Annual Report 2012
For Nord-Norge SpareBank 1 Nord-NorgeSpareBank in short Design: Rød Tråd AS - Photo:Arnesen Arthur
SpareBank 1 Nord-Norge in short Operations 126
History 3 Group Management 128 Organizational charts 4 Main Board of Directors 130 Group key figures 6 Governing bodies 132 Important events in 2012 8 Corporate Governance 134 Vision and business concept 9 Risk management, internal control and capital management 140 The Bank’s history 10 Localization 11 Ownership structure 153 CEO’s report 12 Business description – Retail and corporate markets, SNN Markets 156
SpareBank 1-Alliance 162
Report and results 14 Corporate Responsibility 164
Annual Report 2012 16 Together we get things to happen 166 Annual Accounts - Income Statement 40 Spaceship Aurora 168 Annual Accounts - Balance Sheet 41 On a campervan tour with Hekla Stålstrenga 170 Annual Accounts - Changes in equity 42 Andsnes opens the Storm 172 Annual Accounts - Cash flow statement 44 Tromsø students receive Sirkus Eliassen Annual Accounts - Notes 45 as a donation from the Bank 174 Annual Accounts - Group profit analysis 121 Statement from the Main Board of Directors and the CEO 122 Report from the Control Committee 123 Auditor’s Report 124
2 Historical background 40 SpareBank 1 Nord-Norge is the result of the merger of about 40 savings banks in Nordland, Troms and Finnmark. 75 SpareBank 1 Nord-Norge has an extensive network with a total of 75 branches, whereof 73 are in the region, including one in Svalbard. The Bank also has two branches in Russia. 177 It all started 177 years ago when Tromsø Sparebank was established in 1836. A major wave of mergers began in the 1960s and 1970s and culminated in the establishment of Sparebanken Nord-Norge on 1 July 1989. Early in the 1990s Nordkapp Sparebank and Sparebanken Nordland became part of SparebankEN Nord-Norge. The history of the Bank is now being written at the University of Tromsø. 1996 In 1996 the Bank became part of the SpareBank 1 Alliance - a group of four regional banks and 16 smaller savings banks. These banks collectively own SpareBank 1 Gruppen AS, which is a supplier of various financial products and services.
The SpareBank 1 Alliance and the SpareBank 1 Group have been key to the positive development of SpareBank 1 Nord-Norge, and have thereby also contributed to the Bank becoming a strong, solid bank “For North Norway” - which is the Bank’s vision. 2011 SpareBank 1 Nord-Norge celebrated its 175-year anniversary in autumn 2011. The customers were invited to a magnificent concert where they enjoyed performances from the best artists the region has to offer. A number of other events were also arranged in the local area. 2012 The Main Board of Directors of SpareBank 1 Nord-Norge appointed Jan-Frode Janson as the new CEO and successor to Hans-Olav Karde. Karde stepped down as CEO on 31 December 2012, after running the Bank for 23½ years.
SpareBank 1 Nord-Norge Annual Report 2012 3 SpareBank 1 Nord-NorgeSpareBank in short
Organizational chart
Internal auditing Main Board of Directors
Risk management and Chief Executive Communications Compliance Officer Director Senior Group General Manager
Deputy Chief Executive Markets Communications Officer Centre
Development EM1, Invest, Finans Bank in Russia Sp1G
Finance Retail and corporate Internal support Senior Group markets functions Regions General Manager Senior Group General Manager Senior Group General Manager
Operations Group General Finnmark region support Group functions Manager HR Regional Director capital market Retail market
Credit Hålogaland region Customer centre Line service Finance Cash Management Regional Director
Insurance
Internal Treasury Digital platforms Legal Salten region operations Regional Director
Helgeland region Troms region Regional Director
Function departments
Market departments
4 Organization of the financial services group
SpareBank 1 Nord-Norge Financial Services Group
- Tromsø SpareBank 1 Gruppen AS SpareBank 1 Finans Nord-Norge AS Financial Services Group - Ownership interest 19.5% - Bodø Loans/Consumer financing/Leasing Ownership interest 100%
Folk i Husan The Alliance cooperation SpareBank 1 DA Eiendomsmegling AS System development - Ownership interest 17.74% Ownership interest 60% EiendomsMegler 1 Nord-Norge AS - Tromsø Real estate brokerage Bank 1 Oslo AS Ownership interest 100% Bank - Ownership interest 19.5% - Bodø - Alta - Hammerfest SpareBank 1 Nord-Norge SpareBank 1 Boligkreditt AS Invest AS Residential property financing - Ownership interest 13.46% - Kirkenes Investment company Ownership interest 100% Mo i Rana SpareBank 1 Næringskreditt AS Mosjøen Financing commercial property - Ownership interest 16.16% - Harstad North-West 1 Alliance Bank - Sandnessjøen Bank Ownership interest 75% BN Bank ASA - Finnsnes Bank - Ownership interest 23.5%
SpareBank 1 Nord-Norge SpareBank 1 Verdipapirservice AS Forvaltning ASA Ownership interest 24.9% Discretionary investment management Ownership interest 100%
SpareBank 1 Kundesenter AS Merkantilservice AS Ownership interest 23.5% Ownership interest 100% SNN Økonomihus Holding AS Ownership interest 100% SpareBank 1 Kredittkort AS SNN Økonomipartner Ownership interest 19.83% Alta AS Ownership interest 100%
SpareBank 1 Nord-Norge Annual Report 2012 5 SpareBank 1 Nord-NorgeSpareBank in short
Annual Report - Group key figures
Amounts in NOK million and as a percentage of average assets From the profit and loss account 2012 % 2011 % 2010 % Net interest income 1 166 1.60 % 1 129 1.61 % 1 129 1.70 % Net fee-, commission and other operating income 656 0.90 % 506 0.72 % 513 0.77 % Net income from financial investments 260 0.36 % 184 0.39 % 404 0.61 % Total income 2 082 2.86 % 1 819 2.59 % 2 046 3.09 % Costs 1 120 1.54 % 1 036 1.47 % 957 1.44 % Profit before losses 962 1.32 % 783 1.11 % 1 089 1.64 % Losses 195 0,27 % 101 0.14 % 87 0.13 % Profit before tax and minority interests 767 1.05 % 682 0.97 % 1 002 1.51 % Tax 172 0.24 % 157 0.22 % 186 0.28 % Minority interests Profit for the year 595 0.82 % 525 0.75 % 816 1.23 %
Profitability Return on equity capital 1 9.00 % 8.48 % 15.30 % Interest margin 2 1.60 % 1.61 % 1.70 % Cost/income 3 53.80 % 57.00 % 46.80 %
Balance sheet figures Loans and advances to customers 54 551 51 642 49 046 Loans and advances to customers including agency loans 75 914 68 034 63 334 Growth in loans and advances to customers past 12 months 5.60 % 5.30 % 1.80 % Growth in loans and advances to customers including agency loans 11.60 % 7.40 % 7.20 % Deposits from customers 41 220 41 765 39 389 Growth in deposits from customers during the last 12 months -1.30 % 6.00 % 12.90 % Deposits as a percentage of gross lending 4 75.60 % 80.90 % 80.30 % Deposits as a percentage of gross lending including agency loans 54.30 % 61.40 % 62.20 % Average assets 5 72 921 70 291 66 245 Total assets 75 261 71 039 68 780
Losses on loans and commitments in default Losses on loans to customers as a percentage 0.26 % 0.15 % 0.14 % of gross loans incl. agency loans Non-performing commitments as a percentage 0.52 % 0.69 % 0.35 % of gross loans incl. agency loans Impaired commitments as a percentage 0.78 % 0.50 % 1.03 % of gross loans incl. agency loans Net non-performing and impaired commitments 0.90 % 0.88 % 0.94 % as a percentage of gross loans incl. agency loans
Solidity Capital adequacy 6 13.19 % 12.50 % 12.00 % Core capital adequacy 7 12.11 % 11.61 % 10.90 % Core capital 6 672 6 003 5 334 Net subordinated capital 7 270 6 466 5 849 Risk-weighted assets base for capital 55 098 51 704 48 963
Branches and number of man-years worked Branches 75 75 75 Man-years worked 881 794 788
6 Equity Certificates (EC) 2012 2011 2010 2009 2008 EC ratio overall 8 42.07 % 38.74 % 34.54 % 34.54 % 34.22 % Quoted/market price NONG as at 31.12 27.75 32.30 45.00 41.25 16.50 Quotation value 9 1 837 2 139 2 149 1 970 788 Equity capital per EC - Parent bank (NOK) 10 43.34 40.42 41.27 37.77 32.89 Equity capital per EC - Group (NOK) 10 35.58 33.73 31.03 31.19 27.13 Profit per EC - Group (NOK) 11 3.78 3.07 5.90 6.20 2.52 Profit per EC - Parent bank (NOK) 11 3.27 2.55 4.32 5.19 1.55 Cash dividend per EC to be paid 12 1.15 1.40 2.16 2.53 1.13 P/E (Price/Earnings) - Group 13 7.30 10.51 7.60 6.60 6.60 P/E (Price/Earnings) - Parent bank 13 8.48 12.66 10.42 7. 9 0 10.80 P/V (Price/Book Value) - Group 14 0.6 0.8 1.1 1.1 0.5 P/V (Price/Book Value) - Parent bank 14 0.8 1.0 1.5 1.3 0.6
*) Intermediary loans include loans transferred to SpareBank 1 Boligkreditt AS and SpareBank 1 Næringskreditt AS.
1 Profit for the period as a percentage of average total equity, calculated as average amount of quarterly equity at 01.01. and 31.12. 2 Total interest margin as a percentage of average total assets. 3 Total costs as a percentage of total net income. 4 Deposits from customers as a percentage of gross lending. 5 Average assets are calculated as average assets each quarter at 01.01. and 31.12. 6 Net subordinated capital as a percentage of calculated risk-weighted balance 7 Core capital as a percentage of calculated risk-weighted balance 8 EC holders share of equity as at 01.01. 9 Quoted price on Oslo Stock Exchange multiplied by numbers of EC’s outstanding 10 EC-capital + Premium Fund + Dividend Equalisation Fund, divided by number of EC’s outstanding 11 Profit for the period (parent bank) multiplied by EC holders’ share of the equity as at 01.01., in relation to total number of EC’s. 12 Cash dividend per EC for the accounting year. Resolution made by Main Board of Directors 13 Market price on Oslo Stock Exchange at end of period, divided by result for the period per EC. 14 Market price on Oslo Stock Exchange at end of period, divided by book value of equity per EC.
SpareBank 1 Nord-Norge Annual Report 2012 7 SpareBank 1 Nord-NorgeSpareBank in short
Important events in 2012
• North Norway continued to develop positively in 2012. Exploration activities in the Barents Sea resulted in major finds in the Skrugard and Havis fields in 2011 and 2012. This has contributed to optimism in the supply industries and other businesses in North Norway.
• The region has strengthened its position in 2012 as a growth region in Norway and Europe, which is also reflected in SpareBank 1 Nord-Norge’s results through significant annual growth in the retail and corporate markets. The Bank has good underlying banking operations in 2012, but the results have been weakened by substantial losses on certain individual loans.
• In the early summer of 2012, the Main Board of Directors of SpareBank 1 Nord-Norge resolved to appoint Jan-Frode Janson as the new CEO. Janson takes over from CEO Hans Olav Karde who has led the Group for 23½ years. Janson took over as CEO on 1 January 2013.
• SpareBank 1 Nord-Norge has strengthened its customer focus throughout the Group in 2012. This emphasis is part of the long-term work focusing on the Bank’s accessibility and the experience that customers have when meeting the Bank.
• During 2012 the Group has expanded its emphasis on accounting firms through its acquisition of Merkantilservice AS and the establishment of SpareBank 1 Regnskapshuset Nord-Norge AS. This company provides bookkeeping services to North Norwegian companies and cooperates with several of the banks in the SpareBank 1 Alliance which have corresponding businesses.
8 Vision and business concept
The region’s own bank Our primary financial goals
SpareBank 1 Nord-Norge is a leading provider of financial Financial strength: services within the retail banking and corporate banking Pure core capital adequacy target of 12.5% or higher. This markets in North Norway. Below is a presentation of the will be achieved during the course of 2015. The Group shall Group’s vision and business concept, as well as the overall be perceived as an indisputably solid bank. In a projected financial goals. crisis scenario the Group must have sufficient buffers so that the pure core capital adequacy does not fall by more than 2.5 Our corporate vision is For North Norway! Very simple, but percentage points below the established target. ambitious and demanding as well.
This means that: Profitability: • we shall be a bank for all types of customers throughout the SpareBank 1 Nord-Norge shall achieve a return on equity entire region – a bank that sees individuals, creates custom capital which is in line with that of banks with which it is solutions and is a promoter of people and businesses, and of natural to compare the Bank. The Bank also aims to have a satisfaction and creativity in our region. return on equity capital after tax that is at least 6% above the • we aim to be a bank of opportunities – a partner for an active return on long-term government bonds. business community, a vibrant local community and the cultural diversity around us. Market share: SpareBank 1 Nord-Norge aims to have a market share in North Business concept Norway of at least 30% within all business areas. The share of other operating income excluding the interest contribution SpareBank 1 Nord-Norge provides comprehensive, modern shall constitute at least 25% of net income. financial solutions to customers with a basis in the North Norway market. We create competitive advantages by being “Close and Competent” in all our customer relationships. We Effectiveness: know our customers and have empathy for their situation. SpareBank 1 Nord-Norge aims for annual average cost growth Therefore we are best at identifying needs and creating value- to be a maximum of 2%. The parent bank’s cost-to-income ratio adding solutions. shall be in line with, or better than, comparable banks.
SpareBank 1 Nord-Norge is an attractive workplace with a corporate culture characterised by dynamic training, a will to win and a willingness to work together towards a common goal. Our operations and business are based on strict requirements with regard to integrity and commercial ethics as set out in the SNN Corporate Code of Conduct.
SpareBank 1 Nord-Norge is an independent financial services group within the SpareBank 1 Alliance. We know North Norway extremely well and contribute to development and growth within the region.
SpareBank 1 Nord-Norge Annual Report 2012 9 SpareBank 1 Nord-NorgeSpareBank in short
The history
Sparebanken Nord-Norge was established on 1 July 1989 through a merger of the following savings banks:
Tromsø Sparebank 1836
Merges 1963 Sparebanken Nord Malangen Sparebank 1980
Merges 1969 1980 Sparebanken Nord-Norge Gisund Sparebank Alta Sparebank 1989 Lyngen Sparebank Astafjordene Sparebank Dyrøy Sparebank Merges Bardu Sparebank 1991 Tranøy Sparebank Berlevåg Sparebank Nordkapp Sparebank
1970 Hillesøy Sparebank 1992 Salangen Sparebank Torsken Sparebank Sparebanken Nordland Skjervø og Nordreisa Sparebank 1978 Sør-Varanger Sparebank Måsøy Sparebank Talvik Sparebank 1982 Tromsøsundets Sparebank
Andenes Sparebank 1982 Øst-Finnmark Sparebank Hammerfest Sparekasse
1984 1984 Kvedfjord Sparebank Trondenes Sparebank
10 SpareBank 1 Nord-Norge 73 branches in 65 municipalities as well as Svalbard. In addition there are 2 branch offices in North-West Russia.
HEAD OFFICE: Tromsø ORGANIZATION: 5 regions REGIONAL BRANCHES: Hammerfest Tromsø Harstad Bodø Mo i Rana
LOCALIZATION: 75 places NUMBER OF MAN-YEARS: 788
FINNMARK TROMS HÅLOGALAND NORDLAND HELGELAND Alta Bardufoss Andenes Bodø, Storgata 40 Brønnøysund Berlevåg Brøstadbotn Borkenes Bodø, City Nord Mo I Rana Breivikbotn Burfjord Bø Fauske Mosjøen Båtsfjord Finnsnes Evenskjer Hamarøy Nesna Hammerfest Gryllefjord Hamnvik Leinesfjord Sandnessjøen Havøysund Hansnes Harstad Misvær Honningsvåg Jektabanken Leknes Moldjord Karasjok Lyngseidet Lødingen Rognan SPITSBERGEN Kautokeino Nordkjosbotn Melbu Røst Longyearbyen Kirkenes Olderdalen Myre Værøy Kjøllefjord Oteren Narvik Ørnes, Meløy Lakselv Setermoen, Bardu Ramberg Tana Senjahopen Reine NORDVEST Vadsø Sjøvegan Sortland RUSSLAND Vardø Skjervøy Stokmarknes Murmansk Øksfjord Sommarøy Svolvær St. Petersburg Stonglandseidet Storslett Storsteinnes Sørreisa Tennevoll Tromsdalen, Amfi Tromsø, Storgata 65 Tromsø, Sjøgata 8 SpareBank 1 Nord-Norge Annual Report 2012 11 SpareBank 1 Nord-NorgeSpareBank CEO’s in short report
From the CEO
2012 has been a year of contrasts. While the world economy SpareBank 1 Nord-Norge is present where its customers live, has been affected by the crisis in Europe, uncertainty in the through a network of branches that has been built up over U.S. and reduced growth in China, the Norwegian economy has generations. Its presence in the region is manifested through 73 flourished. And North Norway has performed especially well. local banks from Svalbard in the north to Brønnøysund in the SpareBank 1 Nord-Norge’s Business Barometer contains reports south. Through being part of the SpareBank 1 Alliance, the local of population growth, record low unemployment, economic presence can be combined with leading products, expertise growth and strong optimism for the future. It particularly and IT solutions. The Alliance’s mobile banking solutions, in emphasises the good prospects for seafood, tourism, the particular, have attracted a great deal of attention. maritime industry and renewable energy. The customers have gained an expanded and simpler means Whereas the demand for credit in North Norway has been of accessing the Bank, with longer opening hours, modern and below the national average for a number of years, in 2012 simple self-service solutions and a modern customer centre. it was substantially higher. SpareBank 1 Nord-Norge’s high growth figures are therefore reflecting both a positive regional In conjunction with good knowledge of the region’s business, development and that the Bank is expanding its market share. industry and key sectors, SpareBank 1 Nord-Norge’s presence North Norway has long been referred to as the region of and closeness confers an advantage as decisions are made close opportunity, and 2012 was the year in which this potential for to the customers. The principle of local decision-making will be growth was substantially realised in actual growth figures. continued and strengthened.
SpareBank 1 Nord-Norge has been regarded as a very solid bank The Bank’s presence is also highlighted in its broad involvement for many years. The importance of this has been actualised in the region’s businesses, culture and community. The region’s through stricter requirements from the authorities. Stricter own bank creates value and returns it to the local community, regulatory requirements for financial strength are coming into through having the region as its main owner. The community effect at the same time as the region is seeing strong growth accounts for 2012 show that NOK 72 million was allocated to and Norwegian and international banks are reporting lending charitable causes, distributed in the areas of culture, sport and rationing. SpareBank 1 Nord-Norge has implemented and will knowledge. continue to implement measures, both to meet the authorities’ requirements and to ensure that the Bank is regarded as being indisputably solid. At the same time, we must make sure that Thus the Bank is well equipped to face the future - a future for we are equipped to continue our active role in developing the North Norway! region.
After 23 years of leading operations, Hans Olav Karde stepped down as the CEO at the end of 2012. His vision, for both the Bank and the region, will live on through the new leadership. This includes the vision “For North Norway” and the values “close and competent”. A vision which also serves as a guide for further developing the Group, and which emphasises the Bank’s role as the region’s own bank. Jan-Frode Janson konsernsjef
12 SpareBank 1 Nord-Norge Annual Report 2012 13 SpareBank 1 Nord-NorgeSpareBank in short
14 Report and results
North Norway is experiencing a period of stronger growth than ever before. This can be seen in all sectors of society. The labour market is still very tight. To some extent, new growth is being limited by a shortage of competent manpower in the region, in spite of significant population growth and manpower commuting into the region.
SpareBank 1 Nord-Norge Annual Report 2012 15 Board of Directors’ report 2012
Nord-Norge and Highlights for 2012 SpareBank 1 Nord-Norge - in brief North Norway is experiencing a period of stronger growth (Same period 2011) than ever before. This can be seen in all sectors of society. The labour market is still very tight. To some extent, new growth • Profit before tax of NOK 767 million is being limited by a shortage of competent manpower in the (NOK 682 million). region, in spite of significant population growth and manpower commuting into the region. The reason for this strong growth is • Profit for the year after tax of NOK 595 million (NOK 525 million). the region’s extensive natural resources and their exploitation. The substantial oil and gas discoveries in the Norwegian Sea • Return on equity (Group) was 9.0% (8.5%). and Barents Sea are generating strong growth both in the oil • Earnings per equity certificate (Group) of NOK 3.78 industry directly and indirectly through related industries. (NOK 3.07). • Very good and improved underlying banking operations. The situation for aquaculture and traditional fisheries is good. There is considerable available capacity for growth • Good profit contribution from joint ventures. in aquaculture in the north, and all the most important fish • Weaker profit contribution from the subsidiaries. stocks show good and sustainable development. Historically, • Cost-to-income ratio (Group) of 53.8% (57.0%). tourism has been important, especially in the summer season. Winter tourism is now starting to be as important as summer • Net loan losses were NOK 195 million tourism, which is making the tourism industry even more (NOK 101 million). significant. • Good lending growth of 11.6% (7.4%) including loans transferred to SpareBank 1 Boligkreditt. This growth, in conjunction with large public sector • Growth in deposits over the last 12 months of -1.3% investment, has also resulted in a very high level of activity (6.0%). in the building and civil engineering sector. At the same time, • Good deposit-to-loan ratio of 75.6% (80.9%). recoverable and very high value deposits of minerals and rock types have been discovered. A more detailed analysis of the • Satisfactory financial strength with core capital adequacy (Group) of 12.11% (11.61%) and economy in the region is documented in the bank’s Business total capital adequacy of 13.19% (12.50%). Barometer. Pure core capital adequacy was 10.31%. • Continued good liquidity. This expansion in economic activity in North Norway is shown in SpareBank 1 Nord-Norge through high growth in • Proposed cash dividend of NOK 1.15 both customers’ loans and deposits. Loans to the retail sector (NOK 1.40) to the equity certificate holders. increased by 11% in 2012, and deposits rose by 9%. Lending growth in the corporate sector was 12.9% and growth in
Strategic goals and achievement of targets Strategic goals Target figures Group 2012 Parent Bank 2012 Profitability 6% over long-term government bond rate, i.e. Return on equity around 8%*) and on par with other banks with 9.0 % 9.9 % which it is natural to compare the Bank Effectiveness
Cost percentage Max. 50% of revenues 53.8 % 51.9 % Financial strength 12.5% or higher in 2015 12.1 % 14.6 % Core capital adequacy ratio (pure core capital adequacy) (10.3 %) (12.5 %) Top line growth
Top line growth greater than cost growth 2% over cost growth 3.3 % 4.5 %
*) Based on long-term government bond rates as of December 2012. deposits was 3.4%. Compared with growth in the country as 53.8%, a reduction from 57.0% in 2011. However, the nominal a whole, the Bank has increased its market shares in Norway costs show an increase of 7.5%, which includes an increase of - and probably also in North Norway - even though the 13% in personnel costs. This is due to high wage growth in the general growth in the north is higher than for the country as finance industry in general, and recruitment contributing to a whole. higher wage levels.
In 2011 the Bank successfully completed an equity issue, aimed Consolidation of the new subsidiaries within accounting at ensuring both the Bank’s financial strength and its ability to also entails higher personnel costs. Measures have been be a good partner in developing “the new North Norway”. The implemented to significantly reduce cost growth. high rate of growth was expected, but has naturally resulted in pressure on the Group’s capital adequacy. Systematic customer activity has generated good results in 2012. The number of completed, well planned customer New regulatory requirements for equity in financial institutions meetings with associated customer transactions has never been entail a requirement also to increase the pure core capital as high as in 2012. The systems that have been established are in SpareBank 1 Nord-Norge. The strategic capital target for expected to produce good results in coming years. All advisors SpareBank 1 Nord-Norge has been amended to a pure core in SpareBank 1 Nord-Norge are authorised, which gives capital adequacy of 12.5% or higher in 2015. Reference is customers confidence when meeting the Bank. made to a separate section later in the annual report describing the Group’s capital adequacy. Return on equity for the Group was 9.0% for 2012 compared with 8.5% for 2011. Through a combination of growth and higher net interest rates, SpareBank 1 Nord-Norge has successfully increased Reference is also made to further comments on the Group’s the Group’s net interest income (including commissions from income statement and balance sheet below in this report. the transferred home mortgage loan portfolio) by 11.5% from NOK 1,203 million in 2011 to NOK 1,341 million in 2012. The efforts of the Group’s employees have been - and will This indicates that balance sheet growth and income have continue to be - the most important contribution to the developed similarly, and that interest margins have stopped financial results of SpareBank 1 Nord-Norge. The Main Board declining. This is due to the banks generally seeking to raise of Directors would like to take this opportunity to thank revenues, as one of the measures to comply with the new everyone for their contribution to the results and development financial strength requirements from the authorities. of SpareBank 1 Nord-Norge.
In 2012 the Group recognised losses on lending of NOK 195 million, an increase of NOK 94 million from 2011. In addition, Goals and strategy a loss on equity investments in North Norway of NOK 147 SpareBank 1 Nord-Norge has a unique position in the region, million was recognised. The substantial loan losses are due to enjoying customer relationships with almost half of the a small number of sizeable individual losses incurred by the population and a powerful distribution through a large branch bank. One example being the consequences of closing down network (73 locations), and a customer centre that is accessible the solar cell industry at Glomfjord in Nordland, which alone more or less round the clock. has resulted in a loss of over NOK 100 million for the Bank. Substantial measures have been taken to reduce the likelihood The Bank’s corporate vision is For North Norway! Realisation of similar incidents occurring in the future. of the vision is reflected through the customer base and distribution network being the Bank’s most important Despite increased lending losses, the quality of the Bank’s loan competitive advantages. These are developed through portfolio is good and further improved during 2012. Group continuous renewal and refinement. net commissions (excluding commissions from the transferred home mortgage loan portfolio) totalled NOK 481 million Customer surveys in 2012 show that the Bank is improving in in 2012, NOK 49 million more than last year. The Group all of the five key strategic dimensions: will continue to work on increasing commissions and other • Price income. • Product • Service The importance of the Group’s strategic cooperation with • Accessibility the SpareBank 1 Alliance has grown in recent years. This • Customer experience cooperation takes place in several dimensions, and the importance of the direct profit contribution from the joint Through its strategy work in 2012, the Board has established a ventures in the SpareBank 1 Alliance: SpareBank 1 Gruppen, clear goal that the Bank will maintain or strengthen its position Bank 1 Oslo, BN bank, SpareBank 1 Boligkreditt, and within price, product, service and accessibility. In the area of SpareBank 1 Næringskreditt has grown for SpareBank 1 Nord- customer experience, the goal is for SpareBank 1 Nord-Norge Norge. This profit contribution totalled NOK 210 million in to take a leading position, which involves an increased focus 2012. The corresponding contribution for 2011 was NOK 195 on customers at all levels. million. The combination of easily accessible (mobile) solutions for The total net profit from financial investments was NOK 260 simple services and competent advisors for more complex million for 2012, compared with NOK 184 million for 2011. services, is a good concept that customers appreciate. This The cost percentage in the 2012 financial statements was gives the Bank a unique position in the region.
SpareBank 1 Nord-Norge Annual Report 2012 17 Annual Report
The Group’s large customer base represents a significant As a savings bank, the Bank has four important stakeholder potential for expanded business with individual customers. groups: customers, equity certificate holders, the community Therefore the Group’s main strategy is to expand the volume of and employees. Treating these groups well, and ensuring that business and number of transactions with existing customers their interests are balanced, is a primary goal. The customers rather than acquiring new customers. must be able to expect competitive services with respect to quality and price, and the equity certificate holders should The Bank’s strategic goals are divided into four main categories: achieve a competitive return. The community will receive The goals are specific and aim to reflect at the same time the substantial funds through various foundations and donations, changing market opportunities in the financial markets. and the employees shall continue to experience the Bank as a good and stimulating workplace.
Financial strength: The Group shall have a pure core capital adequacy of 12.5% or higher in 2015. Even in extreme stress situations, there shall be no doubt about the Bank’s financial SpareBank 1 Alliance strength or ability to survive. This target was established in December 2012 and will be revised as necessary in accordance and SpareBank 1 Group with new requirements from the authorities. The Group’s The Bank’s participation in the SpareBank 1 Alliance and financial strength will be bolstered through a number of ownership interest in the SpareBank 1 Group is an important measures. part of the Bank’s strategy. The Bank’s participation has been important with respect to the development of SpareBank 1 Nord-Norge and has contributed to a great extent to the Earnings: The return on equity shall be at least 6% above fact that the Bank has become a solid and strong bank “for the risk-free interest rate (long-term government bond rate). In North Norway”, which is the Bank’s vision. The SpareBank addition, the return shall be in line with comparable market 1 banks conduct their alliance-related cooperation and the participants. This goal was not fully reached in 2012 due to development of product companies through the jointly-owned large write-downs and high cost growth. The return target is companies, SpareBank 1 Utvikling, and the holding company, used as a basis when other sub-targets are established, as well the SpareBank 1 Group. The purpose of the SpareBank 1 as the risk-adjusted return down to the customer level. Alliance is to acquire and provide competitive financial products and services, and to take advantage of economies of scale in the form of lower costs and/or higher quality. The Cost-effectiveness: The Main Board of Directors has Alliance contributes accordingly to private individuals and established a cost target that average annual cost increases corporate customers experiencing competence, local roots shall be a maximum of 2%. The Parent Bank’s cost-to-income and easier day-to-day banking. In addition, the Alliance shall ratio shall also be in line with, or better than, comparable contribute to ensuring the creation of value by the banks to the banks. During 2012 cost reduction measures were introduced, benefit of their own regions and the banks’ owners. and measures to improve efficiency within staffing and other costs in the Parent Bank. The full effect of these measures is Reference is also made to the separate report on companies expected to be seen during the course of 2013. Further cost in the SpareBank 1 Alliance later in the annual report. reduction measures are planned to take effect in 2013/2014, in order that the costs target can be met. The Bank expects that the efficiency level will approach 40% in the coming years. The most important driver for reduction of the Group’s costs is to make work processes cost effective through digitisation, and enable them to be directly accessible to customers.
Income growth: The goal is that Group interest and commission income shall increase by at least 2 percentage points more than costs. The income target shall be achieved through clear market targets (market share targets) for the most important service areas. Achievement of the target is a demanding challenge, because the competition is continuously putting pressure on the margins in all product categories. The Bank has strengthened its market shares in both 2011 and 2012.
18 SpareBank 1 Nord-Norge Annual Report 2012 19 Annual Report
Comments on the annual accounts
In accordance with the provisions in the Norwegian Accounting Net interest income Act, the annual accounts for 2012 have been prepared The total net interest income has increased by NOK 37 million under the assumption of continuation as a going concern. from 2011, amounting to NOK 1,166 million for 2012. The SpareBank 1 Nord-Norge’s accounts for the Group have been Bank has had good lending growth in 2012, but the market prepared in accordance with Section 3-9 of the Norwegian has been characterised by strong competition, especially for Accounting Act in compliance with IFRS (International customer loans, which affects the pricing of the Bank’s lending Financial Reporting Standards), as approved by the EU. and deposit products. During the year reduced money market rates in the capital market have, nevertheless, contributed to Profit performance Group Parent Bank growth in net interest income.
Amounts in NOK million 2012 2011 2012 2011 Net interest income is also affected by loans transferred to Net interest income 1 166 1 129 1 034 1 013 SpareBank 1 Boligkreditt. Income of NOK 175 million from the transferred portfolio has been recognised under commission Net commissions 656 506 540 427 income. The corresponding amount for 2011 was NOK 73 and other income million. Net income from 260 184 272 142 financial investments Net commissions and other income Operating costs 1 120 1 036 954 908 SpareBank 1 Nord-Norge aims to increase revenue from risk- Losses 195 101 224 97 free areas through offering a broad range of products within savings, investment and insurance. In 2012 net commission Profit before tax 767 682 668 577 income accounted for 29% of the total income, compared with Tax 172 157 153 141 26% in 2011.
Profit for the year 595 525 515 436 As mentioned, commission income from SpareBank 1 Boligkreditt has increased significantly in 2012. Other commission income includes an increase in income from real The return on equity for 2012 of 9% is a little higher than the estate brokerage of NOK 16 million and income of NOK 33 strategic goal of a return of 6% above long-term government million from Group subsidiaries within accounting. bond rates. Nevertheless, the return is below the goal of a similar return to that achieved by other banks with which it is natural Compared with 2011, net interest income including commission to compare the Bank. The main reasons for this are increased income from the transferred home mortgage portfolio has risen lending losses, losses on financial investments and high cost from NOK 1,203 million to NOK 1,341 million in 2012. growth. The Bank’s core operations continue to be very good, and are strengthened compared with 2011. The improvement Development of net interest income including is, inter alia, in the form of increased commission income from commissions from SP1 Boligkreditt relative to SpareBank 1 Boligkreditt. The costs are somewhat higher than average total assets: in 2011, primarily due to increased personnel costs.
2.5 % The Group and Parent Bank have satisfactory financial strength, continued good deposit coverage and good liquidity. Nevertheless, increased regulatory requirements for bank 2.0 % equity mean that SpareBank 1 Nord-Norge’s capital adequacy must also be bolstered in the coming years. Further measures are being implemented to ensure that capital adequacy in 1.5 % the Bank and the Group complies with the new regulatory requirements, when these enter into force.
1.0 % In the opinion of the Main Board of Directors the Group is well equipped to satisfy the region’s needs for financial services in the years ahead. 0.5 %
0 % 2007 2008 2009 2010 2011 2012
20 Net income from financial investments Subsidiaries Net income from financial investments totalled NOK 260 The Group’s subsidiaries reported a combined profit for the million in 2012. This income can be broken down as year of NOK -64 million before tax. The profit contribution of follows: NOK -85 million after tax has been consolidated into the Group accounts in accordance with the equity method of accounting. Profit attributable to joint ventures NOK 210 million In the Parent Bank accounts, only dividends received from Net income from securities NOK 50 million the subsidiaries are accounted for in accordance with the cost • shares NOK -83 million method of accounting. • commercial paper/bonds NOK 67 million • currency and financial derivatives NOK 66 million As mentioned, during 2012 the share portfolio in SNN Invest has been written down by NOK 133 million. Of this amount, NOK 127 million relates to four separate items. The Associated companies and joint ventures shareholding in the oil company Front Exploration (FrontX) Profit attributable to associated companies and joint ventures was written down by NOK 41 million in the first half year, is recognised in the Group accounts proportionate to the after having been written up by NOK 189 million in 2011. Bank’s ownership interest in accordance with the equity No further write-downs have been made in this shareholding method of accounting. In the Parent Bank accounts only during the second half of 2012. The book value as at 31.12.12 dividends received are accounted for, in accordance with the was NOK 18 million. cost method of accounting. Write-downs have also been made this year in the value of The share of profit from SpareBank 1 Gruppen represents a shareholdings in the companies Bodø Gruppen AS by NOK substantial proportion of the Group’s revenues. 25 million, Nord I IS by NOK 45 million and Nord-Norge Eiendom IV AS by NOK 12 million. Securities In 2012 NOK 17 million was received in dividends from There are plans to liquidate SpareBank 1 Invest AS in 2013. share investments, and NOK 104 million in net capital losses have been recognised for the portfolio. Of this amount, NOK 133 million represents a loss on the share portfolio in the subsidiary SpareBank 1 Invest AS.
Company 2012 2011 2012 2011
Share of profit in Share of profit in Dividends in Parent Dividends in Parent the Group accounts the Group accounts Bank’s accounts Bank’s accounts Amounts in NOK million
SpareBank 1 Gruppen AS (19.50 %) 96 94 85 86
SpareBank 1 Boligkreditt AS (13.26 %) 33 13 14 11
SpareBank 1 Næringskreditt AS (17.50 %) 4 4 4 2
SpareBank 1 Utvikling DA (17.74 %) 0 0 0 0
SpareBank 1 Oslo Akershus (19.50 %) 25 16 14 7
BN Bank ASA (23.50 %) 52 68 21 36
Total 210 195 138 142
Subsidiaries Share of profit for 2012 Dividends for 2012 in the Write-downs in Amounts in whole NOK 1,000 after tax in the Group accounts Parent Bank accounts Parent Bank accounts
SpareBank 1 Finans Nord-Norge AS 52 150 49 875 0
SpareBank 1 Nord-Norge Invest AS -142 961 0 -107 573
EiendomsMegler 1 Nord-Norge AS 5213 0 0
SpareBank 1 Nord-Norge Forvaltning AS 907 970 0
North-West 1 Alliance Bank 584 0 0
SNN Økonomihus -837 0 0
Total -84 944 50 845 -107 573
SpareBank 1 Nord-Norge Annual Report 2012 21 Annual Report
SpareBank 1 Nord-Norge’s banking operations in Russia, Number of full-time equivalents 2012 2011 through the North-West 1 Alliance Bank, are owned by Parent bank 672 670 SpareBank1 Nord-Norge (75%) and the Bank’s Russian partner Subsidiaries in Norway 139 80 Bank Tavrichesky in St. Petersburg. Subsidiaries in Russia 71 45 SNN Økonomihus is a holding company that invested in one Total 881 795 accounting company at the end of 2011 and a further one as A programme of cost-reduction measures was started in the from 01.07.12. The company has a profit contribution before tax Parent Bank in 2012. This includes measures to improve as at Q4 2012 of NOK -1.1 million (including the proportion of efficiency in staffing and other costs. The full effect of these profit from the accounting companies). The results in 2012 are measures is expected to be seen during the course of 2013. affected by acquisition and start-up costs, as well as naturally Further cost reduction measures are planned to take effect in low seasonal activity in the second half year. The company 2013/2014. owned 100% of the shares in Consis Alta AS and 100% of the shares in Merkantilservice AS in Tromsø as at 31.12.12. Losses and defaults on loans These companies have been merged in January 2013, with Merkantilservice as the overtaking company, and the name has The Group’s net loan losses as at 31.12.12 amount to NOK 195 been changed to SpareBank 1 Regnskapshuset Nord-Norge AS. million, made up of NOK 207 million from the corporate market and NOK -12 million (income) from the retail market.
Operating costs The Group’s total individual loss write-downs as at 31.12.12 were NOK 303 million, an increase of NOK 97 million Ordinary operating costs for 2012 totalled NOK 1,120 million, compared with 2011. an increase of NOK 84 million, or 8.1%, from 2011. In relation to the average total assets, costs amounted to 1.54%, an increase Group write-downs during the year declined by NOK 28 of 0.07 percentage points compared with the previous year. million to NOK 197 million as at 31.12.12. At the same date, Group write-downs accounted for 0.25% of the Group’s combined gross lending, or 0.33% of gross lending including Development of costs relative to average total assets: intermediary loans. The increase in Group operating costs during the last year is largely due to increased personnel costs, including payroll In the opinion of the Main Board of Directors, in spite of the costs. General wage growth has been relatively high, and losses the quality of the Bank’s lending portfolio is good and the Bank continues to do excellent work on the Group’s non- . performing loans and doubtful commitments The Main Board of Directors believes that the level of losses will remain low in . the near future.
.
. Tax
The Group’s tax charge for 2012 is estimated at NOK 172 million. . The tax basis has been reduced by permanent differences and . the effects of the exemption model. In accordance with IFRS wealth tax is not a tax cost. NOK 9 million has, therefore, been . recognised under other operating expenses.
. Dividend policy and . 2007 2008 2009 2010 2011 2012 allocation of profit for the year The Bank’s dividend policy states that the Bank aims to payroll costs for new employees are higher than the average distribute up to 50% of the profit for the year as a dividend for all employees. (cash dividends and donations to charitable causes) provided the Bank’s financial strength so permits. Increased regulatory Increased personnel costs in the Group’s subsidiaries are largely requirements for bank equity, as well as the Bank’s desire due to the consolidation of a new subsidiary SNN Økonomihus to participate in market growth in the region by means of a (the accounting firms Consis Alta and Merkantilservice). profitable growth in lending, indicate that a rate of dividend lower than 50% must be anticipated in the coming years.
