ABOUT IFRS 9 the impairment rules for financial assets valued at amortised The accounts for 2017 have been prepared on the basis of IAS cost. Under IAS 39, a loss shall only be recognised when there 39 Financial Instruments: Recognition and Measurement. This is objective evidence that a loss event has occurred. Under IFRS standard will be replaced by IFRS 9 Financial Instruments from 9, the recognition shall be based on expected credit loss (ECL). 1 January 2018. IFRS 9 addresses recognition, classification, The write-downs shall be unbiased and forward-looking. This measurement and derecognition of financial assets and liabilities, means that the bank must calculate expected losses for all debt and hedge accounting. instruments held as assets that are not valued at fair value through profit or loss, in addition to guarantees, loan commitments and In the course of the past 18 months, Sparebanken Vest has undrawn credit facilities. compiled an interdisciplinary implementation team that has prepared the adoption and implementation of IFRS 9. The project CLASSIFICATION AND MEASUREMENT has had a steering committee and the following project teams: Financial assets that are debt instruments must undergo two tests to decide their classification and measurement pursuant to IFRS 9. 1. Models and methods: Developing calculation solutions and models to establish The first test is done at instrument level, and it is a valuation unbiased, forward-looking estimates of expected losses. of the instrument’s contractual terms. This is often called the SPPI test (SPPI = solely payment of principal and interest). Only 2. Strategy, organisation and processes: instruments with contractual cash flows that only consist of the Preparing a proposal for organisation and responsibility for IFRS payment of interest and principal on given dates (‘plain vanilla 9 write-downs, and describing processes relating to calculations, instruments’) qualify for measurement at amortised cost. All other reporting and internal control. instruments shall be measured at fair value through profit or loss. This can include instruments with contractual terms that are not 3. Accounts and reporting: related to basic debt instruments, for example instruments with Specifying the actual accounting process and notes, including gearing or ‘built-in derivatives’. This means, among other things, the note on accounting principles and notes templates. that it is no longer necessary under IFRS 9 for built-in derivatives to be treated separately, as these instruments must be measured 4. Classification and measurement: at fair value through profit or loss in their entirety. Mapping the bank’s financial instruments and classifying instruments into different categories. ‘Normal’ interest includes compensation for the time value of money (risk-free interest), credit risk, other ‘basic’ lending risks Transitional rules (e.g. liquidity risk) and costs (e.g. administrative costs) and profit IFRS 9 will be applied retrospectively, except in the case of hedge margin. accounting. Retrospective application means that Sparebanken Vest shall prepare an opening balance sheet on 1 January 2018 Instruments that in principle qualify for measurement at amortised as if it had always applied the new principles. This does not mean cost must then undergo a business model test. This is done at that the comparable figures for 2017 have to be revised pursuant portfolio level: to the new principles, and the standard states that comparable • Debt instruments shall be measured at amortised cost if the figures must not be revised unless it can be done without the instruments are held in a business model, in which the purpose use of hindsight. Therefore, Sparebanken Vest will not revise its of holding the instrument is to receive contractual cash flows. comparable figures in the 2018 accounts. The effects of the new • Instruments with cash flows that only consist of the payment principles in the opening balance sheet for 2018 are entered of interest and principal that are held both for the purpose of against equity. receiving contractual cash flows and for sale shall be measured at fair value through other comprehensive income (FVOCI) along Among other things, IFRS 9 will entail new classification and with interest income and any write-downs recognised through measurement principles. The measurement categories for financial profit or loss. This means that the instrument is recognised in the assets in IAS 39 (fair value through profit or loss, available for balance sheet at fair value, and that interest on and write-downs sale, held to maturity and amortised cost) have been replaced by for credit losses are recognised through profit or loss, in the the following three categories in IFRS 9: same way as if the instrument had been measured at amortised • Amortised cost cost, while other changes in value are recognised through other • Fair value through other comprehensive income (FVOCI) comprehensive income. • Fair value through profit or loss (FVPL) • Other debt instruments shall be measured at fair value through profit or loss. This will typically be instruments held in trading The measurement category is decided upon initial recognition of portfolios, portfolios that are managed, measured and reported the asset. to the management on a fair value basis and portfolios whose scope of sale is too large for them to fall under the other two For financial assets, a distinction is drawn between debt business models. Instruments that, following these tests, are instruments, derivatives and equity instruments, where debt to be measured at amortised cost or fair value through OCI can instruments are all financial assets that are not derivatives or nonetheless be designated as measured at fair value through equity instruments. profit or loss if this eliminates or significantly reduces an accounting mismatch. The recognition of financial commitments is largely the same as pursuant to IAS 39, except for gains and losses relating to own Amortised cost: credit risk. The effects of the latter shall be recognised through Debt instruments that undergo the SPPI test and that are covered other comprehensive income. by a business model whose purpose is to hold the instrument in order to receive contractual cash flows shall be valued at The introduction of IFRS 9 entails relatively major changes to amortised cost. Loans at floating interest rates are defined in this

Sparebanken Vest Annual Report 2017 Page 107 category in the consolidated accounts. Receivables from credit Hedge accounting institutions will also be valued at amortised cost. Loans secured IFRS 9 simplifies the requirements for hedge accounting by linking by a mortgage in the parent company’s company accounts will hedge effectiveness more closely with risk management activities probably be sold during the life of the loan to the wholly-owned and leaving greater room for assessment. The requirement for a subsidiary – Sparebanken Vest Boligkreditt AS. These loans do not hedge effectiveness of 80–125% has been removed and replaced therefore satisfy the business model test for amortised cost and by more qualitative requirements, including that there must be an will consequently not be classified in this category in the parent economic relationship between the hedging instrument and the bank’s company accounts. hedged item, and that the effect of credit risk must not dominate the value changes in the hedging relationship. Under IFRS 9, a Fair value through other comprehensive income (FVOCI): prospective (forward-looking) effectiveness test is sufficient, Debt instruments that undergo the SPPI test and that are while hedge effectiveness under IAS 39 must be considered both covered by a business model whose purpose is both to be held retrospectively and prospectively. Hedging documentation is still for the purpose of receiving contractual cash flows and for sale required. shall be measured at fair value through other comprehensive income (FVOCI) along with interest income and any write-downs Hedge ineffectiveness, defined as the difference between the recognised through profit or loss. As described in the section on value adjustment of hedging instruments and the value adjustment amortised cost, floating interest rate loans secured by mortgage of the hedged risks in the items, is recognised in profit or loss in the parent bank’s company accounts will be reclassified from as it arises. The exception is the part of the value adjustment amortised cost pursuant to IAS 39 to this category under IFRS 9. caused by a change in the basis spread relating to the hedging instruments presented in the statement of comprehensive income. Fair value through profit or loss (FVPL) Derivatives and investments in equity instruments: IMPAIRMENT LOSSES ON LOANS VALUED AT AMORTISED COST All derivatives shall in principle be measured at fair value through Under IAS 39, a loss shall only be recognised when there is profit or loss (FVPL), but derivatives designated for hedge objective evidence that a loss event has occurred. Under IFRS 9, accounting shall be recognised in accordance with the principles the recognition shall be based on expected credit loss (ECL). The for hedge accounting. Investments in equity instruments shall general model for impairment of financial assets in IFRS 9 applies be measured at fair value in the balance sheet. Changes in to both financial assets measured at amortised cost and assets value shall as a rule be recognised in ordinary profit/loss, but measured at fair value through other comprehensive income. Loan an equity instrument may be designated at fair value through approvals and guarantee commitments are also covered by the other comprehensive income (FVTOCI). In connection with the impairment model. conversion to IFRS 9, Sparebanken Vest has not deemed it necessary to classify any of its shareholdings at fair value through The measurement of the provision for expected losses under the other comprehensive income, and they will be classified in their general model depends on whether the credit risk has increased entirety at fair value through profit or loss. The category ‘available significantly since initial recognition. Upon initial recognition and for sale’ under IAS 39 has been removed in IFRS 9. Shares when the credit risk has not increased significantly after initial that were classified as available for sale have therefore been recognition, a provision shall be made for 12-month expected reclassified at fair value through profit or loss. losses. Twelve-month expected losses are the losses expected to occur during the instrument’s life, but that can be linked to events Liquid assets: occurring in the next 12 months. If the credit risk has increased Liquid assets are managed, measured and reported to the significantly since initial recognition, a provision for expected management on a fair value basis. Substantial parts of the losses shall be made for the whole life of the instrument. portfolio also comprise fixed-rate securities with interest rates hedged through derivatives, which shall nonetheless be recognised The bank has established a method for assessing whether the at fair value through profit or loss. Liquid assets will therefore be credit risk has increased significantly after initial recognition recognised at fair value through profit or loss. by calculating the risk of a default occurring during the financial instrument’s remaining life. The expected credit loss Fixed-interest loans: is calculated on the basis of the present value of all cash flows Fixed-interest loans can be redeemed before they mature in return over the expected remaining life, i.e. the difference between the for the payment of excess or shortfall values that have arisen as a contractual cash flows under the contract and the cash flows the result of the market interest rate changing after the interest rate bank expects to receive, discounted by the effective interest rate was set (above or below par). The possibility of redeeming a loan on the instrument. below par means that fixed-interest loans must be measured at fair value through profit or loss because the instruments’ cash flows In addition to the general model, separate principles apply to do not only consist of the payment of interest and principal as issued and purchased loans that have incurred a credit loss at the defined in IFRS 9. This point in IFRS 9 was amended this autumn time of initial recognition. For such loans, an effective interest rate with effect from 1 January 2019 (not approved by the EU). The shall be calculated that takes account of expected credit losses, amendment will make it possible for fixed-interest loans to be and in the event of changes in expected cash flows, the change recognised at amortised cost. shall be discounted at the original credit-adjusted interest rate and recognised in the accounts. Sparebanken Vest has not identified The bank hedges the interest rate risk for this significant balance any such commitments. sheet item through derivatives. Derivatives shall always be measured at fair value. As developments in the value of the The method in the IFRS 9 standard entails slightly higher volatility derivatives are recognised through profit or loss, the recognition in write-downs and is based on the economic outlook. Write-downs of fixed-interest loans at amortised cost will lead to significant must be expected to take place earlier than under the current fluctuations in profit/loss. Recognition at fair value through profit practice. This will be especially marked at the beginning of an or loss will thereby lead to a more harmonised comparison of the economic downturn. derivatives’ profit/loss and changes in the value of loans. RECOGNITION OF INTEREST Under IFRS 9, as in IAS 39, interest is recognised on the gross

Sparebanken Vest Annual Report 2017 Page 108 carrying amount using the effective interest rate method. The establishment costs, as they arise. effective interest rate is the rate that exactly discounts the estimated future cash flow through the expected life of the For debt instruments held as assets that are written down as financial instrument. This entails recognising nominal interest and a result of objective evidence of loss (Stage 3), interest is amortisation of establishment fees after the deduction of direct recognised based on the net carrying amount.