22 The Parent Bank’s profit after tax is distributed between the Profit allocations 2012 equity certificate holders and the Bank’s community-owned capital. This is in accordance with the relative distribution of Parent Bank's after-tax profit 514,9 equity capital between the owner groups in the Parent Bank as at 01.01.12 (“Ownership Fraction”). The ownership fraction as Distribution/dividend 106,1 at 01.01.12 was 42.07%. Retained profit 408,8
A cash dividend of NOK 1.15 per equity certificate, for a total - of which to dividend equalisation fund 140,5 of NOK 76 million, and an allocation of NOK 141 million to the dividend equalisation fund have been formally approved. - of which to Savings Bank's Fund 268,3 In addition, a total allocation of NOK 30 million is made to charitable causes to be distributed through the Bank’s Total allocations 514,9 endowment fund. The Bank’s Supervisory Board has approved Retained portion, Parent Bank's profit 79.4 % the annual accounts and appropriation of the profit. Retained portion, Group profit 82.1 %
Dividends will be distributed to registered equity certificate holders as at 20.03.13. The Bank’s equity certificates will be traded ex dividend as of 21.03.13. Balance sheet performance
Amounts in NOK million 31.12.12 31.12.11 Change in NOK Change in %
Balance
Total assets 75 261 71 039 4 222 5.9 %
Gross lending 54 551 51 642 2 909 5.6 %
Lending to customers including intermediary loans 75 914 68 034 7 880 11.6 %
Deposits from customers 41 220 41 765 -545 -1.3 %
Group’s gross lending (including transferred home mortgage loans) and deposits as at 31.12.12, broken down into the various markets.
CM/PM RM incl. Boligkreditt CM PM RM
31 % 29 %
69 % 57 %
14 %
Loans Deposits
The Group’s deposits fund 75.6% of gross lending as at 31.12.12. The corresponding figure at the end of 2011 was 80.9%. The deposit coverage ratio is still considered to be good.
SpareBank 1 Nord-Norge Annual Report 2012 23 Annual Report
Portfolio of commercial New capital requirements have been published through Basel paper and bonds III. The new rules have increased the required level and quality of equity, and contain an introduction schedule that extends The Group’s portfolio of commercial paper and bonds totalled until 2018/2019. The Norwegian authorities have signalled NOK 12,444 million as at 31.12.12. The corresponding figure as both a further tightening up and the earlier introduction of at 31.12.11 was NOK 11,234 million. The value of the portfolio such capital requirements. The Norwegian authorities are also of interest-bearing securities remains high due to: considering introducing a risk weighting for bank mortgages of 35% or higher. A final clarification of the Norwegian • Increased liquidity reserves in the form of commercial paper regulatory requirements for bank equity - and the schedule for and Treasury bills. introducing these - is expected during the course of 2013. • Transfer of loans to SpareBank 1 Boligkreditt resulting in an increased portfolio of covered bonds (and reduced loans). SpareBank 1 Nord-Norge has established a goal of pure core capital adequacy of 12.5% or higher in 2015. As at 01.07.08 a large portion of the Bank’s interest-bearing securities in the trading portfolio were reclassified from “fair Several measures are planned to achieve this goal: value through profit and loss” to categories that are valued at the amortised cost. If the reclassification had not been • various measures for increasing earnings performed, the Group would have had to recognise a charge • reduced rate of dividend of NOK 212 million as an unrealised loss during the last half • reduced lending growth, especially in the corporate market of 2008 due to higher credit spreads. This figure would have • application for IRBA approval been an unrealised gain of NOK 3.9 million as at 31.12.12. • measures to increase utilisation of capital • reduction of the Bank’s stake in Sparebank 1 Oslo Akershus The increase in the portfolio of commercial paper and bonds (completed early 2013) in recent years entails only a slight degree of increased risk. • utilisation of capital allocated to the Savings Bank Foundation SpareBank 1 Nord-Norge • other measures Capital adequacy SpareBank 1 Nord-Norge was granted a permit by the Financial Corporate governance Supervisory Authority of Norway to use internal measuring methods (Internal Rating Based Approach) for credit risk as The governance of SpareBank 1 Nord-Norge is based on the of 01.01.07. Norwegian Accounting Act and the principles stated in the Norwegian Code of Practice for Good Corporate Governance. Capital adequacy as at 31.12.12 Group Parent Bank SpareBank 1 Nord-Norge conforms with the Norwegian Accounting Act and the principles stated in the Norwegian 2012 2011 2012 2011 Code of Practice for Good Corporate Governance. Reference is made to the separate section in the annual report on Pure core capital 10.31 % 10.62 % 12.45 % 12.74 % “Corporate Governance” which also covers the requirements adequacy ratio of Section 3-3b of the Norwegian Accounting Act. The chapter Core capital describes in more detail how recommendations are followed 12.11 % 11.61 % 14.61 % 13.75 % adequacy ratio up in Sparebank 1 Nord-Norge. Supplementary capital adequacy 1.08 % 0.89 % 1.61 % 1.37 % Corporate governance at SpareBank 1 Nord-Norge is defined as ratio the goals and general principles according to which the Bank Total capital 13.19 % 12.50 % 16.22 % 15.11 % is managed and controlled in order to safeguard the interests of adequacy ratio the Bank’s equity certificate holders and any other stakeholders in the Bank. The Group’s principles for good corporate If the full impact of the IRB approach is included (without governance should ensure prudent asset management and give a “floor”) the Group’s pure core capital adequacy ratio greater confidence that the communicated goals and strategies amounts to 11.41%. The Group’s financial strength is deemed are realised and achieved. satisfactory. The Bank’s equity certificates are listed on Oslo Børs. The Given that the European Banking Authority (EBA) has decided Articles of Association include no regulations that limit their in the latest Capital Requirements Directive (CRD IV) that negotiability. The Main Board of Directors is not aware of any the level of pure core capital in the largest banks must be a agreements between the Bank’s equity certificate holders that minimum of 9% by no later than 30.06.12, the Norwegian limit the negotiability of equity certificates, or the exercising of authorities have also imposed this requirement on Norwegian the voting rights they represent. banks. SpareBank 1 Nord-Norge’s core capital adequacy as at 31.12.12 satisfied this requirement.
24 Risk and capital management Business risk Risk and capital management is one of the Main Board of Many European countries continue to face substantial Directors’ priority areas, and it supports the Group’s strategic uncertainty and significant economic challenges. At the ambitions, goals and development. The Group stresses the same time, the Norwegian economy is performing well. importance of good risk management ensuring financial With low interest rates and low unemployment, North stability and prudent asset management over time. Norwegian households maintained a good, healthy economy in 2012. The investments in the region picked up The Group’s control and management model clearly defines through 2011, and have been high in 2012. This suggests responsibilities and roles. SpareBank 1 Nord-Norge invests that the business sector is taking part in the increased a great deal of resources in establishing, following up and value creation in the region, although it is also affected by developing the Group’s quality and risk management systems a weakened international market. Positive signals related and processes. to the economic development in the northern regions are giving North Norwegian households and businesses good The Group’s principles and framework for risk management faith in the future, and there continues to be an expectation and internal control are set out in the Bank’s “Policy for Risk of increased growth and value creation. Management and Compliance”. This is reviewed annually by the Main Board of Directors and forms the Group’s internal The equity ratio in the Norwegian business sector remains framework for good management and control. The framework high, but the debt servicing capacity is somewhat weaker in provides guidelines for the Group’s overall attitude towards certain industries. After several years of growth in housing risk management, and it should ensure that the Group has an prices and credit, households’ debt burden has risen to effective and appropriate process for this. a high level. If incomes in the Norwegian economy were to fall, this would be a significant risk factor for financial Reference is also made to separate sections in the annual report stability. on Risk and Capital Management and Corporate Governance, where risk management and internal control are dealt with in A prolonged slump in Europe could be a challenge for the more detail. Norwegian economy. Demand for goods and services is still weak, and unemployment is high in many countries. There is still much uncertainty in the eurozone, which is Internal control contributing to restricting access to credit and thus reduced investment and low growth in the future. Development The Main Board of Directors reviews the framework for is particularly weak in the heavily indebted southern management and control and the ongoing follow-up of the European nations. development of key quality and risk indicators annually. All the managers confirm annually that laws, regulations, Norwegian banks’ borrowing costs have increased sharply guidelines and routines are complied with. A systematic in recent years, but this has improved in the last half of review is also carried out by the risk management and 2012 with reduced credit margins and lower money market compliance department, to determine whether management rates. New and stricter requirements for financial strength and reporting systems are actively used in the follow-up of and liquidity entail that the Bank’s earnings must improve, each individual profit centre. and this must be realised through increased revenues, improvements in operational efficiency and good capital The Main Board of Directors receives an annual independent management. assessment of the Group’s risks, and whether internal control is working in an appropriate and satisfactory manner. The independent assessment is carried out by the Bank’s internal Credit risk auditor and the responsible auditor. In 2012 the Group had good growth in lending to the retail market and high growth in lending to the corporate market. The development of the portfolio showed that the growth is in Risk management low and average risk loans.
Financial activities entail a need to control and manage risk. The Group’s credit portfolio in the corporate market has The Main Board of Directors stresses the importance of good a moderate level of risk while the risk in the retail market risk management as a strategic tool to increase added value, portfolio is considered to be very good. Risk development in and is responsible for monitoring the Group’s risk exposure. both markets is stable. Most of the loans to retail customers This monitoring is performed by defining limits for all the key are secured by mortgages on real property and the collateral business and risk areas, which are measured and reported in coverage is good. The level of defaults and net losses has risen accordance with the guidelines adopted by the Main Board of slightly in 2012, due to a negative development in a large Directors. commitment. The overall performance of the credit portfolio shows that economic development in the region is strong. The department of risk management prepares a quarterly summary of the risk picture for the Group. This forms the foundation for the Main Board of Directors’ discussions and evaluations of necessary measures. A key part of this review is an assessment of the Group’s financial strength, profitability and efficiency seen in regard to developments in the underlying portfolios and risks. SpareBank 1 Nord-Norge Annual Report 2012 25 Annual Report
The credit strategy emphasises the establishment of targets In connection with the implementation of Basel III and new and limits for the ongoing management of credit risk. The liquidity requirements, the Group’s overall liquidity risk will Bank’s rules and regulations relating to the granting of credit receive a great deal of focus by the Bank. The area will also and the associated authorisations are linked to the probability be prioritised in 2013, both with regard to ongoing follow-up, of default and collateral coverage, and they apply within the stress testing and reporting. For the same reason, a prudent credit strategy and overall credit policy guidelines. The rules funding strategy continues to be required. It must take different and regulations relating to the granting of credit are reviewed considerations into account, such as weighing between the annually by the Main Board of Directors. desire for low borrowing costs in the capital market and the costs related to the diversification of the Bank’s funding with The Main Board of Directors continuously monitors the risk in regard to the term to maturity and funding sources. the Bank’s loan portfolio to identify trends as early as possible and if necessary adjust the credit policy. The Main Board of Directors considers the Group’s liquidity strategy and contingency plans at least once a year.
Market risk The Group’s deposit coverage ratio was 75.6% as at 31.12.12, Despite the financial unrest internationally, the Bank’s market compared with 80.9% in 2011 and 80.3% in 2010. The Group risk must be classified as moderate. The portfolio of assets has had a positive trend in the deposit coverage ratio over the that are directly exposed to market fluctuations represents a last several years. The decline in the deposit coverage ratio in small part of total assets, and the Bank is involved in securities 2012 is due to high lending growth and negative deposit trends trading for own account to a limited degree only. from the public sector. A stable development in customer deposits is important to the Bank’s liquidity management, and The book value of shares and units as at 31.12.12 was NOK the Bank expects that new liquidity buffer requirements and 553 million, a reduction of NOK 54 million from last year. The the monitoring of liquidity risk will increase competition for bond and commercial paper portfolio totalled NOK 12,444 stable customer deposits. million as at 31.12.12. This is an increase of NOK 1,210 million from 31.12.11. Operational risk Stress tests for market risk show that the Bank and Group have There is growing interest in, and understanding of, the the ability to keep their level of risk within the adopted limits. importance of managing operational risk. In this context, Changes in market values, together with the profit contribution separate systems for monitoring, documenting and reporting from associated companies, mean that profits may be exposed of risk and improvement areas have been established. to greater fluctuations than was previously the case. Stricter requirements for financial strength will require a stronger Much attention has been focused on external threats such focus on the Group’s capital use and total risk tolerance. as crime and fraud. Risk analysis is performed based on the Financial Supervisory Authority of Norway’s Risk and Vulnerability Analysis and the Financial Services Industry’s Liquidity risk threat assessment. The Bank’s liquidity risk is regarded as moderate. SpareBank 1 Boligkreditt AS and SpareBank 1 Næringskreditt AS represent With the inherent risks in the use of information technology, important sources of funding for the Group, and there is the area is subject to ongoing monitoring. Internal audit also still considerable potential for increased transfer of loans to conducts independent reviews and tests of the Bank’s security these companies. When consideration has been given to the in the area. Incidents that have affected, or may affect, the expected growth in lending and the refinancing of current Group’s profitability and/or its reputation are followed up capital market funding on maturity, the Bank is of the opinion systematically. There is also a close collaboration within the that the refinancing needs in 2013 are fully manageable. SpareBank 1 Alliance to ensure good and stable operations. There have not been any serious incidents in 2012, and the Debt arising from the issuance of securities and debt to credit operational losses were low. institutions was NOK 23,197 million as at 31.12.12, an increase of NOK 3,409 million compared with 2011. Work in the area The area is under satisfactory supervision in the opinion of the of liquidity is a focus area and assigned a high priority by the Main Board of Directors, but a continuous focus on this area Bank. is required.
On 06.01.13 the Basel Committee’s control body unanimously approved the Committee’s proposal for the LCR (Liquidity Coverage Ratio) as a minimum standard. The proposal entails an easing of the definition of LCR as compared with the published definition in 2010: Important changes are: • An expanded definition of “High Quality Level 1 Assets” • Reduction in the rates for “net cash outflows” • A clarification that the liquidity reserves can be used in turbulent economic times • The importance of having access to central bank reserves is clarified. • The LCR standard shall be phased in over a 4-year period.
26 Ownership risk New regulatory requirements The ownership interests in joint ventures have increased The Basel Committee has recommended a new and stricter set significantly in recent years and total NOK 2,407 million (cost of regulations for capital and liquidity for banks, the so-called price for the Parent Bank) and NOK 3,514 million (Group) as at Basel III standards. The Basel III-standards entail, inter alia, 31.12.12. These joint venture companies are important to the stricter requirements for the extent and quality of core capital, Group’s overall business model, and the Bank is continuously where pure core capital shall constitute 4.5% compared with assessing what ownership interests are strategically important 2% currently, and core capital shall be 6% compared with the and which interests can be classified as financial investments. current 4%. The subordinated capital requirements are held At the start of 2013, the Bank reduced its ownership interest in unchanged under the standards at 8% of the calculation basis, Bank 1 Oslo from 19.5% to 4.8%. The profit contribution from which is a risk-weighted balance. Furthermore, the Basel the joint venture companies is also important to the Group’s Committee proposes the introduction of a new unweighted overall profitability, and can result in more volatility in results equity ratio requirement (so-called loan to value ratio), and influence capital adequacy. requirements for capital conservation buffers, requirements for countercyclical capital buffers and quantitative liquidity The risk in the various companies is moderate, but the Bank is requirements. The capital conservation buffer requirements indirectly exposed to significant market risk through its equity entail that the Banks must hold pure core capital of 2.5% of the stake in the Sparebank 1 Gruppen. calculation basis in addition to the minimum requirements. In order to protect the bank system from the consequences of For SpareBank 1 Gruppen and Bank 1 Oslo, the Bank maintains strong credit growth, the banks must hold a countercyclical a capital adequacy reserve, while, for the ownership interests capital buffer of a similar size in periods with strong credit in SpareBank 1 Boligkreditt, SpareBank 1 Næringskreditt growth. and BN Bank, the Bank uses proportional consolidation for calculation of the regulatory capital requirement. On 20.07.11 the European Commission published its proposal for the implementation of the Basel III standards for banks The risk-adjusted capital is calculated for all the significant in the EU area, the third revision of the capital requirements risk areas. This is an important prerequisite for assessments directives to the EU, also called the CRR/CRD IV regulations. related to risk exposure, capital buffers and solvency targets The proposal entails that the EU’s current capital requirements in order to secure the Group’s operations even under stressed directives be replaced by an ordinance containing, inter alia, market conditions. requirements for the institutions’ financial strength and liquidity management as well as a new directive that regulates An overall goal is to ensure that the Group’s combined risk the right to engage in business operations as a financial level is moderate and within the limits determined by the institution and securities firm. Group’s capital and other provisions. The goal is that the Group shall have an earnings and profit performance within The Commission’s proposed ordinance contains some room acceptable stability and predictability limits through good risk for national variations such as quicker introduction of the management. EU’s new common regulations, higher risk weights for loans secured by residential and commercial property, and stricter equity ratio requirements for such loans. Capital management The aim of SpareBank 1 Nord-Norge is to manage all The EU commission has arranged matters such that any separate significant risks on par with the best practice for comparable requirements for system-critical banks and extra requirements banks. SpareBank 1 Nord-Norge has established processes to based on the supervisory authorities’ pillar II evaluation, shall assess the capital requirements in light of the risk profile and be in addition to the new minimum requirements and buffer the quality of the established risk management and control requirements. Pillar II concerns the supervisory authority’s systems. own, supplementary evaluation of the individual institution’s aggregate risk. The capital adequacy regulations place minimum requirements on pure core capital, core capital and subordinated capital Norwegian authorities will continue to emphasise the use and encompass credit risk, market risk and operational risk. of national leeway in order to have a set of regulations that There is also a requirement that financial institutions must contribute to financially sound banks. Based on financial perform an Internal Capital Adequacy Assessment Process stability considerations, the Norwegian authorities assert that (ICAAP). The Financial Supervisory Authority of Norway there are good reasons to strengthen capital requirements has provided guidelines for the content of the process, and for banks, and introduce the new capital and liquidity the capital adequacy assessment shall include all significant requirements from the EU and the Basel Committee more risks, including risks beyond the regulatory minimum quickly than the planned schedule shown in Basel III and the requirement. The assessment shall be forward-looking and EU Commission’s proposed regulations. Early implementation based on satisfactory methods and data. Uncertainty relating was also signalled in the Financial market white paper to the calculations, methods and data must also be taken into (Finansmarknadsmeldinga) in 2011. Early in 2013 the Ministry account. The Group’s risk and capital situation is assessed and intends to propose new legislation for the introduction of summed up in a separate report to the Main Board of Directors anticipated EEA regulations. This will correspond with the every quarter. new EU rules in the so-called CRR/CRD IV regulations on capital and liquidity for banks, other financial institutions The Group’s financial strength targets are included as a key and securities firms. If the Storting passes new laws in spring figure in the strategy and planning process. 2013, and CRR/CRD IV is adopted by the EU, then as early
SpareBank 1 Nord-Norge Annual Report 2012 27 Annual Report
as the second half of 2013 it will be appropriate to establish The Main Board of Directors considers the Bank’s revised new regulations including stricter requirements for the extent internal capital target, 12.5% pure core capital adequacy and quality of core capital, requirements for buffers and or higher in 2015, to be well within the new regulatory unweighted equity ratio reporting requirements. requirements (Basel III).
In Norway it is considered that we have a high level of The financial strength of the Bank and the Group are deemed household debt, strong credit growth and high housing prices satisfactory. Reference is also made to the section on capital as particular challenges. From the perspective of systemic risk, adequacy. the authorities therefore consider there to be good reasons to sharpen the requirements of the models used by the banks in determining capital requirements for housing loans. A Auditing systemic risk premium on the risk weights of housing loans can be implemented in various ways. Either the introduction The Group’s external auditor is KPMG. of a floor for one or more of the parameters that is used to Internal auditing is performed by Ernst & Young, which reports calculate the capital requirements under the IRB method, to the Main Board of Directors. the use of a multiplier, or the introduction of a risk-weighted floor as in the standard method. The introduction of such Reference is otherwise made to a description of the Bank’s minimum requirements could be an alternative to continuing risk and capital management in the Capital Requirements the so-called Basel I floor. The Ministry aims to submit for Directive/Basel II (Pillar 3) document at www.snn.no consultation the proposal concerning stricter requirements for the banks’ calculation models in spring 2013. Research and development activities As a result of the debt crisis in Europe and the attendant increase The Bank carries out its own business development and in systemic risk, the European Banking Authority (EBA), participates in a comprehensive development cooperation introduced a requirement that pure core capital adequacy within the SpareBank 1 Alliance. The Bank has gathered this shall, as a minimum, account for 9% of risk-weighted assets by activity in a separate development department employing 30.06.12 (including the IRB floor). The buffer shall not be used seven full-time equivalents. The department is responsible for to cover state risks, but to resist stress/shock and contribute innovation, development projects and the implementation of to the maintenance of an acceptable capital adequacy. Banks new solutions in the Bank. that do not satisfy this requirement must prepare plans for satisfying the requirements of the national authorities. Any The development of new solutions principally takes place failure to satisfy them may result in demands for limitations in network-based competence centres in the SpareBank 1 in distributions of dividends and the payment of bonuses. The Alliance. In 2012 the Alliance invested about NOK 182 million Financial Supervisory Authority of Norway has introduced in such development projects. the same requirements for Norwegian banks, and SpareBank 1 Nord-Norge satisfies these requirements as at 31.12.12. The Bank publishes the Business Barometer for North Norway twice a year. The Business Barometer highlights the status and expected developments in the region. The purpose of The Group’s capital targets the publication is to increase knowledge about economic The Group’s capital situation is assessed in relation to the and regional developments in the north. The development adopted capital strategy. department also conducts ongoing external and competitor analysis, that make important contributions to the Board of The capital plan is revised annually to ensure good long-term Directors’ strategy work. capital management and support the goal of maintaining the Bank’s current credit rating and safeguarding the Group’s The Bank does not engage in activities that can be characterised access to long-term funding. SpareBank 1 Nord-Norge’s as research. But through the SpareBank 1 Nord-Norge assessments of the capital requirements are based on various Fund (SNN Fund) the Bank disbursed funds to a number of forward-looking scenarios, where the Group’s business plans knowledge-based and research-based causes in the region and changes in framework conditions and terms are also taken during 2012. In this way, the Bank contributes to research into consideration. activity that develops new knowledge in important areas.
The Main Board of Directors has revised the Bank’s capital targets based on the new regulatory requirements (Basel III), projection of the expected development and a scenario involving a serious economic recession over several years. The revised targets entail that the pure core capital adequacy ratio shall be 12.5% or higher of the risk-weighted asset base, during the course of 2015. In addition, the Group has a goal that the core capital adequacy must have adequate buffers such that the pure core capital adequacy does not fall below 9% in a crisis scenario.
28 Subsidiaries At the start of January 2013 the three above named companies SpareBank 1 Finans Nord-Norge AS were merged, with Merkantilservice as the overtaking The company has commercial responsibility for the product company. The name of the merged company has been changed areas leasing and vendor’s fixed charge financing, and its to SpareBank 1 Regnskapshuset Nord-Norge AS. primary market area is in North Norway. The Parent Bank and SpareBank 1 Regnskapshuset Nord-Norge AS had a total of 55 capital goods suppliers are important distribution channels for employees in Hammerfest, Alta, Tromsø, Balsfjord, Finnsnes the company. and Harstad as at 31.12.12.
EiendomsMegler 1 Nord-Norge AS Direct ownership in companies in the The company is wholly owned by SpareBank 1 Nord-Norge and is engaged in real estate brokerage in North Norway. The SpareBank 1 Alliance and strategic company is a member of a nationwide alliance with other ownership interests companies owned by SpareBank 1 banks. BN Bank BN Bank provides financial services in the retail and corporate SpareBank 1 Nord-Norge Invest AS markets. It is purely an online bank in the retail market. In the The company is wholly owned by SpareBank 1 Nord-Norge. corporate market, BN Bank is a significant player in the field of The company’s objective is to participate, on a commercial commercial real estate financing, and BN Bank has corporate basis, with equity capital, networks and competence in market offices in Oslo and Trondheim. SpareBank 1 Nord- companies that conduct business primarily within the Bank’s Norge owns 23.5% of BN Bank. market area.
The company will be liquidated/restructured and in SpareBank 1 Boligkreditt AS connection with this the company’s portfolio is scheduled to SpareBank 1 Boligkreditt’s object is to fund first priority be transferred to the Parent Bank. mortgage housing loans for the banks in the SpareBank 1 Alliance. The banks transfer housing loans to SpareBank 1 Boligkreditt before the company funds itself in the Norwegian North-West 1 Alliance Bank and international capital markets by issuing so-called covered In September 2010, SpareBank 1 Nord-Norge established banking bonds. SpareBank 1 Boligkreditt’s covered bonds are rated Aaa operations in Russia through North West 1 Alliance Bank. and AAA respectively by Moody’s and Fitch. As at 31.12.12 SpareBank 1 Nord-Norge holds a 75% ownership interest in the SpareBank 1 Nord-Norge owns 13.46% of SpareBank 1 bank, while 25% of the shares are owned by SpareBank 1 Nord- Boligkreditt. Norge’s Russian partner Bank Tavrichesky i St. Petersburg. The head office is located in St. Petersburg with a branch office in Murmansk. SpareBank 1 Næringskreditt AS SpareBank 1 Næringskreditt’s object is to fund first priority North-West 1 Alliance Bank employed 71 full-time equivalents as commercial real estate loans for the banks in SpareBank 1 at 31.12.12. At the same date, the balance sheet total of the bank Alliance. The banks transfer first priority loans to SpareBank 1 was equivalent to NOK 392 million. Næringskreditt before the company funds itself in the Norwegian and international capital market. SpareBank 1 Næringskreditt’s The principal objects of the North-West 1 Alliance Bank are to bonds are rated Aa3 by Moody’s rating agency. As at 31.12.12 provide financial products and services to Nordic companies and SpareBank 1 Nord-Norge owns 16.16% of SpareBank 1 persons operating businesses in Russia. A secondary target group Næringskreditt. is Russian retail customers and smaller companies. Importance is attached to operating the business with a low to moderate level of risk. Bank 1 Oslo Akershus Bank 1 Oslo Akershus operates under the market name SpareBank 1 Oslo Akershus. The main customer groups SpareBank 1 Nord-Norge Forvaltning ASA for the bank are in retail banking, small and medium sized The company is a wholly owned investment firm that provides companies and the organisation market - primarily the trade discretionary investment management of client assets. union movement.
SpareBank 1 Nord-Norge owns 19.5% of Bank 1 Oslo Akershus SpareBank 1 Regnskapshuset Nord-Norge AS as at 31.12.12. In 2011 the Bank founded the company SNN Økonomihus Holding AS. The object of the company is to participate in other In January 2013, an agreement has been entered into to reduce companies and activities in the field of financial management the bank’s stake in Bank 1 Oslo Akershus to 4.8%. This and accounting, and other businesses with a natural connection agreement has been entered into together with SpareBank 1 to the Bank’s activities. At year-end the company had no SR-Bank and SpareBank 1 SMN, with Sparebanken Hedmark employees. Since its inception, SNN Økonomihus Holding AS as the buyer. The agreement is conditional on final approval has been wholly owned by the Bank and owns 100% of the from the Financial Supervisory Authority of Norway. companies Consis Alta AS and Merkantilservice AS.
SpareBank 1 Nord-Norge Annual Report 2012 29 Annual Report
Personnel
SpareBank 1 Verdipapirservice AS Group’s employees The company was established in the Alliance in autumn 2012, SpareBank 1 Nord-Norge is a strong and important contributor and will engage in discretionary investment management for to society that offers a high level of expertise and nearness clients. The company is located in Tromsø and will commence to the local community and business sector. The Group is business operations in 2013. known for high profitability and capable employees that create added value for the customers through good financial advice. SpareBank 1 Nord-Norge’s ownership interest is 24.9% as at SpareBank 1 Nord-Norge focuses on good financial advice, 31.12.12. where the success criteria are staff expertise and building good relationships in the Group’s bank offices. Based on systematic feedback from customers, the Bank continuously works on SpareBank 1 Kundesenter AS improving the quality of customer meetings. The company is an Alliance company, established in autumn 2012, which shall offer Alliance customers a common customer One of the Bank’s stated aims is that all advisors and bank centre that is open round the clock, in addition to the banks’ managers shall be authorised financial advisors. Through a own customer centres. Operations will commence in 2013. massive competence lift over the last few years, the Bank has now achieved this goal. The company is located in Stavanger and is owned by the various banks in the SpareBank 1 Alliance. SpareBank 1 Nord- Having access to and building up competence are Norge’s share is 23.5% as at 31.12.12. important in order to be a capable advisory bank. Therefore SpareBank 1 Nord-Norge prioritises successful recruitment practices, relevant skills enhancement, training and sharing SpareBank 1 Kredittkort AS experience. The company was established in autumn 2012 and will offer credit card services to Alliance customers. The Parent Bank SpareBank 1 Nord-Norge has had a relatively stable number of employees. In 2012, the Group had an The company is owned by the various Alliance banks. increase of 87 full-time equivalents, of which 2 were in the SpareBank 1 Nord-Norge’s share is 19.83% as at 31.12.12. Parent Bank, 26 in North-West 1 Alliance Bank and 4 in the other subsidiaries. SpareBank 1 Nord-Norge also acquired two companies within the field of accounting with a total of 55 full- SpareBank 1 Gruppen AS og SpareBank 1 Utvikling DA time equivalents. At year-end 2012, the Group employed 881 The SpareBank 1 banks conduct their alliance-related full-time equivalents, compared with 795 in 2011. cooperation and the development of product companies through the jointly-owned company SpareBank 1 Utvikling DA and the holding company SpareBank 1 Gruppen AS. IA agreement (Inclusive Working Life) SpareBank 1 Nord-Norge owns 19.5% of SpareBank 1 Gruppen The IA agreement’s main objectives are to prevent and reduce AS and 17.74% of SpareBank 1 Utvikling DA. absenteeism due to illness, improve job presence and the working environment and reduce dropout from the labour Reference is otherwise made to the comments on the SpareBank market. Through the IA agreement, SpareBank 1 Nord-Norge 1 Alliance and SpareBank 1 Gruppen in another section of the has strengthened and built up a good system for monitoring annual report. absenteeism due to illness. In addition, the Bank has received assistance from external experts regarding facilitation and advice in connection with physical and other adaptations to Bank Tavrichesky workplaces. In 2010, SpareBank 1 Nord-Norge opened banking operations in Russia through North-West 1 Alliance Bank, which is owned The result of this work now shows that the Bank’s absenteeism 75% by SpareBank 1 Nord-Norge and 25% by SpareBank due to illness is below the financial industry average. Managers 1 Nord-Norge’s Russian partner Bank Tavrichesky. Bank have increased their expertise in following up absenteeism Tavrichesky OJSC has its head office in St. Petersburg and due to illness through courses and practical advice, and help branches in seven Russian cities, including Murmansk. The and support in individual cases. In addition, the Bank has Bank is the 11th largest regional bank in Northwest Russia, established good working relationships with fixed contact and its activities are mainly aimed at small and medium persons in the Norwegian Labour and Welfare Administration’s sized businesses. SpareBank 1 Nord-Norge owns 10% of Bank Working Centre (NAV). Tavrichesky.
Health, safety and the environment (HSE) SpareBank 1 Nord-Norge seeks systematically to improve the working environment. In 2012, the Bank’s organisational survey showed that the Group’s employees have a high level of job satisfaction and commitment. This is reflected by the employees’ high level of competence, high motivation and the responsibility and initiative they take in their work.
30 After the organisational survey, the prioritised improvement It is the Group’s ambition to improve the gender balance area is management. The Bank will continue to work on this, among bank managers through systematic skills development but is also currently focusing on personal leadership and the and individual support. understanding of the managerial role.
For the SpareBank 1 Nord-Norge Group, average absenteeism Ownership due to illness in 2012 was 4.85%, a reduction of 0.96 percentage points from 2011. Of this total, self-certified absence represents SpareBank 1 Nord-Norge has two owner groups. The Bank’s 0.69 percentage points and doctor-certified absence was 4.16 equity certificate holders’ calculated fractional ownership of percentage points. Self-certified absence is stable whilst the Bank’s equity (equity certificate ratio) was 42.07% as at there has been a reduction in doctor-certified absences. This 01.01.12, whilst 57.93% of the equity was community owned. can partly be attributed to broader use of graded sick leave The Bank’s ownership policy states that the two groups shall certificates, which are an important component of the follow- be treated equally. The equity certificate ratio at 01.01.13 was up work. A study on persons on sick leave shows that graded estimated to be 41.59%. sick leave speeds up recovery times and reduces the incidence and extent of illness in the future. This may be related to the SpareBank 1 Nord-Norge’s equity certificate capital was NOK way in which the doctor, employer and NAV follow up the 1,655.2 million, divided into 66,208,987 equity certificates, person on sick leave. Better adaptation and increased attention with a nominal value of NOK 25 each. from all parties directed towards finding good solutions can contribute to reducing absenteeism due to illness. For 2012 the equity certificate holders are allocated 42.07% of the profit for the year. 57.93% is allocated to the community SpareBank 1 Nord-Norge seeks to prevent injuries from owned capital. robberies, threats or other serious events. There have not been any attempted robberies or other serious offences in 2012. The The Bank’s dividend policy states that the Bank aims to number of threats made to employees has declined from 5 distribute up to 50% of the profit for the year as a dividend incidents in 2011 to 1 incident in 2012. (cash dividends and donations to charitable causes) provided the Bank’s financial strength so permits. Stricter regulatory There were no occupational injuries reported in SpareBank 1 requirements for financial strength indicate that the practice of Nord-Norge in 2012. dividend policy will give a rate of dividend lower than 50% in the next several years.
Equal opportunities (discrimination) The dividend for the 2012 financial year has been set at NOK SpareBank 1 Nord-Norge is concerned about ensuring diversity 1.15 per equity certificate. This represents a distribution within the Group. The promotion of equal opportunities ratio of 35.1% to equity certificate holders. The dividend focuses on several dimensions, with special emphasis on equalisation fund totals NOK 456 million as at 31.12.12, after increasing the percentage of female managers. The Group’s the allocation of NOK 217 million from the profit for the year. employees are from a number of different nations. All new The dividend equalisation fund also includes the amount employees undergo an introduction programme to ensure that set aside for the distribution of a cash dividend of NOK 76 all the employees share a common understanding, confidence million. In accordance with IFRS, this is treated in the financial and level of quality in their encounters with customers. The statements as equity capital until the proposed cash dividend Group’s life phase policy gives special consideration to parents has been approved by the Supervisory Board. The dividend with small children and seniors. This is to ensure the best to the community-owned capital is distributed through the possible balance between work and private life. allocation of funds for charitable causes. This totalled NOK 30 million for 2012. The adopted dividend and allocation The Bank’s Board of Directors is comprised of eight elected to charitable causes from the profit for the year represents a members, in addition to the employee-elected representative’s payout ratio of 10.1% for the community owned capital. deputy who has a right to attend the meetings. The Board is composed of four women and four men. There are 23 women One of the Bank’s stated aims is that as many as possible of and 17 men (57.5% contra 42.5%) on the Bank’s Supervisory the employees shall own equity certificates issued by the Board. There is one woman and two men on the Control Bank. Therefore, private offerings as well as the sale of equity Committee. The gender distribution ratio for the entire Group certificates have been made to employees for a number of is 54.2% women and 45.8% men. years. This will also be the case in 2013.
Reference is also made to a more detailed section on ownership Gender distribution for managers in SpareBank 1 Nord-Norge in the annual report. Women Men Total Group management 2 5 7 Customer-oriented operations 22 43 65 Staff 3 16 19 Subsidiaries excluding Russia 10 18 28 Total 37 82 119 % 31,1 % 68,9 % 100 %
SpareBank 1 Nord-Norge Annual Report 2012 31 Annual Report
Environment and climate One of the main aims adopted by SpareBank 1 Nord-Norge is When undertaking major purchases for the Group, SpareBank 1 that the Bank shall be a resource effective and environmentally Nord-Norge sets environmental requirements for the suppliers. efficient organisation, with a good and inspiring working When signing contracts a HSE declaration must be submitted, environment. The Group shall be a creative and stimulating which obligates the supplier to fulfil statutory requirements for facilitator for continuous improvement of the working health, safety and the environment in Norway. The provider environment and the external environment. shall also document their environmental policy and their environmental programme in relation to products and “green SpareBank 1 Nord-Norge’s ambition is to certify its entire waste management” of packaging. In addition, information operations in accordance with the “Eco-Lighthouse” principle. is required about whether the provider is ISO certified or The head office was certified in 2010, while all the regional offices has implemented an equivalent quality control system. will attain the certification during the first quarter of 2013. The The environmental emphasis during competitive tendering Eco-Lighthouse is Norway’s most frequently used certification varies depending on what products the Group is seeking to scheme for enterprises that wish to document environmental purchase. efforts and demonstrate social responsibility. Being certified as an Eco-Lighthouse enterprise entails systematic work on Being in good shape is an important aspect of the Eco- environmental measures in day-to-day business operations. Lighthouse work. One of the Group’s goals is to minimise the The requirements involve the implementation of measures to use of motor vehicles and strive for environmentally friendly improve the environmental friendliness of operations and for alternatives. By using the “apostles’ horses” to and from a good working environment. The certificate is recognised by work, employees improve their fitness while also helping the the authorities in public procurement. environment.
Through an annual statement that documents the Group’s The Group management see the importance of being in good consumption, recycling rate and shape, and there is therefore a focus on physical activity in energy consumption, the Group’s CO2 emissions and impact many of the Bank’s offices. Many of the employees have active on the external environment can be determined. The Group breaks with different physical activities. A system has been prepares energy and climate accounts and follows the established to enable the employees to have their exercise international standards set out in The Greenhouse Gas Protocol expenses reimbursed, and there is an exercise award scheme and ISO 14064. It is the third time that the Bank has prepared for those who are active. Company sports teams are also very such an annual statement. active in several sports.
Annual greenhouse gas emissions (tonnes of CO2e) In 2012 the Group used 11,000 MWh of electricity from the power grid and 49 MWh in the form of heating oil. 50,120 kg 1 400 of waste was produced, of which 36,720 kg was recycled or 1 200 sorted. This represents a recycling rate of 73%. Transport of
goods and passengers by vehicle and aircraft resulted in 879 1 000 tonnes of emissions. The emissions reported in the annual statement are followed up by the Bank’s management, and 800 constitute the reference amounts used in measures designed to minimise the Bank’s emissions. 600
The reduction in emissions from 2011 to 2012 has taken 400 place through a decline in emissions from passenger transport 200 (vehicles and aircraft) of 6%, and a reduction in consumption
of electricity and heating oil used for heating of 16%. The 0 Group’s total emissions were reduced by 4% from 2011 to Direct emissions, Indirect emissions, Indirect emissions, fossil fuels electricity and flights and waste 2012, from 2,216.5 to 2,127.5 tonnes of CO2 equivalents. heating 2010 2011 2012 Measures have been implemented to reduce the Bank’s travel activities, including facilitating video conferences, online Annual energy consumption (MWh) meetings and phone meetings; the Group’s company car 14 000 scheme also stimulates the purchase of vehicles with low emissions. 12 000
10 000 The Group is continuously developing new products that
reduce the impact on the environment. Online loans, mobile 8000 banking, SMS services and electronic distribution of the Bank’s annual report reduce the need for transport and consumption of 6000 paper. In 2012 the Bank has continued its work on developing electronic payment solutions for companies and the public 4000 sector. 2000
0 Fossil fuels Electricity and heating 2010 2011 2012 32 Our commitment to Support and donations to the region the local communities Amounts in NOK 1 000
As a leading financial institution, SpareBank 1 Nord-Norge SNN Fund Sponsor agreements takes responsibility for developing and looking after the Cultural purposes 16 912 Sports and athletics 23 954 Sports and athletics 17 243 Cultural purposes 2 267 region in which the Bank operates. SpareBank 1 Nord-Norge’s Knowledge-based Knowledge-based corporate social responsibility and commitment is highlighted and research 10 828 projects 989 through donations from the SpareBank 1 Nord-Norge Fund, commercial sponsorship agreements, the provision of knowledge in connection with developing and publishing Knowledge-based role Foundations the Business Barometer for North Norway and the activities Business Barometer SNN Art Foundation of three foundations that have been established at the Bank’s for North Norway* SNN Cultural Foundation initiative. Build and share our competence* Sparebankstiftelsen SpareBank 1 Nord-Norge The SpareBank 1 Nord-Norge Fund is the main pillar of the Bank’s commitment to corporate social responsibility. Each year support is provided to several hundred projects that contribute to activities and diversity within culture, sport, Cultural purposes 19 179 (26,6 %) knowledge and research. The distribution of donations to Sports and athletics 41 197 (57,1 %) charitable causes is to be regarded as dividends from the Knowledge-based and research projects 11 817 (16,3 %) profit for the year to the community ownership of the Bank. Total 72 193 (100 %) In addition, the Bank’s commercial sponsorship agreements help to highlight the Bank’s corporate social responsibility. * Contributions not quantifiable The Bank’s sponsorship portfolio contributes to strengthening the Bank’s brand and to creating arenas for customer contact Savings Bank Foundation SpareBank 1 Nord-Norge and building relationships. The sponsorship support keeps In 2011 the Bank created the Savings Bank Foundation activities going at many levels and can often contribute as an SpareBank 1 Nord-Norge. The Foundation’s primary purpose initiator of new projects. In many cases the Bank also acts as is to pursue a long-term and stable ownership of SpareBank 1 a useful, active and constructive partner for culture, clubs and Nord-Norge, including the management of equity certificates associations. that were transferred to the Foundation at the time of its establishment, and as far as possible to participate in equity The purpose of the Savings Bank Foundation SpareBank 1 issues of SpareBank 1 Nord-Norge. The Foundation will also Nord-Norge is to pursue a long-term and stable ownership of make donations. the Bank. The Foundation shall continue the traditions of the savings banks through ownership of SpareBank 1 Nord-Norge, The reason for the establishment of the foundation was the and shall also make donations to charitable causes within the new Act on Financing Activity and Financial Institutions limits of the profit for the year in the foundation. Reference in 2009, which laid down regulations for equal treatment is made to a more detailed description of the foundation in a of the two owner groups of savings banks: the community separate section of the annual report. and the equity certificate holders. By this, earlier challenges associated with the so-called dilution of equity certificate SpareBank 1 Nord-Norge’s Cultural Business Development holders in connection with high distributions of dividends Foundation has a capital base of NOK 100 million, and shall to equity certificate holders, were solved. In 2009, the Bank make donations, provide loans and invest in cultural industry therefore adopted a new dividend policy that established activities and cultural production in the region. equal treatment of owner groups, including the same payout ratio of net profit as dividends and donations. This could, The purpose of SpareBank 1 Nord-Norge’s Art Foundation is to however, lead to very large distributions of dividends (read: manage the Bank’s art collection, invest in new art and provide donations) to the community as owner - an owner which the works of art to institutions in the region. The three foundations Bank cannot expect to participate in future equity issues. Over share offices in Tromsø and employ two staff members. time, this could have led to a crumbling of the Bank’s social ownership, which was not considered to be in the Bank’s or the community owners’ interest.
On this basis, the Supervisory Board resolved to establish the Savings Bank Foundation SpareBank 1 Nord-Norge, where the Bank’s intention is that parts of the annual dividend (donations) to the community shall be made to the Foundation. Thus, the Foundation will be able to build up capital that can be used in connection with future equity issues by the Bank. Over time, a larger part of the Bank’s community ownership will thus be managed by the Foundation. As at 31.12.12 a total of NOK 227 million has been transferred from the Bank to the Foundation. In addition, NOK 31 million was transferred at the start of 2013. This amount represents donations from prior years that were allocated but not used.
SpareBank 1 Nord-Norge Annual Report 2012 33 Annual Report
The Foundation participated in the Bank’s private placement The Main Board of Directors in 2011 with an amount of NOK 33.7 million. In March 2013, and Group management the Bank’s Supervisory Board authorised the Main Board of Directors to carry out a private placement directed towards The Bank’s Main Board of Directors, which is chaired by the Savings Bank Foundation SpareBank 1 Nord-Norge for an Kjell Olav Pettersen, had 18 meetings in 2012. During the amount up to NOK 500 million, applicable until 30.04.15. Any Supervisory Board meetings in 2012 two new members were issue will be carried out on market terms. elected to the Main Board of Directors: Sonja Djønne, who has previously served as Deputy Chairman of one of the Bank’s Regional Boards and Greger Mannsverk who has not previously SpareBank 1 Nord-Norge’s Cultural held a position in the Bank. Business Development Foundation In 2010 the Bank’s Main Board of Directors submitted a The Group management consists of seven persons. Work proposition to the Supervisory Board to establish a Cultural undertaken to find a new CEO was completed in 2012. On Business Development Foundation with a capital base of 03.05.12 the Main Board of Directors appointed Jan-Frode NOK 100 million. In 2012 Sparebank 1 Nord-Norge’s Cultural Janson as the new CEO. He formally took up the position on Business Development Foundation was officially established, 01.01.13. with a separate Board and general manager. The remuneration committee evaluates the remuneration of The purpose of the Foundation is to contribute to cultural the CEO and proposes any changes thereto. The committee business development for the public benefit in SpareBank 1 consists of the Chairman of the Main Board of Directors and Nord-Norge’s market area, i.e. North Norway and Svalbard. two other members and it is independent of any managerial Contributions can be made through regular subsidies, loans or employees. The Bank adapts its practice to the provisions investments. stipulated in the new regulations relating to remuneration in the financial sector, and the remuneration committee mandate Through the years SpareBank 1 Nord-Norge has been a major satisfies these provisions. contributor to cultural developments in North Norway. Through the inception of the Cultural Business Development The audit committee will prepare matters to be reviewed by the Foundation, SpareBank 1 Nord-Norge is contributing to Board that concern the monitoring of financial information and establishing a structure and a capital base that are historic the company’s internal control and risk management. The CEO in the context of North Norway. The target groups for the is responsible for making information and recommendations Foundation are professional performers and artists, producers available to the committee as required and upon request. The and organisations, and applicants who are in the process of committee consists of three members from the Main Board establishing themselves as professionals or producers. The of Directors. These are independent in accordance with the overall objective is to create more jobs in cultural industry definition in the Norwegian Code of Practice for Corporate within the Bank’s market area. The first call for proposals to Governance. be funded in autumn 2012 resulted in 114 applications from across the region. Please refer also to the chapter entitled “Corporate Governance” in the annual report.
SpareBank 1 Nord-Norge’s Art Foundation SpareBank 1 Nord-Norge’s Art Foundation was established in 2007. The primary objective of the Foundation is to assemble Macroeconomic conditions and administer a collection of artworks that is of significance to – outlook for 2013 the region. The artworks are displayed in the bank’s premises or are held in public institutions. At the start of 2013 there is a sense of optimism in the economy, but also a number of uncertain factors. The U.S. In connection with the exhibition of selected works owned by economy is performing better than it has in years, but it seems the Foundation at Nordnorsk Kunstmuseum (The Art Museum as though there is substantial political disagreement about of North Norway) in the summer of 2011, a comprehensive how fundamental economic challenges should be resolved. art book was created. In 2012 Nordnorsk Kunstmuseum was In the same manner as for many European countries, the high able to acquire a picture by David Hockney, Midnight Sun, level of government debt in the U.S. is a factor that will restrict Norway (2003) for its permanent collection. This is the only the potential for strong growth for many years to come. The example of the artist’s works with Norwegian motifs that has situation for Europe remains uncertain, with poor prospects of been purchased for a collection in Norway. The picture was a significant improvement in the near term. The very high and purchased with support from the SpareBank 1 Nord-Norge growing level of unemployment is worrisome. Growth rates in Fund and in cooperation with SpareBank 1 Nord-Norge’s China and a number of other emerging economies are strong, Art Foundation. The pictures is jointly owned by Nordnorsk and therefore a satisfactory rate of economic growth in the Kunstmuseum and SpareBank 1 Nord-Norge’s Art Foundation, global economy is forecast for 2013. and shall be displayed in the museum’s permanent exhibition.
34 For Norway, global growth is vitally important because it Strong growth in existing and new industries, combined with a ensures that the prices of the most important raw materials large public sector, are creating capacity problems in the north. remain firm and even increase. There is little reason to believe The situation is clearly apparent in the tight labour market, that oil prices will decline in coming years. This will ensure a with almost no unemployment and a strong need for labour high level of activity within exploration and extraction of oil migration. and gas in Norway and the rest of the world, and safeguard further growth in Norway’s most important industry. As a result of the robust economic growth, the housing market is, once again, in a state of imbalance. Following a period of Aquaculture and fisheries continue to have good opportunities substantial new housing construction activity prior to the for growth and value creation. There are good opportunities financial crisis in 2008, there have been relatively few housing to expand capacity in the aquaculture industry. Through starts in recent years. This has led to increasing pressure and effective efforts in international markets Norwegian farmed price increases in the housing market. salmon continues to find new markets. The prices appear to be stable at a satisfactory level. The traditional fisheries With low and stable interest rates, high wage growth and good typically cultivate populations of species that are sustainable prospects in the labour market, most people are not concerned and provide opportunities for good harvests. The quantity of about the high housing prices. Based on the sequence of events cod available is at a historically high level, and this has led to in other countries, several analytical groups and the authorities pressure on the prices of some traditional cod products. in particular are nevertheless concerned about a housing bubble beginning to be formed in Norway, and that eventually North Norway is impacted only to a limited extent by the a substantial fall in housing prices must be expected to occur. challenging and uncertain international economic situation. This is a scenario that the Bank seeks to take into consideration High oil prices have led to increased oil and gas activities in in its credit policy, by establishing requirements for the the Norwegian Sea and in the Barents Sea. This, in turn, has maximum loan to value and the customer’s debt servicing resulted in many new firms shifting their business operations capability even if interest rates were significantly higher. to the region. North Norway’s historic position as a rich However, it is more difficult to take into account the indirect fishing area is also strengthened - both through good capacity effects of a substantial decline in prices. If housing prices drop for further development of salmon farming and a favourable significantly, there is reason to believe that a number of service situation in the classic fisheries. industries will see a dip in earnings as a result of households’ weakened economic situation.
SpareBank 1 Nord-Norge Annual Report 2012 35 Annual Report
Both in Norway and internationally, the authorities are Concluding remarks concerned with ensuring that the bank sector will develop The annual accounts have been prepared under the assumption in a healthy manner and contribute to financial stability. The of continuation as a going concern. This assumption is based measures that have been proposed are stricter capital adequacy, on the Group’s long-term strategic plans and earnings forecasts plans for stricter risk weighting of banks’ housing loans and for the coming years. The Group has a healthy economy increased liquidity reserve requirements. The requirements and strong financial position. The Bank’s core operations in will reduce the banks’ ability to grow and impose significant particular show further improvement of earnings and continue changes on the banking sector. There is reason to believe that the to be very satisfactory. stricter requirements will lead to higher prices for customers, reduced dividends for the owners, lower credit growth and the There is continued optimism among business and industry in need for further efficiency gains in the banks. the region. Within prudent boundaries of credit quality and the Group’s financial strength, the Bank still wishes to take a This situation is challenging for SpareBank 1 Nord-Norge, natural part in the region’s economic growth potential in the when the Bank has both a strong desire to participate in and form of increased lending. As a result of regulatory requirements contribute to further growth in the north, and at the same for stricter capital adequacy, there is also a need to improve time must also introduce new liquidity and financial strength the Group’s financial strength. Therefore several measures are requirements from the authorities, and be perceived as planned to ensure that the Bank’s financial strength complies indisputably solid to be equipped for more difficult times. with the new requirements from the authorities, including measures to further improve profitability. During 2013 the Bank will implement the necessary measures to develop the Bank as a leading financial institution in North SpareBank 1 Nord-Norge will also be an active partner for Norway. This entails measures to increase revenues, for development in the region in 2013, and is well equipped to example through higher prices on loans to retail and corporate continue in a leading position in North Norway. customers, cost reductions and increased sales of additional products. In 2012, the Group’s employees have also worked hard to achieve the year’s results. The Main Board of Directors would There is reason to believe that 2013 will be a good year for like to thank everyone for their efforts and their important the Bank, and thus for the Bank’s various stakeholder groups. contribution to the development of the SpareBank 1 Nord- Credit growth in 2013 will be significantly lower than in 2012, Norge Group. The Main Board of Directors would also like due to greater scarcity of capital. Companies will notice this as to thank the Group’s customers and other associates for their it will be easier to fund good projects with high profitability cooperation in 2012. than less profitable projects. In the retail market, access to residential property financing will be good, but the terms and conditions of the credit will also be somewhat stricter.
With stricter bank requirements from the authorities, there is reason to expect that market competitiveness in general will remain somewhat subdued, but there will always be strong competition for the best projects.
Tromsø, 20 March 2013 Main Board of Directors of SpareBank 1 Nord-Norge
Kjell Olav Pettersen Pål A. Pedersen Roar Dons (Chairman of the Board) (Deputy Chairman)
Sonja Djønne Ann-Christine Nybacka Greger Mannsverk
Anita Persen Vivi Ann Pedersen (Employee-elected)
Jan-Frode Janson (CEO)
36 SpareBank 1 Nord-Norge Annual Report 2012 37 Annual Report
38 Annual report 2012
SpareBank 1 Nord-Norge Annual Report 2012 39 Annual Report
Annual Report - Income statement
Parent bank Group 2011 2012 Amounts in NOK million Notes 2012 2011 2 713 2 722 Interest income 20 2 845 2 823 1 700 1 688 Interest costs 20 1 679 1 694 1 013 1 034 Net interest income 1 166 1 129 483 590 Fee- and commission income 21 686 567 78 72 Fee- and commission costs 21 74 80 22 22 Other operating income 21 44 19 427 540 Net commission- and other operating income 656 506 11 16 Dividend 22 17 14 98 81 Income from investments 22 210 195 33 175 Gain/losses and net value changes from investments in securities 22 33 -25 142 272 Net income from investments 260 184 1 582 1 846 Total income 2 082 1 819 436 471 Personnel costs 23,25 581 514 472 483 Other operating costs 24,32 539 522 908 954 Total costs 1 120 1 036 674 892 Result before losses 962 783 97 224 Losses 14 195 101 577 668 Result before tax 767 682 141 153 Tax 26 172 157 436 515 Result for the year 595 525 Majority interests 595 525 Minority interests Result per Equity Certificate 2.55 3.34 Result per EC * 3.84 3.07 2.55 3.34 Diluted result per EC* 3.84 3.07 *Result multiplied by ECs’ share of result, divided by number of ECs Comprehensive income 597 515 Result for the period 595 525 Recalculation differences 1 -2 -4 -1 Effective part of change in fair market value in cash flow hedging -1 -4 Net change in fair market value of investment in joint ventures Net change in fair market value of financial assets available for sale 1 0 Tax on other comprehensive income 0 1 -3 -1 Other comprehensive income for the period 0 -5 594 514 Total comprehensive income for the period 595 520 Majority interest of total comprehensive income 595 520 Minority interests of total comprehensive income 0 0 Totalresult per Equity Certificate 2.53 3.34 Result per EC * 3.84 3.04 2.53 3.34 Diluted result per EC* 3.84 3.04 *Result multiplied by ECs' share of result, divided by number of ECs Tax on other comprehensive income: 1 0 Effective part of change in fair market value in cash flow hedging 0 1 Net change in fair market value of financial assets available for sale 1 0 Tax on other comprehensive income 0 1
40 Annual Report - Balance Sheet
Parent Bank Group 31.12.11 31.12.12 Amounts in NOK million Notes 31.12.12 31.12.11 Assets 1 869 244 Cash and balances with Central Banks 271 1 896 3 477 4 761 Loans and advances to credit institutions 10 1 871 970 48 345 50 670 Net loans and advances to customers 11 54 050 51 210 357 382 Shares 30 553 607 11 229 12 442 Bonds and certificates 29 12 444 11 234 850 1 240 Financial derivatives 17 1 234 850 356 402 Investment in Group companies 31,41 1 983 2 407 Investment in associated companies and joint ventures 31,41 3 514 3 019 502 504 Property, plant and equipment 32 515 508 Intangible assets 33 53 26 713 716 Other assets 34 756 719 69 681 73 768 Total assets 75 261 71 039 Liabilities 6 450 6 662 Liabilities to credit institutions 10 6 663 6 446 41 748 41 182 Deposits from customers 35 41 220 41 765 13 342 16 534 Debt securities in issue 36 16 534 13 342 517 713 Financial derivatives 17 713 519 926 839 Other liabilities 37,25 1 021 1 083 78 154 Deferred tax liabilities 26 183 107 1 356 2 095 Subordinated loan capital 39 2 095 1 356 64 417 68 179 Total liabilities 68 429 64 618 Equity 1 655 1 655 Equity Certificates 42 1 655 1 655 245 245 Premium Fund 245 245 333 456 Dividend Equalisation Fund 456 333 2 898 3 083 Saving Bank's Fund 3 083 2 898 133 150 Donations 150 133 Fund for unrealised gains -3 -4 Other equity 1 224 1 148 5 264 5 589 Total equity exclusive minority interests 6 810 6 408 Minority interests 22 13 5 264 5 589 Total equity 6 832 6 421 69 681 73 768 Total liabilities and equity 75 261 71 039
Tromsø, 20 March 2013
Kjell Olav Pettersen Pål A. Pedersen Sonja Djønne (Chairman) (Deputy Chairman)
Roar Dons Ann-Christine Nybacka Anita Persen
Greger Mannsverk Jan-Frode Janson Vivi-Ann Pedersen (Chief Executive Officer) (Staff Representative)
SpareBank 1 Nord-Norge Annual Report 2012 41 Annual Report
Annual Report - Changes in equity
Amounts in NOK million EC Pre- Dividend Saving Fair value Dona- Other Total Minority Total capital mium Equalisa- Bank's reserve tions equity Majority interests equity Fund tion Fund Fund Fund interests Group Equity at 01.01.11 896 123 566 2 829 -2 133 1 121 5 666 4 5 670 Total comprehensive income for the period Period result 169 228 39 89 525 525 Other comprehensive income: Net change in fair market value -2 -2 -2 of investment in joint ventures Effective part of change in fair -1 -2 -3 -3 market value in cash flow hedging Net change in fair market value of financial assets available for sale Total other comprehensive income -1 -2 -2 -5 -5 Total comprehensive income for the period 168 226 -2 39 89 520 520
Transactions with owners Dividend issue 759 122 -298 583 583 Set aside for dividend payments -93 -120 -213 -213 Reversal of dividend payments 93 120 213 213 Dividend paid 2010/ -103 -154 -39 -296 -296 other distribution Change in minority interests 9 9 Other equity transactions -3 -62 -65 -65 Total transactions with owners 759 122 -401 -157 -39 -62 222 9 231 Equity at 31.12.11 1 655 245 333 2 898 -4 133 1 148 6 408 13 6 421
Total comprehensive income for the period Period result 216 268 1 30 80 595 595 Other comprehensive income: Recalculation differences 0 0 Effective part of change in fair -1 -1 -1 market value in cash flow hedging Net change in fair market value 0 0 of investment in joint ventures Total other comprehensive income -1 -1 -1 Total comprehensive income for the period 216 267 1 30 80 594 594
Transactions with owners Set aside for dividend payments -76 -76 -76 Reversal of dividend payments 76 76 76 Dividend paid 2011/ -93 -83 -13 -189 -189 other distribution Change in minority interests 0 0 Other equity transactions 1 -4 -3 9 6 Total transactions with owners -93 -82 -13 -4 -192 9 -183 Equity at 31.12.12 1 655 245 456 3 083 -3 150 1 224 6 810 22 6 832
42 Annual Report - Changes in equity Annual Report - Changes in equity
Amounts in NOK million EC Pre- Dividend Saving Fair value Dona- Other Total Minority Total Amounts in NOK million EC Pre- Dividend Saving Fair value Dona- Other Total Minority Total capital mium Equalisa- Bank's reserve tions equity Majority interests equity capital mium Equalisa- Bank's reserve tions equity Majority interests equity Fund tion Fund Fund Fund interests Fund tion Fund Fund Fund interests Group Parent bank Equity at 01.01.11 896 123 566 2 829 -2 133 1 121 5 666 4 5 670 Equity at 01.01.11 896 123 566 2 829 133 4 547 4 547 Total comprehensive income for the period Share of Fair Value Fund * 3 5 8 8 Period result 169 228 39 89 525 525 Other comprehensive income: Total comprehensive income for the period Net change in fair market value -2 -2 -2 of investment in joint ventures Period result 169 228 39 436 436 Effective part of change in fair -1 -2 -3 -3 Other comprehensive income market value in cash flow hedging Recalculation differences -1 -2 -3 -3 Net change in fair market value of Effective part of change in fair financial assets available for sale market value in cash flow hedging Total other comprehensive income -1 -2 -2 -5 -5 Net change in fair market value Total comprehensive income for the period 168 226 -2 39 89 520 520 of investment in joint ventures Total other comprehensive income -1 -2 -3 -3 Transactions with owners Total comprehensive income for the period 168 226 39 433 433 Dividend issue 759 122 -298 583 583 Set aside for dividend payments -93 -120 -213 -213 Transactions with owners Reversal of dividend payments 93 120 213 213 Merger effects 759 122 -298 583 583 Dividend paid 2010/ -103 -154 -39 -296 -296 Set aside for dividend payments -93 -120 -213 -213 other distribution Reversal of dividend payments 93 120 213 213 Change in minority interests 9 9 Dividend paid 2010/ -103 -154 -39 -296 -296 Other equity transactions -3 -62 -65 -65 other distribution Total transactions with owners 759 122 -401 -157 -39 -62 222 9 231 Other equity transactions -3 -3 -3 Equity at 31.12.11 1 655 245 333 2 898 -4 133 1 148 6 408 13 6 421 Total transactions with owners 759 122 -401 -157 -39 284 284 Equity at 31.12.11 1 655 245 333 2 898 133 5 264 5 264 Total comprehensive income for the period Share of Fair Value Fund * 14 20 34 34 Period result 216 268 1 30 80 595 595 Other comprehensive income: Total comprehensive income for the period Recalculation differences 0 0 Period result 217 268 30 515 515 Effective part of change in fair -1 -1 -1 Other comprehensive income: market value in cash flow hedging Recalculation differences Net change in fair market value 0 0 Effective part of change in fair -1 -1 -1 of investment in joint ventures market value in cash flow hedging Total other comprehensive income -1 -1 -1 Net change in fair market value Total comprehensive income for the period 216 267 1 30 80 594 594 of investment in joint ventures Total other comprehensive income 0 -1 -1 -1 Transactions with owners Total comprehensive income for the period 217 267 30 514 514 Set aside for dividend payments -76 -76 -76 Reversal of dividend payments 76 76 76 Transactions with owners Dividend paid 2011/ -93 -83 -13 -189 -189 Merger effects other distribution Set aside for dividend payments -76 -76 -76 Change in minority interests 0 0 Reversal of dividend payments 76 76 76 Other equity transactions 1 -4 -3 9 6 Dividend paid 2011/ -93 -83 -13 -189 -189 Total transactions with owners -93 -82 -13 -4 -192 9 -183 other distribution Equity at 31.12.12 1 655 245 456 3 083 -3 150 1 224 6 810 22 6 832 Other equity transactions -1 1 0 0 Total transactions with owners -94 -82 -13 -189 -189 Equity at 31.12.12 1 655 245 456 3 083 150 5 589 5 589 *Part of equity which can not legally be paid as dividend.
SpareBank 1 Nord-Norge Annual Report 2012 43 Annual Report
Annual Report - Cash Flow Statement
Parent Bank Group 31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 577 668 Profit before tax 767 682 43 51 + Ordinary depreciation 54 47 -8 -4 + Write-downs, gains/losses fixed assets -4 -8 97 224 + Losses on loans and guarantees 195 102 141 153 - Tax 172 158 257 189 - Dividend paid on ECs 189 257
311 597 Provided from the year’s operations 651 408
-140 184 Change in sundry liabilities: + increase/ - decrease 213 -162 -219 -393 Change in various claims: - increase/ + decrease -448 -183 -2 164 -2 549 Change in gross lending to and claims on customers: - increase/ + decrease -3 035 -2 737 343 -1 238 Change in short term-securities: - increase/ + decrease -1 156 336 2 396 -566 Change in deposits from and debt owed to customers: + increase/ - decrease -545 2 376 349 212 Change in debt owed to credit institutions: + increase/ - decrease 217 323
876 -3 753 A. Net liquidity change from operations -4 103 361
-91 -53 - Investment in fixed assets -61 -95 8 4 + Sale of fixed assets 4 8 -161 -470 Change in holdings of long-term securities: - increase/ + decrease -495 -158
-244 -519 B. Liquidity change from investments -552 -245
-1 135 3 192 Change in borrowings through the issuance of securities: + increase/ - decrease 3 192 -1 135 591 739 Change in PCC/subordinated loan capital: + increase/ - decrease 739 591
-544 3 931 C. Liquidity change from financing 3 931 -544
88 -341 A + B + C. Total change in liquidity -724 -428 5 258 5 346 + Liquid funds at the start of the period 2 866 3 294
5 346 5 005 = Liquid funds at the end of the period 2 142 2 866 Liquid funds are defined as cash-in-hand, claims on central banks, plus loans to and claims on credit institutions.
44 Annual Report - Cash Flow Statement Annual Report - Notes
1 General information 2 Accounting principles 3 Critical estimates and assessments regarding the use of accounting principles 4 Business areas 5 Equity and capital adequacy ratio 6 Financial risk management
Credit risk 7 Credit exposure for each internal risk rating 8 Maximum credit exposure 9 Credit quality per class of financial assets 10 Loans to- and liabilities to credit institutions 11 Loans and advances to customers 12 Breakdown of periods for loans due, not written down 13 Transfer of financial assets 14 Losses on loans and guarantees
Market risk 15 Market risk relating to interest rate risk 16 Market risk relating to foreign exchange risk 17 Financial derivatives
Liquidity risk 18 Remaining contract-related periods for liabilities 19 Maturities analysis of assets and liabilities
Income Statement 20 Net interest income 21 Net fee-, commission- and other operating income 22 Net income from investments 23 Personnel costs, benefits and loans to - as well as equity certificates owned by leading employees and employee representatives. 24 Operating costs 25 Pensions 26 Tax
Balance 27 Classification of financial instruments 28 Fair value on financial instruments 29 Bonds and certificates 30 Shares 31 Investment in Group companies, associated companies and joint ventures 32 Property, plant and equipment 33 Intangible assets 34 Other asstes 35 Deposits from customers 36 Debt securities in issue 37 Other liabilities 38 Guarantees 39 Subordinated loan capital
Other information 40 Acquistion of businesses 41 Related parties 42 Equity Certificates 43 Profit distribution 44 Events occurring after the end of the year
SpareBank 1 Nord-Norge Annual Report 2012 45 Annual Report
46 ANNUAL REPORT - NOTES
Note 1 - General information Presentation currency The presentation currency is Norwegian kroner (NOK), Description of the business which is also the bank’s functional currency. All amounts are SpareBank 1 Nord-Norge is an independent financial services presented in NOK million unless otherwise stated. group within the SpareBank 1 Alliance. We know Northern Norway and are a leading provider of financial services within the retail and corporate markets in Northern Norway. Consolidation SpareBank 1 Nord-Norge provides comprehensive, modern The consolidated accounts comprise the bank and all its financial solutions to customers with a basis in the Northern subsidiaries that are not planned to be sold in the near future, Norway market. which are therefore to be classified as held for sale in accordance with IFRS 5. Subsidiaries are defined as companies in which the bank has a controlling interest, i.e. the power to govern the Business address company’s financial and operational policies for the purpose The SpareBank 1 Nord-Norge Group’s head office is located in of gaining benefits from the company’s activities. Subsidiaries Tromsø, and its business address is 9298 Tromsø. are consolidated from the date the bank gains a controlling interest, and they will be eliminated from the consolidation on the date when such control is relinquished. On achieving Date of adoption of the group accounts a controlling interest in a company (business combinations), The 2012 preliminary annual accounts were adopted by the all identifiable assets and liabilities will be recognised at fair parent bank’s Executive Board on 06.02.13. The 2012 final value in accordance with IFRS 3. Any positive differences annual accounts were adopted by the parent bank’s Executive between the cost of acquisition and fair value of identifiable Board on 20.03.13. assets and liabilities are recognised as goodwill, whereas any negative differences are recognised as income. The accounting of goodwill after the initial recognition is commented on under the section on intangible assets. Note 2 - Accounting principles The bank has not applied IFRS 3 retrospectively on business Basis for preparation of the annual accounts combinations that were effected prior to 01.01.04. In the The 2012 group and parent bank accounts for SpareBank 1 Nord- parent bank’s accounts, equity stakes in group companies Norge have been prepared in accordance with EU-approved are recognised at cost price in accordance with IFRS. The IFRSs (International Financial Reporting Standards) and the transition to IFRS in the parent bank’s accounts entails the use associated interpretations that can be applied as of 31.12.12, of different principles for the incorporation of subsidiaries, as well as additional Norwegian information requirements joint venture businesses and associated companies into the pursuant to the Accounting Act as of 31.12.12. two accounts.
There have been no new or significantly changed accounting In the IFRS-based group accounts, the equity method standards or interpretations in 2012. The changes that have of accounting is applied, which entails that profit/loss been made are presumed to not affect the group’s application attributable to joint ventures and associated companies is of accounting principles to a significant extent. included in the group’s profit and loss account by the equity stake, and they are taken into account in the book value of The IFRSs and the interpretation statements that have been the assets in the balance sheet. Profit/loss attributable to published up to the time when the proposed annual accounts subsidiaries are consolidated into the accounts. In accordance were adopted, for which obligatory application as of 31.12.12 with IFRS, only the cost method shall be used in the company does not apply, are deemed, based on the assessments that accounts. This means that the book value of subsidiaries in have been made so far, not to have any significant impact on the parent bank’s balance sheet represents historical cost. the reported figures. The book values are tested for impairment. Only the annual dividends received and any write-down on the value of the Beginning in 2013, new IFRSs concerning consolidation, jointly shares are stated in the parent bank’s profit and loss account. controlled arrangements, pensions and the measurement of fair value could be able to affect the group’s financial Intra-group transactions, open accounts and unrealised profit statements. between group companies have been eliminated. The minority interest’s share of the group’s profit/loss is presented on The proposed annual accounts were adopted by the Executive a separate line in the profit and loss account. Under equity Board and the Bank’s CEO at the point in time indicated by capital, the minority interest’s share is also presented on a the dated and signed balance sheet. The annual accounts will separate line. be considered by the Supervisory Board on 20.03.13 for final approval. Up to the time of final approval the Executive Board has the authority to change the annual accounts.
SpareBank 1 Nord-Norge Annual Report 2012 47 Annual Report
Associated companies An associated company is defined as a company in which the Loans, with the exception of fixed rate loans, in the consolidated bank has significant influence, but not a controlling interest. financial statements are therefore assessed according to the An influence is normally significant when the ownership same principles as in the separate financial statements and in interest is between 20% and 50%. Associated companies are accordance with the lending regulations dated 21.12.04, with included in the group accounts according to the equity method reference to FSAN’s circular no. 10/2005. of accounting. The investment is recognised initially at historical cost in the balance sheet and subsequently adjusted Fixed interest rate loans are valued at fair value with discounting for changes in the bank’s share of the net assets of the associated as per the applicable interest rate curve. The group is of the company. The bank’s share of the associated company’s profit/ opinion that this provides more relevant information. Gains loss is incorporated in the group accounts, whereas the equity and losses that are due to changes in fair value are entered on stake is recognised according to the cost method in the parent the income statement as changes in value. Interest earned and bank’s accounts, in the same manner as for group companies, premiums/discounts are recognised as interest. The interest as mentioned above. rate risk for the fixed interest loans is controlled with interest rate swaps that are entered at fair value. Joint ventures A joint venture may comprise jointly controlled operations, Defaulted and doubtful commitments assets and/or companies. Joint control implies that the bank A commitment is deemed to be in default if one of the exercises control jointly with other parties, as governed following criteria applies: A claim has been due for more than by an agreement. Jointly controlled operations and assets 90 days and the amount is over NOK 1,000, or when the bank are recognised in the bank’s group accounts as the bank’s considers it unlikely that the customer will meet its payment proportional share of the assets, liabilities and other balance obligations. sheet items. Joint ventures are recognised in the group accounts according to the equity method of accounting. In the A commitment is deemed to be doubtful when objective proof parent bank’s accounts, the cost method of accounting is used, exists showing that one or more loss incidents have occurred as mentioned above. and that this is having an impact on the expected future cash flow which can be estimated in a reliable manner. SpareBank 1 Gruppen AS and Bank 1 Oslo AS are owned by SpareBank 1 Nord-Norge, SpareBank 1 SR-Bank, SpareBank Securities and financial derivatives 1 Midt-Norge and Samarbeidende Sparebanker AS, each Securities and financial derivatives consist of shares and equity of which has a 19.50% interest, in addition to SpareBank 1 instruments, certificates and bonds, and currency and interest Hedmark, which owns 12% of the shares, and the Norwegian derivatives. Shares and equity instruments are classified Confederation of Trade Unions (LO) and trade unions either at fair value through the profit and loss account or as associated with LO, which own 10% of the company’s shares. available for sale. Certificates and bonds are classified as at fair The management structure of the SpareBank 1 collaboration market value through the profit and loss account, to be held is governed by an agreement between the owners. The bank’s until maturity or as loans and claims. Financial derivatives are shareholding in the SpareBank 1 Gruppen AS and Bank1 always classified as at fair value through the profit and loss Oslo is classified as an investment in a joint venture and account, unless they are earmarked as hedging instruments for incorporated in the accounts according to the equity method cash flow hedging. of accounting. All financial instruments that are classified at fair value through SpareBank 1 Nord-Norge has equity stakes of 17.74% the profit and loss account are assessed at fair value, and any in Alliansesamarbeidet SpareBank 1 DA and 13.46% in change in fair value from the opening balance is recognised SpareBank 1 Boligkreditt AS, 16.16% in SpareBank 1 as income from financial investments in the profit and loss Næringskreditt AS, 23.5% in BN Bank ASA, 24.9% i SpareBank account. Shares classified as available for sale are recognised 1 Verdipapirservice AS, 23.5% i SpareBank 1 Kundesenter AS at fair value, but any changes in fair value in relation to the and 19.83% i SpareBank 1 Kredittkort AS. All companies are opening balance are recognised directly in equity. Where it deemed to be joint ventures. The other shareholders in these has been proven impossible to determine the fair market value companies are the other member banks in the SpareBank 1 of unlisted shares, the cost price has been used. Certificates Alliance. and bonds classified as held to maturity or as loans and claims are recognised at amortised cost in accordance with an approximate effective interest rate method – reference is made Loans and losses on loans to this method under the section on loans. Loans are carried at amortised cost in accordance with IAS 39. The amortised cost is defined as the original cost less Securities and financial derivatives designated as hedging any repayments of the principal amount, plus or minus instruments are recognised at fair value in the balance sheet. cumulative amortisation as a result of the application of the Reference is made to the criteria for and treatment of hedging effective interest rate method, and less any reductions for items in the accounts below. impairment in value and doubtful commitments. The effective rate of interest is defined as the rate of interest which, if applied to the discounting of future cash flows until maturity or the next interest rate fixing date, would produce the exact, corresponding value of the financial instrument in question as shown in the balance sheet.
48 Intangible assets Intangible assets consist of deferred tax assets, goodwill and In the case of goodwill, assets with an indefinite useful life licenses. Intangible assets are recognised in the balance sheet and intangible assets not yet available for use, the recoverable when the criteria have been satisfied. A distinction is made amounts are determined annually. between intangible assets with a finite or indefinite economic life. Assets with a finite economic life are amortised over When the carrying amount of an asset or a cash-flow generating their economic life. Expenses for the internal development of unit exceeds its recoverable amount, the asset or unit will intangible assets are capitalised only when the criteria for the be written down. Impairment in value is recognised in the development phase have been satisfied. Other expenses are profit and loss account. The write-down of goodwill cannot recognised in the profit and loss account gradually as they are be reversed. Impairment in value of other assets is reversed incurred. if a change in the estimates used to calculate the recoverable amount occurs. Intangible assets other than goodwill are subject to an impairment test in accordance with IAS 36 when there is an indication that the value of the asset may be impaired. Interest income and expenses Interest income and expenses related to assets and liabilities Goodwill arises as a positive difference between the cost of that are valued at amortised cost are recognised in the profit acquisition of a company and the fair value of identifiable and loss account in accordance with the effective interest assets and liabilities, with reference to the section on rate method. All fees related to interest-bearing loans and consolidation principles. Goodwill is not amortised; it is borrowings are included in the calculation of an effective subjected to an annual impairment test aimed at identifying interest rate and are amortised over the expected life of the possible impairments in value in accordance with IAS 36. financial instrument.
Property, plant and equipment The market interest rate on debt instruments assessed at fair Property, plant and equipment, with the exception of investment value is classified as interest income or interest expenses, property and owner-occupied property are recognised at the whereas the effect of interest rate fluctuations is classified as cost of acquisition and depreciated on a straight-line basis income from financial investments. over their estimated useful life. When determining a plan of depreciation, the separate assets are split up into components Commission income and expenses with different useful lives to the extent that this is regarded Commission income and expenses are generally accrued as necessary, taking into account estimated residual value. in accordance with the delivery of a service. Fees related Property, plant and equipment, which individually are to interest-bearing instruments are not recognised as regarded as insignificant, for example PCs and other office commissions; they are included in the calculation of the equipment, are not assessed individually for residual value, effective interest rate and recognised accordingly. Advisory useful life or impairment, but are considered as groups. fees are accrued in accordance with the agreement, typically at the time the service is delivered. The same applies to day- When implementing IFRS on 01.01.04, all properties were to-day administrative services. Fees and charges related to the value-adjusted to fair market value. According to IAS 16, these sale or brokerage of financial instruments, property or other properties are deemed to have an estimated acquisition cost investment objects that do not generate balance sheet items that corresponds to the value-adjusted amount at the time of in the bank’s accounts, are recognised in the profit and loss such value adjustment. account when the transaction is finalised.
Property, plant and equipment that are depreciated are subject Foreign currency transactions and holdings to a write-down test in accordance with IAS 36 whenever Transactions in foreign currencies are converted into indicated by the circumstances. Norwegian kroner using exchange rates prevailing at the time of the transaction. Gains and losses related to completed Repossessed assets transactions or to the conversion of holdings of cash or cash In connection with the legal recovery of claims under equivalents at the balance sheet date are included in the profit outstanding loans and guarantees, the bank will repossess and loss account, unless they are adjusted directly against assets that have been pledged as security for such commitments equity in accordance with the principles of hedging. Gains in some cases. At the time of acquisition, the assets are valued and losses on non-monetary items are included in the income at their assumed realisation value. Repossessed assets that statement in the same way as the corresponding balance sheet are to be sold are classified in the balance sheet as current item. assets or as fixed assets held for sale and are recognised in accordance with IAS 2 and IFRS 5. Any losses/gains on the Hedging sale or reassessment of the value of such assets are recognised The bank assesses and documents the effectiveness of hedging, as additions to or deductions from losses on loans. both at the time of initial recognition and on a current basis. For fair-value hedges, both the hedging instrument and the Write-downs hedged item are assessed at fair value, and any changes in fair The carrying value of the bank’s assets are evaluated on the value from the opening balance are recognised in the income date of the balance sheet, with certain exceptions, in order to statement. consider whether there are any indications of an impairment in value. If such indications were to exist, the asset’s recoverable amount will be estimated.