Note 42 Description of the impairment model under IFRS 9

This note describes the bank’s impairment model for financial in relation to Stage 1, the bank itself defines what constitutes a assets that are debt instruments and that are not classified at fair significant increase in credit risk. However, IFRS 9 states that a value through profit or loss. General impairment principles are significant increase in credit risk will have occurred, unless this described in Note 41. can be refuted, if payment is delayed by 30 days or more (up to 90 days, which is defined as actual default). Sparebanken Vest has prepared a procedure for the quarterly calculation of losses based on the bank’s data warehouse, which PD contains historical information about account and customer data The bank uses the PD level as the primary criterion for significantly for the whole credit portfolio, loans, credit and guarantees. increased credit risk. PD at the time of reporting is compared with PD at the time the loan was furnished. If the following criteria are The goal of the model is to calculate expected credit loss (ECL) met, it is classified as Stage 2: based on forward-looking and unbiased estimates. • PD more than doubled since the loan was furnished and is at The loss estimates will be calculated on the basis of 12-month least 0.6%. and lifetime probability of default (PD), loss given default (LGD) and exposure at default (EAD). The data warehouse contains Watch list historical data about the observed default rate (PD) and loss ratio The bank has chosen to use a watch list for commitments exposed (LGD). This will form the basis for producing good estimates of to risk in order to take into account forward-looking information future PD and LGD values. The bank considers forward-looking and to detect other relevant matters that may have arisen but information about macroeconomic factors such as unemployment, that have not been detected by the bank’s PD models. These GDP growth, interest rates, housing prices and other financial commitments are then transferred to Stage 2 – if they are not estimates, to be able to produce forward-looking estimates for already in Stage 2 or 3. PD can also be overridden (upwardly PD and LGD. Forward-looking EAD is based on agreed repayment adjusted) for commitments on the watch list. plans and observed levels of actual repayments and redemptions. All estimates shall be as unbiased as possible. They thereby differ Forbearance from corresponding estimates for PD, LGD and EAD that are used Commitments with forbearance measures can either be healthy in the calculation of capital. The estimates used to calculate or in default. Commitments with forbearance measures include capital are more conservative, for example by including safety commitments for which more favourable terms have been granted margins or estimates for serious economic downturns. (renegotiation), or the refinancing of a commitment as a result of a debtor experiencing financial difficulties. The criterion that In line with IFRS 9, the bank groups its loans into three stages the debtor is experiencing financial difficulties distinguishes based on the probability of default (PD) at the time of recognition forbearance from ordinary commercial renegotiation of terms. compared with the balance sheet date, and checking the watch In other words, it is an additional factor that the bank would list, forbearance and instalments paid more than 30 days after the not have ordinarily granted a loan on these terms. This defines due date. In other words, each individual loan (or commitment) is ‘forbearance’. If a commitment falls into this category, a 24-month classified as Stage 1, 2 or 3. This means that one and the same quarantine applies until it can be deemed healthy. These customer can have loans classified in different stages. commitments are transferred to Stage 2 – if they are not already in Stage 2 or 3, and the PD can be overridden (upwardly adjusted). The bank uses the same PD model as in IRB, but with unbiased calibration, meaning without safety margins, as the basis for In summary, the following commitments would be categorised assessing increased credit risk. The PD estimate represents under Stage 2: 12-month probability. Validation shows that it is accurate for both • PD more than doubled since the loan was furnished and is at short and long timeframes. It is therefore considered to be a least 0.6%. reasonable and pragmatic approach to assessing the increase in • At least 30 days’ overdue payment, or credit risk over the lifetime of a loan. • The commitment is on the bank’s watch list (but not classified as Stage 3), or Stage 1: The starting point for all financial assets covered by the • Forbearance has been granted in connection with payment general loss model. A loss provision corresponding to 12-month problems relating to the commitment. expected losses, meaning losses relating to incidents that may occur in the 12 months after the reporting date, will be made Stage 3: Stage 3 of the loss model includes assets for which the for all assets for which the credit risk is not significantly higher credit risk has increased significantly since initial recognition, and than upon initial recognition. This category includes all assets not where there is objective evidence of a loss event on the balance transferred to Stage 2 or 3. sheet date. For these assets, a provision for lifetime expected losses will be made, largely corresponding to today’s IAS 39. Stage 2: Stage 2 includes assets for which the credit risk has increased significantly since initial recognition, but where there is The definition of default under IFRS 9 is the same as in IAS 39, no objective evidence of a loss. For these assets, a provision for and a provision is made for lifetime expected losses. The definition lifetime expected losses will be made. This group includes loans of default in Stage 3 also concurs with internal risk management for which the credit risk has increased significantly but that are and capital requirement calculations. Also here, 90 days’ delayed not in default (i.e. not Stage 3; see below). As regards delimitation payment is used as an important criterion for default.

Sparebanken Vest Annual Report 2017 Page 109 Forward-looking information segment and each scenario. These assessments are based on The process starts with the bank’s macroeconomist sending macro expert assessments, and different macro data are assigned data expectations to the bank’s credit environment. This is done different weights in the different segments. This generates PD on the basis of three different scenarios. The three scenarios paths for each industry for the next five years, which are then consist of a base case intended to cover a probability range of converged against a long-term average. 60%, as well as a worst case and a best case with a probability weighting of 20%. Scenarios are used to adjust non-linear Model calculation characteristics of subcomponents in the ECL calculation. Based on the grouping of commitments into different stages, the use of forward-looking probability of default (PD paths) and the Important macro data for the calculation are: value of security, expected losses are calculated in the bank’s loss provision model. • Growth in GDP • Unemployment rate The Financial Supervisory Authority’s reference model is used for • Interest rate level LGD. Security coverage, probability of recovery and recovery of • Growth in house prices unsecured debt are the most important elements in this model. • Oil price Security coverage is calculated specifically for each loan, while the • Inflation other elements are based on historically observed average values. • Consumption and saving rate • Exchange rates In principle, losses per year are calculated using modelled exposure x PD x LGD for each year. The losses are discounted The use of macro data back to the time of reporting and added together. A weighted sum Sparebanken Vest has divided the lending portfolio into 13 is then calculated for each scenario. corporate market segments and 2 retail market segments. Our credit department receives the forward-looking macro data Calculations and assumptions are subject to independent and considers how they affect the probability of default (PD) validation by the bank’s validation team. and developments in the value of security for the bank in each

Note 43 Transition to IFRS 9

FINANCIAL ASSETS – GROUP

Carrying amount Change as a Carrying amount under IAS 39 Change as a result under IFRS 9 at at 31 December result of of new 1 January 2017 reclassification measurement 2018 Amortised cost Cash in and receivables from central banks 685 0 0 685 Loans to and receivables from credit institutions 1 588 0 0 1 588 Loans to and receivables from customers 1) 117 059 0 62 117 121 Total amortised cost 119 332 0 62 119 394 Fair value through profit or loss Loans to and receivables from customers 30 013 0 0 30 013 Certificates and bonds 3) 19 191 0 0 19 191 Financial derivatives 4 587 0 0 4 587 Shares, units and other equity interests 4) 376 40 0 416 Total fair value through profit or loss 54 167 40 0 54 207 Fair value through OCI – available for sale Shares, units and other equity interests 4) 40 -40 0 0 Total fair value through OCI – available for sale 40 -40 0 0 Total financial assets 173 540 0 62 173 602

All measurement categories comparable with accounting items Cash in and receivables from central banks 685 0 0 685 Loans to and receivables from credit institutions 1 588 0 0 1 588 Loans to and receivables from customers 147 073 0 62 147 135 Shares at fair value through profit or loss 376 40 0 416 Shares available for sale 40 -40 0 0 Certificates and bonds 19 191 0 0 19 191 Financial derivatives 4 587 0 0 4 587 Total financial assets 173 540 0 62 173 602

Sparebanken Vest Annual Report 2017 Page 110 Note 43 Transition to IFRS 9 (contd.)

FINANCIAL ASSETS – PARENT BANK

Carrying amount Change as a Carrying amount under IAS 39 Change as a result under IFRS 9 at at 31 December result of of new 1 January 2017 reclassification measurement 2018 Amortised cost Cash in and receivables from central banks 685 0 0 685 Loans to and receivables from credit institutions 14 104 0 0 14 104 Loans to and receivables from customers 1),2) 60 093 -27 690 50 32 454 Total amortised cost 74 882 -27 690 50 47 243 Fair value through profit or loss Loans to and receivables from customers 10 629 0 0 10 629 Certificates and bonds 3) 19 066 0 0 19 066 Financial derivatives 669 0 0 669 Shares, units and other equity interests 4) 376 40 0 416 Total fair value through profit or loss 30 740 40 0 30 780 Fair value through OCI – with recycling Loans to and receivables from customers 2) 0 27 690 23 27 713 Total fair value through OCI – with recycling 0 27 690 23 27 713 Fair value through OCI – available for sale Shares, units and other equity interests 4) 40 -40 0 0 Total fair value through OCI – available for sale 40 -40 0 0 Total financial assets 105 662 0 73 105 735

All measurement categories comparable with accounting items Cash in and receivables from central banks 685 0 0 685 Loans to and receivables from credit institutions 14 104 0 0 14 104 Loans to and receivables from customers 70 722 0 73 70 795 Shares at fair value through profit or loss 376 40 0 416 Shares available for sale 40 -40 0 0 Certificates and bonds 19 066 0 0 19 066 Financial derivatives 669 0 0 669 Total financial assets 105 662 0 73 105 735

1) Floating interest loans Loans with a floating interest rate are common in Norway. The terms are normally standardised and apply equally to all loans of this type. The borrower’s right to early redemption and competition between banks mean that the loans› cash flows will not deviate, to any great extent, from what is defined as the payment of interest and principal on given dates in IFRS 9. The bank›s assessment is therefore that the terms and conditions for these loans are consistent with measurement at amortised cost.

2) Floating interest loans that can potentially be transferred to Sparebanken Vest Boligkreditt The parent bank only transfers parts of loans that qualify for transfer to the housing credit company. A home mortgage loan that does not qualify for transfer to Sparebanken Vest Boligkreditt can nonetheless qualify for transfer at a later date. These loans are therefore included in a portfolio that both qualifies for receiving contractual cash flows and for sale. Classification at amortised cost is therefore not compatible with IFRS 9. This type of loan will thus be valued at fair value through other comprehensive income.

3) Liquidity portfolio The liquidity portfolio comprises interest-bearing securities that generate varying turnover. The securities are managed, measured and reported to the management on a fair value basis. Parts of the portfolio also include fixed-rate securities with swaps that are recognised at fair value. The portfolio will therefore be recognised at fair value through profit or loss.

4) Shares The category ‘available for sale’ in IAS 39 is not included in IFRS 9. This category will therefore be reclassified as shares at fair value through profit or loss.

Sparebanken Vest Annual Report 2017 Page 111 Note 43 Transition to IFRS 9 (contd.)

FINANCIAL LIABILITIES – GROUP

Carrying amount Change as a Carrying amount under IAS 39 Change as a result under IFRS 9 at at 31 December result of of new 1 January 2017 reclassification measurement 2018 Amortised cost Deposits from and debt to credit institutions 4 023 0 0 4 023 Deposits from and debt to customers 68 530 0 0 68 530 Securitised debt 41 358 0 0 41 358 Other provisions for liabilities 1 0 62 63 Subordinated loan capital 1 654 0 0 1 654 Total amortised cost 115 565 0 62 115 627 Conditional fair value option Deposits from and debt to customers 581 0 0 581 Securitised debt 7 605 0 0 7 605 Financial derivatives 1 070 0 0 1 070 Subordinated loan capital 455 0 0 455 Total fair value through profit or loss 9 711 0 0 9 711

Securitised debt – designated for hedge accounting 34 910 0 0 34 910 Total financial liabilities 160 186 0 62 160 248

All measurement categories comparable with accounting items Deposits from and debt to credit institutions 4 023 0 0 4 023 Deposits from and debt to customers 69 111 0 0 69 111 Securitised debt 83 873 0 0 83 874 Financial derivatives 1 070 0 0 1 070 Other provisions for liabilities 1 0 62 63 Subordinated loan capital 2 109 0 0 2 109 Total financial liabilities 160 186 0 62 160 248

Sparebanken Vest Annual Report 2017 Page 112 Note 43 Transition to IFRS 9 (contd.)

FINANCIAL LIABILITIES – PARENT BANK

Carrying amount Change as a Carrying amount under IAS 39 Change as a result under IFRS 9 at at 31 December result of of new 1 January 2017 reclassification measurement 2018 Amortised cost Deposits from and debt to credit institutions 4 843 0 0 4 843 Deposits from and debt to customers 68 564 0 0 68 564 Securitised debt 12 015 0 0 12 015 Other provisions for liabilities 1 0 62 63 Subordinated loan capital 1 654 0 0 1 654 Total amortised cost 87 076 0 62 87 138 Conditional fair value option Deposits from and debt to customers 581 0 0 581 Securitised debt 7 605 0 0 7 605 Financial derivatives 1 070 0 0 1 070 Subordinated loan capital 455 0 0 455 Total fair value through profit or loss 9 711 0 0 9 711 Total financial liabilities 96 786 0 62 96 848

All measurement categories comparable with accounting items Deposits from and debt to credit institutions 4 843 0 0 4 843 Deposits from and debt to customers 69 145 0 0 69 145 Securitised debt 19 619 0 0 19 619 Financial derivatives 1 070 0 0 1 070 Other provisions for liabilities 0 0 62 62 Subordinated loan capital 2 109 0 0 2 109 Total financial liabilities 96 786 0 62 96 848

EQUITY PARENT BANK GROUP Effects on equity of transition to IFRS 9 Equity at 31 Dec. pursuant to IAS 39 13 463 14 054 Write-downs on loans recognised in the balance sheet at 31 Dec. 2017 pursuant to IAS 39 1 017 1 033 Write-downs on guarantees recognised in the balance sheet at 31 Dec. 2017 pursuant to IAS 39 1 1 Recognised write-downs on loans pursuant to IFRS 9 -943 -971 Recognised write-downs on guarantees and off balance sheet items pursuant to IFRS 9. -63 -63 Total implementation effects 12 0 Tax effect of implementation effects -3 0 Total effect on equity of implementation of IFRS 9 9 9 0 0

Equity after implementation of IFRS 9 13 472 14 054

The minor equity changes mean that IFRS 9 only represents marginal changes in capital adequacy.

Sparebanken Vest Annual Report 2017 Page 113 Deloitte AS Damsgårdsveien 135 Postboks 6013 Postterminalen NO-5892 Bergen Norway

Tel: +47 55 21 81 00 Fax: +47 55 21 81 33 www.deloitte.no

To the General Meeting of Sparebanken Vest

INDEPENDENT AUDITOR’S REPORT

Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Sparebanken Vest. The financial statements comprise:

 The financial statements of the parent company, which comprise the balance sheet as at 31 December 2017, and income statement, statement of comprehensive income, statement of changes in equity, cash flow for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and  The financial statements of the group, which comprise the balance sheet as at 31 December 2017, and income statement, statement of comprehensive income, statement of changes in equity, cash flow for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion:

• The financial statements are prepared in accordance with the law and regulations. • The accompanying financial statements give a true and fair view of the financial position of the parent company as at 31 December 2017, and its financial performance and its cash flows for the year then ended in accordance with simplified application of international accounting standards according to § 3-9 of the Norwegian Accounting Act. • The accompanying financial statements give a true and fair view of the financial position of the group as at 31 December 2017, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Basis for Opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, included International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company as required by laws and regulations, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Deloitte AS and Deloitte Advokatfirma AS are the Norwegian affiliates of Deloitte NWE LLP, a member firm of Deloitte Touche Registrert i Foretaksregisteret Medlemmer av Tohmatsu Limited ("DTTL"), its network of member firms, and their related entities. DTTL and each of its member firms are Den norske Revisorforening legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. Organisasjonsnummer: 980 211 282 Please see www.deloitte.no for a more detailed description of DTTL and its member firms.

© Deloitte AS

Sparebanken Vest Annual Report 2017 Page 114 Page 2

ritedons corporate seent D T D NO NO NO T T been timely identified. We reviewed management’s T I I e bank’s IT the bank’s business.

IR

Sparebanken Vest Annual Report 2017 Page 115 Page 3

sstes esritin f key audit matter w the matter was addressed in the audit arebanken est has established a gvernane mdel Sparebanken Vest’s systems are essential and related internal ntrl ativities seifi t its t the aunting and rerting f systems. We have btained an understanding f mleted transatins as well as rearing Sparebanken Vest’s governance model and it’s IT the basis fr imrtant aunting estimates envirnment relevant t the finanial rerting. and alulatins. ee the ard f iretrs rert under the setin eratinal risk fr We assessed and tested the design f internal ntrl the Company’s assessment f risks related ativities inluding seleted autmated ntrls relevant t systems. t the finanial rerting related t eratins

hange management and infrmatin seurity. r a ffetive internal ntrls related t the samle f these ntrl ativities we tested if they systems at bth arebanken est and their erated effetively during the rerting erid. servie rviders is key t ensure aurate mlete and reliable finanial rerting and ur testing inluded evaluating and testing f the design is therefre a key audit matter. f a samle f relevant autmated ntrls. r a samle f these ntrls we tested their erating effetiveness thrughut rerting erid.

We assessed the rerts issued by the indeendent auditrs f several servie rviders t the many t assess if suh servie rviders had adeuate internal ntrls in areas imrtant t the Company’s financial reporting.

We used ur wn seialists t understand the verall gvernane mdel fr and in the assessment and testing f ntrl ativities related t .

ther inforation anagement is resnsible fr the ther infrmatin. he ther infrmatin mrises the nnual ert but des nt inlude the finanial statements and ur auditrs rert theren.

ur inin n the finanial statements des nt ver the ther infrmatin and we d nt eress any frm f assurane nlusin theren.

n nnetin with ur audit f the finanial statements ur resnsibility is t read the ther infrmatin and in ding s nsider whether the ther infrmatin is materially innsistent with the finanial statements r ur knwledge btained in the audit r therwise aears t be materially misstated.

f based n the wrk we have erfrmed we nlude that there is a material misstatement f this ther infrmatin we are reuired t rert that fat. We have nthing t rert in this regard.