SpareBank 1 Nord-Norge Annual Report 2012 49 Annual Report
In the case of cash-flow hedging, the hedging instrument In accordance with the standard, the pension scheme is treated is recognised at fair value, and any change in fair value is as a defined benefit plan. The pension cost for the year is the recognised directly in equity. Accumulated changes in fair total of the present value of the pension accruals for the year, value recognised against equity are reversed through the profit interest cost of incurred pension liability and expected return and loss account in the period during which the hedged cash on the pension fund assets. The pension costs are recognised flow is realised. in the profit and loss account as personnel costs with the sub- specification “Wages and general administrative expenses”. Taxes Taxes recognised in the profit and loss account comprise tax Underfunding of the pension liability is recognised in the payable for the period and deferred taxes. Tax payable for the balance sheet as other liabilities, with the sub-specification, period is calculated tax on the current year’s taxable profit. “Provisions for accrued expenses and liabilities”, whereas Wealth tax is calculated and recognised as other operating overfunding is recognised as other assets, with the sub- expenses in the profit and loss account. specification, “Prepaid unaccrued expenses and accrued income not yet received”. Underfunding/overfunding arises Deferred taxes are accounted for by means of the liability as differences between the present value of incurred pension method in accordance with IAS 12. Deferred tax liabilities or liabilities, including future wage inflation, and the value of assets are recognised in respect of all temporary differences, the pension fund assets. Both guaranteed and non-guaranteed which arise as a difference between the carrying amount and schemes are included in the pension liabilities. taxable value of assets and liabilities at the balance sheet date. However, no liabilities or assets are calculated for deferred At the closing of accounts, estimated values are applied when taxes on goodwill that do not give a tax deduction or items that assessing the pension fund assets and when calculating incurred are recognised for the first time and do not affect the financial liabilities. These estimates are adjusted each year in accordance or taxable profit. with the statement provided by Eikos AS, registered actuaries, setting out the estimated value of the pension fund assets and Deferred tax assets are calculated with respect to accumulated the actuarial calculations of the amount of the liabilities. The tax losses carried forward at the balance sheet date. Deferred impact of changes in estimates and any discrepancy between tax assets are recognised only to the extent that it is probable estimated and actual returns is recognised in the profit and loss that the taxable profit will be available and unused tax losses account over the average, remaining accrual period only if the can be utilised. accumulated effect exceeds 10% of the higher of the pension fund assets and pension liabilities (corridor solution).
Liabilities Borrowing is recognised initially at the original cost, which Segment reporting is the fair value of the amount received after the deduction Ordinary banking operations, involving private and business of transaction costs. Adjustable rate loans are subsequently customers, represent the bank’s primary reporting format, with measured at the amortised cost and any premium or discount leasing as the bank’s secondary reporting format. will be accrued over the term of the loan. Loans at fixed rates of interest are included in the hedge accounting with discounting according to the current interest rate curve. Fair Events after the date of the balance sheet value option is not applied to the group’s liabilities. A similar The annual accounts are deemed to be approved for publication approach is used for financial derivatives on the liabilities side when the Executive Board has approved the accounts. The of the balance sheet. Deposits from customers are valued at the Supervisory Board and regulatory authorities may refuse to amortised cost. approve the published annual accounts after this, but they cannot change the accounts.
Pensions Events occurring up to the time when the financial statements Pensions are accounted for in accordance with international are approved for publication involving issues that were already accounting standards for the calculation and accounting of known on the date of the balance sheet will form part of the pensions (IAS 19). information basis for determining estimates and will thereby be fully reflected in the annual accounts. Events that were not SpareBank 1 Nord-Norge has group occupational pension known on the balance sheet date will be reported if they are schemes for its employees. SpareBank 1 Nord-Norge is significant. Such circumstances are mentioned in note 44. required pursuant to the Mandatory Company Pension Act to provide an occupational pension schemes for its employees. The annual accounts have been prepared on the basis that The bank’s pension schemes satisfy the requirements of the the group will continue as a going concern. This assumption aforementioned act. was valid in accordance with the Board of Directors’ opinion at the time the financial statements were approved for On 01.07.06 the group established a defined contribution publication. pension scheme. All new staff are enrolled in this scheme. Employees who were members of the defined benefit scheme The Board of Directors’ dividend proposal is stated in the were given an offer to move to the defined contribution annual report. Proposed dividends and distributions for scheme. charitable purposes are classified as equity until final approval has been granted.
50 Note 3 - Critical estimates and assessments regarding the use of accounting principles
Losses on loans and guarantees The bank assesses its entire portfolio of business customers the exception of a few shares, the Norwegian stock market is annually. Large and especially risk commitments are examined considered to have poor liquidity. Share prices will in most on a quarterly basis. Loans to private customers are assessed circumstances be the last known transaction price. In some when more than 55 days have elapsed since a default or when cases where the liquidity is poor and there is a great deal of there is a particularly bad payment history. For each customer, unexplained fluctuations in the share price, the share price a likelihood of default is calculated, based on historical might be determined based on the weighted average over a financial data and credit report remarks and correspondingly specified time period, usually December. for retail banking customers based on tax assessment figures and credit report remarks. The bank currently has nine In cases where there are no representative transactions, other categories for healthy commitments and two categories for valuation methods have been used in accordance with the commitments in default, based on the likelihood of default valuation hierarchy in IAS 39. for each customer. These eleven categories are divided into groups based on low, medium, high, highest risk, and default an loss based on likelihood of default. The entire portfolio is Fair value of financial derivatives scored on a monthly basis using automatic data acquisition The fair value of financial derivatives is usually determined based on objective data. Individual write-downs are made due by using valuation methods where the price of the underlying to impairment for loans where there is objective evidence that object, for example interest or foreign exchange rates, is obtained the loan in question is doubtful in accordance with the FSAN’s from the market. In the case of share options, volatility will lending regulations and IAS 39. either be observable implicit volatility or calculated volatility based on historical share price movements for the underlying Individual write-downs for impaired value are calculated as the object. If the bank’s risk position is approximately neutral, difference between the loan’s book value and the present value middle rates will be used. A neutral risk position means for of the discounted cash flow based on the effective interest rate example that the interest rate risk within a repricing interval at the time of the initial write-down. Subsequent changes in is approximately zero. In the opposite case, relevant purchase interest rates are taken into account for loan agreements with and sale prices will be used to assess the net position. adjustable interest rates. In the case of a counterparty whose credit rating is weaker than Group write-downs for impaired value are calculated for sub- that of the Bank, the price will reflect an underlying credit risk. groups of loans, where there is objective information showing To the extent that market prices are obtained from transactions an increase in the credit risk after the credit has been approved, with a lower credit risk, this will be taken into account by but where it is not possible to examine all the commitments amortising the original price difference measured against on an individual basis or where it is not possible to specify such transactions with a lower credit risk over the maturity the information at the commitment level. Such information period. can consist of a negative development in the credit risk classification or information about a negative development in the value of assets pledged as collateral security, the Intangible assets profitability in a particular industry, or the solvency of groups Intangible assets are subject to an impairment test which is of debtors. mainly based on the discounting of expected future cash flows. There will always be considerable uncertainty related The assessment of loss write-offs will always be based on a to estimated cash flows, and in some cases there will also be considerable degree of subjective judgment. Predictions based uncertainty with regard to the methods for allocating cash on historical information may prove to be wrong because one flows to various assets. can never be certain about the relevance of historical data as a basis for decision-making. In many cases, assets pledged as collateral security are not sold in highly effective markets and Pensions the determination of fair market value may therefore be subject Net pension liabilities and the current period’s pension to considerable uncertainty. costs are based on a number of estimates, which include the return on pension fund assets, the future interest rate and inflation levels, future wage development, turnover of staff Fair value of equity capital instruments and development of the National Insurance basic amount (G), Financial assets assessed at fair value through the profit and as well as the general development in the number of persons loss account will normally be traded in active markets and the receiving disability benefits and life expectancy. Uncertainty fair value can thus be determined with reasonable certainty. is to a great extent related to gross liabilities and not to net For financial assets classified as available for sale this is not liabilities as shown in the balance sheet. Changes in estimates necessarily the case. Correspondingly, the market values for as a result of changes in the aforementioned parameters assets and liabilities that are carried at amortised and appear will to a large extent be accrued over the average remaining in notes may be estimates based on discounted future cash contribution period and not recognised in the profit and loss flows, multiplier analysis or other calculation methods. Such account immediately, as would be the case for other estimate methods could be subject to significant uncertainty. With changes.
SpareBank 1 Nord-Norge Annual Report 2012 51 Annual Report
Note 4 - Business Areas
Management has made an assessment of which business areas The Bank operates in a limited geographical area and reporting are deemed reportable with respect to the form of distribution, along the lines of geographic secondary segments provides products and customers. The primary format of reporting takes little additional information. Significant types of assets (loans) as a starting point risk and yield profiles of various assets allocated geographically are included in a separate note under and reporting is divided into retail banking sector, corporate loans. sector, Markets and wholly-owned subsidiaries. The Bank’s own investment activities are not a separately reportable segment and appear under the item “unallocated” together with activities which cannot be allocated to either the retail or corporate business sectors.
31.12.12 Amounts in NOK million Retail banking Corporate SP1 Markets Unallocated Total sector sector Finans Net interest income 834 186 115 14 17 1 166 Net fee- and commission income 418 93 22 79 612 Other operating income 44 260 304 Operating costs 769 171 37 30 113 1 120 Profit before losses 483 108 78 50 243 962 Net losses on loans and guarantees 13 178 4 195 Profit before income tax 470 -70 74 50 243 767
Loans and advances to customers 30 640 20 499 3 412 54 551 Individual write-down for impaired value -29 -258 -12 -4 -303 Group write-down for impaired value -36 -146 -7 -9 -198 Other assets 21 211 21 211 Total assets per business area 30 575 20 095 3 393 21 198 75 261
Liabilities to- and deposits from customers 23 315 17 905 41 220 Other liabilities and equity 3 393 30 648 34 041 Total equity and liabilities per business area 23 315 17 905 3 393 30 648 75 261
31.12.11 Amounts in NOK million Retail banking Corporate SP1 Markets Unallocated Total sector sector Finans Net interest income 691 322 104 6 6 1 129 Net fee- and commission income 276 129 39 43 487 Other operating income 50 153 203 Operating costs 619 289 32 34 62 1 036 Profit before losses 348 162 72 61 140 783 Net losses on loans and guarantees 4 93 2 2 101 Profit before income tax 344 69 70 61 138 682
Loans and advances to customers 29 452 19 297 2 852 41 51 642 Individual write-down for impaired value -31 -160 -9 -6 -206 Group write-down for impaired value -47 -166 -9 -4 -226 Other assets 29 522 19 278 19 829 Total assets per business area 29 374 18 971 2 863 522 19 309 71 039
Liabilities to- and deposits from customers 21 429 20 319 17 41 765 Other liabilities and equity 2 863 522 25 889 29 274 Total equity and liabilities per business area 21 429 20 319 2 863 522 25 906 71 039
52 Note 5 - Equity and capital adequacy ratio
New capital adequacy rules and regulations (Basel II – EU’s The Group has been granted a permit by the Financial new directives for capital adequacy) were implemented in Supervisory Authority of Norway to use proportional Norway with effect from 01.01.07. SpareBank 1 Nord-Norge consolidation in its reporting of the capital adequacy of the has received permission from Finanstilsynet (The Financial assets in SpareBank 1 Boligkreditt, SpareBank 1 Næringskreditt Supervisory Authority of Norway, FSAN) to apply internal and BN Bank. calculation methods (Internal Rating-Based Approach) for credit risk from 01.01.07. This will make the statutory Given that the European Banking Authority (EBA) has decided minimum capital adequacy requirement more risk-sensitive, in the latest Capital Requirements Directive (CRD IV) that which means that the capital requirement will to a larger the level of pure core capital in the largest banks must be a extent correspond to the risk contained in the underlying minimum of 9% by no later than 30.06.12, the Norwegian portfolios in question. The use of internal calculation authorities have also imposed this requirement on Norwegian methods will involve comprehensive demands on the Bank’s banks. New capital requirements have been published through organisation, competence, risk models and risk management Basel III. The new rules have increased the required level and systems. As a result of transitional rules relating to the new quality of equity, with an introduction schedule that extends directive mentioned above, IRB-banks would experience the until 2018/2019. The Norwegian authorities have signalled full impact of the reduced regulatory capital requirements in both a further tightening up and the earlier introduction of 2010. Until 2010, banks have to report on a parallel basis, both such capital requirements. The Norwegian authorities are also according to the old capital adequacy calculations and Basel considering introducing a risk weighting for bank mortgages II. During the period 2007-2010, an annual reduction of the of 35% or higher. A final clarification of the Norwegian risk-adjusted calculation basis in relation to the old method regulatory requirements for bank equity - and the schedule for (socalled correction of ‘floor’) was permitted. A resolution has introducing these - is expected during the course of the current now been reached to postpone this issue, and the transition year. rules for 2009 will continue to apply in 2010. The calculation basis in 2011 therefore amounts to 80% of the calculated basis SpareBank 1 Nord-Norge has established a goal of pure core according to the Basel I rules and regulations. capital adequacy of 12.5% or higher in 2015. Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Net equity and related capital: Core capital 1 655 1 655 Equity Certificates 1 655 1 655 245 245 Premium Fund 245 245 2 898 3 083 Savings Bank's Fund 3 083 2 898 333 456 Dividend Equalisation Fund 456 333 133 150 Donations 150 133 Fund for unrealised gains -3 -4 Other equity 1 224 1 148 5 264 5 589 Total equity exclusive minority interests 6 810 6 408
-175 -106 Deduction set asite dividend -106 -175 -8 -30 Deduction net pension fund -29 -8 Deduction Fund for urealised gains 41 66 Adjusted subordinated capital from consolidated financial insitutions -58 -17 360 836 Hybrid Tier 1 bonds 989 512 Deferred tax, goodwill and other intangible assets -66 -40 -428 -542 Deduction subordinated capital in other financial institutions (50 %) -106 -27 -77 -95 Deduction adjusted expected amount lost (50 %) -97 -71 Capital adequacy ratio reserve (50 %) -706 -646 4 936 5 652 Core capital 6 672 6 002 Supplementary capital Perpetual non-call bonds 996 1 259 Subordinated loan capital 1 507 1 207 -428 -542 Deduction subordinated capital in other financial institutions (50 %) -106 -27 -77 -95 Deduction adjusted expected amount lost (50 %) -97 -71 Capital adequacy reserve (50 %) -706 -646 491 622 Supplementary capital 598 463
5 427 6 274 Net equity and related capital SpareBank 1 Nord-Norge Annual7 Report 270 2012 6 46553 Annual Report
Note 5 - Equity and capital adequacy ratio
Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Risk-weighted assets base 25 021 27 662 Credit risk IRB 25 966 23 689 8 136 8 622 Credit risk standardarised approach 21 261 20 975 33 157 36 284 Total credit risk 47 227 44 664
113 148 Debt risk 141 113 109 137 Equity risk 479 640 367 396 Currency risk 396 367 3 230 2 820 Operational risk (Basic approach) 3 317 3 406 - 855 -1 083 Deduction subordinated capital in other financial institutions (100 %) -269 -54 - 208 -14 Deduction adjusted expected amount lost (100 %) -57 -241 Core capital adequacy reserve (100 %) -1 411 -1 292 35 913 38 688 Total risk-weighted IRB assets base 49 823 47 603 0 Complements to overall floor Capital Requirements 5 275 4 101 35 913 38 688 Total risk-weighted assets base IRB 55 098 51 704 20.0 % 20.0 % Adjusted assets base IRB of Basel-I assets base. 20.0 % 20.0 %
Minimum requirements subordinated capital, Basel I I 834 921 Specialised lending exposure 921 834 580 646 Other corporations exposure 646 580 16 18 SME exposure 21 17 284 277 Property retail mortage exposure 456 425 38 32 Other retail exposure 34 39 250 318 Equity investments 2 002 2 212 Total credit risk IRB 2 078 1 895 651 690 Exposure standardarised approach 1 701 1 678 2 653 2 902 Total credit risk 3 779 3 573
9 12 Debt risk 11 9 9 11 Equity risk 38 51 29 32 Currency risk 31 29 258 226 Operational risk 265 273 Transitional arrangements 422 328 -85 -88 Deductions -138 -127 2 873 3 095 Minimum requirements subordinated capital 4 408 4 136
13.75 % 14.61 % Core capital adequacy ratio 12.11 % 11.61 % 1.37 % 1.61 % Supplementary capital adequacy ratio 1.08 % 0.89 % 15.11 % 16.21 % Capital adequacy ratio 13.19 % 12.50 %
54 Note 6 - Financial risk management
Risk management at SpareBank 1 Nord-Norge should support For further information, reference is made to the “Pillar III the group’s strategic development and achievement of targets, Report” on our website. and it shall contribute to ensuring financial stability and safe and secure asset management through: A more detailed description of financial risk management relating to the credit risk, liquidity risk and market risk is • A strong organisational structure characterised by high risk provided below. management awareness • Striving towards an optimal application of capital within the adopted business strategy Credit risk • Striving for an equal risk-adjusted return on customers over Credit risk is defined as the risk of loss due to customers or time within the adopted business strategy other contracting parties not having the ability or willingness • Exploitation of synergy and diversification effects to fulfil their obligations to the group. Credit risk is managed • Having sufficient core/subordinated capital according to through the group’s credit strategy, limits for the credit the chosen risk profile activities, guidelines for the granting of credit and the internal rules and regulations relating to power of attorney/delegated The principal aim is to ensure that the group’s aggregate risk lending authority. level is moderate and within the limits set by the group’s subordinated capital and other provisions. Through good risk SpareBank 1 Nord-Norge applies internal measuring methods management, the group should have a stable and predictable IRB (Internal Rating Based Approach) for calculation of earnings and profit performance. A business strategy and the statutory minimum capital adequacy requirements overall targets represent the Board of Directors’ instruments for for credit risk. The minimum requirements are thus more managing the group’s risk profile and financial development. risk-sensitive and will correspond to a greater extent with The Chief Executive Officer is responsible for presenting this the risk in the underlying portfolios. The group has a to the Board of Directors at least once a year, or whenever positive impact on the capital adequacy of the introduction other circumstances indicate such a presentation. The group’s of the new regulations, but because of the extension of minimum goal is to maintain its current international rating the transitional rules, the full effect first coming in 2015. in order to ensure a long-term ample supply of ordinary borrowing from the capital markets. The credit strategy and limits for the credit activities are established by the Board of Directors and revised and updated The group’s risk is quantified for example through calculation of: at least once a year. The group’s credit strategy sets out the • Expected losses that describe the amount that the bank must overall principles for the granting of credit and how the credit statistically expect to lose during a 12-month period. risk should be managed and priced at SpareBank 1 Nord- • Unexpected losses that describe how much capital (risk- Norge. SpareBank 1 Nord-Norge bases itself on the principles adjusted) the group must have in order to cover the actual that have been recommended by the Basel Committee in the risk involved. document, “Principles for the Management of Credit Risk”, and on the new capital adequacy rules and regulations (Basel The risk-adjusted capital should cover 99.9% of possible, II). In addition, it is assumed that the management of credit unexpected losses. Statistical methods are used as a basis for risk is carried out within the framework of relevant laws, rules the calculations involved, but qualitative evaluations are also and regulations. The strategic credit targets consist of targets applied in some cases. for:
The return on the risk-adjusted capital is an important strategic • Return on capital and growth result-related target for the internal management of the group. • Risk profile Significant business areas are allotted capital in relation to • Concentration risk the calculated risk relating to the activities, and the return on • Operative credit targets capital is followed up. The calculation of risk-adjusted capital enables the comparison of risk across risk groups and business The strategic credit targets are reported regularly to the areas. In addition, risk is measured and followed up through bank’senior management and Board of Directors. the reporting of the use of limits and important portfolio risk targets. The Board of Directors is responsible for the group’s loan and credit approvals. The rules and regulations in this respect, In order to ensure an effective and appropriate process for risk which have to be approved by the Board of Directors, set and capital management, the framework has been based on out the principles for the granting of credit-related powers the following elements, which reflect the manner in which the of attorney/delegated lending authority and the principles Board of Directors and the management manage the group: for credit decisions, and describe the decision structure. The • Strategy Board of Directors delegates the powers of attorney/delegated • Organisation and organisational culture lending authority to the CEO, who, according to the rules • Risk and capital management and regulations relating to the granting of credits, delegates • Reporting his powers of attorney to others. The delegated powers of • Follow-up attorney/delegated lending authority are related to the size • Contingency plans of the commitment in question and to the probability of • Compliance default. Credit staff work in accordance with credit-related
SpareBank 1 Nord-Norge Annual Report 2012 55 Annual Report
powers of attorney/delegated lending authority, the credit Liquidity risk policy and credit handling routines that stipulate clear quality Funding risk is defined as the risk of the group being unable to requirements for the credit handling process. fund increases in assets and being unable to meet its obligations as its financial obligations fall due. The management and control of the portfolio takes place through the risk classification of individual customers, risk The Executive Board focuses strongly on predictability and pricing model and a portfolio management system to manage stability, and at least once a year it reviews the group’s liquidity the lending portfolio in accordance with the adopted limits and strategy and the management of the group’s financing structure guidelines. Management and control are built on risk models. in particular. The liquidity strategy reflects the group’s These models are based on principle on statistical calculations, conservative risk profile, and it is important that random and they are subject to ongoing further development and events do not have serious consequences for the group’s ability testing. The models are based on three main components: to meet its financial obligations. This capability is defined by everyday stress test of liquidity risk. 1 Probability of default. Customers are classified in risk classes according to the likelihood of the customers defaulting The group’s foreign exchange and finance area (Capital on their commitments during a 12-month period. The Markets) is responsible for liquidity management, whereas probability of default is calculated based on historical data the department for risk management and compliance monitors series for key financial figures, as well as non-financial and reports on the utilisation of the limits in accordance with criteria such as behaviour and age. In order to classify the liquidity strategy. The liquidity risk is reduced by the customers according to the probability of default, nine risk diversification of loans in different markets, funding sources, classes (A–I) are used. In addition, the group has two risk instruments and maturity periods. classes (J and K) for customers with commitments in default and/or commitments that have been written down. The Financial Supervisory Authority of Norway calculates group relationship between stable funding with maturity 2 Expected exposure in the case of default. This is the estimate over 1 year / 1 month and illiquid assets, through Liquidity of what the exposure will be if a customer defaults. Indicator 1/2.
3 The degree of loss in the case of default. This is an assessment The administration has set targets to at any time to be > 100%. of how much the group could potentially lose if the customer An increase in this ratio indicates lower risk. As 31.12.2012 defaults on his/her/its commitments. The assessment takes reported Likviditetetsindikator half respectively 109.15 and into consideration the value of the assets that the customers 116.90. The figures are reported on a consolidated basis. have pledged as security, and the costs incurred by the group in connection with recovering the commitment in The credit ratings issued by the international credit rating default. These figures are estimated based on the bank’s own agencies, Moody’s and Fitch Ratings, are regarded as important experience over time. Seven different classes are used (1-7) in relation to international sources of funding loans. The for classification according to the degree of loss in the event bank’s long-term rating by Moody’s is A1 with “rating under of default. review for downgrade”, while the long-term rating by Fitch is A with “stabel outlook”. SpareBank 1 Nord-Norge is seeking a The three aforementioned components also form the basis financing structure that is well diversified within certain limits for the group’s portfolio classification and statistically based in terms of both market product and maturity. computations of expected losses and the need for risk-adjusted capital. The purpose of the portfolio classification is to provide The bank shall have an active policy (Investor Relations) for information about the level and development with regard to the Norwegian and international investors. In Sparebank 1 Alliance aggregate credit risk in the entire portfolio, which is therefore there is established a Euro Medium Term Notes (the default divided into five different risk groups: lowest, low, medium, program for loans in EUR), a residential mortgage company high and highest. The classification into different risk groups for issuing bond with security; SpareBank 1 Boligkreditt and is performed on the basis of a statistical computation of the mortgage company SpareBank 1 Næringskreditt. The Bank likelihood, in the case of each individual commitment, of shall in its liquidity management actively use these tools, in default, exposure in the case of default, and the degree of loss line with peers. involved when a default occurs. Customer deposits are the bank’s main source of funding. The group endeavours to price its commitments according to The ratio between deposits from customers and loans was risk exposure, so that the commitments with the highest risk 75.6% as at 31.12.12, compared with 80.9% and 80.3 percent, are priced the highest. The price model is based on the group’s respectively, two years ago. The decline in deposit coverage required rate of return on risk-adjusted capital. due to a decline in the contribution from the public sector.
For further information, reference is made to the “Pillar III The Group’s liquidity and funding management is considered Report” on our website and to notes 7, 8, 9, 11 and 14. The to be very satisfactory. For further information, reference is group also has credit risk relating to investments in interest- made to the “Pillar III Report” and to notes 18 and 19. bearing securities. Such credit risk is primarily noticeable through ongoing changes in the prices/values for the different securities. This is described in more detail under the section “Market risk” below.
56 Market risk Market risk is defined as the risk of losses due to changes in In 2012 a specific write-down of NOK 4,931,466 is carried out observable market variables such as interest rates, foreign on one of the items in the bank’s “held to maturity” portfolio. exchange rates and securities markets. This write-down was made due to an assessment of permanent impairment in value in relation to the earlier booked value. Market risk arises mainly from the group’s investment in bonds, certificates and shares, and as a result of activities that The portfolio of bonds an certificates has not been adjusted are performed to support the banking operations – such as thru the period. This due to governmental demand for cash funding, interest rate and foreign exchange trading. positions.
The market risk is measured and monitored based on limits The Bank’s interest-bearing securities on the liabilities side of that are adopted by the Board of Directors. The limits are the balance sheet are not priced on the basis of credit spreads reviewed and renewed on an annual basis. The limits are at “fair value”. The bank’s accounts are accordingly not determined based on stress tests and the analysis of negative affected by changes in the credit spreads related to the bank’s market movements. liabilities.
The department for risk management and compliance is The development of the equity markets has had a positive responsible for the ongoing, independent monitoring of market impact on the value of the bank’s portfolio of equities and risk. funds.
Interest rate risk is the risk of loss as a result of interest rate SpareBank 1 Nord-Norge has little net exposure to foreign fluctuations. It’s measured by delta vector analysis, based on currencies, and the accounts have not been particularly 2% pure shift and monitored on the basis of the framework affected by fluctuations in the foreign exchange market. described above. The Group’s interest rate risk is mainly short and considered low. The Group’s market risk is classified as moderate. Currency risk is the risk of loss due to currency rate fluctuations. For further information, reference is made to the “Pillar III The limits for currency risk are expressed by limits for the Report” and to notes 15 and 16. maximum aggregate currency position and maximum position in individual currencies. The group’s foreign exchange risk is well within the position limit stated in the applicable rules Active asset management and regulations. The group is involved in active asset management on behalf of its customers, but it does not act as a nominee of any kind in The price risk for securities is defined as the risk of loss transactions. Assets held on behalf of customers under asset occurring after changes in the value of bonds, certificates and management agreements are not consolidated in the group’s equity capital instruments in which the group has invested. accounts. In addition, the group does not participate in “sale The group’s exposure to this type of risk is regulated through and lease-back” transactions involving its own assets, nor limits for maximum investments in various portfolios. does it have financial interests in Special Purpose Entities as mentioned in SIC 12. The bank’s profit is affected by changes in market variables such as interest rates, foreign exchange rates and securities prices during the course of the year. In 2008 major portions of the interest-bearing portfolio was reclassified from “at fair value through the profit and loss account” to the categories “hold-to- maturity” and “loans and claims”. The reclassification means that ongoing changes in market values for the reclassified portfolio are not recognised in the accounts. Reference is made to a more detailed description in note 29.
The development of the credit spreads/margins in the securities market in 2012 contributed to capital gains on the bank’s interest-bearing portfolio.
Net gain 31 Dec 30 Sept NOK 77 186 570 NOK 60 956 975 30 Jun 31 Mar NOK 30 080 062 NOK 28 257 672
SpareBank 1 Nord-Norge Annual Report 2012 57 Annual Report
Note 7 - Credit risk exposure for each internal risk rating
The Bank applies its own risk classification system for the The allocation is done by linking the collateral assets to the monitoring of credit risk in the portfolio. The classification individual loans in question. Each customer is then put into of risk classes is done on the basis of the probability of risk groups according to probability of default and security default for each individual commitment. In addition to the class, as is shown below. The classification matrix comprises probability of default, the Bank applies estimated value of 77 risk classes in relation to probability of default and security collateralised assets pledged as security as an element when coverage. putting customers into different groups according to risk.
Parent Bank and Group
Amounts in NOK million Average unsecured Total amount Average unsecured Total amount exposure - % exposure - % 2012 2012 2011 2011 Very low risk 0.2 % 22 626 0.2 % 21 879 Low risk 1.8 % 10 991 1.7 % 10 179 Medium risk 1.7 % 18 264 2.1 % 17 538 High risk 0.2 % 1 977 0.2 % 2 335 Very high risk 0.3 % 1 870 0.5 % 2 058 In default and written down 0.1 % 943 0.2 % 775 Total 4.3 % 56 671 4.9 % 54 764
Note 8 - Maximum credit exposure, not allowing for assets pledged as security The table below shows maximum exposure to credit risk for the various components in the balance sheet, including financial derivatives. Exposure is shown on a gross basis, before any assets pledged as security and before allowable set-offs.
Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Assets 1 638 244 Cash and balances with central banks 271 1 666 3 477 4 761 Loans and advances to credit institutions 1 871 970 48 749 51 139 Loans and advances to customers 54 551 51 641 11 229 12 442 Certificates and bonds 12 444 11 235 850 1 240 Financial derivatives 1 234 850 65 943 69 826 Total assets 70 371 66 362 Liabilities 2 342 2 589 Contingent liabilities 2 589 2 342 5 012 4 705 Unutilised credits 4 705 5 012 915 2 342 Loan approvals 2 342 915 Other commitments 8 269 9 636 Total financial guarantee commitments 9 636 8 269 74 212 79 462 Total credit risk exposure 80 007 74 631
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Banking activities 46 029 48 345 North Norway, including Svalbard 48 441 46 348 7 576 7 715 Other regions 7 833 7 670 259 84 International 419 259 53 864 56 144 Total 56 693 54 277 Operations - Capital Markets Department 9 887 12 010 Norway 12 004 9 893 2 045 1 667 Europe/Asia 1 667 2 045 147 5 USA 5 147 12 079 13 682 Total 13 676 12 085 65 943 69 826 Total, broken down by geographical areas 70 369 66 362 58 Note 9 - Credit quality by class of financial assets
Parent Bank Neither in default nor written down
Amounts in NOK million Very low Low Medium High Very high In default or individu- Total risk risk risk risk risk ally written down 2012 Loans and advances to financial institutions 4 761 4 761
Loans and advances to customers Retail market 17 258 4 991 5 499 652 823 167 29 390 Corporate market 3 687 4 752 10 497 1 086 956 771 21 749
Loans to and claims on customers, and financial instruments classified as financial assets at market value through the profit and loss account when the items involved are first included Total 25 706 9 743 15 996 1 738 1 779 938 55 900
Financial investments Listed government bonds 3 809 57 3 866 Listed other bonds 5 547 424 88 1 54 6 114 Unlisted other bonds 1 546 448 394 17 57 2 462 Total 10 902 872 539 18 111 12 442
Total 36 608 10 615 16 535 1 756 1 890 938 68 342
Very low Low Medium High Very high In default or individu- Total risk risk risk risk risk ally written down 2011 Loans and advances to financial institutions 3 477 3 477
Loans and advances to customers Retail market 16 472 5 475 5 867 562 881 195 29 452 Corporate market 3 466 3 556 8 902 1 631 1 189 553 19 297
Loans to and claims on customers, and financial instruments classified as financial assets at 0 market value through the profit and loss account when the items involved are first included Total 23 415 9 031 14 769 2 193 2 070 748 52 226
Financial investments Listed government bonds 2 695 2 695 Listed other bonds 5 411 835 300 38 40 6 624 Unlisted other bonds 1 110 257 438 14 91 1 910 Total 9 216 1 092 738 52 131 11 229
Total 32 631 10 123 15 507 2 245 2 201 748 63 455
SpareBank 1 Nord-Norge Annual Report 2012 59 Annual Report
Note 9 - Credit quality by class of financial assets
Group Neither in default nor written down
Amounts in NOK million Very low Low Medium High Very high In default or individu- Total risk risk risk risk risk ally written down 2012 Loans and advances to financial institutions 1 871 1 871
Loans and advances to customers Retail market 17 773 5 216 5 792 733 947 179 30 640 Corporate market 4 529 5 156 11 024 1 232 1 178 792 23 911
Loans to and claims on customers, and financial instruments classified as financial assets at market value through the profit and loss account when the items involved are first included Total 24 173 10 372 16 816 1 965 2 125 971 56 422
Financial investments Listed government bonds 3 809 57 3 866 Listed other bonds 5 549 424 88 1 54 6 116 Unlisted other bonds 1 546 448 394 17 57 2 462 Total 10 904 872 539 18 111 12 444
Totalt 35 077 11 244 17 355 1 983 2 236 971 68 866
Very low Low Medium High Very high In default or individu- Total risk risk risk risk risk ally written down 2011 Loans and advances to financial institutions 970 970
Loans and advances to customers Retail market 17 189 5 606 5 952 588 924 205 30 464 Corporate market 3 773 4 127 9 286 1 887 1 535 569 21 178
Loans to and claims on customers, and financial instruments classified as financial assets at market value through the profit and loss account when the items involved are first included Total 21 932 9 733 15 238 2 475 2 459 774 52 612
Financial investments Listed government bonds 2 695 2 695 Listed other bonds 5 417 835 300 38 40 6 630 Unlisted other bonds 1 110 257 438 14 91 1 910 Total 9 222 1 092 738 52 131 11 235
Total 30 184 10 825 15 976 2 527 2 590 774 62 876
60 Note 10 - Financial institutions - Loans and advances
Parent Bank Group
31.12.11 Average inter- 31.12.12 Average inter- Amounts in NOK million 31.12.12 Average inter- 31.12.11 Average inter- est rate % 1) est rate % 1) est rate % 1) est rate % 1) Loans and advances to financial institutions 525 1.08 % 1 014 0.89 % Loans and advances without agreed maturity 1 052 0.89 % 547 1.08 % or notice of withdrawal 2 952 3.34 % 3 747 3.04 % Loans and advances with agreed maturity 819 2.31 % 423 2.40 % or notice of withdrawal 3 477 3.04 % 4 761 2.69 % Total 1 871 1.83 % 970 2.05 %
Broken down by the most important foreign currencies 2 485 3 295 NOK 405 1 1 128 GBP 128 1 84 349 EUR 349 84 392 403 USD 403 369 16 1 SEK 1 16 499 585 Other foreign currencies 585 499 3 477 4 761 Total 1 871 970
Deposits from credit institutions 666 2.91 % 499 2.49 % Loans and deposits from financial institutions 499 2.49 % 662 2.91 % without agreed maturity or notice of withdrawal 5 784 3.02 % 6 163 2.61 % Loans and deposits from credit institutions 6 164 2.61 % 5 784 3.02 % with agreed maturity or notice of withdrawal 6 450 3.02 % 6 662 2.60 % Total 6 663 2.60 % 6 446 3.02 %
Broken down by the most important foreign currencies 301 280 USD 280 301 2 DKK 2 6 149 6 380 NOK 6 381 6 145 6 450 6 662 Total 6 663 6 446
1) Average interest rate/(yield) is calculated as the sum of interest expense divided by average volume
SpareBank 1 Nord-Norge Annual Report 2012 61 Annual Report
Note 11 - Loans and advances to customers Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Loans broken down by different types Financial leasing 1 710 1 522 5 184 4 873 Overdraft- and working capital facilities 4 704 5 036 1 704 1 858 Building loans 1 858 1 705 41 861 44 408 Repayment loans 46 279 43 379 48 749 51 139 Gross loans to and advances to customers 54 551 51 642
191 287 Individual write-downs for impaired value 303 206 213 182 Collective write-downs for impaired value 198 226 48 345 50 670 Net loans and advances to customers (amortised cost) 54 050 51 210
48 378 50 715 Net loans and advances to customers (fair value) 54 095 51 243
Lending broken down by markets 29 452 29 390 Retail banking market 30 640 30 464 19 169 21 573 Corporate market 23 711 21 030 128 176 Public sector 200 148 48 749 51 139 Gross loans and advances 54 551 51 642
404 469 Individual and collective write-downs for impaired value 501 432 48 345 50 670 Net loans and advances 54 050 51 210
Of this, subordinated loan capital accounted for: 43 42 Subordinated loan capital in financial institutions 42 43 Subordinated loan capital in other financial institutions 1 1 Other subordinated loan capital 1 1 44 43 Subordinated loan capital shown under loans to customers 43 44
Loans to employees 1 118 873 Loans to employees 873 1 118 Interest rate subsidies to employees are not recognised as a separate operating cost, and are included in the Bank’s net interest income. (See also note 23 relating to loans to employees)
62 Note 11 - Loans and advances to customers Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Loans broken down by different risk groups Total contracts 21 880 22 626 Very low risk 23 981 22 904 10 455 11 705 Low risk 12 334 11 157 17 569 18 271 Medium risk 19 092 18 038 2 335 1 977 High risk 2 205 2 617 2 258 1 870 Very high risk 2 216 2 647 774 943 Commitments in default 976 800 55 271 57 392 Total 60 804 58 163
Gross loans 19 938 20 944 Very low risk 22 299 20 962 9 031 9 743 Low risk 10 372 9 733 14 769 15 997 Medium risk 16 818 15 238 2 193 1 738 High risk 1 966 2 475 2 070 1 779 Very high risk 2 125 2 459 748 938 Commitments in default 971 774 48 749 51 139 Total 54 551 51 641
Individual write-down for impaired value 193 287 Commitments in default 303 208 193 287 Total 303 208
Expected annual average net loss 1 1 Very low risk 1 1 3 3 Low risk 4 4 25 27 Medium risk 29 26 15 11 High risk 12 17 36 25 Very high risk 30 42 19 17 Commitments in default 24 31 99 84 Total 100 121
The bank uses a classification system for monitoring credit risk Individual write-downs are made on retail and corporate in the commercial portfolio. Defaults are defined as overdrawn market commitments that are identified as doubtful in amounts/arrears of more than 90 days, or a situation in which accordance with the regulations of the Financial Supervisory objective evidence exists that indicates a customer will default. Authority of Norway. The definition of high risk commitments For each customer, a likelihood of default is calculated, based and doubtful loans is determined based on the probability on historical financial data and credit report remarks and of default. The high risk exposure percentage was 8.3% as correspondingly for retail customers based on tax assessment at 31.12.2012. Doubtful commitments represent 1.0% of figures and credit report remarks. The bank has nine categories the bank’s overall exposure at the same point in time. The for healthy commitments based on the likelihood of each expected average annual net losses over an economic cycle are customer defaulting, as well as two separate categories for set as equal to the expected losses for one year, as estimated commitments in default or that have been written down. by means of the bank’s classification system. In a period of economic expansion the actual annual losses will be less A total commitment is defined as the sum total of the loan than in a future period of economic recession. In a period of balance, guarantee exposure limit, credit limit and accrued economic recession the losses for an individual year are also interest. expected to exceed the expected average losses. Expected losses are one of the parameters in the bank’s pricing model for The entire portfolio is scored on a monthly basis using calculating recommended price. automatic data acquisition based on objective data. Monitoring takes place based on the size of the commitment, risk class and migration. The scoring models for the corporate market and the retail market are validated and adjusted annually. This resulted in 2012 in a minor negative change in distribution between the risk groups and in the calculation of the expected annual average loss. SpareBank 1 Nord-Norge Annual Report 2012 63 Annual Report
Note 11 - Loans and advances to customers
Parent Bank Group Loans broken down by geographical areas
31.12.11 31.12.12 31.12.12 31.12.11 Gross Loans Gross Loans Gross Loans Gross Loans share share share share
17 % 8 153 16 % 8 280 Finnmark 16 % 8 986 17 % 8 808 34 % 16 538 34 % 17 225 Troms including Svalbard 34 % 18 371 34 % 17 549 39 % 19 014 40 % 20 217 Nordland 39 % 21 084 39 % 19 992 10 % 4 785 10 % 5 333 Other counties 10 % 5 691 10 % 5 034 1 % 259 0 % 84 International 1 % 419 1 % 259 100 % 48 749 100 % 51 139 Total gross loans broken 100 % 54 551 100 % 51 642 down by geographic areas
Loans broken down by different commercial, industrial and other sectors
31.12.11 31.12.12 31.12.12 31.12.11 Total commitments 61 65 Mining and quarrying 92 75 1 059 1 171 Construction 1 484 1 343 37 13 Building of ships and boats 15 40 2 144 2 421 Electricity, gas, steam and air conditioning supply 2 426 2 151 799 794 Professional, scientific and technical activities 821 817 200 Finanicial and insurance activities 200 1 965 2 357 Fishing 2 367 1 980 193 173 Marine aquaculture 286 330 398 391 County muncipalities and muncipalities 612 611 252 1 034 Activities auxiliary to financial services and insurance activities 863 265 870 933 County muncipalities and muncipalities 956 889 1 494 1 884 Manufacturing 2 029 1 646 173 164 Information and communication 169 181 954 969 Crop and animal production 1 064 1 048 38 37 Foreign industrial 286 38 7 585 7 498 Real estate activities 7 553 7 626 420 367 Accomodation and food service activities 381 437 10 7 Forestry and logging 12 13 0 Central government and social security funds 1 1 1 Support activities for petroleum and natural gas extraction 1 686 807 Other service industries 891 771 1 555 2 421 Transportation and storage 2 991 2 027 863 815 International shipping and pipeline transport 815 863 772 907 Development of building projects 908 772 75 0 Extraction of crude oil and natural gas 76 0 3 Unspecified 3 0 146 221 Water supply; sewerage, waste management and remediation activities 301 195 1 839 1 635 Wholesale and retail trade; repair of motor vehicles and motorcycles 1 923 2 074 30 637 30 257 Retail banking market - domestic 31 419 31 649 44 48 Retail banking market - international 136 44 55 271 57 392 Total 60 804 58 163
64 Note 11 - Loans and advances to customers
31.12.11 31.12.12 31.12.12 31.12.11 Gross loans 57 54 Mining and quarrying 81 71 632 724 Construction 1 037 916 25 10 Building of ships and boats 12 28 970 1 429 Electricity, gas, steam and air conditioning supply 1 434 977 774 678 Professional, scientific and technical activities 705 792 Finanicial and insurance activities 1 345 1 609 Fishing 1 619 1 359 170 144 Marine aquaculture 257 268 366 356 County muncipalities and muncipalities 577 578 348 978 Activities auxiliary to financial services and insurance activities 807 361 128 176 County muncipalities and muncipalities 199 148 974 1 532 Manufacturing 1 677 1 126 154 145 Information and communication 150 162 855 876 Crop and animal production 971 949 37 Foreign industrial 286 38 7 147 7 026 Real estate activities 7 081 7 188 388 345 Accomodation and food service activities 359 405 9 6 Forestry and logging 11 12 Central government and social security funds 1 1 1 Support activities for petroleum and natural gas extraction 1 637 682 Other service industries 766 722 1 325 2 119 Transportation and storage 2 689 1 797 738 671 International shipping and pipeline transport 671 738 648 703 Development of building projects 704 648 75 Extraction of crude oil and natural gas 75 Unspecified 122 210 Water supply; sewerage, waste management and remediation activities 290 171 1 409 1 239 Wholesale and retail trade; repair of motor vehicles and motorcycles 1 527 1 644 29 410 29 344 Retail banking market - domestic 30 506 30 422 42 46 Retail banking market - international 134 42 48 749 51 139 Total 54 551 51 641
SpareBank 1 Nord-Norge Annual Report 2012 65 Annual Report
Note 11 - Loans and advances to customers
31.12.11 31.12.12 31.12.12 31.12.11 Individual write-downs for impaired value Mining and quarrying 1 4 6 Construction 8 6 Building of ships and boats Electricity, gas, steam and air conditioning supply 3 Professional, scientific and technical activities 3 Finanicial and insurance activities 1 Fishing 1 22 21 Marine aquaculture 21 22 5 Other business support activities 2 5 Activities auxiliary to financial services and insurance activities County muncipalities and muncipalities 13 1 Manufacturing 1 14 Information and communication 13 2 Crop and animal production 2 13 Foreign industrial 38 121 Real estate activities 125 38 9 8 Accomodation and food service activities 8 10 Forestry and logging Central government and social security funds Support activities for petroleum and natural gas extraction 21 9 Other service industries 9 21 1 11 Transportation and storage 13 2 10 22 International shipping and pipeline transport 22 10 23 52 Development of building projects 52 23 Extraction of crude oil and natural gas Unspecified Water supply; sewerage, waste management and remediation activities 2 3 Wholesale and retail trade; repair of motor vehicles and motorcycles 4 4 31 28 Retail banking market - domestic 33 38 Retail banking market - international 193 287 Total 303 208
66 Note 11 - Loans and advances to customers
31.12.11 31.12.12 31.12.12 31.12.11 Expected annual average net loss 0 Mining and quarrying 2 4 3 Construction 6 9 0 Building of ships and boats 0 4 5 Electricity, gas, steam and air conditioning supply 5 4 4 5 Professional, scientific and technical activities 5 4 5 Finanicial and insurance activities 5 3 1 Fishing 1 3 0 Marine aquaculture 0 2 1 Other business support activities 1 3 0 2 Activities auxiliary to financial services and insurance activities 2 0 0 County muncipalities and muncipalities 0 3 9 Manufacturing 12 5 1 1 Information and communication 1 1 2 2 Crop and animal production 3 3 1 Foreign industrial 1 20 15 Real estate activities 15 20 2 1 Accomodation and food service activities 2 3 0 Forestry and logging 0 Central government and social security funds 0 Support activities for petroleum and natural gas extraction 0 4 2 Other service industries 3 5 3 3 Transportation and storage 5 8 2 International shipping and pipeline transport 2 1 4 Development of building projects 4 1 0 Extraction of crude oil and natural gas 0 0 Unspecified 0 0 Water supply; sewerage, waste management and remediation activities 0 8 5 Wholesale and retail trade; repair of motor vehicles and motorcycles 8 10 31 24 Retail banking market - domestic 26 33 1 0 Retail banking market - international 0 1 99 84 Total 100 121
Loans and advances to customers relating to financial leasing Gross advances relating to financial leasing Maturities of less than 1 year 83 70 Maturities of more than 1 year but not more than 5 years 988 987 Maturities of more than 5 years 741 563 Total 1 812 1 620
Income received, not yet earned, relating to financial leasing 110 105 Net investments relating to financial leasing 1 702 1 515
Net investments in financial leasing may be analysed in the following way: Maturities of less than 1 year 78 65 Maturities of more than 1 year but not more than 5 years 928 923 Maturities of more than 5 years 696 527 Total 1 702 1 515
SpareBank 1 Nord-Norge Annual Report 2012 67 Annual Report
Note 12 - Age distribution for loans due, not written down Credit risk The table shows amounts due on loans and overdrafts relating to credit facilities/deposits, broken down by the number of days elapsed since the due date of the loan payment, not due to delays in payments transmission.
Parent Bank
Amounts in NOK million Under 30 days 31 - 60 days 61 - 90 days Over 91 days Total 2012 Loans and advances to financial institutions
Loans and advances to customers Retail banking market 429 44 10 69 552 Corporate market 177 37 18 32 264 Loans to and claims on customers and financial institutions classified as financial assets at market value through the profit and loss account when the items in question were first included in the accounts. Total 606 81 28 101 816
Amounts in NOK million Under 30 days 31 - 60 days 61 - 90 days Over 91 days Total 2011 Loans and advances to financial institutions
Loans and advances to customers Retail banking market 496 25 14 84 619 Corporate market 150 45 12 36 243 Loans to and claims on customers and financial institutions classified as financial assets at market value through the profit and loss account when the items in question were first included in the accounts. Total 646 70 26 120 862
Of the total amount of gross loans due, but not written down, to financial institutions and customers, the market value of the related assets pledged as security was NOK 837 million as at 31.12.12 (NOK 858 million as at 31.12.11). The value of pledged assets is set at the realisation value (fair value less a reduction factor).
68 Note 12 - Age distribution for loans due, not written down
Group
Amounts in NOK million Under 30 days 31 - 60 days 61 - 90 days Over 91 days Total 2012 Loans and advances to financial institutions
Loans and advances to customers Retail banking market 429 56 13 77 575 Corporate market 177 92 83 51 403 Loans to and claims on customers and financial institutions classified as financial assets at market value through the profit and loss account when the items in question were first included in the accounts. Total 606 148 96 128 978
Amounts in NOK million Under 30 days 31 - 60 days 61 - 90 days Over 91 days Total 2011 Loans and advances to financial institutions
Loans and advances to customers Retail banking market 496 39 18 92 645 Corporate market 150 116 23 61 350 Loans to and claims on customers and financial institutions classified as financial assets at market value through the profit and loss account when the items in question were first included in the accounts. Total 646 155 41 153 995
Of the total amount of gross loans due, but not written down, to financial institutions and customers, the market value of the related assets pledged as security was NOK 1,024 million as at 31.12.12 (NOK 991 million as at 31.12.11). The value of pledged assets is set at the realisation value (fair value less a reduction factor).
Note 13 - Transfer of financial assets
In its ordinary business, the bank undertakes transactions Offsetting against commission revenues that result in the sale of financial assets where the bank has The bank receives commissions for the residential loans sold a permanent commitment. The bank continues to recognise corresponding to the interest income on the loans less the average these assets to the scope that the bank continues to have an financing costs of SpareBank 1 Boligkreditt, administrative costs involvement in the property. The bank transfers such financial and any possible losses arising, limited to a ceiling of one year’s assets primarily through the sale of a customer’s residential loan commission. The interest is established by the residential credit to SpareBank 1 Boligkreditt or a commercial property loan to company. The loans transferred must have an LTV of under 75 SpareBank 1 Næringskreditt. percent at the point in time of the sale. The average LTV for the loans sold from SpareBank 1 Nord-Norge is under 50 percent. The bank transfers for all practical purposes all risks associated SpareBank 1 Boligkreditt with the residential loans sold and the bank hence deducts them The bank sells residential loans to SpareBank 1 Boligkreditt, from its balance sheet. The bank furthermore enters all rights which in turn issues bonds to investors with the transferred and obligations that are created or retained upon the transfer residential loans as security. On a net basis in 2012, NOK 5 separately as assets or liabilities. The bank’s maximum exposure billion in residential loans were sold. In total, residential loans to losses is represented by the highest amount for which to SpareBank 1 Boligkreditt of NOK 21.3 billion had been coverage would be able to be demanded under the agreement deducted at the end of the fiscal year. The loans are sold at their and comprised around NOK 175 million as at 31.12.12 (sum of balance sheet value. commissions for 2012). No losses have been recognised in the portfolio since the transfer.
SpareBank 1 Nord-Norge Annual Report 2012 69 Annual Report
Note 13 - Transfer of financial assets
Permanent commitment
Amounts in NOK million Book value obligations Fair value obligations Maximum exposure to losses (last year's commissions) NOK millions Settlement access 0 0 175 Average time to maturity of the portfolio is around three years.
Liquidity facility SpareBank 1 Næringskreditt SpareBank 1 Nord-Norge has, together with the other owners The bank can sell commercial property loans to SpareBank 1 of SpareBank 1 Boligkreditt, entered into an agreement to Næringskreditt, which in turn issues bonds to investors with establish a liquidity facility for SpareBank 1 Boligkreditt. the transferred loans as security. No loans had been transferred This involves the banks committing to purchase residential to SpareBank 1 Næringskreditt at the end of the fiscal year. mortgage bonds limited to a total value of twelve months’ maturities from SpareBank 1 Boligkreditt. Each owner is principally liable for its share of the need, subsidiarily for Offsetting against commission revenues twice what its primary responsibility is with respect to A corresponding agreement has been entered into concerning the same agreement. The bonds can be deposited in Norges offsetting against commission revenues as for SpareBank 1 Bank and thus involve no significant increase in risk to the Boligkreditt, see the above. bank. SpareBank 1 Boligkreditt holds as per its own internal guidelines liquidity for the next twelve months’ maturities. This is deducted when evaluating the responsibilities of the Liquidity facility banks. It hence is only if the business no longer possesses the As described above concerning SpareBank 1 Boligkreditt, liquidity for the next twelve months’ maturities that the bank a corresponding agreement has been entered into with would report any commitment associated with this. SpareBank 1 Næringskreditt.
Solvency Solvency Together with the other owners of SpareBank 1 Boligkreditt, In the same manner, an agreement has been entered to ensure SpareBank 1 Nord-Norge has also entered into an agreement to Tier 1 capital for SpareBank 1 Næringskreditt of a minimum ensure that SpareBank 1 Boligkreditt always has a Tier 1 capital of 9 percent. See the discussion above concerning SpareBank ratio of at least 9 percent. The shareholders must contribute 1 Boligkreditt. sufficient Tier 1 capital within 3 months after having received a written request to do so. The obligation of the shareholders to contribute such Tier 1 capital is pro rata and not jointly and severally, and will be with respect to each shareholder’s pro rata portion of the shares of SpareBank 1 Boligkreditt.
70 Note 14 - Write-down for impaired value of loan and advances Parent Bank Group
2011 2012 Amounts in NOK million 2012 2011 -64 94 Change in individual write-downs for impaired value during the period 97 -68 24 -40 Change in collective write-downs for impaired value during the period -40 26 144 141 Confirmed losses against which individual write-downs for impaired value 144 151 was previously made 1 40 Confirmed losses against which no individual write-downs for impaired value 5 1 was previously made -8 -11 Payments received on loans, guarantees etc. previously written down -11 -9 97 224 Total losses on loans and guarantees 195 101
Individual write-downs for impaired value 258 193 Individual write-downs for impaired value on loans and guarantees as at 01.01. 208 273 144 141 - Confirmed losses during the period on loans and guarantees against 144 150 which individual write-downs for impaired value were previously made 24 22 - Reversal of previous years’ impaired value 24 24 13 4 + Increase in individual write-downs for impaired value of commitments against 9 17 which individual write-downs for impaired value were previously made 90 253 + Individual write-downs for impaired value of commitments where no allowance 254 92 were raised in previous years 193 287 = Individual write-downs for impaired value on loans and guarantees as at 31.12. 303 208 Individual write-downs for impaired value of guarantees, parent bank NOK 0.2 million, and group NOK 0.2 mill, are included in the balance sheet as at 31.12.12 under liabilities. Accordingly the amount in 2011 was NOK 2 mill.
Collective write-downs for impaired value 192 213 Collective write-downs for impaired value on loans and guarantees as at 01.01. 226 200 21 -31 + Collective write-downs for impaired value on loans and guarantees in the period -28 26 213 182 = Collective write-downs for impaired value on loans and guarantees as at 31.12. 198 226
SpareBank 1 Nord-Norge Annual Report 2012 71 Annual Report
Note 14 - Write-down for impaired value of loan and advances
Parent Bank Group Losses broken down by sector and industry 2011 2012 2012 2011 Propor- Loss Propor- Loss Propor- Loss Propor- Loss tion of tion of tion of tion of losses losses losses losses 0 % 1 Mining and quarrying 0 % -1 0 % 0 4 % 4 1 % 3 Construction 2 % 4 3 % 6 0 % 1 Building of ships and boats 0 % 1 0 % 0 Electricity, gas, steam an air conditioning supply 0 % 1 0 % 0 2 % 4 Professional, scientific and technical activities 2 % 4 0 % 0 15 % 35 Finanicial and insurance activities 0 % -1 0 % 0 0 % -1 Fishing 0 % 0 0 % 0 0 % 1 Marine aquaculture 0 % 1 0 % 0 -1 % -3 Other business support activities 0 % -1 0 % 0 -1 % -1 Activities auxiliary to financial services and 0 % -1 insurance activities County muncipalities and muncipalities 0 % 0 1 % 1 2 % 4 Manufacturing 1 % 3 0 % 1 1 % 2 Information and communication 1 % 2 0 % 0 9 % 9 2 % 4 Crop and animal production 2 % 4 4 % 9 Foreign industrial 0 % 0 20 % 21 41 % 96 Real estate activities 47 % 96 10 % 21 5 % 5 Accomodation and food service activities 2 % 5 Forestry and logging 0 % 0 Central government and social security funds 0 % 0 Support activities for petroleum and natural gas extraction 0 % 0 11 % 12 0 % -1 Other service industries 0 % 1 6 % 12 -1 % -1 -1 % -2 Transportation and storage 0 % -1 0 % -1 10 % 10 4 % 10 International shipping and pipeline transport 5 % 10 5 % 10 21 % 49 Development of building projects 24 % 49 0 % 0 -1 % -3 Extraction of crude oil and natural gas -1 % -3 0 % 0 Unspecified 0 % 0 17 % 40 Water supply; sewerage, waste management and 19 % 39 0 % 0 remediation activities 2 % 2 -1 % -2 Wholesale and retail trade; repair of motor vehicles 0 % -1 1 % 2 and motorcycles 21 % 22 -1 % -3 Retail banking market 0 % -1 11 % 23 30 % 32 Collective write-downs for impaired value - corporate market 16 % 33 -10 % -11 Collective write-downs for impaired value - retail banking market -5 % -11 Collective write-downs for impaired value 0 % 0 (losses on repossessed properties) 100 % 105 100 % 235 Losses on loans to customers 100 % 206 100 % 109
8 11 Payments received on loans previously written-off as 11 8 confirmed lost 97 224 Net losses on loans 195 101
72 Note 14 - Write-down for impaired value of loan and advances Net non-performing and impaired commitments - Parent Bank 31.12.12 31.12.11 31.12.10 31.12.09 31.12.08 Non-performing commitments, not impaired 357 452 475 541 422 Impaired 586 322 361 194 272 Non-performing and impaired commitments 943 774 836 735 694
Individual write-downs for impaired value 104 88 129 184 141 Interest on reversal of discounted impairment of value 183 105 129 36 52 Total individual write-downs 287 193 258 220 193 Net non-performing and impaired commitments 656 581 578 515 501
2012 2011 2010 2009 2008 Interest on written-down loans, included in Income * 56 50 46 36 55
Net non-performing and impaired commitments - Group 31.12.12 31.12.11 31.12.10 31.12.09 31.12.08 Non-performing commitments, not impaired 397 471 492 575 453 Impaired 592 338 378 228 303 Non-performing and impaired commitments 989 809 870 803 756
Individual write-downs for impaired value 120 96 137 190 146 Interest on reversal of discounted impairment of value 183 112 136 42 57 Total individual write-downs 303 208 273 232 203 Net non-performing and impaired commitments 686 601 597 571 553
2012 2011 2010 2009 2008 Interest on written-down loans, included in Income * 56 50 46 36 55
* Ordinary effective interest income, reduced by the amortising effect of interest related to individual write-downs, has been included in Income. Corresponding inclusion of income has been applied in the case of loans involving collective related write-downs, calculated at an average, effective rate of interest.
SpareBank 1 Nord-Norge Annual Report 2012 73 Annual Report
Note 15 - Market risk related to interest rate risk
This note is a sensitivity analysis conducted based on relevant Value changes are calculated for all the items in the balance balance sheet items as at 31.12.12 and in the future. The bank’s sheet when the market risk linked to the interest rate risk is interest rate risk is calculated by simulating a parallel interest measured. The interest rate risk has been low throughout 2012 rate shift of 1% for the entire interest rate curve. and within the overall limit of NOK 60 million established by the bank’s Executive Board. The market risk linked to the interest rate risk has a limited effect on the bank’s profit performance due to the low exposure.
Parent Bank Group
Sensitivity to net interest cost Amounts in NOK million Sensitivity to net interest cost 31.12.11 31.12.12 31.12.12 31.12.11 Valuta -10.50 5.00 NOK +200 5.00 -10.50 -1.00 -1.40 Valuta +200 -1.40 -1.00
Note 16 - Market risk relating to foreign exchange risk The currency risk is measured as the net currency exposure for year and within the overall limits established by the bank’s each individual currency in which the long and short positions Executive Board. are set off. The currency risk has been low throughout the
Parent Bank Group Net foreign exchange exposure Net foreign exchange exposure
2011 2012 Amounts in NOK million 2012 2011 Currency 0.1 6.5 EUR 6.5 0.1 30.5 29.7 USD 29.7 30.5 178.5 195.1 DKK 195.1 178.5 161.5 179.0 RUB 179.0 161.5 1.8 -0.2 Miscellaneous -0.2 1.8 372.4 410.1 Total 410.1 372.4
50 50 Total foreign exchange limits 50 50 40 40 Total per currency 40 40
11.2 12.3 Impact on overall result from a 3 percentage point change 12.3 11.2
74 Note 17 - Financial derivatives
General description Currency- and interest rate contracts consist of Interest rate swaps • Commitments to exchange one set of cash flow for another over an agreed period.
Foreign exchange derivatives • Agreements to buy or sell a fixed amount of currency at an agreed future date at a rate of exchange which has been agreed in advance.
Currency swaps • Agreements relating to the swapping of currency- and interest rate terms and conditions, periods and amounts having been agreed in advance.
Interest rate- and currency swap agreements • Agreements involving the swapping of currency- and interest rate terms and conditions, periods and amounts having been agreed in advance.
Options • Agreements where the seller gives the buyer a right, but not an obligation to either sell or buy a financial instrument or currency at an agreed date or before, and at an agreed amount.
SpareBank 1 Nord-Norge enters into hedging contracts with to cover and reduce risk relating to customer-related activities. respected Norwegian and foreign banks in order to reduce its Only hedging transactions relating to the Bank’s funding loan own risk. operations are defined as ‘fair value hedging’ in accordance with IFRS standard IAS 39. Other hedging transactions are defined as Financial derivatives transactions are related to ordinary banking ordinary accounts-related hedging. The Bank does not use cash operations and are done in order to reduce the risk relating to the flow hedging. Bank’s funding loans from the financial markets, and in order
Fair value hedges 31.12.12 31.12.11 Net losses recognised related to hedging instruments for fair value hedging were: 266 -61 Total gains on hedged items related to the hedged risk were: -267 61 Total, fair value hedges -1 0
The Bank’s main Board of Directors has determined limits for maximum risk for the Bank’s interest rate positions. Routines have been established to ensure that positions are maintained within these limits.
Parent Bank and Group
Foreign currency- 2012 2011 and interest rate instruments
Amounts in NOK million Contract/notional Fair value Contract/notional Fair value amount amount Assets Liabilites Assets Liabilites Fair value through profit and loss account Foreign currency instruments Foreign exchange financial derivatives 1 679 39 6 2 936 43 25 (forwards) Currency swaps 4 996 140 68 5 708 178 74 Currency options Total, non-standardised contracts 6 675 179 74 8 644 221 99 Standardised foreign currency contracts (futures) Total, foreign currency instruments 6 675 179 74 8 644 221 99
SpareBank 1 Nord-Norge Annual Report 2012 75 Annual Report
Note 17 - Financial derivatives
Parent Bank and Group
Foreign currency- 2012 2011 and interest rate instruments Amounts in NOK million Contract/notional Fair value Contract/notional Fair value amount amount Assets Liabilites Assets Liabilites Fair value through profit and loss account Interest rate instruments Interest rate swaps 23 275 453 617 19 363 282 389 (including cross currency) Short-term interest rate swaps (FRA) Other interest rate contracts 1 811 8 7 4 211 3 6 Total, non-standardised contracts 25 086 461 624 23 574 285 395 Standardised interest rate contracts (futures) Total, interest rate instruments 25 086 461 624 23 574 285 395
Securing of funding Interest rate instruments Interest rate swaps 8 318 593 15 9 125 344 25 (including cross currency) Short-term interest rate swaps (FRA) Other interest rate contracts Total, non-standardised contracts 8 318 593 15 9 125 344 25 Standardised interest rate contracts (futures) Total, interest rate instruments 8 318 593 15 9 125 344 25
Total foreign currency- and interest rate instruments Total, interest rate instruments 33 404 1 054 639 32 699 629 420 Total currency swaps and forwards 6 675 179 * 8 644 221 99 74 Total 40 079 1 234 713 41 343 850 519
* The parent bank includes NOK 6 million for the subsidiary SpareBank 1 Finans that has been eliminated in the group balance sheet.
76 Note 18 - Remaining contract-related periods for liabilities
Liquidity risk A cash flow analysis illustrates the net payments, including In addition, the bank should be able to survive for a minimum future interest payments at various points in time. SpareBank of 90 days in a “medium stress” situation, where no funding 1 Nord-Norge prepares an annual liquidity strategy that is available from the capital markets. The bank manages its encompasses, for example, the bank’s liquidity risk. The operations in accordance with these targets. principal objective for SpareBank 1 Nord-Norge is to maintain the bank’s ability to survive in a normal situation without any external funding for a period of 12 months.
Parent Bank
Amounts in NOK million On demand Under 3 - 12 1 - 5 Over Total 3 months months year 5 years 2012 Liabilities to credit institutions 19 842 236 5 565 6 662 Deposits from customers 4 708 Debt securities in issue 40 732 450 41 182 Liabilities relating to deferred tax 675 3 473 13 397 252 17 797 Derivatives Contract-related outgoing cash flows 664 501 1 730 503 3 398 Contract-related incoming cash flows -443 -325 -793 -392 -1 953 Other liabilities 783 783 Subordinated loan capital 130 627 1 338 2 095 Total liabilities 40 751 3 101 4 512 21 237 363 74 672
2011 Liabilities to credit institutions 1 064 292 5 018 76 6 450 Deposits from customers 5 012 915 5 927 Debt securities in issue 40 921 1 825 41 747 Liabilities relating to deferred tax 178 3 045 9 788 1 680 14 691 Derivatives Contract-related outgoing cash flows 244 742 1 767 432 3 185 Contract-related incoming cash flows -525 -627 -957 -390 -2 499 Other liabilities 562 117 2 681 Subordinated loan capital 8 79 1 456 1 543 Total liabilities 45 933 1 531 4 564 17 114 1 798 70 940
SpareBank 1 Nord-Norge Annual Report 2012 77 Annual Report
Note 18 - Remaining contract-related periods for liabilities
Group
Amounts in NOK million On demand Under 3 - 12 1 - 5 Over Total 3 months months year 5 years 2012 Liabilities to credit institutions 19 842 236 5 566 6 663 Deposits from customers 4 407 4 407 Debt securities in issue 40 770 450 41 220 Liabilities relating to deferred tax 675 3 473 12 134 252 16 534 Derivatives 21 369 323 713 Contract-related outgoing cash flows 664 501 1 730 503 3 398 Contract-related incoming cash flows -443 -325 -793 -392 -1 953 Other liabilities 783 182 965 Subordinated loan capital 130 627 1 338 2 095 Total liabilities 40 789 7 529 5 063 20 298 363 74 042
2011 Liabilities to credit institutions 1 064 292 5 014 76 6 446 Deposits from customers 4 386 1 107 5 493 Debt securities in issue 40 911 1 852 41 764 Liabilities relating to deferred tax 178 3 045 9 788 1 680 14 691 Derivatives Contract-related outgoing cash flows 244 742 1 767 432 3 185 Contract-related incoming cash flows -525 -627 -957 -390 -2 499 Other liabilities 399 264 108 771 Subordinated loan capital 8 79 1 456 1 543 Total liabilities 45 297 1 368 3 796 18 354 1 798 70 613
78 Note 19 - Maturity analysis of assets and liabilities
The table shows whether assets and liabililties have maturity dates within one year after the balance sheet date. Parent Bank
Amounts in NOK million On demand Under 3 - 12 1 - 5 Over Total 3 months months year 5 years 31.12.12 Assets Cash and balances with central banks 244 244 Loans and advances to credit institutions 3 637 804 153 156 11 4 761 Loans and advances to customers 8 284 538 1 860 8 251 32 206 51 139 - Individual write-downs for impaired value -287 -287 - Collective write-downs for impaired value -213 -213 Shares - available for sale 277 105 382 Shares - fair value 3 535 1 691 3 644 581 9 451 Financial derivatives 106 80 180 366 Bonds - fair value 8 0 2 601 47 2 656 Bonds - loans and advances 1 240 1 240 Investments in Group companies 402 402 Investment in associated companies and joint ventures 2 407 2 407 Intangible assets 0 Property, plant and equipment 504 504 Intangible assets 0 Other assets 716 716 Total assets 13 405 4 991 4 777 14 437 36 158 73 768
Liabilities Liabilities to credit institutions 1 751 1 095 3 701 115 6 662 Deposits from customers 40 732 450 41 182 Debt securities in issue 562 3 620 12 152 200 16 534 Financial derivatives 21 369 323 713 Deferred tax 154 154 Other liabilities 839 839 Subordinated loan capital 2 095 2 095 Total liabilities 42 658 2 946 7 321 12 636 2 618 68 179
SpareBank 1 Nord-Norge Annual Report 2012 79 Annual Report
Note 19 - Maturity analysis of assets and liabilities
Group
Amounts in NOK million On demand Under 3 - 12 1 - 5 Over Total 3 months months year 5 years 31.12.12 Assets Cash and balances with central banks 271 271 Loans and advances to credit institutions 747 804 153 156 11 1 871 Loans and advances to customers 8 284 538 1 860 8 251 35 618 54 551 - Individual write-downs for impaired value -287 -287 - Collective write-downs for impaired value -213 -213 Shares - available for sale 277 276 553 Shares - fair value 3 535 1 691 3 614 581 9 422 Financial derivatives 106 80 180 366 Bonds - fair value 8 0 2 601 47 2 656 Bonds - loans and advances 1 234 1 234 Investments in Group companies 0 Investment in associated companies and joint ventures 3 514 3 514 Goodwill 53 Property, plant and equipment 515 515 Intangible assets 0 Other assets 756 756 Total assets 10 536 4 991 4 817 14 579 40 286 75 261
Liabilities Liabilities to credit institutions 1 752 1 095 3 701 115 6 663 Deposits from customers 40 770 450 41 220 Debt securities in issue 562 3 620 12 152 200 16 534 Financial derivatives 21 369 323 713 Deferred tax 183 183 Other liabilities 1 021 1 021 Subordinated loan capital 2 095 2 095 Total liabilities 42 726 3 128 7 321 12 636 2 618 68 429
80 Note 19 - Maturity analysis of assets and liabilities
Parent Bank
Amounts in NOK million On demand Under 3 - 12 1 - 5 Over Total 3 months months year 5 years 31.12.11 Assets Cash and balances with central banks 1 869 1 869 Loans and advances to credit institutions 678 2 396 403 3 477 Loans and advances to customers 8 759 394 1 696 7 128 30 772 48 749 - Individual write-downs for impaired value -191 -191 - Collective write-downs for impaired value -213 -213 Shares - available for sale 250 107 357 Shares - fair value 2 470 971 3 460 669 7 570 Financial derivatives 149 369 343 20 881 Bonds - fair value 110 2 563 105 2 778 Bonds - loans and advances 850 850 Investments in Group companies 356 356 Investment in associated companies and joint ventures 1 983 1 983 Intangible assets 0 Property, plant and equipment 502 502 Intangible assets 0 Other assets 713 713 Total assets 12 156 3 013 6 505 13 600 34 407 69 681
Liabilities Liabilities to credit institutions 666 1 000 193 4 591 6 450 Deposits from customers 40 920 3 825 41 748 Debt securities in issue 316 2 705 8 721 1 600 13 342 Financial derivatives 517 517 Deferred tax 78 78 Other liabilities 521 403 2 926 Subordinated loan capital 1 356 1 356 Total liabilities 42 702 1 719 2 903 14 137 2 956 64 417
SpareBank 1 Nord-Norge Annual Report 2012 81 Annual Report
Note 19 - Maturity analysis of assets and liabilities
Group
Amounts in NOK million On demand Under 3 - 12 1 - 5 Over Total 3 months months year 5 years 31.12.11 Assets Cash and balances with central banks 1 896 1 896 Loans and advances to credit institutions 494 72 404 970 Loans and advances to customers 8 786 402 1 776 8 806 31 872 51 642 - Individual write-downs for impaired value -206 -206 - Collective write-downs for impaired value -226 -226 Shares - available for sale 250 107 250 607 Shares - fair value 2 470 971 3 460 668 7 569 Financial derivatives 149 369 343 20 881 Bonds - fair value 110 2 569 105 2 784 Bonds - loans and advances 850 850 Investments in Group companies 0 Investment in associated companies and joint ventures 3 019 3 019 Goodwill 26 26 Property, plant and equipment 508 508 Intangible assets 0 Other assets 444 275 719 Total assets 12 496 3 021 3 823 15 257 36 442 71 039
Liabilities Liabilities to credit institutions 663 1 000 193 4 590 6 446 Deposits from customers 40 939 1 825 41 765 Debt securities in issue 316 2 705 8 721 1 600 13 342 Financial derivatives 519 519 Deferred tax 107 107 Other liabilities 558 523 2 1 083 Subordinated loan capital 1 356 1 356 Total liabilities 42 786 1 839 2 901 14 136 2 956 64 618
82 Note 20 - Net interest income Parent Bank Group 2011 2012 Amounts in NOK million 2012 2011 Interest income 146 154 Interest and similar income from loans to and claims on credit institutions 37 58 2 191 2 252 Interest and similar income from loans to and claims on customers 2 485 2 386 376 316 Interest and similar income from certificates, bonds and other interest-bearing 323 380 securities 2 713 2 722 Total interest income 2 845 2 824
Interest costs 179 141 Interest and similar costs on liabilities to credit institutions 136 178 989 952 Interest and similar costs relating to deposits from and liabilities to customers 948 984 462 529 Interest and similar costs related to the issuance of securities 529 462 70 66 Interest and similar costs on subordinated loan capital 66 70 1 700 1 688 Total interest costs 1 679 1 694
1 013 1 034 Net interest income 1 166 1 130
Note 21 - Net commission income
Parent Bank Group 2011 2012 Amounts in NOK million 2012 2011 Fees and commissions receivable 17 27 Guarantee commissions 27 17 21 16 Interbank commissions 16 21 14 13 The arrangement of credit 14 14 73 175 Arrangement fee for SpareBank 1 Boligkreditt 175 73 2 2 Arrangement fee for vendor's lien-based loans 2 2 37 34 Securities trading, administration and trust department services 40 52 206 206 Payment transmission services 206 206 Brokerage commission 89 68 101 111 Insurance services 111 101 12 6 Other commission income 6 13 483 590 Total fee- and commission income 686 567 Fees and commissions payable 14 8 Interbank commissions 8 14 39 39 Payment transmission services 41 41 25 25 Other commission costs 25 25 78 72 Total fee- and commission costs 74 80
405 518 Net fee- and commission income 612 487
Other operating income 5 5 Real estate income 5 5 8 3 Property management 3 8 9 14 Other operating income 36 6 22 22 Total other operating income 44 19
SpareBank 1 Nord-Norge Annual Report 2012 83 Annual Report
Note 22 - Income from financial investments
Parent Bank Group 2011 2012 Amounts in NOK million 2012 2011 11 16 Dividends from equity capital instruments 17 14
48 51 Income from Group companies 141 30 Income from joint ventures 210 195 189 81 Total income from equity stakes in Group companies and joint ventures 210 195
-58 81 Certificates and bonds assessed at fair value through the profit and loss account 81 -58 -5 0 Certificates and bonds assessed at amortised cost - loans and advances 0 -5 0 -5 Certificates and bonds assessed at amortised cost - hold to maturity -5 0 -63 76 Total income from certificates and bonds 76 -63
0 2 Net value changes on hedged bonds and financial derivatives 2 0 34 47 Net value changes on fixed rate loans to customers and derivatives 47 34 41 -6 Value changes on other financial derivatives -6 41 75 43 Total income from financial derivatives 43 75
-101 29 Gains/losses on shares - classified at fair value through the profit and loss account -113 -68 -8 -1 Gains/losses on shares - classified as available for sale -1 -8 -109 28 Total income from shares -114 -76
39 28 Total income from currency trading 28 39
-58 175 Net gain/losses and net value changes on financial assets 33 -25
142 272 Income from financial investments 260 184
84 Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading employees and employee representatives
Parent bank Group 2011 2012 Amounts in NOK million 2012 2011 366 398 Wages and salaries 499 437 28 31 Pension costs 34 30 42 42 Social costs 48 47 436 471 Total personnel costs 581 514
707 736 Average number of staff 951 814 670 672 Number of man-years as at 31.12. 906 795 705 704 Number of staff as at 31.12. 951 830
Remuneration for the Bank’s Chief Executive Officer Amounts in NOK thousand 2012 2011 The CEO’s remuneration consists of the following elements Ordinary salary 3 019 3 394 Benefits in kind 327 248 Pension premium 1 729 2 323 Tax compensation 1 584 2 136
SpareBank 1 Nord-Norge today has a pension scheme through In 2012 there has not been paid bonus to the CEO, compared its own pension fund which together with the pension from the with NOK 600,000 in the previous year. National Insurance shall provide a pension of approximately 70% of final salary at retirement age. For those members who Fees paid to the Chairman of the main Board of Directors have a salary in excess of 12 G (the basic amount), the Bank Kjell Olav Pettersen has been Chairman of SpareBank 1 Nord- has established a group annuity (‘top hat’) which takes care of Norge’s main Board of Directors with effect from 2005. In 2012, those pension liabilities which fall outside the pension fund’s as Chairman of the main Board of Directors, he recived a total liabilities. For the bank’s operations this currently applies to remuneration of NOK 395,000. Estimated value of benefits in 14 persons. The bank’s top hat insurance premiums for these kind was NOK 48,000. individuals totalled around NOK 3.8 million in 2012, NOK 1,729,757 of wich was the premium for the CEO.
In addition, The Group- and region management has their own early retirement agreement.
SpareBank 1 Nord-Norge Annual Report 2012 85 Annual Report
Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading employees and employee representatives
Fees paid to members of the main Board of Directors Amounts in NOK thousand 2012 2011 Board fees Other Board fees Other remuneration remuneration
Sonja Djønne (from March 2012) 114 12 Roar Dons 153 48 153 9 Elisabeth Johansen (resigned March 2012) 50 8 153 26 Gunnar Kristiansen 84 13 84 Erik Sture Larre jr (resigned March 2012) 46 184 69 Greger Mannsverk (from March 2012) 114 26 Ann-Christine Nybacka 153 77 153 69 Pål Andreas Pedersen (Deputy Chairman) 176 72 153 60 Vivi Ann Pedersen 153 10 153 Anita Persen 153 49 153 Kjell Olav Pettersen (Chairman) 347 48 347 9 Total 1 543 363 1 533 242
Fees paid to members of the Control Committee Amounts in NOK thousand 2012 2011 Fees Other Fees Other remuneration remuneration Rigmor Abel 84 84 Kåre Brynjulfsen 84 84 Per Christiansen (Chairman, left in March 2011) 35 Dag Norvang 84 84 Tore Bråthen (Chairman, from March 2011) 137 102 Total 389 389
Fees paid to members of the Supervisory Board In 2012, fees totalling NOK 540,000 were paid to 46 members. The corresponding amount for 2011 was NOK 684,500 to 42 members.
86 Note 23 - Personnel costs, benefits and loans to- Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading as well as equity certificates owned by leading employees and employee representatives employees and employee representatives
Payments made to members of the Group Management Committee 2012
Title/name Salaries Pension Fees from Boards Bonus Profit Number of Option Payments in and other premium of subsidiaries, sharing primary capital advance and short-term and tax SpareBank 1 certificates collateral emoluments compensation Gruppen and other received as Amounts in NOK 1 000 similar companies profit sharing
CEO Merkantilservice AS Tom Robert Aasnes 1 005 45 13 CEO EiendomsMegler 1 Nord-Norge AS Kristin Amundsen 1 201 80 112 Senior Group General Manager Geir Andreassen 1 598 226 CEO SpareBank 1 Finans Nord-Norge Hermod Bakkejord 1 687 715 Senior Group General Manager Rolf Eigil Bygdnes 1 909 747 30 Senior Group General Manager Stig Arne Engen 1 620 154 CEO SNN Invest AS Kjell Ivar Helgesen 1 111 424 Chief Executive Officer Hans Olav Karde 3 346 3 313 1) 164 CEO Consis Alta Viggo Wollmann Olsen 762 42 CEO SNN Forvaltning Tom-Robin Solstad-Nøis 892 61 235 Senior Group General Manager Liv Bortne Ulriksen 1 859 89 Senior Group General Manager Elisabeth Utheim 1 554 197 Deputy Chief Executive Officer Oddmund Åsen 2 211 760 160
1) The fee has been paid back to SpareBank 1 Nord-Norge
SpareBank 1 Nord-Norge Annual Report 2012 87 Annual Report
Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading employees and employee representatives
Other terms and conditions
Title/name Period of notice Pay after termination Additional Last year accrued Amounts in NOK 1 000 of employment pension pension rights agreement CEO Merkantilservice AS Tom Robert Aasnes 3 mnd 0 mnd 4) CEO EiendomsMegler 1 Kristin Amundsen 3 mnd 0 mnd 4) Senior Group General Manager Geir Andreassen 3 mnd 0 mnd 1) 463 CEO SpareBank 1 Finans Nord-Norge Hermod Bakkejord 3 mnd 0 mnd 232 Senior Group General Manager Rolf Eigil Bygdnes 3 mnd 0 mnd 1) 941 CEO SNN Invest AS Kjell Ivar Helgesen 3 mnd 0 mnd 794 Senior Group General Manager Stig Arne Engen 3 mnd 0 mnd 1) 391 Chief Executive Officer Hans Olav Karde 6 mnd 0 mnd 2) 2 483 CEO Consis Alta Viggo Wollmann Olsen 3 mnd 0 mnd 4) CEO SNN Forvaltning Tom-Robin Solstad-Nøis 3 mnd 0 mnd 4) Senior Group General Manager Liv Bortne Ulriksen 3 mnd 0 mnd 4) Senior Group General Manager Elisabeth Utheim 3 mnd 0 mnd 1) 525 Deputy Chief Executive Officer Oddmund Åsen 6 mnd 0 mnd 3) 1 015
1) Top Hat. 70% of the income at the age of 62. Retirement at the turn of the year after the age of 62. 2) Top Hat. 70% of the income at the age of 66. Retirement at the turn of the year after the age of 66. 3) Top Hat. 70% of the income at the age of 62. Retirement at the turn of the year after the age of 60. 4) Have a defined contribution pension contract The early retirement pension scheme for some of the members of the Group Management Committee is to be regarded as an operating pension scheme where traditional pension entitlements have not been accumulated. The Bank has made allocations in its accounts for the share relating to future liabilities also for these pension schemes. All members of the Group Management appointed before 01.07.06 have an ordinary pension agreement through the benefit-based scheme in Sparebanken Nord-Norges Pensjonskasse, as described in Note 25.