Responsibilities of the oard of irectors and the anain irector for the Financial tateents he ard f iretrs and the anaging iretr management are resnsible fr the rearatin and fair resentatin f the finanial statements f the arent many in ardane with simlified aliatin f internatinal aunting standards arding t the rwegian unting t setin and fr the rearatin and fair resentatin f the finanial statements f the gru in ardane with nternatinal inanial erting tandards as adted by the and fr suh internal ntrl as management determines is neessary t enable the rearatin f finanial statements that are free frm material misstatement whether due t fraud r errr.

n rearing the finanial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern

Sparebanken Vest Annual Report 2017 Page 116 Page 4

and using the going concern basis of accounting unless management either intends to liuidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements ur obectives are to obtain reasonable assurance about hether the financial statements as a hole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. easonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance ith las, regulations, and auditing standards and practices generally accepted in oray, including ISs ill alays detect a material misstatement hen it eists. isstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be epected to influence the economic decisions of users taken on the basis of these financial statements.

s part of an audit in accordance ith las, regulations, and auditing standards and practices generally accepted in oray, included International Standards on uditing ISs, e eercise professional udgment and maintain professional skepticism throughout the audit. e also

• identify and assess the risks of material misstatement of the financial statements, hether due to fraud or error. e design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of epressing an opinion on the effectiveness of the Company’s internal control. • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, hether a material uncertainty eists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadeuate, to modify our opinion. ur conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and hether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities ithin the Group to epress an opinion on the consolidated financial statements. e are responsible for the direction, supervision and performance of the group audit. e remain solely responsible for our audit opinion.

e communicate ith those charged ith governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that e identify during our audit

e also provide those charged ith governance ith a statement that e have complied ith relevant ethical reuirements regarding independence, and to communicate ith them all relationships and other matters that may reasonably be thought to bear on our independence, and here applicable, related safeguards.

rom the matters communicated ith those charged ith governance, e determine those matters that ere of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or hen, in etremely rare circumstances, e determine

Sparebanken Vest Annual Report 2017 Page 117 Page 5

that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report ased on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors’ report and statements on Corporate overnance and Corporate ocial esponsibility concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit is consistent with the financial statements and complies with the law and regulations.

Opinion on eistration and Docentation ased on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International tandard on ssurance ngagements ssrance naeents Other than dits or eies of istorica inancia nforation, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in orway.

ergen, ebruary eloitte

Jon-Osvald Harila tate uthorised ublic ccountant

ote his translation from orwegian has been prepared for information purposes only.

Sparebanken Vest Annual Report 2017 Page 118 t,SparebankenVest

Declaration from the Board of Directors and the pursuant to Section 5-6 of the Securities Trading Act

We hereby declare that, to the best of our knowledge, the annua! accounts for the period 1 January to 31 Decem ber 2017 have been prepared in accordance with applicable accounting standards and that the information in the accounts gives a true and fair view of the company and the Group's assets, liabilities, financial position and overall performance.

We also confirm that the management report includes a true and fair review of the development and performance of the business and the position of the entity and the group, together with a description of the principal risks and uncertainties facing the entity and the group.

31 December 2017 I 23 February 2018 The Board of Directors of Sparebanken Vest

'+:i,,-Trygve BruvikL Chair of the Board

Magne Morken

Fred Risløw

1-- � J--1 h,0 J� \ t CM,. Anne-Marit Hop�\\,\_ rik KjerpesethQ_ /- 0 Group key figures – 5 years

PROFIT DEVELOPMENT 2017 2016 2015 2014 2013 Interest income and similar income 4 378 4 272 4 653 5 265 5 074 Interest expenses and similar expenses 1 813 1 873 2 299 2 945 2 913 Net interest and credit commission income 2 565 2 399 2 354 2 320 2 161

Commission income and income from banking services 528 505 489 490 465 Commission expenses and expenses relating to banking services 85 90 86 90 87 Net banking services 442 415 403 400 378 Income from shareholdings in associated companies 120 113 70 74 50 Net gain/(loss) on financial instruments -7 123 -83 248 142 Other operating income 206 192 204 188 198 Net other operating income 761 843 594 910 768 Net operating income 3 326 3 242 2 948 3 230 2 929

Payroll and general administration expenses 1 072 894 1 083 1 131 1 108 Depreciation 128 121 118 109 112 Other operating expenses 250 255 242 230 208 Total operating expenses 1 450 1 270 1 443 1 470 1 428 Profit/loss before write-downs and tax expense 1 877 1 972 1 505 1 760 1 501

Net profit on tangible fixed assets 0 23 76 143 0 Write-downs of loans and losses on guarantees 33 39 185 410 280 Profit/loss before tax expense 1 844 1 956 1 396 1 493 1 221

Tax expense 427 435 349 305 313 Profit/loss for the financial year 1 416 1 521 1 047 1 188 908

Sparebanken Vest Annual Report 2017 Page 120 Group key figures – 5 years (contd.)

BALANCE SHEET DEVELOPMENT 31/12-17 31/12-16 31/12-15 31/12-14 31/12-13 Assets Cash in and receivables from central banks 685 658 631 2 209 328 Loans to and receivables from credit institutions 1 588 1 331 2 167 1 556 1 318 Net lending 147 073 136 099 128 927 118 643 112 024 Shares at fair value through profit or loss 376 411 380 531 686 Shares available for sale 40 40 0 0 0 Certificates and bonds 19 191 18 996 21 455 16 525 15 440 Financial derivatives 4 587 3 697 6 728 5 571 2 763 Shareholdings in associated companies 1 022 863 841 681 555 Deferred tax assets 71 102 0 0 0 Pension assets 40 2 0 0 0 Other intangible assets 289 282 279 315 311 Tangible fixed assets 110 148 177 781 649 Prepaid expenses 58 61 21 29 107 Other assets 59 62 57 229 215 Total assets 175 190 162 752 161 663 147 070 134 396

Liabilities and equity Liabilities to credit institutions 4 023 2 539 4 849 4 350 3 070 Deposits 69 111 66 486 63 900 66 448 62 172 Securitised debt 83 873 76 032 77 069 62 151 56 695 Financial derivatives 1 070 1 427 1 611 1 463 705 Accrued expenses and pre-paid income 213 240 196 187 197 Pension obligations 70 63 226 308 190 Deferred tax 0 0 12 63 117 Other provisions for liabilities 1 1 2 2 17 Tax liabilities 401 528 414 334 330 Subordinated loan capital 2 109 2 133 1 838 2 426 2 271 Other liabilities 266 238 232 244 497 Total liabilities 161 135 149 687 150 349 137 976 126 261

Equity certificates 1 476 1 476 1 476 794 794 Own equity certificates 0 0 0 0 -2 Premium reserve 617 617 617 570 570 Equalisation reserve 884 852 555 478 352 Total equity certificate capital 2 977 2 945 2 648 1 842 1 714

Primary capital 9 701 8 816 7 733 6 953 6 134 Gift fund 150 150 175 175 175 Compensation fund 14 14 14 14 14 Total primary capital 9 866 8 980 7 923 7 142 6 323

Other equity 257 160 166 109 97 Hybrid capital 955 980 577 0 0 Minority interests 0 0 0 1 1

Total equity 14 054 13 065 11 314 9 094 8 135

Total liabilities and equity 175 190 162 752 161 663 147 070 134 396

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) 167 873 160 806 151 992 138 502 129 289

Sparebanken Vest Annual Report 2017 Page 121 Group key figures – 5 years (contd.)

PROFIT/LOSS AS % OF PRIMARY CAPITAL 2017 2016 2015 2014 2013 Interest income and similar income 2,61 2,66 3,06 3,80 3,92 Interest expenses and similar expenses 1,11 1,19 1,51 2,13 2,25 Net interest and credit commission income 1,50 1,47 1,55 1,68 1,67

Commission income and income from banking services 0,31 0,31 0,32 0,35 0,36 Commission expenses and expenses relating to banking services 0,05 0,06 0,06 0,06 0,07 Net banking services 0,26 0,26 0,27 0,29 0,29 Income from shareholdings in associated companies 0,07 0,07 0,05 0,05 0,04 Net gain/(loss) on financial instruments 0,00 0,08 -0,05 0,18 0,11 Other operating income 0,12 0,12 0,13 0,14 0,15 Net other operating income 0,45 0,52 0,39 0,66 0,59 Net operating income 1,95 1,99 1,94 2,33 2,27

Payroll and general administration expenses 0,64 0,56 0,71 0,82 0,86 Depreciation 0,08 0,08 0,08 0,08 0,09 Other operating expenses 0,15 0,16 0,16 0,17 0,16 Total operating expenses 0,86 0,79 0,95 1,06 1,10 Profit/loss before write-downs and tax expense 1,09 1,20 0,99 1,27 1,16

Net profit on tangible fixed assets 0,00 0,01 0,05 0,10 0,00 Write-downs of loans and losses on guarantees 0,02 0,02 0,12 0,30 0,22 Profit/loss before tax expense 1,07 1,19 0,92 1,08 0,94

Tax expense 0,25 0,26 0,23 0,22 0,24 Profit/loss for the financial year 0,82 0,93 0,69 0,86 0,70

OTHER KEY FIGURES

Return on assets, earnings and capital structure (percentage) 1. Return on equity after tax 11,0 13,1 11,0 13,7 11,7 2. Total operating expenses as percentage of net operating income (cost-income) 44,2 39,7 48,9 45,5 48,8 3. Deposits/loans ratio 47 48,9 49,6 56,0 55,5

Balance sheet development (percentage) 4. Change in net lending 8,0 5,6 8,7 5,9 4,9 5. Change in certificates and bonds 1,0 -11,5 29,8 7,0 1,9 6. Change in deposits 3,9 4,0 -3,8 6,9 3,6 7. Change in assets under management 7,6 0,7 9,9 9,4 5,2

Defaults, provisions and losses on loans 8. Loss percentage, lending 0,02 0,03 0,15 0,35 0,25 9. Gross defaults as percentage 0,22 0,24 0,16 0,31 0,34

Capital adequacy 10. Net own funds 15 122 14 135 12 434 10 706 9 541 11. Calculation basis 80 741 75 461 73 645 68 563 66 620 12. Capital adequacy 18,7 18,7 16,9 15,6 14,3 13. Core capital adequacy 16,7 16,5 15,0 13,6 13,2 14. Core Tier 1 capital adequacy 15,0 14,9 13,7 12,2 11,2

Sparebanken Vest Annual Report 2017 Page 122 Group key figures – 5 years (contd.)