88 Note 23 - Personnel costs, benefits and loans to- Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading as well as equity certificates owned by leading employees and employee representatives employees and employee representatives
Payments made to members of the Group Management Committee 2011
Title/name Salaries Pension Fees from Boards Bonus Profit Number of Option Payments in and other premium of subsidiaries, sharing primary capital advance and short-term and tax SpareBank 1 certificates collateral emoluments compensation Gruppen and other received as Amounts in NOK 1 000 similar companies profit sharing
CEO EiendomsMegler 1 Kristin Amundsen 1 050 62 50 Senior Group General Manager Geir Andreassen 1 510 369 275 CEO SpareBank 1 Finans Nord-Norge Hermod Bakkejord 1 242 238 Senior Group General Manager Rolf Eigil Bygdnes 1 819 768 30 320 Senior Group General Manager Stig Arne Engen 1 541 225 285 CEO SNN Invest AS Kjell Ivar Helgesen (from 21.11.11) 1 283 30 120 Chief Executive Officer Hans Olav Karde 3 042 4 460 1) 180 600 CEO SNN Forvaltning Tom-Robin Solstad-Nøis 808 74 233 Senior Group General Manager Liv Bortne Ulriksen 1 767 82 330 Senior Group General Manager Elisabeth Utheim 1 482 297 275 Deputy Chief Executive Officer Oddmund Åsen 2 037 1 078 170 375
1) The fee has been paid back to SpareBank 1 Nord-Norge
SpareBank 1 Nord-Norge Annual Report 2012 89 Annual Report
Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading employees and employee representatives
Other terms and conditions
Title/name Period of notice Pay after termination Additional Last year accrued Amounts in NOK 1 000 of employment pension pension rights agreement CEO EiendomsMegler 1 Kristin Amundsen 3 mnd 0 mnd 4) Senior Group General Manager Geir Andreassen 3 mnd 0 mnd 1) 248 CEO SpareBank 1 Finans Nord-Norge Hermod Bakkejord 3 mnd 0 mnd 200 Senior Group General Manager Rolf Eigil Bygdnes 3 mnd 0 mnd 1) 397 CEO SNN Invest AS Kjell Ivar Helgesen 3 mnd 0 mnd 322 Senior Group General Manager Stig Arne Engen 3 mnd 0 mnd 1) 228 Chief Executive Officer Hans Olav Karde 6 mnd 0 mnd 2) 2 123 CEO SNN Forvaltning Tom-Robin Solstad-Nøis 3 mnd 0 mnd 4) Senior Group General Manager Liv Bortne Ulriksen 3 mnd 0 mnd 4) Senior Group General Manager Elisabeth Utheim 3 mnd 0 mnd 1) 354 Deputy Chief Executive Officer Oddmund Åsen 6 mnd 0 mnd 3) 580
1) Top Hat. 70% of the income at the age of 62. Retirement at the turn of the year after the age of 62. 2) Top Hat. 70% of the income at the age of 66. Retirement at the turn of the year after the age of 66. 3) Top Hat. 70% of the income at the age of 62. Retirement at the turn of the year after the age of 60. 4) Have a defined contribution pension contract The early retirement pension scheme for some of the members of the Group Management Committee is to be regarded as an operating pension scheme where traditional pension entitlements have not been accumulated. The Bank has made allocations in its accounts for the share relating to future liabilities also for these pension schemes. All members of the Group Management appointed before 01.07.06 have an ordinary pension agreement through the benefit-based scheme in Sparebanken Nord-Norges Pensjonskasse, as described in Note 25.
90 Note 23 - Personnel costs, benefits and loans to- Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading as well as equity certificates owned by leading employees and employee representatives employees and employee representatives
Loans to management and elected representatives with related parties and other employees
The following loans had been granted as at 31.12.12 Amounts in NOK 1 000 Lending value Members of the main Board of Directors 2) Member Sonja Djønne 2 054 Member Vivi Ann Pedersen 447 Chairman Kjell Olav Pettersen Member Greger Mannsverk Member Roar Dons Member Ann-Christine Nybacka Member Pål Andreas Pedersen Member Anita Persen
Members of the main Board with related parties 2) 3): 75 165
Control committee 2) Chairman Tore Bråthen Member Rigmor Abel Member Dag Norvag Member Kåre Brynjulfsen
Management 1) Stig Arne Engen, Senior Group General Manager 4 090 Kjell Ivar Helgesen, CEO SNN Invest AS 2 897 Hans Olav Karde, CEO 2 760 Oddmund Aasen, Deputy CEO 2 703 Kristin Amundsen, CEO EiendomsMegler 1 Nord-Norge 1 884 Liv Bortne Ulriksen, Senior Group General Manager 1 481 Rolf Eigil Bygdnes, Senior Group General Manager 1 108 Elisabeth Utheim, Senior Group General Manager 932 Hermod Bakkejord, CEO SpareBank 1 Finans Nord-Norge 722 Geir Andreassen, Senior Group General Manager 262 Tom-Robin Solstad-Nøis, CEO SNN Forvaltning AS Viggo Wollman Olsen, CEO Consis Alta Tom Robin Aasnes, CEO Merkantilservice
Other employees 1) 776 420
1) The loan rate of interest represents 80% of the best house mortgage interest rate applicable at all times for our ordinary customers, within a maximum loan amount of NOK 2 million. No guarantees have been granted. Terms and conditions for the loans are the same as for other employees. 2) Terms and conditions, collateral and other security are the same as for ordinary customers, with the exeption of employees’ elected representatives for whom terms and conditions are the same as for other employees. 3) Roar Dons is a shareholder and on the Board of Directors of 2 companies which have borrowed NOK 71 million. The loans were raised before he became a member of the Board of Directors. Sonja Djønne is on the Board of Directors of 1 company wich have borrowed NOK 2 million.
The aggregate value of interest rate subsidies relating to loans to employees amounted to approximately NOK 7 million in 2012.
SpareBank 1 Nord-Norge Annual Report 2012 91 Annual Report
Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading employees and employee representatives
The following loans had been granted as at 31.12.11 Amounts in NOK 1 000 Lending value Members of the main Board of Directors 2) Elisabeth Johansen, Member 711 Vivi Ann Pedersen, Member 478 Kjell Olav Pettersen, Chairman Erik Sture Larre jr., Member Roar Dons, Member Ann-Christine Nybacka, Member Pål Andreas Pedersen, Member Anita Persen, Member
Members of the main Board with related parties 2) 3) 75 087
Control committee 2) Member Kåre Brynjulfsen 140 Chairman Per Christiansen (left in March 2011) Chairman Tore Bråthen (from March 2011) Member Rigmor Abel Member Dag Norvang
Management 1) Oddmund Aasen, Deputy CEO 4 642 Stig Arne Engen, Senior Group General Manager 4 173 Kristin Amundsen, CEO EiendomsMegler 1 Nord-Norge 3 912 Liv Bortne Ulriksen, Senior Group General Manager 3 448 Tom-Robin Solstad-Nøis, CEO SNN Forvaltning AS 2 411 Rolf Eigil Bygdnes, Senior Group General Manager 2 191 Geir Andreassen, Senior Group General Manager 1 987 Hans Olav Karde, CEO 1 823 Kjell Ivar Helgesen, CEO SNN Invest AS 1 098 Elisabeth Utheim, Senior Group General Manager 952 Hermod Bakkejord, CEO SpareBank 1 Finans Nord-Norge 901
Other employees 1) 1 092 873
1) The loan rate of interest represents 80% of the best house mortgage interest rate applicable at all times for our ordinary customers, within a maximum loan amount of NOK 2 million. No guarantees have been granted. Terms and conditions for the loans are the same as for other employees. 2) Terms and conditions, collateral and other security are the same as for ordinary customers, with the exeption of employees’ elected representatives for whom terms and conditions are the same as for other employees. 3) Roar Dons is a shareholder and on the Board of Directors of 2 companies which have borrowed NOK 75 million. The loans were raised before he became a member of the Board of Directors.
The aggregate value of interest rate subsidies relating to loans to employees amounted to approximately NOK 5 million in 2011.
92 Note 23 - Personnel costs, benefits and loans to- Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading as well as equity certificates owned by leading employees and employee representatives employees and employee representatives PCCs held by SpareBank 1 Nord-Norge’ elected representatives as at 31.12.12
Name Number of PCCs held Main Board members/deputy members Kjell Olav Pettersen 35 088 Gunnar Kristiansen 26 753 Roar Dons 12 852 Ann-Christine Nybacka 8 449 Vivi Ann Pedersen 8 362 Greger Mannsverk 4 941 Anita Persen 701
Supervisory Board members/deputy members Trond Mohn 2 714 024 Erik Sture Larre 1 134 493 Kjell Kolbeinsen 923 925 Ole Ovesen 432 906 Kjell Kræmer 105 329 Bente Evensen 81 820 Marie Fangel 51 908 Berit Berg 46 363 Sissel Ditlefsen 29 506 Frode Pedersen 27 323 Einar Frafjord 18 243 Herman Mehren 14 276 Ann-Kirsten Larsen 13 748 Asbjørg Jensvoll Strøm 8 404 Tom Svendsen 7 831 Ann Kathrina Langaune 7 136 May Britt Nilsen 5 097 Øyvind Pallesen 4 892 Tone Marie Myklevoll 3 678 Cecilie Lysjø 3 508 Hans Olav Gjøvik 1 984 Frode Helgerud 1 332 Therese Isaksen 1 042 Reidun Kristiansen 600 Jan Hugo Sørensen 98
Control Committee members/deputy members Kåre Brynjulfsen 1 731
Top team members Liv Bortne Ulriksen, Senior Group General Manager 36 654 Hans Olav Karde, CEO 33 276 Geir Andreassen, Senior Group General Manager 26 203 Rolf Eigil Bygdnes, Senior Group General Manager 20 771 Oddmund Aasen, Deputy CEO 15 188 Stig Arne Engen, Senior Group General Manager 5 382 Elisabeth Utheim, Senior Group General Manager 3 549
The above figures show the number of PCCs held in SpareBank 1 Nord-Norge as at 31.12.12. PCCs owned by close family members or by companies of which the abovementioned persons are general partners or directors have also been included. Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading employees and employee representatives
PCCs held by SpareBank 1 Nord-Norge’ elected representatives as at 31.12.11
Name Number of PCCs held Main Board members/deputy members Erik Sture Larre jr. 1 134 493 Kjell Olav Pettersen 30 147 Gunnar Kristiansen 21 812 Elisabeth Johansen 10 517 Vivi Ann Pedersen 8 362 Roar Dons 7 911 Ann-Christine Nybacka 3 508 Anita Persen 701
Supervisory Board members/deputy members Trond Mohn 2 714 024 Erik Sture Larre 1 134 493 Ole Ovesen 484 341 Kjell Kræmer 104 497 Bente Evensen 81 820 Marie Fangel 51 908 Berit Berg 46 363 Frode Pedersen 22 382 Sissel Ditlefsen 16 666 Herman Mehren 14 276 Einar Frafjord 13 302 Ann-Kirsten Larsen 11 278 Asbjørg Jensvoll Strøm 8 404 Tom Svendsen 7 831 Ann Kathrina Langaune 7 136 May Britt Nilsen 5 097 Øyvind Pallesen 4 892 Tone Marie Myklevoll 3 678 Cecilie Lysjø 3 508 Svein Brustad 2 290 Hans Olav Gjøvik 1 984 Therese Isaksen 1 042 Frode Helgerud 1 000 Jan Hugo Sørensen 98
Control Committee members/deputy members Kåre Brynjulfsen 1 731
Top team members Hans Olav Karde, CEO 28 335 Liv Bortne Ulriksen, Senior Group General Manager 26 772 Geir Andreassen, Senior Group General Manager 21 262 Rolf Eigil Bygdnes, Senior Group General Manager 15 830 Oddmund Aasen, Deputy CEO 15 188 Stig Arne Engen, Senior Group General Manager 5 382 Elisabeth Utheim, Senior Group General Manager 3 549
The above figures show the number of PCCs held in SpareBank 1 Nord-Norge as at 31.12.11. PCCs owned by close family members or by companies of which the abovementioned persons are general partners or directors have also been included. Note 23 - Personnel costs, benefits and loans to- as well as equity certificates owned by leading Note 24 - Operating costs employees and employee representatives Parent Bank Group 2011 2012 Amounts in NOK million 2012 2011 436 471 Personnel costs 581 514 Name Number of PCCs held 287 291 Administrative costs 319 313 Main Board members/deputy members 43 51 Ordinary depreciation 54 47 Erik Sture Larre jr. 1 134 493 142 141 Various operating costs 166 162 Kjell Olav Pettersen 30 147 908 954 Total operating costs 1 120 1 036 Gunnar Kristiansen 21 812 Elisabeth Johansen 10 517 Breakdown of operating costs Vivi Ann Pedersen 8 362 Personnel costs Roar Dons 7 911 366 398 Wages and salaries 499 437 Ann-Christine Nybacka 3 508 28 31 Pension costs 34 30 Anita Persen 701 42 42 Social costs 48 47 436 471 Total personnel costs 581 514 Supervisory Board members/deputy members Trond Mohn 2 714 024 Administrative costs Erik Sture Larre 1 134 493 90 97 Development costs 97 90 Ole Ovesen 484 341 48 49 Electronic data processing costs 55 52 Kjell Kræmer 104 497 55 54 Marketing costs 63 63 Bente Evensen 81 820 34 34 Travel - and training costs 38 41 Marie Fangel 51 908 8 11 Communications 12 10 Berit Berg 46 363 11 10 Postage 11 12 Frode Pedersen 22 382 16 12 Consultancy services 17 18 Sissel Ditlefsen 16 666 13 13 Cost involving the handling of cash 13 13 Herman Mehren 14 276 9 8 Office-related costs 9 11 Einar Frafjord 13 302 3 3 Collection costs 4 3 Ann-Kirsten Larsen 11 278 287 291 Administrative costs 319 313 Asbjørg Jensvoll Strøm 8 404 Tom Svendsen 7 831 Other operating costs Ann Kathrina Langaune 7 136 19 18 Operating costs buildings 18 19 May Britt Nilsen 5 097 1 3 External auditor 1) 4 2 Øyvind Pallesen 4 892 36 35 Rent paid - premises and bank buildings 39 39 Tone Marie Myklevoll 3 678 24 21 Operating costs - premises 22 24 Cecilie Lysjø 3 508 62 64 Other operating costs 83 78 Svein Brustad 2 290 142 141 Total other operating costs 166 162 Hans Olav Gjøvik 1 984
Therese Isaksen 1 042 1) Fees external auditor Amounts in NOK thousand Frode Helgerud 1 000 842 894 Statutory auditing 1 368 1 190 Jan Hugo Sørensen 98 298 62 Other certification services 231 404 1 Tax advisory services 1 Control Committee members/deputy members 9 2 347 Other non-audit services 2 347 9 Kåre Brynjulfsen 1 731 1 150 3 303 Total remuneration for external auditor 3 946 1 604
Top team members Hans Olav Karde, CEO 28 335 Liv Bortne Ulriksen, Senior Group General Manager 26 772 Geir Andreassen, Senior Group General Manager 21 262 Rolf Eigil Bygdnes, Senior Group General Manager 15 830 Oddmund Aasen, Deputy CEO 15 188 Stig Arne Engen, Senior Group General Manager 5 382 Elisabeth Utheim, Senior Group General Manager 3 549
The above figures show the number of PCCs held in SpareBank 1 Nord-Norge as at 31.12.11. PCCs owned by close family members or by companies of which the abovementioned persons are general partners or directors have also been included. SpareBank 1 Nord-Norge Annual Report 2012 95 Annual Report
Note 25 - Pensions
Pension liabilities Estimated values are used when valuing pension assets and SpareBank 1 Nord-Norge has group occupational pension measuring accrued liabilities. These estimates are corrected schemes for its employees. SpareBank 1 Nord-Norge is every year in accordance with the statement of the pension required pursuant to the Mandatory Occupational Pensions assets’ transfer value and actuarial calculations of the size of the Act to provide occupational pension schemes for its liabilities. The value of the pension fund’s liabilities, pension employees. The pension schemes satisfy the requirements of insurance in other insurance companies and the uninsured the aforementioned act. liabilities are included in the calculations below.
The group has a defined contribution pension scheme for all The pension calculations for 2012 were made on the basis of new employees after 01.07.06 and any employees who desired international accounting standards (IAS 19) by the actuary to convert from the defined benefit scheme to the defined company Eikos AS. The group books estimate discrepancies contribution scheme. The scheme is insured with SpareBank using the corridor solution with annual amortisation. 1 Forsikring. Other employees have a defined benefit-based pension scheme. From 01.07.06 the defined benefit pension It follows from IAS 19 that pension obligations must be scheme is a closed scheme exclusively for those employees who discounted by the interest on high quality corporate bonds. In chose to remain a member of this scheme. The defined benefit countries where there is no deep market for such corporate pension scheme is administered by a separate pension fund, bonds the interest on government bonds should be used. Sparebanken Nord-Norges Pensjonskasse, which manages the Up through 2011, the group has utilised the interest rate pension fund assets in accordance with the guidelines that for government bonds in calculating its pension liabilities. apply to pension funds. Full pension benefits in the defined The market situation in 2012 has led to a permanent fall in benefit scheme require a contributory period of 30 years and Norwegian government bonds. Before the financial crisis, gives entitlement to a retirement pension of the difference this interest rate was around 4%, however it has fallen to between 70% (“G” is the National Insurance basic amount) for approximately 2% during the period from 2008 to 2012. The estimation of the basic pension. The scheme does not include spread between the interest on government bonds and swap a spouse’s pension. The retirement age is 67 years. The scheme interest (interest rate swap agreements between banks ) has is adapted to the Mandatory Occupational Pensions Act. grown substantially during the same period. This shows that interest on Norwegian government bonds, under the governing A new contractual early retirement scheme for private sector market conditions, has been forced down to a level that can was passed in February 2010 and took effect from 01.01.11. be characterised as risk-free interest. An alternative to the use of the interest on government bonds as the interest rate Provisions set aside for liabilities related to the old scheme for discounting to use the interest on covered bonds (the so- for employees born after 1948, were reversed and recognised called OMF interest rate). The OMF interest rate is interest as income in the profit and loss account in 2010. The same paid on bonds with preferential rights that are primarily was done to liabilities related to employees who were born issued by financial institutions to exchange-listed Norwegian during the period from 1944 to 1948, inclusive, who chose commercial and savings banks, and which are secured by loans not to retire based on the rules of the old contractual early owned directly by the financial institution. As regards the issue retirement scheme. The new contractual early retirement of whether covered bonds comprise high quality corporate scheme is classified as a defined benefit scheme. Due to bonds and whether the market for covered bonds is sufficiently insufficient information on the measurement and allocation deep, the group has concluded that we believe that such bonds of the new contractual early retirement scheme, the scheme are of high quality and that the market is sufficiently deep. will be accounted for as if it was a defined contribution The “high quality” criterion reflects the probability that the scheme. This means that the pension costs are recognised creditor will receive payment for the outstanding balance. The annually in accordance with the premium payments to mechanisms that will ensure this for covered bonds are, in our the Joint Norwegian Confederation of Trade Unions (LO)/ view, good. The groups assessment also is that as long as there Confederation of Norwegian Enterprise (NHO) Scheme. No are always available buyers and sellers in the market, and that periodic provisions have been set aside for pension liabilities the order book is such that even large orders are not capable in the group’s balance sheet. Whenever sufficient information of affecting the prices of the bonds (and thus the interest rate) is eventually made available, the scheme can be accounted for then we deem the market to be sufficiently deep. The effect as a defined benefit scheme at this time. of switching from long-term government bond interest rates to covered bond interest rates in the valuation of the group’s In addition to the pension liabilities administered by the pension liabilities as at 31.12.12 is significant, and comprises pension fund, the bank has its own pension insurance for around NOK 170 million in reduced gross liabilities. employees whose ordinary pay exceeds 12 G. The group annuity insurance “top hat insurance” was taken out with the On this basis, the Norwegian Accounting Standards Board insurance company Storebrand. The group also has a separate has also stated that they cannot reject use of the covered bond contractual defined benefit early retirement scheme for certain interest rate as a basis for the discount rate in the calculation senior executives. of pension liabilities pursuant to IAS 19.
96 Note 25 - Pensions
Parent Bank Group 31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Net pension liabilities in the balance sheet 778 643 Present value of future pension liabilities 660 799 733 740 Estimated value of pension resources 758 750 45 -97 Net pension liabilities in guaranteed schemes -98 49 56 * -67 Estimated discrepancies not included in profit and loss account -69 59 3 1 Social security liabilities 1 3 -8 -29 Net pension liabilities in the balance sheet -28 -7
1 % -4 % Invoice-based adjustments of benefits-based liabilities in % -3 % 1 % -1 % 4 % Deviation between anticipated and actual return on pension funds in % 4 % -1 %
2011 2012 2012 2011 Pension costs for the year 20 20 Pensionable amounts accrued during the year 21 21 28 19 Interest costs of pension liabilities 20 29 -39 -35 Expected rate of return on assets in the scheme -36 -40 11 Estimated discrepancies 11 Effects of changed, defined benefit plans 9 15 Net pension costs relating to defined benefit plans excluding 16 10 social security contributions 1 1 Employer's social security contributions - subject to accrual accounting 1 1 10 16 Net pension cost relating to defined benefit plans 17 11 Curtailment/settlement 17 17 Other pension costs 17 17 27 33 Total pension costs including social security contributions 34 28
-0.5 % 5.6 % The actual rate of return on pension assets 5.6 % -0.5 %
31.12.11 31.12.12 31.12.12 31.12.11 Change in net pension liabilities in the balance sheet 21 -8 Net pension liabilities in the balance sheet as at 01.01. -7 22 10 16 Net pension cost relating to defined benefit plans 17 11 Curtailment/settlement -14 -7 Charged to the Profit and Loss Account -7 -14 -25 -30 Benefits paid -31 -26 -8 -29 Net pension liabilities in the balance sheet as at 31.12. -28 -7 36 41 Other pension liabilities 41 36 28 12 Total pension liabilities in the balance sheet as at 31.12. 13 29
*Estimate discrepancies and corridor solution Changes to the international accounting standards were adopted in 2011 - including in IAS 19 with respect to the corridor solution. With effect from 2013 it will no longer be permissible to book estimate discrepancies pursuant to the rules for corridor accounting - with delayed result recognition. Non result recognised estimate discrepancies as at 31.12.12 must therefore be recognised against equity as at 01.01.13. Had this method been applied on 31.12.11, NOK 67 million and NOK 69 million for the parent bank and group, respectively, would have been recognised as increased pension liabilities and a correspondingly reduced booked equity.
SpareBank 1 Nord-Norge Annual Report 2012 97 Annual Report
Note 25 - Pensions
31.12.11 31.12.12 31.12.12 31.12.11 Actuarial assumptions 2.60 % 3.90 % Discount rate 3.90 % 2.60 % 5.00 % 3.90 % Expected rate of return on scheme's assets 3.90 % 5.00 % 2.70 % 2.50 % Future wage- and salary developments 2.50 % 2.70 % 3.25 % 3.25 % Adjustment of basic amount (G) 3.25 % 3.25 % 0.10 % 0.20 % Increase in current pensions 0.20 % 0.10 % 6.00 % 6.00 % Social security liabilities 6.00 % 6.00 % 6.00 % 6.00 % Social security contributions 6.00 % 6.00 % 0.00 % 0.00 % Turnover age over 50 years 0.00 % 0.00 % 2.00 % 2.00 % Turnover age under 50 years 2.00 % 2.00 % 60.00 % 60.00 % Staff's average estimated propensity to opt for SRPS at the age of 62 60.00 % 60.00 % K2005 K2005 Mortality rate, marriage probability etc. K2005 K2005 IR2003 IR2003 Disability IR2003 IR2003
903 879 Number of members 894 919
31.12.11 31.12.12 Composition of pension assets 31.12.12 31.12.11 Pension resources broken down on investment categories Investment category 68 % 69 % Certificates and bonds 69 % 68 % 26 % 27 % Shares 27 % 26 % 2 % 2 % Properties 2 % 2 % 4 % 2 % Other 2 % 4 % 100 % 100 % Total 100 % 100 %
Sensitivity The estimates are based on facts and circumstances as at 31.12.12 assuming that all other parameters are constant. Actual results may differ from these estimates.
Discounting rate Pay adjustment Annual Pension adjustment adjustment basic amount (G) Group 1 % -1 % 1 % -1 % 1 % -1 % 1 % -1 % Changes in pensions - Benefits-based pension liabilities -75 91 41 -34 -15 16 69 N/A - Net pension costs for the period incl. effects of -5 6 3 -3 -1 1 4 N/A recognised actuarial gains and losses
Parent bank Changes in pensions: - Benefits-based pension liabilities -72 88 40 -33 -15 17 67 N/A - Net pension costs for the period incl. effects of -5 6 3 -3 -1 1 4 N/A recognised actuarial gains and losses
98 Note 26 - Tax
Parent Bank Group 2011 2012 Amounts in NOK million 2012 2011 Major components of income tax 112 85 Current tax costs 104 127 28 76 Change in deferred tax 76 29 1 -8 Shortfall/surplus in respect of accrual for taxation in the previous year -8 1 141 153 Tax 172 157 9 9 Capital (property) tax (presented as other operating costs) 9 9 150 162 Income tax for the period 181 166 121 94 Tax payable in balance sheet 113 136 Change in net deferred tax 28 76 Change in deferred tax recognised in the income statement 76 28 Changes in principles recognised directly to equity 28 76 Total change in net deferred tax 76 28
31.12.11 31.12.12 31.12.12 31.12.11 Composition of deferred tax carried in the balance sheet and deferred tax recognised in the income statement Deferred tax in balance sheet Temporary differences Deferred tax in balance sheet -12 -15 Tangible fixed assets 132 130 Current assets -1 8 30 Pension liabilities 28 8 283 534 Other temporary differences 508 258 Loss carried forward -12 -13 279 549 Total temporary differences 655 383
-78 -154 Deferred tax in balance sheet - 28% -183 -107
2011 2012 2012 2011 Deferred tax recognised Deferred tax recognised Temporary differences: in the income statement in the income statement -5 -3 Tangible fixed assets 2 14 Current assets -1 1 29 22 Pension liabilities 20 30 76 251 Other temporary differences 250 56 Loss carried forward 1 100 270 Total temporary differences 272 101
28 76 Change in deferred tax recognised in the income statement - 28% 76 28
Reconciliation of tax charge for the period recognised against profit and loss to profit before tax 164 187 28 % of profit before tax 217 193 -24 -26 Non-taxable profit and loss items (permanent differences) -37 -37 9 9 Capital gains tax 9 9 1 -8 Shortfall/surplus in respect of accrual for taxation in the previous year -8 1 150 162 Taxation charge for the period 181 166
25.6 % 23.9 % Effective tax rate 23.3 % 24.0 % (income tax for the period expressed as a percentage of profit before tax)
SpareBank 1 Nord-Norge Annual Report 2012 99 Annual Report
Note 27 - Classification of financial instruments Parent Bank Valuation based Valuation based Valuation based on listed prices in on observable on factors other an active market market data than observable Amounts in NOK million market data Assets at 31.12.12 Level 1 Level 2 Level 3 Total Loans and advances to credit institutions 4 761 4 761 Loans to and receivables from customers at amortised cost 43 628 43 628 Loans to customers at fixed rates (incl. value changes) 7 042 7 042 Shares 69 208 105 382 Bonds 5 229 4 216 2 997 12 442 Financial derivatives 1 240 1 240 Total assets 5 298 12 814 51 799 69 964
Liabilities as at 31.12.12 Deposits from credit institutions 6 662 6 662 Deposits from customers 41 182 41 182 Securities issued 6 969 9 565 16 534 Financial derivatives 713 713 Subordinated loan capital 2 095 2 095 Total liabilities 9 777 57 409 67 186
Assets at 31.12.11 Loans and advances to credit institutions 3 477 3 477 Loans to and receivables from customers at amortised cost 43 447 43 447 Loans to customers at fixed rates (incl. value changes) 4 898 4 898 Shares 65 178 114 357 Bonds 2 913 4 683 4 269 11 229 Financial derivatives 850 850 Total assets 2 978 10 384 51 936 64 662
Liabilities as at 31.12.11 Deposits from credit institutions 6 450 6 450 Deposits from customers 41 748 41 748 Securities issued 13 342 13 342 Financial derivatives 517 517 Subordinated loan capital 1 356 1 356 Total liabilities 13 859 49 554 63 413
100 Note 27 - Classification of financial instruments Group Valuation based Valuation based Valuation based on listed prices in on observable on factors other an active market market data than observable Amounts in NOK million market data Assets at 31.12.12 Level 1 Level 2 Level 3 Total Loans and advances to credit institutions 1 871 1 871 Loans to and receivables from customers at amortised cost 47 008 47 008 Loans to customers at fixed rates (incl. value changes) 7 042 7 042 Shares 69 379 105 553 Bonds 5 229 4 216 2 999 12 444 Financial derivatives 1 234 1 234 Total assets 2 982 14 169 53 118 70 653
Liabilities as at 31.12.11 Deposits from credit institutions 6 663 6 663 Deposits from customers 41 220 41 220 Securities issued 6 969 9 565 16 534 Financial derivatives 713 713 Subordinated loan capital 2 095 2 095 Total liabilities 7 682 59 543 67 225
Assets at 31.12.11 Loans and advances to credit institutions 970 970 Loans to and receivables from customers at amortised cost 46 969 46 969 Loans to customers at fixed rates (incl. value changes) 4 673 4 673 Shares 65 429 113 607 Bonds 2 913 4 046 4 275 11 234 Financial derivatives 850 850 Total assets 2 978 9 998 51 691 65 303
Liabilities as at 31.12.11 Deposits from credit institutions 6 446 6 446 Deposits from customers 41 765 41 765 Securities issued 13 342 13 342 Financial derivatives 519 519 Subordinated loan capital 1 356 1 356 Total liabilities 13 861 49 567 63 428
Financial instruments are classified into different levels Financial instruments at amortised cost Level 2 consists of instruments that are valued by the use Most financial instruments on the balance sheet are valued of information that is not listed prices, but where prices are at amortised cost. Amortised cost involves valuation as per directly or indirectly observable for the assets or liabilities, originally agreed cash flows, adjusted for any possible drop and that also include listed prices in non-active markets. This in value. The calculations are performed based upon the level includes instruments with price listings on Reuters or characteristics and values of the individual instruments as at Bloomberg. the date of the balance sheet. Instruments at amortised cost are classified as level 3. Level 3 includes instruments where credit margins comprise a significant part of the adjustment to market value.
Financial instruments at fair value Level 1 concerns financial instruments that are valued by the use of listed prices in active markets for identical assets and liabilities. This level includes exchange-listed shares, fund units, certificates and bonds that are traded in active markets. SpareBank 1 Nord-Norge Annual Report 2012 101 Annual Report
Note 28 - Fair value of financial instruments
Parent Bank Group 2011 2012 Amounts in NOK million 2012 2011 Booked Market Booked Market Assets Market Booked Market Booked value value value value value value value value 3 477 3 477 4 761 4 761 Total loans and advances to credit 1 871 1 871 970 970 institutions 43 672 44 110 43 628 43 587 Net loans and advances to customers 46 967 47 008 46 934 46 969 (amortised cost) 4 673 4 673 7 042 7 042 Net loans and advances to customers 7 042 7 042 4 673 4 673 (fair value) 48 345 48 783 50 670 50 629 Net loans and advances to customers 54 009 54 050 51 607 51 642 357 357 382 382 Shares 553 553 607 607 7 596 7 596 9 445 9 445 Bonds and certificates (fair value) 9 447 9 447 7 601 7 601 2 762 2 743 2 642 2 649 Bonds and certificates 2 649 2 642 2 743 2 642 (loans and advances) 871 855 355 355 Bonds and certificates 355 355 855 355 (hold to maturity) 11 229 11 194 12 442 12 449 Total bonds and certificates 12 451 12 444 11 199 10 598 850 850 1 240 1 240 Total financial derivatives 850 850 850 850 64 258 64 661 69 495 69 461 Total assets 69 734 69 768 65 233 64 667
Liabilities 6 450 6 450 6 662 6 662 Liabilities to credit institutions 6 663 6 663 6 446 6 446 41 748 41 748 41 182 41 182 Deposits from customers 41 220 41 220 41 765 41 765 7 292 7 332 9 565 9 578 Debt securities in issue 9 578 9 565 7 332 7 292 (amortised cost) 6 050 6 050 6 969 6 969 Debt securities in issue (fair value) 6 969 6 969 6 050 6 050 517 517 713 713 Financial derivatives 713 713 519 519 1 356 1 356 2 095 2 112 Subordinated loan capital 2 112 2 095 1 356 1 356 (amortised cost) 63 413 63 453 67 186 67 216 Total liabilities 67 255 67 225 63 468 63 428
Guarantee liabilities and other liabilities (off balance) Liabilities 2 342 2 589 Guarantee liabilities 2 589 2 342 7 906 5 718 Securities pledged 5 718 7 906 as collateral security 5 282 3 293 Book value of bonds that are 3 293 5 282 in Norges Bank's safe custody 2 425 Book value of bonds pledged 2 425 in the swap scheme Swap scheme funding. 2 368
102 Note 29 - Certificates and bonds
Securities are classified pursuant to IA 39: at fair value through if there are no observable prices, then alternative valuation the profit and loss account, loans and claims, and held to methods in accordance with IAS 39 will be used. The maturity. “Loans and claims” and “held to maturity” categories are booked at amortised cost. See the detailed description The value used for the category “at fair value through the under the valuation of bonds, as well as the description of profit and loss account” are published prices from Oslo structured products Børs and the Bloomberg financial information system, and
Certificates and bonds according to type of issuer Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Governments 2 809 3 930 - nominal value 3 930 2 809 2 805 3 922 - market value/fair value 3 922 2 805 2 805 3 922 - booked value 3 922 2 805 Other public issuer 686 1 053 - nominal value 1 053 686 691 1 061 - market value/fair value 1 061 691 691 1 061 - booked value 1 061 691 Financial institutions 3 668 3 961 - nominal value 3 961 3 668 3 667 4 029 - market value/fair value 4 029 3 667 3 667 4 029 - booked value 4 029 3 667 Non-financial institutions 441 438 - nominal value 440 441 433 433 - market value/fair value 435 433 433 433 - booked value 435 433 7 596 9 445 Total certificates and bonds assessed at fair value 9 447 7 596 Governments - nominal value - market value/fair value - booked value Financial institutions 2 678 2 568 - nominal value 2 568 2 678 2 660 2 577 - market value/fair value 2 577 2 660 2 675 2 566 - booked value 2 566 2 675 Non-financial institutions 101 89 - nominal value 89 110 83 72 - market value/fair value 72 92 87 76 - booked value 76 92 2 762 2 642 Total certificates and bonds classified as loans and advances 2 642 2 767 Governments 0 - nominal value 0 - market value/fair value 0 - booked value Financial institutions 724 261 - nominal value 261 724 700 252 - market value/fair value 252 700 715 251 - booked value 251 715 Non-financial institutions 158 105 - nominal value 105 158 154 104 - market value/fair value 104 154 156 104 - booked value 104 156 871 355 Total certificates and bonds hold to maturity 355 871 SpareBank 1 Nord-Norge Annual Report 2012 103 11 229 12 442 Total certificates and bonds 12 444 11 234 Annual Report
Note 29 - Certificates and bonds
Reclassified liabilities In consequence of the extraordinary market conditions, parts of In total, NOK 3.5 million has been amortised during there the bank’s portfolio of current assets became illiquid in 2008. period of 01.01.12 through 31.12.12. For the period of 01.07.08 After changes to the international accounting standards in - 31.12.11, a total of NOK 73 million was previously amortised. October 2008, the group chose to reclassify parts of its bond If the reclassification had not been performed, the group would portfolio as at 01.07.08 from the category of “At fair market value have expensed NOK 212 million in the last half-year of 2008 as with value changes through the profit and loss account” to the unrealised losses due to increased credit spreads. As at 31.12.12, categories “Hold to maturity” and “Loans and receivables” since the amount would have been an unrealised gain of NOK 3.9 the papers were no longer expected to be sold before reaching million. maturity. A write-down was performed due to a permanent decrease in Listed paper is entered under “Hold to maturity”, whereas value of this portfolio as at 31.12.11 of a total of NOK 75 million. unlisted is entered as “Loans and receivables.” In the categories In 2012, a further write-down of NOK 5 million was performed. of “Hold to maturity” and “Loans and receivables” the papers In 2012, NOK 18.3 million was expensed in unrealised currency are valued at their amortised cost. After the reclassification, losses associated with the p write-downs previously performed are being reversed over the remaining term to maturity of the portfolio, which as at 31.12.12 is an average of 1.8 years, and will be recognised as income in addition to on-going coupon interest under net interest income.
Amounts in NOK million 31.12.12 31.12.11 Hold until maturity Book value 355 858 Nominal value (nominal amount) 366 869 Theoretical market value 355 842 Loans and claims Book value 142 262 Nominal value (nominal amount) 156 279 Theoretical market value 134 250
Total book value 497 1 120
104 Note 30 - Shares and participations
SpareBank 1 Nord-Norge uses the following classification of Available for sale - long-term investments shares and other equity capital instruments according to IAS 39: • Unlisted shares bought with the intention of keeping them as a long-term investment, or when the actual market value Fair value through the profit and loss account cannot be estimated in a reliable manner. • held for trading - shares listed on various Stock Exchanges • other shares - not listed on any stock exchange The shares are valued according to the principles described in Notes 2 and 3.
Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 251 277 Fair value through profit and loss account 448 501 106 105 Available for sale 105 106 357 382 Total shares and parts 553 607
Breakdown of shares and unit trust certificates as at 31.12.12 Company name Number of Our equity Our equity Market value Booked value Amounts in NOK 1 000 shares/units stake per cent stake PCCs Klepp Sparebank (KLEG) 2 300 0.21 % 267 130 130 Sparebank 1 Østfold Akershus (SOAG) 5 600 0.06 % 459 384 384 Sparebanken Øst (SPOG) 996 0.00 % 30 32 32 Sparebank 1 SMN (MING) 127 890 0.10 % 4 655 4 451 4 451 Helgeland Sparebank (HELG) 15 691 0.08 % 700 486 486 Sparebank 1 Nøtterøy-Tønsberg (NTSG) 5 580 0.52 % 627 357 357 Sparebanken Møre (MORG) 5 432 0.07 % 812 869 869 Sparebanken Vest (SVEG) 11 867 0.04 % 590 349 349 Sum equity certificates 8 139 7 058 7 058
SpareBank 1 Nord-Norge Annual Report 2012 105 Annual Report
Note 30 - Shares and participations
Breakdown of shares and unit trust certificates as at 31.12.12 Company name Number of Our equity Our equity Market value Booked value Amounts in NOK 1 000 shares/units stake per cent stake Shares Sparebank 1 SR-Bank 50 789 0.020 % 2 044 1 889 1 889 Statoil ASA 38 216 0.001 % 5 346 5 312 5 312 Seadrill Ltd. 5 000 0.001 % 1 016 1 017 1 017 Yara International 2 500 0.001 % 670 685 685 Telenor ASA 10 000 0.001 % 936 1 122 1 122 ABG Sundal Collier 30 000 0.007 % 121 129 129 DNB ASA 37 250 0.002 % 2 527 2 622 2 622 Renewable Energy Corp. 100 000 0.005 % 974 107 107 Aker Solutions ASA 9 000 0.003 % 940 1 016 1 016 Royal Caribbean Cruises 4 400 0.002 % 796 810 810 Subsea 7 S.A. 16 000 0.005 % 2 139 2 122 2 122 Orkla ASA A-Aksjer 40 000 0.004 % 1 936 1 940 1 940 Petroleum Geo-Services 11 500 0.005 % 1 111 1 097 1 097 Norsk Hydro ASA 60 375 0.003 % 1 806 1 683 1 683 Deep Sea Supply Plc 30 276 0.024 % 290 300 300 Storebrand ASA 10 000 0.002 % 270 268 268 Transocean Inc. USD 2 000 0.001 % 560 500 500 Visa Inc. A-Aksjer 5 035 0.001 % 2 156 4 270 4 270 Visa Inc. C-Aksjer 11 749 0.002 % 5 031 9 964 9 964 Volvo B 5 000 0.000 % 389 381 381 Nokia OYJ 16 100 0.000 % 250 348 348 Electromagnetic 28 186 0.014 % 485 368 368 Borregaard ASA 3 571 0.004 % 73 74 74 Stolt Nielsen SA 3 021 0.005 % 313 347 347 Høegh LNG Holdings 7 500 0.011 % 376 350 350 Polarcus LTD 50 000 0.010 % 310 332 332 Total shares 32 865 39 053 39 053
Units in share-investment funds DNB OBX 207 898 0.800 % 7 274 8 285 8 285 Diamonds Trust (DIA) 10 377 0.012 % 7 434 7 582 7 582 Ishares S&P Europe 350 Index Fund (IEV) 12 737 0.145 % 3 226 2 801 2 801 PowerShares QQQ Trust (QQQ) 9 200 0.002 % 2 313 3 353 3 353 Ishares MSCI Emerging Index Fund (EEM) 4 723 0.000 % 1 206 1 172 1 172 Total units/participations in 21 453 23 193 23 193 share investment funds/unit trusts Total listed shares and participations 62 458 69 304 69 304 at fair value - held for trading
Unlisted shares at fair value Nets Holding AS 3 647 975 1.979 % 132 718 195 165 195 165 Nordito Property AS 441 658 4.350 % 1 305 12 803 12 803 Total unlisted shares at fair value 134 023 207 968 207 968 Total shares and other equity investments at 196 481 277 272 277 272 fair value through the profit and loss account
106 Note 30 - Shares and participations
Breakdown of shares and unit trust certificates as at 31.12.12 Company name Number of Our equity Our equity Market value Booked value Amounts in NOK 1 000 shares/units stake per cent stake Available for sale - long-term investments Bank Tavrichesky 1) 90 822 001 10.00 % 115 008 97 306 97 306 Sparebankmateriell AS 2 312 7.33 % 225 225 225 TIL Holding AS 1 346 293 26.15 % 13 450 3 002 3 002 S.W.I.F.T 11 79 73 73 Trygg Parkering 120 4 200 4 200 4 200 Total shares available for sale - long-term investments 132 962 104 806 104 806 Parent Bank's total investment in shares and parts 329 443 382 078 382 078 1) The book value of Bank Tavrichesky is the historical cost, adjusted for exchange rate changes.
SpareBank 1 Nord-Norge Invest AS owns the following shares
General information about valuation Shares and other equity investments are, with one exception, Shares and other equity investments are valued at level 3 in booked at fair value with value changes through the profit and the IAS 39 valuation hierarchy. loss account cf. IAS 39. The investment in Nord Norge Eiendom IV is classified as being available for sale under IFRS 5, and is Level 1: valuation based on listed prices in an active market. thereby valued at the lower of cost or fair value. Changes in Level 2: valuation based on observable market data. value are recognised in the profit and loss account. Level 3: valuation based on factors other than observable market data, including generally accepted valuation models. The valuation of unlisted shares is generally associated with a Please refer to note 19. Valuations of share portfolios are great deal of uncertainty. primarily based on value based valuation models.
Unlisted shares assessed at fair value through the profit and loss account
Amounts in NOK 1 000 Number of Our equity Our equity Market value Booked value shares/units stake per cent stake PE-Investments Bodø-Gruppen AS 25 000 41.68 % 27 895 0 0 Bodø-Gruppen Invest AS 1 210 33.33 % 1 222 0 0 Front Exploration AS 52 590 805 43.25 % 115 872 17 950 17 950 Helse Investering AS 600 40.00 % 604 720 720 Ibidium Norden AS 115 865 10.51 % 2 449 0 0 Asset management Andel i Nord I IS 60.90 % 111 249 61 785 61 785 Andel i Nord II IS 69.67 % 46 899 39 549 39 549 Nord I AS 60.90 % 1 908 1 994 1 994 Nord Kapitalforvaltning AS 30.00 % 68 139 139 Funds and investments in knowledge environments NorgesInvestor Opportunities AS 80 000 6.41 % 8 000 7 713 7 713 NorInnova Technology Transfer AS 613 3.70 % 2 900 2 756 2 756 Norinnova Invest AS 3 620 7.45 % 4 001 0 0 Kapnord Fond AS 4 145 6.79 % 4 239 0 0 Såkorninvest Nord AS 16 250 17.52 % 3 000 0 0 Meløy Næringsutvikling AS 337 12.48 % 1 452 1 089 1 089 Viking Venture III LP 32 475 0.90 % 3 116 3 213 3 213
SpareBank 1 Nord-Norge Annual Report 2012 107 Annual Report
Note 30 - Aksjer og andeler
Amounts in NOK 1 000 Number of Our equity Our equity Market value Booked value shares/units stake per cent stake Investment/management from/for SNN Bodø Industrier AS 12 0.38 % 108 108 108 MariNor AS 60 13.22 % 343 343 343 Målselvindustri Bygg AS 10 8.62 % 104 104 104 Møteplass Salten AS 1 000 10.00 % 100 100 100 Sentrums Næringshage AS 387 6.25 % 517 517 517 Tromsprodukt AS 10 1.92 % 392 392 392 Nordisk Areal Invest AS 238 247 4.02 % 19 417 18 583 18 583 Nord Norge Eiendom IV AS 1 685 100.00 % 20 037 8 000 8 000 Saltenposten 565 565 565 Stortorget 1 AS 4 500 4 500 4 500 Alfheim Stadion II 4 175 000 24.50 % 4 175 0 0 Various 457 562 562 Remaining portfolio Various investments (under kr 100 000) 160 160 160 Breivoll Inspection Technologies AS 1 150 2.61 % 1 549 0 0 Total shares SNN Invest 387 298 170 843 170 843 Group's total investment in shares and 716 741 552 921 552 921 participations/unit trusts
Ownership interest in Front Exploration AS Front Exploration AS was finally wound up during the course The company has ownership interests of 60.9% in Nord I AS of January 2013. The value of the shares corresponds to SNN and Nord I IS, and 69.7% in Nord II AS. The underlying set Invest’s share of the final settlement disbursed. of agreements between the shareholders limitsthe voting and influence rights to 50%. The investments are thus not deemed to SNN Invest As owns 100% of the shares of Nord Norge Eiendom be subsidiaries. IV AS. A sales process is on-going to liquidate the company. The company has beeb evaluayed pursuant to IFRS 5 as being SNN Invest AS is categorised as a risk capital organisation available for sale, and thus has not been consolidated as an pursuant to IAS 28. The company is thus exempted from using the ordinary subsidiary. equity method for investments/ownership interests of between 20% and 50%. For other types of companies, such investments would have been evaluated as being associated companies, with the obligation to consolidate the interest in the interest in the financial statements.
108 Note 31 - Investments in Group companies, associated companies and joint ventures
Parent Bank Investments in Group companies Amounts in NOK million 31.12.12 31.12.11 Equity stakes in financial institutions 342 244 Equity stakes in other Group companies 60 112 Total investments in Group companies 402 356
Shares and equity stakes included in the Group accounts and shown in the Parent Bank’s accounts according to the cost method of accounting Company Name Share Number of Cost Share of equity Booked capital shares and voting capital value
Amounts in NOK 1 000 SpareBank 1 Finans Nord-Norge AS, Tromsø * 192 000 38 400 251 000 100 % 251 000 SpareBank 1 Nord-Norge Invest AS, Tromsø 252 000 252 000 252 000 100 % 17 000 EiendomsMegler 1 Nord-Norge AS, Tromsø 21 100 21 100 28 000 100 % 29 636 SpareBank 1 Nord-Norge Forvaltning ASA, Tromsø 2 000 200 000 6 548 100 % 6 548 North West 1 Alliance Bank, Russland 96 033 3 450 000 90 786 75 % 90 786 SNN Økonomihus Holding AS 2 100 2 100 2 100 100 % 6 832 Total investment shown in the Parent Bank`s accounts 401 802 * Of this, 7,000 shares at a cost price of NOK 35 million are paid up, not registered share capital as at 31.12.12. Shares in subsidiaries are not quoted on the stock exchange.
Investments in joint ventures Amounts in NOK million 31.12.12 31.12.11 Equity stakes in financial institutions 1 635 1 334 Equity stakes in other joint ventures 772 649 Total investments in joint ventures 2 407 1 983
Shares and equity stakes in joint ventures, included in the Parent Bank’s accounts according to the cost method of accounting Company names Share of equity and voting capital SpareBank 1 Gruppen AS 19.50 % Bank 1 Oslo AS 19.50 % Alliansesamarbeidet SpareBank 1 DA 17.74 % SpareBank 1 Boligkreditt AS 13.46 % SpareBank 1 Næringskreditt AS 16.16 % BN Bank ASA 23.50 % SpareBank 1 Verdipapirservice AS 24.90 % SpareBank 1 Kundesenter AS 23.50 % SpareBank 1 Kredittkort AS 19.83 %
Intra-group balances relating to the Bank and the abovementioned companies: Reference is made to note 42.
SpareBank 1 Nord-Norge Annual Report 2012 109 Annual Report
Note 31 - Investments in Group companies, associated companies and joint ventures
Group Investments in associated companies and joint ventures 2012 Total SpareBank1 Bank 1 Allianse- BN Bank SpareBank 1 SpareBank 1 Other share Gruppen AS Oslo AS samarbeidet ASA Boligkreditt AS Nærings- 19.50 % 19.50% SpareBank 1 DA 23.50% 13.46% kreditt AS Amounts in NOK million 17.74% 16.16% As at 01.01. 3 019 1 016 280 18 726 768 211 Acquisition/sale 463 84 14 39 22 265 39 Share of profit - IFRS 210 96 25 52 33 4 Share of result booked as -39 -39 administrative costs Items incorporated di- -1 -1 rectly in equity capital Paid-out dividend -138 -85 -14 -21 -14 -4 As at 31.12. 3 514 1 111 305 18 779 1 051 211 39 Included in “Other “: SpareBank 1 Verdipapirservice AS, SpareBank 1 Kundesenter AS and SpareBank 1 Kredittkort AS.
2011 Total SpareBank1 Bank 1 Allianse- BN Bank SpareBank 1 SpareBank 1 share Gruppen AS Oslo AS samarbeidet ASA Boligkreditt AS Nærings- 19.50 % 19.50% SpareBank 1 DA 23.50% 13.26% kreditt AS 17.74% 17.54% As at 01.01. 2 861 980 271 18 658 760 174 Acquisition/sale 200 86 37 36 6 35 Share of profit - IFRS 195 94 16 68 13 4 Share of result booked as -37 -37 administrative costs Items incorporated di- -58 -58 rectly in equity capital Paid-out dividend -142 -86 -7 -36 -11 -2 As at 31.12. 3 019 1 016 280 18 726 768 211
The Group’s equity stakes in associated companies and joint ventures Name Assets Liabilities Income Profit/ loss Ownership share 2012 Joint ventures SpareBank 1 Gruppen AS 9 107 8 061 2 270 88 19.50 % Bank 1 Oslo AS 5 694 5 350 192 21 19.50 % SpareBank 1 Boligkreditt AS 25 123 24 075 51 33 13.46 % SpareBank 1 Næringskreditt AS 1 944 1 730 8 4 16.16 % Alliansesamarbeidet SpareBank 1 DA 92 74 117 0 17.74 % BN Bank ASA 9 807 9 022 149 44 23.50 % SpareBank 1 Verdipapirservice AS 9 0 0 0 24.90 % SpareBank 1 Kundesenter AS 0 0 0 0 23.50 % SpareBank 1 Kredittkort AS 32 2 0 -1 19.83 % Total 51 809 48 314 2 786 189 2011 Joint ventures SpareBank 1 Gruppen AS 8 188 6 844 1 750 93 19.50 % Bank 1 Oslo AS 5 498 5 188 154 16 19.50 % SpareBank 1 Boligkreditt AS 19 580 18 818 20 11 13.26 % SpareBank 1 Næringskreditt AS 1 634 1 423 8 4 17.54 % Alliansesamarbeidet SpareBank 1 DA 97 43 102 0 17.74 % BN Bank ASA 9 572 8 830 115 36 23.50 % Total 44 569 41 146 2 149 161 110 Note 32 - Property, plant and equipment
Parent Bank Group Buildings Machinery, Total Amounts in NOK million Buildings Machinery, Total and other fixtures, fittings and other fixtures, fittings property and vehicles property and vehicles 2012 327 699 1 026 Cost of acquisition or adjusted value as at 01.01.12 633 658 1 291 6 56 62 Acquisitions 6 64 70 9 154 163 Disposals 9 154 163 5 2 7 Revaluation 5 2 7 319 599 918 Cost of acquisition or adjusted value as at 31.12.12 625 566 1 191
43 480 524 Accumulated depreciation and write-downs as at 268 515 783 01.01.12 11 37 48 Current period's depreciation 11 40 51 3 0 3 Current period's impairment in value 3 0 3 8 153 161 Reversed accumulated depreciation relating 8 153 161 to buildings which have been sold 49 364 414 Accumulated depreciation and impairment 274 402 676 in value as at 31.12.12 270 235 504 Book value as at 31.12.12 351 164 515 2011 313 694 1 007 Cost of acquisition or adjusted value as at 01.01.11 619 650 1 269 14 78 92 Acquisitions 14 91 95 0 73 73 Disposals 0 73 73 0 0 0 Revaluation 0 0 0 327 699 1 026 Cost of acquisition or adjusted value as at 31.12.11 633 668 1 291
43 510 553 Accumulated depreciation and write-downs as at 268 541 809 01.01.11 0 43 43 Current period's depreciation 0 47 47 0 0 0 Current period's impairment in value 0 0 0 0 73 72 Reversed accumulated depreciation relating 0 73 73 to buildings which have been sold 43 480 524 Accumulated depreciation and impairment 268 515 783 in value as at 31.12.11 284 219 502 Book value as at 31.12.11 365 153 508
1 - 5 % 10 - 33 % Depreciation rates 1 - 5 % 10 - 33 % 0 % Dwelling units, building plots and sites, works of art 0 %
Provision of collateralised assets as security The Bank has not provided collateral security or accepted any other limitations of its rights to use its fixed tangible assets.
The gross value of fully depreciated assets still in use The gross value of fixed tangible assets which are fully depreciated and still in use was NOK 413 million as as 31.12.12
Revaluation The Bank does not make revaluations of fixed tangible assets on an ongoing basis. In connection with the initial implementation of IFRS, buildings were revalued at a total of NOK 39 million. The basis for this revaluation were independent assessments.
Obligations The Bank has not entered into any binding agreements relating to the acquisition of fixed tangible assets as at 31.12.12.
Investment property group The Bank has no properties which are defined as investment properties as at 31.12.12.
Note 32 Fixed assets held for sale The amount for buildings and other real estate includes 3 flats and 4 lots that are being held for sale with a value of NOK 4.5 million as at 31.12.12.
SpareBank 1 Nord-Norge Annual Report 2012 111 Annual Report
Note 33 - Intangible assets
Parent Bank Group 31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 0 0 Banking licenses 20 21 0 0 Customer portfolio, expertise 29 5 0 0 Deferred tax benefit 0 0 0 0 Goodwill 4 0 0 0 Total intangible assets 53 26
Note 34 - Other assets
Parent Bank Group 31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 159 141 Accrued interest from customers, subject to accrual accounting 175 178 183 182 Accrued interest from securities, subject to accrual accounting 182 183 75 75 Capital contribution to the SpareBank 1 Nord-Norge Pension Fund 75 75 30 12 Other debtors 12 30 103 58 Other pre-paid costs, not yet incurred 41 63 114 188 Prepaid income SpareBank 1 Boligkreditt 188 114 40 41 Internal accounts 43 43 Client account – property brokerage 20 24 9 20 Miscellaneous 20 9 713 716 Other assets 756 719
112 Note 35 - Deposits from customers Parent Bank Group 31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Pro- Deposits Pro- Deposits Pro- Deposits Pro- Deposits portion portion portion portion 91 % 38 021 91 % 37 356 Deposits from and liabilities to customers, without 91 % 37 394 91 % 38 038 agreed maturity 9 % 3 727 9 % 3 826 Deposits from and liabilities to customers, with 9 % 3 826 9 % 3 727 agreed maturity 100 % 41 748 100 % 41 182 Total deposits 100 % 41 220 100 % 41 765 2.38 % 2.29 % Average interest rate 1) 2.29 % 2.38 %
Deposits broken down by sector and industry 3 % 1 234 0 % 10 Central government- and social security administration 0 % 10 3 % 1 234 18 % 7 476 14 % 5 873 Counties and municipalities 14 % 5 873 18 % 7 476 1 % 354 1 % 353 Agriculture and related services 1 % 353 1 % 354 0 % 12 0 % 11 Forestry and related services 0 % 11 0 % 12 2 % 630 2 % 731 Fishing and hunting 2 % 731 2 % 630 0 % 22 0 % 45 Aquaculture (fish farming and hatcheries) 0 % 45 0 % 22 0 % 48 0 % 33 Mining industry and extraction 0 % 33 0 % 48 0 % 1 0 % 0 Services related to extraction of crude oil and natural gas 0 % 0 0 % 1 0 % 195 1 % 450 Extraction of crude oil and natural gas 1 % 450 0 % 195 1 % 478 1 % 447 Industry 1 % 447 1 % 478 0 % 4 0 % 2 Ship and boat building 0 % 2 0 % 4 2 % 652 2 % 853 Electricity, gas, steam and hot water supply 2 % 853 2 % 652 0 % 162 1 % 211 Water supply, sewage and waste services 1 % 211 0 % 162 0 % 189 0 % 173 Development of construction projects 0 % 173 0 % 189 2 % 866 2 % 948 Other building and construction services 2 % 948 2 % 866 3 % 1 448 3 % 1 235 Retail trade, repair of motor vehicles 3 % 1 235 3 % 1 448 0 % 18 0 % 15 International shipping and pipeline transport 0 % 15 0 % 18 2 % 663 1 % 522 Other transport and storage 1 % 522 2 % 663 0 % 199 1 % 235 Accommodation and hospitality services 1 % 235 0 % 199 1 % 295 1 % 229 Information and communication 1 % 229 1 % 295 3 % 1 312 3 % 1 360 Sale and management of real estate 3 % 1 360 3 % 1 312 3 % 1 302 3 % 1 155 Professional and financial services 3 % 1 155 3 % 1 302 1 % 347 1 % 325 Business services 1 % 325 1 % 347 5 % 1 998 5 % 2 228 Other service sector industries 5 % 2 228 5 % 1 998 0 % 26 Foreign business 42 51 % 21 173 56 % 23 014 Retail banking sector 56 % 23 014 51 % 21 172 1 % 257 1 % 301 Foreign sector 1 % 308 1 % 257 1 % 413 1 % 397 Insurance, securities fund and other financial enterprices 1 % 412 1 % 431 100 % 41 748 100 % 41 182 Total deposits broken down by sector and industry 100 % 41 220 100 % 41 765
Deposits broken down by geographical area 89 % 37 232 94 % 38 848 North-Norway, including Svalbard 94 % 38 863 89 % 37 249 10 % 4 259 5 % 2 007 Other regions 5 % 2 007 10 % 4 259 1 % 257 1 % 327 International 1 % 350 1 % 257 100 % 41 748 100 % 41 182 Total deposits broken down by geographical areas 100 % 41 220 100 % 41 765 1) Average interest rate is calculated as annual total interest / average volume.
SpareBank 1 Nord-Norge Annual Report 2012 113 Annual Report
Note 36 - Debt securities in issuE
Parent Bank Group 31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Certificates and other short-term borrowings 13 342 16 534 Bond debt 16 534 13 342 13 342 16 534 Total debt securities in issue 16 534 13 342
3.40 % 3.43 % Average interest rate for bond debt 3.43 % 3.40 %
Bond debt broken down by maturities 2 994 2012 2 994 3 132 3 899 2013 3 899 3 132 1 150 1 424 2014 1 424 1 150 2 950 3 551 2015 3 551 2 950 1 956 4 128 2016 4 128 1 956 1 600 3 350 2017 3 350 1 600 250 2018 and later years 250 317 560 Impact from recalculation to market value of bonds 560 317 - hedging-related accounting -757 -628 Own bonds -628 -757 13 342 16 534 Bond debt and other long-term borrowings 16 534 13 342
Broken down by the most important foreign currencies 12 225 14 832 NOK 14 832 12 225 558 SEK 558 1 117 1 144 EUR 1 144 1 117 13 342 16 534 Total liabilities broken down by major currencies 16 534 13 342
Average interest is calculated on the basis of actual interest cost for the year, including any interest rate- and currency swaps, as a percentage of the average security portfolio.
114 Note 37 - Other liabilities
Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 520 411 Other liabilities 464 560 404 426 Incurred costs / prepaid income 553 519 2 2 Provision for incurred costs / obligations 4 4 926 839 Total other liabilities 1 021 1 083
Other liabilities 65 95 Creditors 101 67 121 94 Accrued tax 115 134 25 24 Tax deductions 29 29 100 Debt to foundations 100 97 73 Agreed payments from Donations Fund 73 97 36 41 Pensionliabilities (IAS 19) 43 36 76 84 Miscellaneous liabilities 103 97 520 411 Total other liabilities 464 560
Incurred costs / prepaid income Incurred costs / prepaid income 111 105 64 61 Incurred personnel costs 75 74 335 361 Incurred interest 362 333 5 4 Miscellaneous incurred costs 6 7 404 426 Total 553 519
Incurred costs / prepaid income 489 404 Provisions as at 01.01. 519 597 14 789 80 095 Additional provisions incorporated in the profit and loss account 80 098 14 793 14 874 80 073 Utilised during the year 80 064 14 704 404 426 Provisions as at 31.12. 553 686
Pantstillelser: Securities pledged as collateral security in 2012 5 718 Relevant liabilities in 2012 2 368
Securities pledged as collateral security in 2011 7 906 Relevant liabilities in 2011 3 575
Bonds and certificates are deposited as security for D/F loans SpareBank 1 Nord-Norge Invest AS has committed an from Norges Bank. Bonds have also been pledged to the amount of up to NOK 300 million for possible issues in Nord Ministry of Finance in connection with the swap scheme. II IS in 2013.
Commitments relating to the acquisition of property, plant Ongoing lawsuits and equipment: As at 31.12.12, the Group did not have any As at 31.12.12, the Group did not have any provisions for major commitments relating to the acquisition of property, ongoing lawsuits. plant and equipment.
SpareBank 1 Nord-Norge Annual Report 2012 115 Annual Report
Note 38 - Guarantees
Parent Bank Group
31.12.11 31.12.12 Amounts in NOK million 31.12.12 31.12.11 Breakdown of guarantee liabilities 1 504 1 608 Payment guarantees 1 608 1 504 242 276 Contract guarantees 276 242 Loan guarantees Guarantees for tax payment 570 679 Miscellaneous 679 570 26 26 Guarantees in favour of the Norwegian Banks' Gurantee Fund (NBGF) 26 26 2 342 2 589 Total guarantee liabilities 2 589 2 342
Guarantees broken down by commercial, industrial and other sectors 475 617 Agriculture, forestry, fisheries, hunting and fish farming 617 475 Production of crude oil and natural gas 49 111 Industry and mining 111 49 988 1 007 Building and construction, power- and water supply 1 007 988 171 152 Wholesale and retail trade; hotel- og restaurant industry 152 171 121 152 International shipping and pipeline transport 152 121 94 94 Other transport and communication 94 94 393 410 Financing, property management and business services 410 393 28 23 Other service industries 23 28 Municipalities 23 23 Retail banking market 23 23 2 342 2 589 Total guarantees 2 589 2 342
Financial institutions 2 342 2 589 Total guarantees broken down by commercial, industrial and other sectors 2 589 2 342
Guarantees broken down by geographical areas 132 298 Finnmark 298 132 1 314 1 370 Troms including Svalbard 1 370 1 314 726 769 Nordland 769 726 170 152 Other regions 152 170 2 342 2 589 Total guarantees broken down by geographical areas 2 589 2 342
116 Note 39 - Subordinated loan capital
Parent Bank Group
31.12.11 31.12.12 Maturity structure Amounts in NOK million 31.12.12 31.12.11 Maturity structure 350 112 2018 3 months Nibor + margin 1.25 (call opt. 2013) 112 350 200 200 2018 3 months Nibor + margin 2.75 (call opt. 2013) 200 200 100 100 2019 3 months Nibor + margin 2.40 (call opt. 2014) 100 100 350 350 2019 fixed rate of interest 8.35 (call opt. 2014) 350 350 500 2013 3 months Euribor + margin 2.75 (call opt. 2017) 500 -4 -3 Premium/discount relating to subordinated loans -3 -4 Currency premium, limited in time 996 1 259 Total with definite maturities 1 259 996
Hybrid Tier 1 instruments 370 370 2033 6 months libor + 2,3 (USD 60 mill.)(Call opsj 2013) 370 370 500 2022 3 months Nibor + 4,75 (Call opsj 2017) 500 -10 -34 Capital security currency gains/losses -34 -18 360 836 Total hybrid Tier 1 instruments 836 352
1 356 2 095 Total subordinated loan capital 2 095 1 348
6.09 % 5.33 % Average interest rate NOK 5.33 % 6.09 % 2.54 % 2.92 % Average interest rate USD 2.92 % 2.54 %
Note 40 - Business acquisitions
In November 2011, SpareBank 1 Nord-Norge established a bank to assist its customers to a greater extent with financial wholly-owned subsidiary, SNN Økonomihus Holding AS. Its advising and the rationalisation of payment solutions. business office is located in Tromsø. SNN Økonomihus Holding AS has contributed NOK -1.1 In November 2011, SNN Økonomihus Holding AS purchased million as per the fourth quarter of 2012 (including the share 60% of the shares of the accountancy firm SNN Økonomipartner of the results from the accounting offices) to the pre-tax results. Alta AS (previously named Consis Alta AS) and the remaining The results in 2012 are marked by acquisition and start-up 40% was purchased in September 2012. Furthermore, 100% costs as well as a natural seasonal low level of activity for the of the shares of Merkantilservice AS (Tromsø) were purchased second half of the year. in June 2012. The group financial statements show intangible goodwill concerning the purchases of the shares of these The decision has been made to merge the three subsidiaries into companies associated with their customer portfolios and one company, with effect in terms of the financial statements competencies. as at 01.01.13. The merger will be carried out with accounting and tax-related continuity. The company performing the The reason behind the acquisitions was to strengthen the takeovers in the merger is Merkantilservice AS. accounting offerings to the businesses in this part of the country, as well as to enable a closer working relationship The merged company will change its name to SpareBank 1 between the bank and accounting services. This enables the Regnskapshuset AS after the merger.
SpareBank 1 Nord-Norge Annual Report 2012 117 Annual Report
Note 41 - Related parties
Parent bank Subsidiaries Joint ventures SpareBank 1 Nord-Norge SpareBank 1 Finans Nord-Norge AS SpareBank 1 Gruppen AS EiendomsMegler 1 Nord-Norge AS SpareBank 1 Boligkreditt AS SpareBank 1 Nord-Norge Forvaltning ASA SpareBank 1 Utvikling DA SpareBank 1 Nord-Norge Invest AS BN Bank ASA North West 1 Alliance Bank SpareBank 1 Næringskreditt AS SNN Økonomihus Holding AS Bank 1 Oslo AS Consis Alta AS (owned by SNN Økonomihus) SpareBank 1 Verdipapirservice AS Mercantilservice AS (owned by SNN Økonomihus) SpareBank 1 Kundesenter AS Origo Økonomipartner AS (owned by Consis Alta) SpareBank 1 Kredittkort AS Folk i husan eiendomsmegling Lofoten AS (owned by EM 1)
Current account ratio with subsidiaries
Amounts in NOK million 2012 2011 Income items - Parent Bank Interest received and similar income from loans and claims from subsidiaries 96 87 Deposit rate to subsidiaries 6 6 Share dividend 51 48 Accrued commissions from arranging vendor's lien-based loans 2 2 Commisions and income from banking services 5 3 Other operating costs 6 7 The Parent Bank offers some administration of salary services for subsidiaries.
Balance sheet items - Parent Bank Loans and advances to subsidiaries 3 188 2 684 Due to subsidiaries 194 216 Other liabilities and incurred costs 26 55 Claim on dividends 20 2 As at 31.12.12, vendor’s lien-based loans and lesing arranged for SpareBank 1 Finans totalled NOK 1 000 million.
Transactions with joint ventures
Amounts in NOK million 2012 2011 Income items - Parent Bank Interest received and similar income from loans and claims from joint ventures 9 3 Deposit interest rate applicable to joint ventures 13 5 Share dividends 138 142
Balance sheet items - Parent Bank: Loans and advances to joint ventures 367 43 Deposits from and liabilities to joint ventures 1 599 417
Transactions with joint ventures As a participant in the Spare- Bank 1-alliance, different The most important transactions are as follows: transactions between the Par- A) Purchase of management- and information technology, and development services from ent Bank and joint ventures SpareBank 1 Utvikling DA, NOK 97 million (2012) and NOK 90 million (2011). are carried out. B) The sale of insurance- and savings products with an insurance element for SpareBank 1 All transactions entered into Gruppen AS totalled NOK 287 million and NOK 418 million respectively in 2012 and are done on commercial 2011. terms as a part of ordinary business and at market C) Loans sold to SpareBank 1 Boligkreditt AS as at 31.12.12: NOK 21,363 mill prices. Accrued commission from SpareBank 1 Boligkreditt AS in 2012: NOK 175 mill SpareBank 1 Boligkreditt AS’s deposits with SpareBank 1 Nord-Norge: NOK 1,559 mill 118 Note 42 - Equity Certificates (EC) and ownership structure
The Bank’s EC-capital amounts to NOK 1,655,224,675 made up of 66,208,987 certificates, each of a nominal value of NOK 25. As at 31.12.12, the Bank had 8,015 EC-holders (8,139 as at 31.12.11).
Change in the Bank’s EC-capital and total certificates: Year Change Change in EC capital Total EC capital Total number of certificates 1999 649 248 699 6 492 486 2000 Issue earmarked for staff 10 453 101 659 701 800 6 597 018 2001 659 701 800 6 597 018 2002 659 701 800 6 597 018 2003 659 701 800 6 597 018 2004 659 701 800 6 597 018 2005 Bonus issue 131 940 500 791 642 200 7 916 422 2005 EC split 791 642 200 15 832 844 2006 791 642 200 15 832 844 2007 Dividend issue 49 055 400 840 697 600 16 813 952 2008 Dividend issue 54 906 050 895 603 650 17 912 073 2009 895 603 650 17 912 073 2010 895 603 650 17 912 073 2011 EC split and issues 759 621 025 1 655 224 675 66 208 987 2012 1 655 224 675 66 208 987
The 20 largest EC-Holders Name Number of ECs Share Pareto Aksje Norge 3 356 910 5.07 % MP Pensjon PK 1 766 431 2.67 % Pareto Aktiv 1 433 383 2.16 % Frank Mohn AS 1 355 745 2.05 % Protector Eiendom AS 1 327 479 2.00 % Tonsenhagen Forretningssentrum AS 1 314 149 1.98 % Sparebankstiftelsen SpareBank 1 Nord Norge 1 134 493 1.71 % Morgan Stanley & Co. Llc, USA 916 561 1.38 % Framo Developments AS 906 588 1.37 % Nordea Bank Norge AS 848 925 1.28 % Pareto Verdi 804 184 1.21 % SpareBank 1 SR-Bank pensjonskasse 782 386 1.18 % Citibank N.A. New York Branch 763 674 1.15 % Forsvarets Personellservice 620 854 0.94 % Sparebankstiftelsen DNBNOR 545 614 0.82 % Goldman Sachs & Co. - Equity, USA 509 354 0.77 % Trond Mohn 479 950 0.72 % Karl Ditlefsen 459 243 0.69 % Terra Utbytte vpf. 450 000 0.68 % Morgan Stanley & Co. LLC, Klientkonto 1 USA 446 664 0.67 %
20 largest EC-holders 20 222 587 30.50 % Other EC-holders 45 986 400 69.50 %
ECs issued 66 208 987 100.00 %
SpareBank 1 Nord-Norge Annual Report 2012 119 Annual Report
Note 42 - Equity Certificates (EC) and ownership structure
EC ratio The result for the accounting year is divided between the EC-holders and the Bank according to the EC-ratio fixed as at 01.01., adjusted for any issues during the accounting year.
Parent Bank Amounts in NOK thousand 01.01.13 01.01.12 Equity Certificates 1 655 225 1 655 225 Premium Fund 245 179 245 179 Dividend Equalisation Fund, excluding dividends 347 018 225 651 A. Equity attributable to EC holders of the Bank 2 247 422 2 126 055
Saving Bank's Fund 3 006 994 2 795 147 Donations 149 861 132 955 B. Total Saving Bank`s Fund 3 156 855 2 928 102
Total equity, excluding dividends 5 404 277 5 054 157
EC ratio ( A / (A + B) ) 41.59 % 42.07 %
Note 43 - Profit distribution
Distribution of the Parent Bank`s profit after tax:
Amounts in NOK million 2012 2011 Profit after tax 515 436
Cash dividend to EC holders 76 77 Dividend Equalization Fund 141 92 To EC holders (amount) 217 169 To EC holders (per cent) 42.07 % 38.74 %
Donations 30 121 Saving Bank`s Fund 268 146 To community owned capital (amount) 298 267 To community owned capital (per cent) 57.93 % 61.26 % Total distribution 515 436 Dividends will be distibuted to registered equity certificate holders as at 20.03.13. The Bank`s equity certificates will be traded ex dividend as of 21.03.13.
Note 44 - Events occurring after the end of the year The distribution of a cash dividend of NOK 76 million from In January 2013, an agreement was entered into to sell off parts the profit of the year to the equity capital certificate holders of the bank’s ownership interest in Bank 1 Oslo Akershus. The in SpareBank 1 Nord-Norge (parent bank) has been proposed. ownership interest will be reduces to 4.8%. The agreement was This proposal has not been adopted as at the date of the balance entered into between SpareBank 1 SR-Bank, SpareBank 1 SMN and sheet, and it has therefore not been recognised as a liability with Sparebanken Hedmark as the purchaser. The sales price on the date of the balance sheet, but it is still included in the for the transaction corresponds to the book value of Bank 1 equalisation reserve. Oslo Akershus AS as at 30.09.12. The agreement is conditional on the final approval of the Financial Supervisory Authority It has been proposed correspondingly to pay a group of Norway. Execution of the sale involves a calculated positive contribution, limited up to NOK 30 million, to wholly owned strengthening of the group’s Tier 1 capital ratio in comparison subsidiaries. This is also included as part of the equity until with 31.12.12 of 0.28 percentage points. the Supervisory Board has approved the distribution.
120 Annual Report - Group Profit Analysis
Amounts in NOK million Amounts in % of average assets
31.12.12 31.12.11 31.12.10 31.12.09 31.12.08 31.12.12 31.12.11 31.12.10 31.12.09 31.12.08
From profit and loss account Interest income 2 845 2 823 2 549 2 763 4 334 3.90% 4.02% 3.85% 3.91% 4.51% Interest costs 1 679 1 694 1 420 1 590 3 014 2.30% 2.41% 2.14% 2.18% 2.60% Net interest income 1 166 1 129 1 129 1 173 1 320 1.60% 1.61% 1.70% 1.73% 2.15% Dividend and other income from 227 209 294 304 293 0.31% 0.30% 0.44% 0.47% 0.50% investments Fees and commissions receivable 686 567 590 526 478 0.94% 0.81% 0.89% 0.81% 0.86% Fees and commissions payable 74 80 85 88 84 0.10% 0.11% 0.13% 0.14% 0.14% Net gain/loss on securities 33 -25 110 220 -377 0.05% -0.04% 0.17% 0.17% 0.36% and foreign exchange Other operating income 44 19 8 24 17 0.06% 0.03% 0.01% 0.04% 0.04% Net overall contribution 2 082 1 819 2 046 2 159 1 647 2.86% 2.59% 3.09% 3.14% 2.69% Wages. salaries an general 900 827 758 792 767 1.23% 1.18% 1.14% 1.22% 1.29% administration costs Depreciation etc. on 54 47 45 49 62 0.07% 0.07% 0.07% 0.08% 0.08% fixed- and intangible assets Other operating costs 166 162 154 131 142 0.23% 0.23% 0.23% 0.20% 0.21% Result before losses 962 783 1 089 1 187 676 1.32% 1.11% 1.64% 1.82% 1.10% Losses on loans and guarantees 195 101 87 185 183 0.27% 0.14% 0.13% 0.28% 0.30% Profit before tax 767 682 1 002 1 002 493 1.05% 0.97% 1.51% 1.54% 0.80% Tax 172 157 186 143 143 0.24% 0.22% 0.28% 0.22% 0.23% Profit for the year 595 525 816 859 350 0.82% 0.75% 1.23% 1.32% 1.40% Minority interests 0 0 0 1 2 0.00% 0.00% 0.00% 0.00% 0.00% Majority interests 595 525 816 858 348 0.82% 0.75% 1.23% 1.32% 0.57%
SpareBank 1 Nord-Norge Annual Report 2012 121 Annual Report
STATEMENT FROM THE MAIN BOARD OF DIRECTORS
The SpareBank 1 Nord-Norge Group – a Statement from the Main Board of Directors and Chief Executive Officer
The Board of Directors and Chief Executive Officer have today discussed and approved the annual report and accounts and the abridged, consolidated annual report and accounts for SpareBank 1 Nord-Norge as at 31 December 2012 and for year 2012 including abridged, consolidated comparative figures as at 31 December 2011 and for the year 2011.
According to our full and firm conviction, the annual report and accounts have been prepared in compliance with the requirements contained in IAS approved by the EU, and in compliance with Norwegian supplementary requirements forming part of the Securities Trading Act.
According to our full and firm conviction, the 2012 annual report and accounts have been prepared in compliance with currently valid accounting standards, and the information provided in the report and accounts gives a true and correct picture of the Group’s assets, liabilities and financial position and result as a whole as at 31 December 2012 and 31 December 2011. Furthermore, according to our full and firm conviction, the annual report and accounts provide a true and correct
• overview of important events during the accounting period in question and their impact on the annual report and accounts • description of the most central risk- and uncertainty factors facing the operations during the next accounting period • a description of close individuals’ significant transactions
Tromso, 21 March 2013 The main Board of Directors of SpareBank 1 Nord-Norge
122 REPORT FROM THE CONTROL COMMITTEE 2012
Report from the Control Committee 2012
During the business year of 2012, SpareBank 1 Nord-Norge’s Control Committee has completed its task in accordance with paragraph 13 of the Savings Banks’ Act and according to the currently valid instructions for the Control Committee. The Committee has monitored and seen to it that the Bank’s operations have been conducted in compliance with the Savings Banks’ Act’s rules and regulations, the Bank’s bylaws and any other rules and regulations to which the bank must adhere.