Equity certificates (parent bank) 2017 2016 2015 2014 2013 15. Equity certificate capital (NOK mill.) 1 476 1 476 1 476 794 794 16. Dividend per equity certificate (NOK) 3,75 4,50 1,10 4,00 3,00 17. Listed price at 31 Dec. 54,50 48,40 35,00 41,55 37,28 18. Owner fraction after the distribution of dividend 22,10 23,18 24,64 19,50 20,50 19. Share of profit per equity certificate (NOK) 5,19 6,26 5,34 7,23 5,68 20. Effective return per equity certificate 21,90 41,43 -6,15 18,10 62,59 21. Direct return 6,88 9,30 3,14 9,63 8,05 22. Allocated dividend as a percentage of equity certificate holders’ basis for dividend 74,43 71,91 20,60 55,33 52,82

Personnel figures as of 31 Dec. Number of employees 733 739 839 855 864 Number of full-time equivalents 693 714 803 813 821

Distribution network Points of sale 34 35 44 48 54

Definitions: 1. Profit/loss for the financial year as a percentage of average equity (excluding hybrid capital) through the year. 3. Deposits from and debt to customers as a percentage of loans to and receivables from customers. 4. Change in net lending at 31 Dec. as a percentage of net lending the year before. 5. Change in securities at 31 Dec. as a percentage of securities the year before. 6. Change in deposits at 31 Dec. as a percentage of deposits the year before. 8. Losses on loans and guarantees etc. as a percentage of gross lending at 31 Dec. 9. Gross defaults as a percentage of gross lending. 18. Equity certificate capital as a percentage of the parent bank’s equity at 31 Dec. 19. Equity certificates’ share of profit/loss divided by the weighted number of equity certificates. 20. Dividend paid plus change in exchange rate 1 Jan.–31 Dec., as a percentage of the listed price at 1 Jan. 21. Allocated dividend as a percentage of the listed price at year-end.

Sparebanken Vest Annual Report 2017 Page 123 Group key figures – per quarter for two years

PROFIT DEVELOPMENT (accumulated) 31/12-17 30/09-17 30/06-17 31/03-17 31/12-16 30/09-16 30/06-16 31/03-16 Interest income and similar income 4 378 3 266 2 177 1 088 4 272 3 200 2 151 1 087 Interest expenses and similar expenses 1 813 1 375 936 478 1 873 1 398 941 478 Net interest and credit commission income 2 565 1 891 1 241 610 2 399 1 802 1 210 609

Commission income and income from banking services 528 396 255 129 505 372 246 120 Commission expenses and expenses relating to banking services 85 65 43 20 90 65 44 22 Net banking services 442 331 212 109 415 307 202 98 Income from shareholdings in associated companies 120 87 48 28 113 82 47 8 Net gain/(loss) on financial instruments -7 43 23 23 123 124 84 -35 Other operating income 206 158 109 46 192 147 93 38 Net other operating income 761 619 392 206 843 660 426 109 Net operating income 3 326 2 510 1 633 816 3 242 2 462 1 636 718

Payroll and general administration expenses 1 072 790 533 265 894 596 592 280 Depreciation 128 95 64 30 121 91 60 30 Other operating expenses 250 175 118 60 255 197 136 60 Total operating expenses 1 450 1 061 715 355 1 270 884 788 370 Profit/loss before write-downs and tax expense 1 877 1 449 918 461 1 972 1 578 848 348

Net profit on tangible fixed assets 0 0 0 0 23 23 20 0 Write-downs of loans and losses on guarantees 33 68 50 29 39 6 42 26 Profit/loss before tax expense 1 844 1 381 868 432 1 956 1 595 826 322

Tax expense 427 319 202 100 435 344 166 80 Profit/loss for the period 1 416 1 061 666 332 1 521 1 251 660 242

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) 167 873 166 380 165 140 164 497 160 806 160 619 160 207 160 184

PROFIT/LOSS AS % OF PRIMARY CAPITAL

Interest income and similar income 2,61 2,62 2,66 2,68 2,66 2,66 2,70 2,73 Interest expenses and similar expenses 1,11 1,13 1,17 1,21 1,19 1,18 1,20 1,22 Net interest and credit commission income 1,50 1,49 1,48 1,47 1,47 1,48 1,50 1,51

Commission income and income from banking services 0,31 0,32 0,31 0,32 0,31 0,31 0,31 0,30 Commission expenses and expenses relating to banking services 0,05 0,05 0,05 0,05 0,06 0,05 0,06 0,06 Net banking services 0,26 0,27 0,26 0,27 0,26 0,26 0,25 0,25 Income from shareholdings in associated companies 0,07 0,07 0,06 0,07 0,07 0,07 0,06 0,02 Net gain/(loss) on financial instruments 0,00 0,03 0,03 0,06 0,08 0,10 0,11 -0,09 Other operating income 0,12 0,13 0,13 0,11 0,12 0,12 0,12 0,10 Net other operating income 0,45 0,50 0,48 0,51 0,52 0,55 0,53 0,27 Net operating income 1,95 1,99 1,96 1,98 1,99 2,03 2,03 1,78

Payroll and general administration expenses 0,64 0,63 0,65 0,65 0,56 0,50 0,74 0,70 Depreciation 0,08 0,08 0,08 0,07 0,08 0,08 0,08 0,08 Other operating expenses 0,15 0,14 0,14 0,15 0,16 0,16 0,17 0,15 Total operating expenses 0,86 0,85 0,87 0,88 0,79 0,74 0,99 0,94 Profit/loss before write-downs and tax expense 1,09 1,13 1,09 1,10 1,20 1,29 1,04 0,85

Net profit on tangible fixed assets 0,00 0,00 0,00 0,00 0,01 0,02 0,03 0,00 Write-downs of loans and losses on guarantees 0,02 0,05 0,06 0,07 0,02 0,00 0,05 0,07 Profit/loss before tax expense 1,07 1,08 1,03 1,03 1,19 1,31 1,02 0,79

Tax expense 0,25 0,25 0,24 0,24 0,26 0,28 0,20 0,20 Profit/loss for the period 0,82 0,83 0,80 0,79 0,93 1,02 0,81 0,59

Sparebanken Vest Annual Report 2017 Page 124 Group key figures – per quarter for two years (contd.)

PROFIT DEVELOPMENT PER QUARTER (isolated) Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 Interest income and similar income 1 112 1 089 1 089 1 088 1 072 1 049 1 064 1 087 Interest expenses and similar expenses 439 439 458 478 475 457 463 478 Net interest and credit commission income 674 650 631 610 597 592 601 609

Commission income and income from banking services 131 141 126 129 133 126 126 120 Commission expenses and expenses relating to banking services 21 22 23 20 25 21 22 22 Net banking services 111 119 103 109 108 105 104 98 Income from shareholdings in associated companies 33 39 20 28 31 35 39 8 Net gain/(loss) on financial instruments -50 20 0 23 -1 40 119 -35 Other operating income 48 49 63 46 45 54 55 38 Net other operating income 143 227 186 206 183 234 317 109 Net operating income 817 877 817 816 780 826 918 718

Payroll and general administration expenses 282 257 268 265 298 4 312 280 Depreciation 32 31 34 30 30 31 30 30 Other operating expenses 75 58 58 60 58 61 76 60 Total operating expenses 389 346 360 355 386 96 418 370 Profit/loss before write-downs and tax expense 428 531 457 461 394 730 500 348

Net profit on tangible fixed assets 0 0 0 0 0 3 20 0 Write-downs of loans and losses on guarantees -35 18 21 29 33 -36 16 26 Profit/loss before tax expense 463 513 436 432 361 769 504 322

Tax expense 108 117 102 100 91 178 86 80 Profit/loss for the period 355 395 334 332 270 591 418 242

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) (isolated) 173 610 169 050 166 314 164 497 161 442 161 421 160 259 160 184

PROFIT/LOSS AS % OF PRIMARY CAPITAL (isolated)

Interest income and similar income 2,54 2,56 2,63 2,68 2,64 2,59 2,67 2,73 Interest expenses and similar expenses 1,03 1,06 1,13 1,21 1,21 1,15 1,18 1,22 Net interest and credit commission income 1,51 1,50 1,49 1,47 1,43 1,44 1,49 1,51

Commission income and income from banking services 0,30 0,33 0,30 0,32 0,33 0,31 0,32 0,30 Commission expenses and expenses relating to banking services 0,05 0,05 0,06 0,05 0,06 0,05 0,06 0,06 Net banking services 0,25 0,28 0,25 0,27 0,27 0,26 0,26 0,25 Income from shareholdings in associated companies 0,08 0,09 0,05 0,07 0,08 0,09 0,10 0,02 Net gain/(loss) on financial instruments -0,11 0,05 0,00 0,06 0,00 0,10 0,30 -0,09 Other operating income 0,11 0,12 0,15 0,11 0,11 0,13 0,14 0,10 Net other operating income 0,33 0,53 0,45 0,51 0,45 0,58 0,80 0,27 Net operating income 1,84 2,03 1,94 1,98 1,89 2,01 2,28 1,78

Payroll and general administration expenses 0,64 0,60 0,65 0,65 0,73 0,01 0,78 0,70 Depreciation 0,07 0,07 0,08 0,07 0,07 0,08 0,08 0,08 Other operating expenses 0,17 0,14 0,14 0,15 0,14 0,15 0,19 0,15 Total operating expenses 0,89 0,81 0,87 0,88 0,95 0,24 1,05 0,93 Profit/loss before write-downs and tax expense 0,95 1,22 1,07 1,10 0,93 1,78 1,23 0,85

Net profit on tangible fixed assets 0,00 0,00 0,00 0,00 0,00 0,01 0,05 0,00 Write-downs of loans and losses on guarantees -0,08 0,04 0,05 0,07 0,08 -0,09 0,04 0,07 Profit/loss before tax expense 1,03 1,18 1,02 1,02 0,85 1,87 1,24 0,79

Tax expense 0,24 0,27 0,23 0,24 0,22 0,43 0,21 0,20 Profit/loss for the period 0,79 0,91 0,78 0,79 0,64 1,44 1,03 0,59

Sparebanken Vest Annual Report 2017 Page 125 Group key figures – per quarter for two years (contd.)

BALANCE SHEET DEVELOPMENT 31/12-17 30/09-17 30/06-17 31/03-17 31/12-16 30/09-16 30/06-16 31/03-16 Assets Cash in and receivables from central banks 685 590 581 670 658 329 686 455 Loans to and receivables from credit institutions 1 588 1 440 1 649 1 664 1 331 1 829 2 202 1 990 Net lending 147 073 143 946 141 699 138 553 136 099 134 210 132 879 130 058 Shares at fair value through profit or loss 416 437 442 430 451 440 444 393 Certificates and bonds 19 191 18 384 18 661 20 695 18 996 17 893 18 194 20 562 Financial derivatives 4 587 3 111 3 750 3 676 3 697 3 803 4 780 5 317 Shareholdings in associated companies 1 022 982 952 895 863 944 871 872 Deferred tax assets 71 63 53 38 102 27 23 0 Pension assets 40 3 2 2 2 0 0 0 Other intangible assets 289 286 288 289 282 278 282 269 Tangible fixed assets 110 128 134 144 148 142 155 188 Prepaid expenses 58 65 92 136 61 68 78 48 Other assets 59 574 81 67 62 82 345 174 Total assets 175 190 170 010 168 384 167 259 162 752 160 045 160 939 160 326

Liabilities and equity Liabilities to credit institutions 4 023 4 354 3 526 2 601 2 539 3 903 3 853 4 416 Deposits 69 111 68 744 71 146 65 981 66 486 65 574 66 271 63 457 Securitised debt 83 873 79 065 76 332 81 329 76 032 73 115 74 257 76 224 Financial derivatives 1 070 1 096 1 082 1 215 1 427 1 564 1 593 1 802 Accrued expenses and pre-paid income 213 237 263 286 240 238 197 118 Pension obligations 70 47 64 64 63 28 227 227 Deferred tax 0 0 0 0 0 0 0 10 Other provisions for liabilities 1 0 1 1 1 1 1 2 Tax liabilities 401 370 247 214 528 451 287 265 Subordinated loan capital 2 109 2 105 2 099 2 126 2 133 2 120 2 123 1 848 Other liabilities 266 285 303 451 238 229 238 519 Total liabilities 161 135 156 304 155 063 154 268 149 687 147 223 149 047 148 888

Equity certificates 1 476 1 476 1 476 1 476 1 476 1 476 1 476 1 476 Own equity certificates 0 0 0 -2 0 0 0 -1 Premium reserve 617 617 617 617 617 617 617 617 Equalisation reserve 884 587 587 587 852 487 501 490 Total equity certificate capital 2 977 2 679 2 680 2 678 2 945 2 580 2 594 2 582

Primary capital 9 701 8 715 8 715 8 714 8 816 7 702 7 743 7 713 Gift fund 150 150 150 150 150 150 150 150 Compensation fund 14 14 14 14 14 14 14 14 Total primary capital 9 866 8 880 8 879 8 878 8 980 7 866 7 907 7 877

Other equity 257 1 193 807 480 160 1 398 814 402 Hybrid capital 955 955 955 955 980 978 577 577

Total equity 14 054 13 707 13 321 12 991 13 065 12 822 11 892 11 438

Total liabilities and equity 175 190 170 010 168 384 167 259 162 752 160 045 160 939 160 326

Sparebanken Vest Annual Report 2017 Page 126 Group key figures – per quarter for two years (contd.)

Return on assets, earnings and capital structure (percentage) 31/12-17 30/09-17 30/06-17 31/03-17 31/12-16 30/09-16 30/06-16 31/03-16 Return on equity after tax 10,6 12,2 10,7 10,6 8,6 20,0 15,0 8,8 Total operating expenses as % of net operating income, accumulated (cost-income) 44,2 42,9 44,5 44,3 39,7 36,3 48,6 52,1 Total operating expenses as % of net operating income, isolated in the quarter (cost-income) 48,3 40,0 44,7 44,3 50,5 11,8 45,9 52,1 Total operating expenses as % of net operating income, corrected for exchange rate gain/loss, acc. (cost-income) 44,1 43,7 44,7 45,6 41,2 38,2 52,8 49,7 Deposits/loans ratio 47,0 47,8 50,2 47,6 48,9 48,9 49,9 48,8

Financial strength (percentage) Core Tier 1 capital adequacy 15,0 14,9 14,7 14,8 14,9 14,8 14,1 13,8 Capital adequacy, transitional arrangement 18,7 18,4 18,3 18,4 18,7 18,6 17,4 17

Personnel Number of full-time equivalents 693 694 697 708 714 748 761 784

Owner fraction Equity certificate capital’s share of profit/loss divided by number of equity certificates (iso) 1,36 1,52 1,28 1,26 1,08 2,44 1,73 0,99 Owner fraction (after distribution) 22,1 23,2 23,2 23,2 23,2 24,7 24,7 24,7 Book equity per equity certificate 51,4 50,1 48,6 47,3 50,6 49,5 47,3 45,5

Sparebanken Vest Annual Report 2017 Page 127 Sparebanken Vest Annual Report 2017 Page 128 Corporate governance

Sparebanken Vest has devised a corporate The bank’s policy is specified in various governing governance policy that has been approved documents that apply to Sparebanken Vest’s by the Board of Directors. It aims to ensure activities. They include the bank’s Articles of that the Group’s corporate governance is in Association, its strategies, including its corporate accordance with generally accepted and social responsibility strategy, rules of procedure for recognised perceptions and standards, and the Board, the framework for management and in compliance with laws and regulations. control, ethical guidelines and procedures for suitability, insider trading and proprietary trading. The policy describes the general principles The governing documents are based, among other that apply. The goal is to ensure good things, on the current version of the Norwegian cooperation between the bank’s different Code of Practice for Corporate Governance1 and stakeholders, such as holders of equity applicable regulations in the area. certificates, lenders, customers, employees, governing bodies, management The same principles for corporate governance apply and society as a whole. The policy to Sparebanken Vest’s subsidiaries and associated describes how the bank is managed and companies. controlled in order to create value for the bank and its stakeholders. The Articles of Association and the Policy for Corporate Governance are available on the bank’s website www.spv.no. In accordance with Section 1 of the Norwegian Code of Practice, a report on the bank’s compliance with the Code of Practice follows below. The report shall also meet the disclosure requirements set out in the Norwegian Accounting Act Section 3-3b.

THE BUSINESS Sparebanken Vest is a financial services group consisting of the parent bank and the subsidiaries Eiendomsmegler Vest AS (including its subsidiary SPV Næringsmegling AS), Sparebanken Vest Boligkreditt AS and Vestlandskonferansen AS. Unless otherwise stated, references to the bank and/or Sparebanken Vest in this text concern the Sparebanken Vest Group.

Pursuant to Sparebanken Vest’s Articles of Association, its object is to deliver transactions and services that it is common or natural for savings banks to deliver pursuant to the legislation applicable at all times and the licences granted at all times. Moreover, Sparebanken Vest can provide investment services and related services within the bounds of the licences granted at all times. The bank’s primary market area is the Western Norway region, and the business shall be run at a satisfactory profit and with acceptable risk.

Sparebanken Vest Annual Report 2017 Page 129 The Board of Directors’ report contains a description to distribute an attractive cash dividend to equity of the bank’s goals and strategies. The strategic certificate holders. Sparebanken Vest’s financial basis is evaluated at least once a year by the Board goal for its business is to achieve results that and the management, and the bank’s plans are provide a satisfactory overall return in the form of adjusted and adapted continuously. The market is dividend and an increase in value. The development updated about the bank’s strategic agenda through of the bank’s equity situation and its financial the presentation of quarterly reports. strength are emphasised when allocating profit.

Sparebanken Vest has a customer-oriented The Board is authorised by the General Meeting to organisation that focuses on the Retail Market and acquire and pledge as security own equity the Corporate Market as business areas. The bank’s certificates for a total nominal value of NOK 100 organisational structure is dynamic, and it is million within the limits set out in laws and assessed on the basis of changing needs and regulations. The total holding of equity certificates framework conditions. that the bank owns and/or has a charge created by agreement on, cannot exceed 10% of the equity EQUITY AND DIVIDENDS certificate capital stipulated in the Articles of Sparebanken Vest is a self-owned institution. The Association, and shall not reduce the Core Tier 1 infusion of external capital takes place through the capital ratio by more than 0.15 percentage points. issuing of equity certificates and subordinated The minimum amount that can be paid for the bonds. As of 31 December 2017, Sparebanken equity certificates is NOK 1 and the maximum Vest’s equity certificate capital amounted to NOK amount is NOK 150. This limit also applies to any 1,475,850,425, divided between 59,034,017 equity charge created by agreement, which means that the certificates with a value of NOK 25 fully paid-up. claim the charge is intended to secure must not exceed the amount that follows from these Holders of equity certificates shall have a predictable limitations. framework with respect to equal treatment, the return on their investment and as regards influencing The acquisition of equity certificates takes place how the bank is run. The stock exchange listing of through purchases in the securities market via Oslo the equity certificates ensures that the bank accepts Børs, and disposals take place through sales in the and complies with the market conditions that prevail same market, or as private placements with at all times in the market for equity certificates, and employees within the limits provided for in it means that the bank accumulates historical data applicable laws and regulations. The authorisation is that can help it to utilise the stock market as a valid for 12 months from the date of the General source of equity should the need arise. Meeting’s resolution in December 2017 or until such time as the Financial Supervisory Authority of The Board evaluates the bank’s capital situation at Norway revokes the authorisation. least once a year. A statement on risk and capital management is published every year following EQUAL TREATMENT OF EQUITY CERTIFICATE approval of the annual accounts (the Pillar 3 report). HOLDERS AND TRANSACTIONS WITH RELATED The regulatory regime relating to capital adequacy PARTIES (CRD IV2) has been adopted by the EU and will be Sparebanken Vest has one class of equity implemented in Norway through the EEA Agree- certificates. It is a goal that equity certificate holders ment. The bank continually assesses its capital shall be ensured equal treatment and equal adequacy in relation to regulatory requirements. opportunities to exert influence in Sparebanken Vest. In order to safeguard the interests of owners of small Sparebanken Vest’s profit for the year is divided holdings, the bank’s Articles of Association contain between equity certificate capital and primary a limitation on voting rights that means that, at a capital in proportion to the owner fraction. The meeting for equity certificate holders, no one may equity certificate holders’ share of the profit is vote for equity certificates that represent more than divided between a cash dividend and the 1) www.nues.no equalisation reserve. Sparebanken Vest endeavours 2) Capital Requirement Directive

Sparebanken Vest Annual Report 2017 Page 130 15% of the total number of equity certificates issued issue subordinated bonds are subject to the same by Sparebanken Vest. rules for a qualified majority as apply to amendments of the Articles of Association. The owner fraction at year-end 2017 is 22.1%. The biggest owner is Sparebankstiftinga Hardanger, The bank’s Articles of Association have been which represents 21.9% of the equity certificate amended and adapted to the new Financial capital. The bank’s 20 biggest owners own 66.7% Institutions Act in accordance with the standard of the equity certificate capital. articles of association for savings banks drawn up by the Norwegian Savings Banks Association and The rules of procedure for the Board include approved by the Financial Supervisory Authority of provisions relating to ethics and impartiality. The Norway. The Articles of Association contain detailed bank’s ethical guidelines apply to officers of the provisions on the composition of the General Company and employees. Among other things, they Meeting and the election of its members. The contain guidelines for customer relations, benefits/ General Meeting has 48 members, 12 of whom are gifts, the duty of confidentiality, participation in other elected by the equity certificate holders. The right of business activities and transactions with related equity certificate holders to attend General Meetings parties. As a rule, transactions, including the is thereby limited compared with Chapter 5 of the purchase/sale of assets and services, shall not take Public Limited Liability Companies Act. place between Sparebanken Vest, its employees and its equity certificate holders and officers, nor Decisions are reached by simple majority. Decisions with their related parties. to amend the Articles of Association require a two-thirds majority of the votes cast. Provisions have been included in the rules of procedure for the Board that emphasise board The General Meeting is convened by the Board. The members’ duty to exercise due care in relation to rules on convening and holding General Meetings ethical conduct, impartiality and integrity. Moreover, follow from the provisions of the Public Limited board members must inform the Chair of the Board Liability Companies Act Sections 5-5 to 5-16. if they become aware of a possible conflict of Notices of and minutes of meetings of the General interest. Meeting are sent to Oslo Børs and are made available on the bank’s website. FREE NEGOTIABILITY Sparebanken Vest’s equity certificate is listed on The annual general meeting is held before the end Oslo Børs and it is freely negotiable. The only of March each year to consider the annual report limitation on ownership is a statutory requirement and accounts, and the auditor’s report, and to elect that currently states that the acquisition of a members of the Board and the Nomination qualified proportion of the equity certificate capital Committee. This meeting also considers the (10% or more) requires the consent of the Ministry allocation of profit for the year / declaration of a of Finance (authorisation delegated to the Financial dividend and the allocation of donations. Separate Supervisory Authority of Norway). elections are held among employees, equity certificate holders and customers to elect GENERAL MEETING representatives to the General Meeting. Public The bank’s supreme body is the General Meeting, representatives are appointed by the City of Bergen which is composed of equity certificate holders, and the county councils of Sogn og Fjordane, customers, employees and representatives of the Hordaland and Rogaland. authorities. The business of the General Meeting is to approve the annual report and accounts, The General Meeting has elected a Nomination including the allocation of profit and declaration of Committee, which nominates candidates to the dividends. It is also the General Meeting that elects Board, as well as candidates to the General Meeting members of the Board and the Nomination for election by the depositors. A separate election is Committee. Resolutions or authorisations by the held for the Chair of the General Meeting. General Meeting to take out subordinated loans and

Sparebanken Vest Annual Report 2017 Page 131 The Board, CEO, members of the bank’s manage­ Sparebanken Vest’s Board is available on the bank’s ment and specialists also attend the General website and in this annual report. Meeting as required. The rules of procedure for the Board of NOMINATION COMMITTEES Sparebanken Vest include guidelines for the Pursuant to the Articles of Association, the main composition of the Board and terms of office. Nomination Committee in Sparebanken Vest shall Important criteria for members of the Board and its consist of seven members elected by the General composition are qualifications, gender, capacity and Meeting, and it shall include representatives of all independence. The composition of the Board shall groups represented at the General Meeting, plus an be such that it is capable of acting independently of independent member who is elected from among special interests and the bank’s management. The former board members. Grounds must be stated for Board’s overall competence shall be regularly the Nomination Committee’s recommendations, assessed in relation to the challenges facing the which should contain relevant information about the bank. The Nomination Committee shall be informed candidates, including information about their about the results of the assessment. Pursuant to the competence, capacity and independence. The rules of procedure for the Board, board members recommendation shall also contain a description of can own equity certificates in the bank. the committee’s work. The Nomination Committee participates in the deliberations of the General THE WORK OF THE BOARD OF DIRECTORS Meeting and presents its proposals. Separate rules The Board of Sparebanken Vest holds 10–12 regular of procedure have been adopted for the Nomination meetings every year, as well as meetings in Committee. The remuneration of the Nomination connection with strategy work. In addition, the Committee is decided by the General Meeting. Board organises thematic days with a view to developing its expertise. Rules of procedure have The Nomination Committee submits proposals to the been drawn up and adopted for the Board, with a General Meeting for the remuneration of officers of pertaining calendar for the Board’s work. The Board the Company. No board members or representatives places particular emphasis on work on the annual of the management are members of the Nomination rolling strategy plan. The Board also considers Committee. whether the bank’s capital situation and risk situation are commercially acceptable and within the There is a separate nomination committee for statutory limits. elections by equity certificate holders. This committee prepares elections by equity certificate In cooperation with the Chair of the Board, the CEO holders to the General Meeting. Sparebanken Vest prepares matters for consideration by the Board. takes steps to enable equity certificate holders to The Board has adopted job instructions for the CEO. submit proposals for candidates to this nomination committee. The committee has three members The Board has overall responsibility for the elected by the equity certificate holders. management of Sparebanken Vest and for overseeing the day-to-day management and the THE BOARD OF DIRECTORS: COMPOSITION AND bank’s activities. The Board’s management INDEPENDENCE responsibility includes responsibility for organising Pursuant to Sparebanken Vest’s Articles of the bank in an adequate manner, responsibility for Association, the Board of Directors shall consist of adopting plans and budgets, responsibility for ten members and five deputy members elected by keeping informed about the bank’s financial position the General Meeting for a term of two years at a and for ensuring that the business, asset time. Three of these members and their personal management and accounts are subject to adequate deputies shall be elected by and from among the control. employees. The Chair and Deputy Chair are elected by the General Meeting in separate elections. At The Board shall comply with the bank’s object as set present, four of the full members of the Board are out in its Articles of Association, and it shall comply women. A presentation of the members of with the guidelines and framework conditions issued

Sparebanken Vest Annual Report 2017 Page 132 by public bodies, including the Financial integral part of the bank’s strategic and business Supervisory Authority of Norway. processes.

The Board has appointed four committees as part of The bank’s risk management is related to four main its work: areas:

• The Audit Committee is charged with ensuring that • Credit risk Sparebanken Vest has an independent and • Market risk effective external and internal audit function, and • Liquidity risk financial and risk reporting that is in accordance • Operational risk (including compliance risk) with laws and regulations. The Board of Sparebanken Vest requires the bank to • The Risk Committee is charged with ensuring that be well-capitalised. A review of the bank’s most Sparebanken Vest’s risk and capital management important risk areas and capital adequacy underpins the bank’s strategic development and assessments (ICAAP3) is carried out at least once a goal attainment, while at the same time ensuring year and considered by the Board. The bank’s financial stability and acceptable asset capital strategy must be based on the actual risk to management. which the business is exposed, supplemented by the effect of various stress scenarios. • The Board’s Credit Committee, which deals with credit matters under the authorisation of the Board. In 2007, the Financial Supervisory Authority of Norway gave Sparebanken Vest its approval for the • The Remuneration Committee, which is tasked use of internal measurement methods (IRB4) to with ensuring that the bank has a competitive, but calculate capital in relation to credit risk. This is an not leading, pay policy that complies with important stamp of approval for the bank’s risk and applicable regulations for financial undertakings, capital management. After the turn of the year and is seen as motivating by the bank’s 2016/2017, Sparebanken Vest was also granted management in relation to implementing the permission to use the advanced IRB method (AIRB) adopted strategy and achieving the goals set. in the corporate market.

The bank’s internal auditor is subject to the Board’s Responsibility for implementing the bank’s risk and authority and is entitled to attend board meetings. capital management and control is divided between An annual report is submitted to the Board on the bank’s Board, management and business units. internal control, the Capital Adequacy Regulations and the Securities Trading Act. The Board approves The Board is also responsible for ensuring that the the internal audit function’s annual plan and bank has sufficient own funds in relation to the resource needs. desired risk and the bank’s operations, and for ensuring that it is sufficiently capitalised in relation RISK MANAGEMENT AND INTERNAL CONTROL to regulatory requirements. The Board also defines Good risk and capital management play a central the bank’s targets and limits in all risk areas, role in Sparebanken Vest’s long-term value creation. including adopting guidelines for the bank’s risk and The bank’s overriding goals follow from its strategic capital management. Reporting to the Board in business basis. The target rate of return governs the relation to targets and limits takes place quarterly. bank’s activities and specification of sub-goals. The focus is on maintaining the bank’s competitiveness The CEO is responsible for the bank’s overall risk in the short and long term. Sparebanken Vest’s management, including the development of good market and business goals must be balanced models and frameworks for management and against the bank’s ability and willingness to take risk. control. Risk and capital adequacy assessments are an The bank’s Risk Management unit attends to 3) Internal Capital Adequacy Assessment Process 4) Internal Ratings-Based important functions relating to management, control,

Sparebanken Vest Annual Report 2017 Page 133 reporting and analysis. It is also responsible for the standards and the accounting principles adopted for bank’s models for risk and capital management. the Group. A template has been developed for The Director of Risk Management reports to the CEO. group reporting, which is intended to ensure the Guidelines have been prepared to ensure completeness of the reporting basis and the independence in control and risk reporting. consistent application of principles.

The bank’s overall compliance function is part of the The Board’s Audit Committee prepares interim and Legal/Compliance department under the Risk annual accounts for consideration and approval by Management unit, and there are separate the Board. The Audit Committee’s tasks are related compliance officers for banking and securities to the process of financial reporting and the operations, respectively. The department has overall submitted financial statements, monitoring of management responsibility, and the managers of the internal control and risk management systems, various entities are responsible for ensuring that the internal and external audits and the independence business is run in accordance with applicable of the auditor. The Board’s Risk Committee prepares regulations. the Board’s deliberations relating to the Board’s responsibility for monitoring and managing the The Validation Committee, which is chaired by the bank’s overall risk exposure and its consideration of CEO, deals with model validation and validation whether the management and control systems are relating to the application of the bank’s credit adapted to the actual risk level and scope of the systems. The Credit Committee, which is chaired by business. In addition to reviewing accounts and risk the CEO, deals with major commitments and reports, the corporate management team carries out matters of an unusual nature. monthly reviews of operating reports seen in relation to the budget for banking operations, for All managers in Sparebanken Vest are responsible consideration by the Board. for managing risk and ensuring good internal control in their areas of responsibility in accordance with The bank’s Code of Ethics includes a duty on the the bank’s adopted risk profile. part of employees to report matters that warrant criticism, including breaches of internal guidelines, Sparebanken Vest has established a policy for laws and regulations, and a procedure for how such internal control (IC policy) that defines goals for and notification is to be given. the organisation and implementation of its work on internal control. The policy also includes reporting Sparebanken Vest’s business is subject to the on the status of the bank’s risk situation and the supervision of the Financial Supervisory Authority of quality of internal control, as well as follow-up of risk Norway. In addition to supervisory visits, the reduction measures. The main elements are the Financial Supervisory Authority reviews the bank’s annual reviews of risk and internal control, and the annual and interim accounts, management registration of events and continuous risk information and capital adequacy assessments. The assessment. The elements are described in the Board and the management endeavour to maintain bank’s risk strategy and in the IC policy, which has an open and constructive dialogue with the been considered by the bank’s Board. Follow-up of Financial Supervisory Authority. identified risk areas and any material deviations found in the internal control of the bank’s financial A more detailed description of the bank’s risk and reporting are also part of the quarterly risk reporting capital management is available on the bank’s to the management and Board. website.

The bank’s Finance/Accounting Department is REMUNERATION OF THE BOARD OF DIRECTORS responsible for financial reporting, internal financial Directors’ fees are decided by the General Meeting management, direct and indirect taxes, and internal on the recommendation of the Nomination control of financial reporting. This includes Committee. The remuneration is not performance- responsibility for quarterly financial reporting in based, and options are not issued to members of accordance with applicable legislation, accounting the Board. As a rule, board members or companies

Sparebanken Vest Annual Report 2017 Page 134 to which they are affiliated shall not take on specific A financial calendar is available on the bank’s assignments for the bank in addition to their office website that, among other things, announces the as board member. Any additional fees are subject to dates of quarterly presentations. approval by the General Meeting. In urgent matters, however, the chairs of the General Meeting and the In addition to the annual accounts, the Sparebanken Nomination Committee may jointly make decisions Vest Group prepares quarterly financial reports. The concerning additional fees. An overview of the annual accounts are audited by an external auditor. remuneration of the Board is provided in a note to the annual accounts. Regular presentations are also held for international partners, lenders and investors, and the bank is REMUNERATION OF EXECUTIVE PERSONNEL rated by an international rating agency. The remuneration of the CEO is decided by the bank’s Board, while the remuneration of other TAKEOVERS executive personnel is decided by the CEO on the Sparebanken Vest is an independent institution that basis of principles adopted by the Board and cannot be taken over by others through acquisition. following consultation with the Remuneration In the case of acquisitions on the bank’s part, Committee. The Board’s declaration on executive emphasis is placed on satisfactorily safeguarding pay shall be set out in a separate case document to the interests of all stakeholders. Good information the General Meeting. The CEO can grant additional and equal treatment of shareholders/owners are remuneration to employees based on the results paramount. It is a goal that such acquisitions shall they have achieved and their work performance. have as little negative effect as possible on day-to- Such additional remuneration is also intended to day operations. ensure the bank’s attractiveness in the employment market, while at the same time not being a risk AUDITOR driver. There are no option schemes for the CEO The external auditor is appointed by the General and executive personnel. Meeting after obtaining the opinion of the Audit Committee. The auditor submits an annual auditor’s The bank has adopted guidelines for remuneration report to the General Meeting and holds regular arrangements. In accordance with the regulations meetings with the Board at which, among other and the Code of Practice for Corporate Governance, things, the ‘Management Letter’ is presented and they include provisions that set a ceiling on the commented on. The letter contains an assessment performance-related remuneration of executive of the bank’s internal control, including areas in personnel, and a requirement that 50% of such which the internal control should be improved. remuneration shall be paid in the form of equity certificates in the bank, allocated over a period of The relationship with the auditor is regulated in a three years. Executive personnel’s pay and benefits letter of assignment, which, among other things, are described in the notes to the accounts. describes the parties’ responsibilities, how the Information about the bank’s remuneration auditor’s fee is stipulated and how other services are arrangements is also available on the bank’s website. to be agreed and paid.

INFORMATION AND COMMUNICATION The external and internal auditors hold quarterly The Board of Sparebanken Vest has adopted meetings with the Board’s Audit Committee and separate guidelines for financial information. They Risk Committee. If necessary, the CEO is present are intended to ensure that the financial markets during the consideration of certain matters. The receive correct, relevant and timely information minutes of the meetings of the Audit Committee and about the bank’s development and results. Risk Committee are presented to the Board. Information is given to the market through quarterly open investor presentations, stock exchange announcements and press releases, the bank’s website and accounting reports.

Sparebanken Vest Annual Report 2017 Page 135 OVERVIEW OF GOVERNING AND CONTROL BODIES IN SPAREBANKEN VEST

GOVERNING BODIES CONTROL BODIES

GENERAL MEETING EXTERNAL AUDITOR

NOMINATION COMMITTEE

BOARD OF DIRECTORS

BOARD INTERNAL AUDITOR COMMITTEES

MANAGING DIRECTOR

Sparebanken Vest Annual Report 2017 Page 136 Sparebanken Vest Annual Report 2017 Page 137 Subsidiaries and Associated Companies

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

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

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

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

VERD BOLIGKREDITT AS is a housing credit company that is owned by Sparebanken Vest holding 19,9% and eight independent savings banks. Verd Boligkreditt became fully operational in 2010 and is licensed as a credit company with the right to issue covered bonds. The company is run by Sparebanken Vest Boligkreditt AS. www.verdboligkreditt.no

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

EIENDOMSMEGLER VEST is a wholly owned real estate agency and is the leading player in the housing market in Western Norway. Eiendomsmegler Vest conducts its estate agency activities through the branded companies. www.emvest.no

BALDER BETALING Balder Betaling AS is a company that, among other things, exercises ownership of the mobile payment system Vipps on behalf of Sparebanken Vest and other savings banks that are also among the owners of Frende Forsikring. Balder Betaling has a holding of 12% in Vipps, and Sparebanken Vest is the biggest owner of Balder with an ownership interest of 36%. The company was established in the first quarter of 2017.

Sparebanken Vest Annual Report 2017 Page 138 Branch locations of 31st December 2017

Måløy

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

Sogndal

Region Lonevåg NordVest Knarvik Voss Askøy Lonevåg Voss Region Kleppestø Bergen Arna Hardanger/ Midthordland/ Sotra Os Straume Norheimsund Voss Odda Storebø Eikelandsosen

Odda

Stord Husnes

Region Husnes Sunnhordland/ Bremnes Jonsvoll Region Sauda Haugalandet Leirvik Haugesund Starvhusgaten Bergen Åsane Haugesund Loddefjord Etne Oasen Sauda Lagunen Sand Os

Stavanger Sandnes Region Stavanger Klepp Rogland Sandnes Nærbø

Sparebanken Vest Annual Report 2017 Page 139 Jonsvollsgaten 2 | N-5011 Bergen | Tel. 915 05555 | www.spv.no