The Control Committee has examined the Annual Accounts, Annual Report and Auditor’s Report and has no comments to make in that connection. The Control Committee is of the opinion that the Main Board of Directors’ assessment of the Bank’s financial position is true and fair, and would wish to recommend that the Annual Report and Accounts presented are adopted as SpareBank 1 Nord- Norge’s Annual Financial Statement for 2012.
Tromso, 20 March 2013
Tore Bråthen Dag Norvang Rigmor Abel Kåre Brynjufsen (chairman)
SpareBank 1 Nord-Norge Annual Report 2012 123 Annual Report
Auditor’s report
To the Board of Representatives of SpareBank 1 Nord-Norge
INDEPENDENT AUDITOR’S REPORT
Report on the Financial Statements We have audited the accompanying financial statements of SpareBank 1 Nord-Norge, which com- prise the financial statements of the parent company SpareBank 1 Nord-Norge and the consolidated financial statements of SpareBank 1 Nord-Norge and its subsidiaries. The parent company’s and the consolidated financial statements comprise the balance sheet as at 31 december, 2012, and the in- come statement and the statement of other comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.
The Board of Directors and the Managing Director’s Responsibility for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation and fair pres- entation of the financial statements in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reason- able assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial state- ments, whether due to fraud or error. In making those risk assessments, the auditor considers inter- nal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial state- ments.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
124 Auditor’s report
Opinion In our opinion, the financial statements are prepared in accordance with the law and regulations and give a true and fair view of the financial position of SpareBank 1 Nord-Norge and of SpareBank 1 Nord-Norge and its subsidiaries as at 31 December, 2012, and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.
Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report and Report on corporate governance Based on our audit of the financial statements as described above, it is our opinion that the informa- tion presented in the Board of Directors’ report and Report on corporate governance 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 Accounting Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Infor- mation», it is our opinion that the 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 Norway.
Tromsø, 20 March 2013 KPMG AS
Stig-Tore Richardsen State Authorised Public Accountant
[Translation has been made for information purposes only]
SpareBank 1 Nord-Norge Annual Report 2012 125 Annual Report
126 Operations
Risk management, internal control and capital management are key areas with respect to financial activities, and the control and management of risk is a strategic tool used at SpareBank 1 Nord-Norge to increase the creation of value.
SpareBank 1 Nord-Norge Annual Report 2012 127 Senior Group General Manager Support Functions Elisabeth Utheim Education: Cand. polit. (degree in social sciences) Experience: • Project Manager, Vadsø Municipality • Project Manager and Senior Executive Officer, University of Tromsø • Human Resources and Organization Manager, Hammerfest Municipality • Senior Group General Manager, SpareBank 1 Nord-Norge since 2005
Deputy CEO Senior Group General Manager Oddmund Åsen Risk Management and compliance Education: Siviløkonom (graduate degree in economics and business administration), Geir Andreassen MBA in strategic management Education: Bachelor’s degree in auditing Experience: Experience: • Finance Manager, Nordland Psychiatric Hospital • Auditor, Noraudit Harstad • Chief Finance Officer, Nordland County • Director of Accounting, Tromsø Sparebank • Finance Manager, Sparebanken Nordland • Internal Chief Auditor, Sparebanken Nord • SpareBank 1 Nord-Norge: • SpareBank 1 Nord-Norge: - Regional General Manager Salten/Helgeland - Senior Group General Manager, - General Manager, Corporate market, Tromsø Finance/Accounting - Deputy CEO since 1996 - Senior Group General Manager Risk Management and compliance since 2007
Group Management Senior Group General Manager, CEO Corporate and Retail Market Jan-Frode Janson Liv B. Ulriksen Education: Graduate degree in fishery science and economics Education: Graduate in Business Management Experience: and Doctorate in Industrial Economics and Technology Management • SpareBank 1 Nord-Norge: - Business Consultant, Key Accounts Department Experience: - General Manager, Corporate Accounts Department • Deputy CEO of Fokus Bank Assistant Director, Norwegian Institute of Fisheries • General manager at ABB Installasjon Midt-Norge • and Aquaculture • Marketing and product manager at Nidar AS Director of Marine Business Area at Nofima • Senior consultant/research scientist at the • Senior Group General Manager Norwegian University of Science and Technology/Sintef • SpareBank 1 Nord-Norge since 2008
Senior Group General Manager, CFO Communications Director Rolf Eigil Bygdnes Stig-Arne Engen Education: Siviløkonom (graduate degree in economics Education: Siviløkonom (graduate degree in economics and business administration) and MBA and business administration) Experience: Experience: Manager of business development project at Kleber AS • Assistant General Manager, Sparebanken Nord • Finance and Marketing Manager, Kleber AS • Finance Director, A/L Håko, Tromsø • Lecturer at Folkeuniversitetet • Finance Manager/Project Manager, Barlindhaug Group • (Adult Education Association) in Bardu and Målselv • CEO, NORFICO SpareBank 1 Nord-Norge • Lecturer at Norwegian School of Management • Consultant • SpareBank 1 Nord-Norge: - General Manager, Retail Market, Midt-Troms - Deputy Regional General Manager, Tromsø - Regional General Manager, Region Midt-Troms - Managing Director SpareBank 1 Securities - Senior Group General Manager, retail market - Senior Group General Manager, CFO since 2004 - - Communications Director since 2010
SpareBank 1 Nord-Norge Annual Report 2012 129 Annual Report Main board of Directors
Member Member Anita Persen Pål Andreas Pedersen Education: Educator/BI Norwegian School Education: Cand. oecon. and Dr. polit, of Management University of Oslo Position: Managing Director of Position: Rector at the University of Nord- Finnmark Kontorservice land since August 2007 Experience: Experience: • Managing Director of Student- • Professor of Economics, Bodø Graduate samskipnaden i Finnmark (SIF) School of Business, • Day care centre manager, University of Nordland, since 1988 Studentsamskipnaden i Finnmark (SIF) • Guest professor at University of Kent in • Special teacher, Karasjok Canterbury, UK, 00-01 Municipality/Finnmark County • Dean at the Bodø Graduate School of Administration Business, 2003-2007
Member Employee-elected member Roar Dons Vivi Ann Pedersen Education: Master of Management (MMM) BI Oslo. Education: Banking qualifications Physiotherapy and specialist in manual therapy Position: Employee representative, Position: business developer SpareBank 1 Nord-Norge and investor Experience: Experience: • SpareBank 1 Nord-Norge: • Practice in manual therapy and physiotherapy - Administrator in the deposit department • Managing Director of A/S Pellerin - Debt advisor in the collection department • Board positions in various industries - Regional employee representative for the • Board member and owner of A/S Pellerin Troms region • Participant and developer in the - Senior/corporate employee representative areas of culture, commercial property and for Finance Sector Union of Norway at innovation/management SNN
130 Board member Chairman Member Greger Mannsverk Kjell Olav Pettersen Ann-Christine Nybacka Education: Oslo Tekniske Maritime Skole Education: Bachelor of Business Education: Helsingfors School of (Oslo Maritime Technical College), Engi- Administration in Banking Economics, Norwegian School of neering course on maritime technology and Position: CEO of Coop Nord SA Economics and Business Administration marine engineering Experience: Position: Director at the Brønnøysund Position: CEO of Bergen Group Kimek AS Register Centre and Bergen Group Kimek Offshore AS • Tromsbanken AS: - Bank manager, Experience: Experience: financial controller, etc. • Financial advisor, Stockhouse Finance AB •Head of Department at Kværner Kimek AS • Regional bank manager, • Advisor, Föreningsbanken • Kimek AS: Fokus Bank ASA • Financial controller and adminis- - Production manager • Managing Director of trative manager, LKAB hamn - Sales engineer/project engineer Tromsø Athletics Club • Financial controller, SCA Munksund - Staff engineer • Managing Director of Coop Nord SA • Logistics manager, SCA Munksund • Engineer/mechanical engineer at A/S • Director at the Brønnøysund Sydvaranger Register Centre • Engineer at Munch Internasjonal AS
Board member Employee-elected deputy member Sonja Djønne Gunnar Kristiansen Education: Master of Management in Business Education: Banking Academy Administration Position: Employee representative, Position: General manager at SpareBank 1 Nord-Norge IT Partner Helgeland Experience: Experience: • SpareBank 1 Nord-Norge: • Project analyst at ROI Invest - Administrator in the accounting department • Procurement manager at - Responsible for collection Helgelandssykehuset HF department in Vesterålen • Procurement manager at Rana municipality - Regional employee representative, Vesterålen • Personnel consultant/case worker at - Corporate employee Rana social security office representative for Finance Sector • Employment manager at Rana municipality Union of Norway
SpareBank 1 Nord-Norge Annual Report 2012 131 Governing bodies in SpareBank 1 Nord-Norge
Members elected from the Bank’s employees Supervisory Board Head Safety Representative May Britt Nilsen, Sørkjosen 2009/2012 Chief Officer Jan-Hugo Sørensen, Hansnes (Chairman) 2012 Manager Hans Olav Gjøvik, Tromsø 2011/2014 Local Authority Executive Asbjørg Jensvoll Strøm, Vardø Senior Advisor Einar Frafjord, Tromsø 2011/2014 (Deputy Chairman) 2012 Advisor Ann-Kirsten Larsen, Tromsø 2011/2014
Advisor Ann Kathrina Langaune, Bardufoss 2009/2012 Advisor Therese Isaksen, Mo i Rana 2011/2014 Members elected from the Bank’s depositors Manager Frode Pedersen, Tromsø 2009/2012 Attorney Cecilie Lysjø Jacobsen, Hammerfest 2009/2012 Procurement Manager Øyvind Pallesen, Tromsø 2009/2012 Graduate degree in Fishery Science Line Mikkelsen, Tromsø 2012/2015 Sole proprietor Reidun Kristiansen Flakstad, Gryllefjord 2010/2013 Deputy members elected from the Bank’s employees Chief Officer Jan-Hugo Sørensen, Hansnes 2010/2013 Advisor Cato Julius Brattøy, Ørnes 2011/2012 General Manager Rita Myrvang, Sørreisa 2012/2015 Senior Consultant Rigmor S. Berntsen, Tromsø 2011/2012 Mayor Aina Willumsen, Træna 2012/2015 Advisor Arne Clemens, Alta 2011/2012 Lawyer Tone Marie Myklevoll, Tromsø 2011/2014 Senior Advisor Kristin Ludvigsen, Mo i Rana 2011/2012 MBA Hanne Sofie Åsen, Bodø 2009/2012 Advisor Bodil Hanssen, Leinesfjord 2011/2012 General Manager Trine Stenvold, Fauske 2010/2013 Advisor Egon Enoksen, Stokmarknes 2011/2012 Head of Business and Culture Kari Ann Olsen Lind, Stokmarknes Advisor Inger M. Løkken, Stokmarknes 2011/2012 2009/2012 Senior Advisor Hilde Hauan, Tromsø 2011/2012 Senior Legal Advisor Charlotte Ringkjøb, Bodø 2011/2014
Personnel Consultant Britt Dahlberg, Bardu 2011/2014
Deputy members elected from the Bank’s depositors Sole Proprietor Harald Erik Johannessen, Storslett 2012 The Supervisory Board’s Procurement Manager Thone Bjørklund, Hammerfest 2012 Election Committee Chief Officer Hugo Thode Hansen, Harstad 2012 MBA Anders J. H. Eira, Kåfjord 2012 Members Business Manager Stig-Gøran Olsen, Sandnessjøen 2012 Lawyer Charlotte Ringkjøb, Bodø (Chair) Manager Harald Reisænen, Vestre Jakobselv 2012 - elected from the depositors 2012/2013 Director Trygve Myrvang, Tromsø Members elected from county councils - elected from the ECC holders 2012 Mayor Tor Asgeir Johansen, Kjøpsvik 2012/2015 Student Cecilie Terese Myrseth, Tromsø Student Cecilie Terese Myrseth, Tromsø 2012/2015 - elected from the county councils 2012/2013 Politician Line Miriam Sandberg, Silsand 2012/2015 Senior Advisor Einar Frafjord, Tromsø Maritime Training Manager Kari Lene Olsen, Honningsvåg 2012/2015 - elected from the employees 2011/2012
Deputy members elected from county councils Deputy members Retired Jon Tørset, Bodø 2012/2015 Chief Officer Jan-Hugo Sørensen, Hansnes Mayor Dag Sigurd Brustind, Hamnvik 2012/2015 - elected from the depositors 2012/2013 Mayor Ivar B. Prestbakmo, Sjøvegan 2012/2015 Attorney Erik Sture Larre, Oslo Master’s Degree Student Ellen Johansen, Kokelv 2012/2015 - elected from the ECC holders 2011/2012 Mayor Tor Asgeir Johansen, Kjøpsvik - elected from the county councils 2012/2013 Members elected from the Bank’s ECC holders Advisor Therese Isaksen, Mo i Rana Chairman Kjell Kræmer, Tromsø 2010/2013 - elected from the employees 2011/2012 Chairman Kjell Kolbeinsen, Tromsø 2012/2015 Attorney Erik Sture Larre, Oslo 2011/2014 CEO Frode Helgerud, Oslo 2009/2012 Director Trygve Myrvang, Tromsø 2011/2014 Depositors’ Election Committee CEO Trond Mohn, Paradis 2009/2012 Mayor Odd-Tore Fygle, Bodø 2009/2012 Members Local Authority Executive Asbjørg Jensvoll Strøm, Finnsnes 2012/2015 Lawyer Charlotte Ringkjøb, Bodø (Chair) 2012/2013 Head of Finance Bente Evensen, Tromsø 2011/2014 Sole Proprietor Reidun Kr. Flakstad, Gryllefjord 2012/2013 CEO Oddbjørn Schei, Tromsø 2012/2015 Attorney Cecilie Lysjø Jacobsen, Hammerfest 2011/2012 Artist Berit Berg, Tromsø 2012/2015 Businessman Herman Mehren, Oslo 2010/2013 Deputy members General Manager Ole Ovesen, Sørreisa 2010/2013 Chief Officer Jan-Hugo Sørensen, Hansnes 2012/2013 Optician Sissel Ditlefsen, Tromsø 2009/2012 Lawyer Tone Marie Myklevoll, Tromsø 2011/2012 Craft Worker Marie M. Fangel, Tromsø 2009/2012 Sole Proprietor Harald Erik Johannessen, Storslett 2011/2012 Financial Analyst Tom Rømer Svendsen, Oslo 2010/2013
Deputy members elected from the Bank’s ECC holders Director Odd Erik Hansen, Tromsø 2011/2014 Equity Certificate Senior Researcher Toril Ringholm, Tromsø 2012/2015 General Manager Trond Vidar Hansen, Tromsø 2012/2015 Holders’ Election Committee Student Ane Kristine Røger, Stokmarknes 2011/2014 Project Manager Stig Vonka, Harstad 2011/2014 Members Office Manager Jorhill Andreassen, Silsand 2011/2014 Attorney Erik Sture Larre, Oslo (Chairman) 2011/2012 Linn Knudsen, Alta 2011/2014 CEO Trond Mohn, Paradis 2012/2013 Director Stein Kristiansen, Jakobsli 2011/2014 Craft Worker Marie M. Fangel, Tromsø 2011/2012
Deputy members Director Trygve Myrvang, Tromsø 2012 Head of Finance Bente Evensen, Tromsø 2012/2013 Local Authority Executive Asbjørg Jensvoll Strøm, Finnsnes 2012/2013
132 Governing bodies in SpareBank 1 Nord-Norge
Control committee Regional Board of Directors - Hålogaland
Members Members Professor Tore Bråthen, Oslo (Chairman) 2012/2013 General Manager Berit Pettersen, Sortland (Chairman) 2011/2012 Manager Dag Norvang, Tromsø 2012/2013 Director Bjørn Akselsen, Harstad (Deputy Chairman) 2012/2013 Environmental Director Rigmor Abel, Tromsø 2012/2013 CEO Mona Kristine Rosvold, Harstad 2012/2013 Marketing Manager Frank Sundermeier, Narvik 2012/2013 Regularly attending deputy members Regional Director Svein Helland, Svolvær 2011/2012 Consultant Kåre Brynjulfsen, Silsand 2012/2013 Employee Representative Vivi Ann Movik, Harstad - elected from the employees 2011/2012
Deputy members Research Fellow Knut Foshaug, Narvik 2012 Main Board of Directors General Manager Alf Lie, Leknes 2012 Employee Representative Dag Inge Lund, Stokmarknes Members - elected from the employees 2012 CEO Kjell Olav Pettersen, Tromsø (Chairman) 2011/2012 Safety Representative Johannes Frivåg, Sortland Professor Pål Andreas Pedersen, Bodø (Deputy Chairman) 2012/2013 - elected from the employees 2012 General Manager Sonja Djønne, Mo i Rana 2012/2013 Business Developer Roar Dons, Tromsø 2011/2012 CEO Greger Mannsverk, Kirkenes 2012/2013 Director Ann-Christine Nybacka, Brønnøysund 2012/2013 Senior Employee Representative Vivi Ann Pedersen, Tromsø Regional Board of Directions - Troms - elected from the employees 2011/2012 Director Anita Persen, Alta 2012/2013 Members Goldsmith Elin Wintervold, Tromsø (Chairman) 2012/2013 Deputy members CEO Alfred Aksnes, Tromsø (Deputy Chairman) 2011/2012 Engineer Erik Sture Larre jr., Oslo 2012 General Manager Jan Fredrik Jenssen, Vangsvik 2012/2013 Factory Director Wenche E. Olsen, Glomfjord 2012 Office Manager Roy Hugo Johansen, Skibotn 2011/2012 Employee Representative Gunnar Kristiansen, Sortland Teacher Anne Beck Strømseng, Bardu 2012/2013 - elected from the employees 2012 Employee Representative Kjetil Ask Olsen, Tromsdalen Employee Representative Kjetil Ask Olsen, Tromsø - elected from the employees 2011/2012 - elected from the employees 2012 Deputy members General Manager Bjørnar Heimly, Skjervøy 2012 Marketing Manager/Teacher Eva Kristin Lyshoel, Finnsnes 2012 Employee Representative Elena Rushfeldt, Tromsø Regional Board of Directors - Helgeland - elected from the employees 2012 Employee Representative Trude Jakobsen, Tromsø Members - elected from the employees 2012 Engineer Stig Roald Frammarsvik, Mo i Rana (Chairman) 2011/2012 Attorney Toril Valla, Korgen (Deputy Chairman) 2012/2013 General Manager Brynjar Kroknes, Brønnøysund 2011/2012 Procurement Manager Christin Walen Strand, Sandnessjøen 2012/2013 Regional Board of Directors - Finnmark General Manager Ole Kristian Jenssen, Mosjøen 2012/2013 Employee Representative Christian Stavøy, Sandnessjøen Members - elected from the employees 2012/2013 Business owner Tor Arne Pettersen, Alta (Chairman) 2012/2013 County Executive Hans M. Ellingsen, Hammerfest Deputy members (Deputy Chairman) 2011/2012 Administrative Manager Stig Sørra, Sandnessjøen 2012 General Manager Ann Kristin Kvalsvik, Akkarfjord 2011/2012 General Manager Nina Rødahl Friis, Nesna 2012 Special Advisor Jan Terje Nedrejord, Karasjok 2012/2013 Employee Representative Wenche Solli, Mosjøen Optician Kjell Hansen, Vadsø 2012/2013 - elected from the employees 2012 Employee Representative Arnhild Stenvoll, Hammerfest Safety Representative Arnold Sjøteig, Mo i Rana - elected from the employees 2011/2012 - elected from the employees 2012 Deputy members General Manager Mona Wisløff Vonheim, Alta 2012 Attorney Cecilie Lysjø Jacobsen, Hammerfest 2012 Employee Representative Trond Mikalsen, Kautokeino Regional Board of Directors - Salten - elected from the employees 2012 Employee Representative Rita Annie Strøm, Alta Members - elected from the employees 2012 General Manager Trond Sigurd Tørdal, Bodø (Chairman) 2011/2012 Director Bente Larsen, Bodø (Deputy Chair) 2012/2013 General Manager Malin Arntzen, Rødøy 2011/2012 CEO Sten-Rune Brekke, Fauske 2012 Sole Proprietor Alf Mangor Johannessen, Bodø 2012/2013 Employee Representative Gunn Helen Kristensen, Rognan - elected from the employees 2012/2013
Deputy members Regional secretary Rita Lekang, Bodø 2012 General Manager Stein Valle, Hamarøy 2012 Employee Representative Aud Jorun Skaret, Meløy - elected from the employees 2012 Employee Representative Bjørg Lillian Olsen, Leinesfjord 133 - elected from the employees 2012 SpareBank 1 Nord-Norge Annual Report 2012 Annual Report
Corporate governance at SpareBank 1 Nord-Norge Principles for Corporate Governance
About The Norwegian Accounting Act 8 The Articles of Association and authorities empowering the Board to resolve to buyback or issue own equity Section 3-3b of the Norwegian Accounting Act certificates. The Bank’s management and the Main Board of Directors In order to provide flexibility when selling equity certificates conduct an annual assessment of the principles for corporate to employees and elected representatives, the Supervisory governance, and their functioning. Each year, they issue Board has previously authorised the Main Board of Directors a statement on the principles and practice of corporate to buyback or issue own equity certificates. To enhance governance, in accordance with section 3-3b of the Norwegian this possibility, the Main Board of Directors was granted Accounting Act and the Norwegian Code of Practice for Good authorisation by the Supervisory Board on 26 March 2012 Corporate Governance of 23 October 2012. to purchase and establish security interest in own equity certificates within the framework stipulated by statutes and Below is a description of how section 3-3b, second paragraph regulations. of the Norwegian Accounting Act is covered in Sparebank 1 Nord-Norge. The classifications refer to the numbering in the The Main Board of Directors is authorised to purchase and section. establish security interest in own equity certificates within the framework stipulated by statutes and regulations. The total 1-3. Statement of recommendations followed by holdings of equity certificates that the Bank owns and/or has Sparebank 1 Nord-Norge, a description of where the security interest in may not exceed 10% of the Bank’s equity recommendations may be found, and the reason for any certificate capital. The minimum amount that can be paid for deviations from the recommendations. the equity certificates is NOK 12.50 and the maximum is NOK The corporate governance structure at Sparebank 1 Nord-Norge 75. is based on Norwegian legislation. Sparebank 1 Nord-Norge complies with the Norwegian recommendations for corporate governance, issued by the Norwegian Corporate Governance 1. Corporate governance at Board, NUES. The recommendations may be found at www.nues.no Any deviations from the recommendations are SpareBank 1 Nord-Norge disclosed in the statement describing how recommendations Corporate governance at SpareBank 1 Nord-Norge is defined are complied with in the section “Corporate Governance in as the aims, targets and overall principles in accordance with Sparebank 1 Nord-Norge” in the Annual Report. which the Bank is managed and controlled, for the purpose of safeguarding the owners’, depositors’ and other groups’ 4 Description of the principal elements of Sparebank interests in the Bank. Accordingly, the Bank’s principles of 1 Nord-Norge’s systems for internal control and risk corporate governance shall ensure the sound and appropriate management in connection with the financial reporting management of the Bank’s assets and liabilities, providing process. additional assurance that all agreed targets, aims and strategies Refer to point 10 in the section on Corporate Governance. are met and adhered to.
6 The composition of the governing bodies and a The Bank follows the Norwegian Code of Practice for description of the main elements of the relevant Corporate Governance. (http://www.nues.no/filestore/ instructions and guidelines for work undertaken by the Dokumenter/Norskberiktiget.pdf) bodies and committees, if applicable. Refer to points 6,7,8 and 9 in the section on Corporate As a result of this, the Bank has defined the following main Governance. principles, which are built on the three core values of openness, predictability and transparency: 7 Provisions in the Articles of Association regulating the • A structure which ensures targeted and independent appointment and replacement of Board members. management and control Refer to points 7 and 8 in the section on Corporate • Systems which ensure that the relevant factors can be Governance. measured and which make it clear where the responsibility for certain aspects belong • Effective risk management • Complete and full information, as well as effective communication, aimed at underpinning and cementing the trust between owners, the Main Board of Directors and the Bank’s management 134 • All owners to be treated in the same way; balanced relations members of staff throughout the organisation and is available with other interest groups to our customers and stakeholders through the Bank’s • Laws, rules, regulations and ethical standards to be adhered to website.
An account is given of any instances where the Bank does SpareBank 1 Nord-Norge’s aims and strategy are described in not follow the Norwegian Code of Practice for Corporate more detail in another section of the Annual Report. Governance. With regard to the recommendations concerning corporate takeovers, this is not included in the Bank’s Framework and the principles of corporate governance. The reason for this is that the Bank is a savings bank and these 3. The company’s capital and dividend areas are not regarded as relevant in this context. The Bank shall be well capitalised at all times. The Bank’s The Bank’s corporate governance regulations were adopted principal objectives – including its capital adequacy ratio – most recently by the Main Board of Directors at its meeting of are conveyed through the Bank’s website, periodic accounts 8 February 2011. presentations, and in the Bank’s Annual Report. The Bank also undertakes periodic assessments of the Bank’s risk in relation to the Bank’s risk capital (the ICAAP process). These are 2. Operations submitted to the Bank’s Main Board of Directors.
SpareBank 1 Nord-Norge is an independent financial services Furthermore, the Main Board of Directors has devised a group within the SpareBank 1 Alliance. dividend policy which forms the basis for the dividend distribution proposed to the Supervisory Board. The dividend The Bank’s corporate vision is For North Norway! policy is published on the Bank’s website, in periodic accounts presentations, and in the Bank’s Annual Report. The Bank’s business concept is to supply complete and modern financial solutions for the benefit of customers based in the North Norwegian market. The Bank shall create its 4. All owners and transactions with competitive advantages by being Close and Competent in all customer relations. close connections to be treated in the same way Close refers to a close proximity, insight and involvement. This means that all staff should act in a friendly, pleasant, Through ongoing dialogue, the Bank shall ensure that owners accommodating and professional manner, that they should and other stakeholder groups are given the opportunity to understand and appreciate individual requirements, express their views on the Bank’s strategic and business- arerequirements be available and accessible, demonstrate related development. The Bank must project an image of local knowledge and that the Bank has a strong presence reliability and predictability as far as the equity capital market throughout the market. Closeness refers to personal is concerned. commitment, coupled with enthusiasm for the many opportunities provided by our workplace and our customers. 5. Freely negotiable
Competent means to be focused on our customers, to have The Bank’s equity certificates are freely negotiable. No form of solid professional competence, good skills and a clear and trading restrictions have been adopted. positive attitude. Advisory services and sales shall be based on good, ethical standards and authorisations. The advice we give shall be of a high professional quality. Competence 6. A structure which ensures targeted means the ability and willingness to take initiative and suggest relevant solutions to the Bank’s customers. and independent management and Competence also means the ability to work together with control colleagues throughout the organisation in order to meet and realise the Bank’s overall targets and aims. The Bank’s management structure is based on the Bank’s corporate vision, established aims and targets, strategies and SpareBank 1 Nord-Norge is an attractive workplace with a core values. corporate culture characterised by dynamic training, a will to win and a willingness to work together towards a common Management and control comprise all processes and control goal. The Bank’s operations and business are based on strict measures that have been introduced and implemented by the requirements with regard to integrity and commercial ethics. Bank’s management in order to ensure effective operations and Compliance with laws, rules, regulations and ethical standards the implementation of the Bank’s strategies. is a requirement for healthy banking operations. The Bank’s core values and ethical guidelines are incorporated in the In order to provide the necessary assurance that owners and SpareBank 1 Nord-Norge Code of Conduct, which describes other stakeholder groups receive correct information on the Bank’s practical approach to business. The SpareBank 1 business-related and financial matters, several independent Nord-Norge Code of Conduct has been clearly explained to all control bodies have been established.
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Accordingly, the Bank’s management and control bodies have The Supervisory Board consists of 40 members and 26 deputy each been assigned specific tasks and purposes, where the members, whose composition is as follows: various bodies’ roles and responsibilities at the highest level • 16 members and 8 deputy members elected from the Bank’s have been defined through laws, rules, regulations and by- equity certificate holders laws. • Troms, Finnmark and Nordland – 4 members and 4 deputy members elected by the county councils in question Supervisory • 12 members and 6 deputy members from the Bank’s depositors Board • 8 members and 8 deputy members from the Bank’s employees
Control External The Supervisory Board shall normally meet twice each Committee Auditor year.
Main Board of Directors 7.2 Election Committees Election committee for the Supervisory Board Audit Internal The Election Committee shall consist of 4 members and 4 Auditor Committee deputy members, with representatives from all the four groups represented on the Supervisory Board. The Election Committee CEO shall make the necessary preparations for the election of the following members: • Chairman and Deputy Chairman of the Supervisory Board Risk Management • Members and deputy members of the Main and Regional Boards of Directors, excluding the employees’ representatives CFO • Chairman of the Control Committee, members and deputy members • Members and deputy members of the Election Committee Compliance • Equity certificate holders’ and depositors’ election of members and deputy members to the Supervisory Board
7. Governing bodies In the case of the member and deputy member to be elected from the Bank’s employees, only the staff’s representative on the 7.1 The Supervisory Board Election Committee is allowed to make a recommendation. The Bank is a savings bank and therefore does not have a general meeting. Accordingly, this document deviates somewhat from Election Committee for the depositors’ election the Norwegian Code of Practice for Corporate Governance on The Election Committee consists of 3 members and 3 deputy this point, due to formal reasons. These deviations are not members, the committee’s task being to make the necessary considered to entail any difference in reality in relation to the preparations for the depositors’ election of members and deputy code of practice. members of the Supervisory Board, as well as members and deputy members of the Election Committee for depositors. The Supervisory Board is the Bank’s most senior management body, which has the following main responsibilities: Election Committee for the equity certificate holders’ election • supervising the Main Board of Directors’ management of the The Election Committee consists of 3 members and 3 deputy company members, the committee’s task being to make the necessary • adopting the Annual Report and Accounts preparations for the equity certificate holders’ election of • electing members to the Bank’s Board of Directors, Control members and deputy members of the Supervisory Board, Committee and Election Committee as well as members and deputy members of the Election • appointing the Bank’s responsible auditor and determining Committee for equity certificate holders. the auditor’s remuneration • distributing the amount which according to the Savings As part of their work, the Election Committees shall make sure Banks’ Act, paragraph 32, may be given to charitable and that members of the Supervisory Board, Control Committee, other deserving causes Election Committee and Main Board of Directors possess the • the raising of subordinated loan capital necessary competence. In addition, the Election Committees should make every effort to ensure that there is an appropriate When making the necessary preparations for the meetings regional composition of the members involved and that both of the Supervisory Board, the Bank shall make sure that all men and women are well represented. members receive the relevant notice convening the meeting, documents relating to the matters to be discussed, including the Guidelines for the aforementioned election committees are Election Committee’s recommendation, by letter, and at least established by the Bank’s Supervisory Board. 21 days in advance of such meetings. The documents shall be available on the Bank’s website at least 21 days in advance of such meetings. The Supervisory Board cannot make decisions on any other matters than those which have been specifically stated in the notice convening the meetings.
136 7.3 The Main Board of Directors Board committees The function of the Main Board of Directors The Main Board of Directors established a compensation The Main Board of Directors leads the Bank’s operations in committee which shall assess/fix the CEO’s salary, bonus accordance with applicable laws, by-laws and any detailed arrangements and fringe benefits. The committee consists of rules and regulations introduced by the Supervisory Board. The the Chairman of the Main Board of Directors and two members Main Board of Directors is responsible for the Bank’s available of the Board. resources being managed in a secure and appropriate manner. In addition, the Main Board of Directors has an obligation to The Main Board of Directors also established an audit ensure that all accounting and the management of assets and committee. The audit committee is a preparatory body for the liabilities are subject to a reassuring level of control. Main Board of Directors in matters concerning the monitoring of financial information and the company’s internal control Furthermore, the Main Board of Directors has the following and risk management. The CEO is responsible for making main responsibilities: information and recommendations available to the committee • To appoint the Chief Executive Officer as required and upon request. • To provide instructions for the day-to-day management of the Bank The audit committee is comprised of three members from the • To determine the Bank’s strategy, budget, market-related and Board. They must be independent in accordance with the organisational targets definition in the Norwegian Code of Practice for Corporate • To approve the establishment and closure of any branches in Governance. municipalities where the Bank does not have its head office or regional offices Reporting • To appoint and dismiss the head of the Bank’s internal The Main Board of Directors receives periodic reports on the auditing department. following aspects: • earnings performance The Main Board of Directors normally has 11 meetings each • market development year. • management, personnel and organisational development • development of the overall risk situation and the Bank’s risk The composition of the Main Board of Directors exposure The Main Board of Directors consists of 8 members elected by the Supervisory Board. The Main Board of Directors also In addition to the above, there will be periodic presentations of has 4 deputy members. All elected members are elected for the Bank’s Score Card, which contains financial, organisational, 2 years at the time and the deputy members for 1 year at the market-related and quality-related targets. time. Members and deputy members may be re-elected. In order to ensure continuity, half of the Main Board of Directors’ Central business and other related areas are looked at at least members are elected every other year. once a year, when limits and guidelines are evaluated and agreed. Qualification/disqualification The Main Board of Directors’ members are defined as primary Fees paid to members of the Bank’s Main Board of Directors insiders and must adhere to the Bank’s rules and regulations Fees for the members of the Main Board of Directors are paid as regarding the acquisition of equity capital certificates in the a fixed amount per annum. The amount is fixed by the Bank’s Bank and in the SpareBank 1 Alliance banks. This also applies Supervisory Board. to the purchase of shares in companies which have a customer relationship with the Bank. 7.4 The CEO In the case of discussion of commitments involving companies The CEO is responsible for the day-to-day management of the in which members of the Main Board of Directors have an Bank’s operations in accordance with applicable laws, by- interest or hold a position, the member in question must laws, powers of attorney and instructions. His responsibility declare himself/herself disqualified and leave the meeting. does not comprise matters which in relation to the Bank’s Furthermore, members of the Main Board of Directors and circumstances would be of an unusual nature or of great senior personnel must inform the Main Board of Directors importance. Such matters are presented to the Main Board of if, directly or indirectly, they have a significant interest in an Directors. agreement entered into by the Bank. The CEO’s overall performance is assessed annually by the Evaluation of the Main Board of Directors Main Board of Directors. Each year, the Main Board of Directors conducts a self- valuation of its work with regard to competence, working methods, the way in which it deals with the matters presented to it, meeting structure and the way in which various tasks are prioritised.
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8. Control bodies Risk management - the function The Control Committee This function is independent of the Bank’s customer units and The Control Committee shall see to it that the Bank is managed responsible for: in an appropriate and reassuring manner in accordance with • further development of the Bank’s framework for uniform applicable laws, rules, regulations, by-laws, and guidelines and overall risk management agreed by the Bank’s Supervisory Board, and according to • overall risk management and follow-up instructions from the Financial Supervisory Authority of Norway (FSAN). The Control Committee shall also make Separate controller functions have been established in order to sure that operations throughout the Bank are conducted in an cover the areas of credit risk, operational risk and market risk appropriate and reassuring manner. In addition, the Control (liquidity, interest rates and currency). Committee shall ensure that the Bank’s Board of Directors and CEO monitor and control to a sufficient extent the Parent Bank and its subsidiaries. 9. Systems which safeguard
Members of the Control Committee are elected by the assessment and the allocation of Supervisory Board; there are 3 members and 1 deputy member. responsibility The members are elected for 2 years at the time. Effective target management is necessary in order for the Bank Each year, the Control Committee provides a report on its work to be able to assess at all times whether its various strategic to the Supervisory Board and FSAN. Furthermore, the Control targets are being met. The Bank has prepared guidelines and Committee provides a statement to the Supervisory Board on measuring variables according to which the various profit the Annual Report and Accounts. centres are assessed and managed, based on the concept of balanced target management. The Control Committee normally holds 8 meetings every year. In addition, strategic planning and prognosis management are used as management tools. External Auditor The main task of the external auditor is to assess whether the Allocation of responsibility is ensured through clear Bank’s Annual Accounts have been prepared in accordance communication to the employees involved in business plans with applicable laws, rules and regulations. In addition, the and the agreed targets. This is translated into operational external auditor shall ascertain whether the Bank’s assets and context through clearly defined roles, responsibility and liabilities have been managed in a reassuring manner and with expectations, where the managers involved are held appropriate control. The external auditor is elected by the responsible for the achievement of the goals within the various Supervisory Board. areas of responsibility. Compensation arrangements have been established based on how well management and employees The external auditor presents a report about these matters to perform in relation to these measuring variables. the Bank’s Supervisory Board and Control Committee.
A separate agreement is entered into with the external auditor 10. Risk management and regarding the business relationship between the Bank and the external auditor. In case of need, the external auditor can also internal control be used for advisory services. The fees paid to the external Effective risk management is an essential element in the auditor for auditing and other services must be specified in the achievement of the Bank’s strategic goals. Risk management Bank’s Annual Report. is an integral part of the management’s decision-making processes, and a key element with respect to organisation, The external auditor participates in the Board of Directors’ routines and systems. meeting dealing with the Bank’s annual accounts. The Group’s principles and limits for internal control and Internal Auditor risk management are contained in a separate policy for risk The internal audit is the most important tool for the Main management, which is reviewed annually by the Main Board Board of Directors and the Bank’s management with regard to of Directors. The policy for risk management and compliance monitoring and making sure that the control and management is the Group’s internal framework for good management and process is targeted, effective and functions as it is intended control. The framework provides guidelines for the Group’s to do. The Bank has its own internal audit department, overall attitude towards risk management, and it should which reports to the Main Board of Directors. The audit ensure that the Group has an effective and appropriate process plan for the Bank’s internal audit department is subject to for this. annual approval by the Main Board of Directors. Reports and recommendations issued by the internal audit department The Group uses the framework of the Committee of Sponsoring concerning improvements to the Bank’s risk management and Organisations of the Treadway Commissions (COSO) and internal control are continuously reviewed and taken into the framework of the Control Objectives for Information consideration. and Related Technology (CobiT) as a basis for principles for internal control and risk management.
138 Internal control and risk management is a process which have stable and predictable earnings and profit performance has been initiated and implemented by the Bank’s Board of through good risk management. Directors, management and employees; this process shall The Bank’s most important result target is to achieve a identify, handle and follow up on the risks involved so that competitive return on its equity. This is achieved, for example, the aggregate risk exposure is in accordance with the Bank’s through focusing more on the risk-adjusted return. Risk pricing agreed overall risk profile. The process shall support the Bank’s is, therefore, essential in order to reach the Bank’s target for a strategic development and target achievement, and it shall help satisfactory return on equity. ensure financial stability and prudent management of assets and liabilities through: Significant risks are analysed, managed and followed up through the Bank’s ongoing risk management process to ensure • a strong risk culture characterised by high awareness of risk that the Bank operates in accordance with the approved risk management profile and adopted strategies. At least once a year, the Main • striving towards an optimal allocation of capital within the Board of Directors and the Bank’s management review the adopted business strategy Bank’s risk profile in relation to strategic, operational and • trying to achieve the same risk-adjusted return on customers transaction-related factors. Developments in the risk picture over time within the Bank’s agreed business strategy are reported periodically to the CEO and the Main Board of • exploitation of synergy and diversification effects Directors. • sufficient core capital in relation to the Bank’s chosen risk profile 11. Remuneration for members of The Main Board of Directors shall follow up all the adopted frameworks, principles, quality and risk targets through: The Main Board of Directors and Senior Management • quarterly reports from the CEO and the risk management department The members of the Main Board of Directors receive a fixed • half-yearly and annual reports from the Bank’s internal annual remuneration. This remuneration is not based on auditor performance and no options have been issued to the members of the Main Board of Directors. The Bank’s internal control and risk management systems also encompass the Bank’s core values and guidelines for ethics and The Main Board of Directors has also established guidelines for corporate social responsibility. remuneration for members of the Bank’s senior management in accordance with the relevant laws. These guidelines are The Group’s management information systems include: submitted to the Bank’s Supervisory Board. The compensation • balanced scorecards - follow-up of strategic and operational committee issues an annual recommendation on the CEO’s targets fixed salary and any bonuses to the Main Board of Directors. • portfolio management system – follow-up of credit/portfolio risk No options have been issued to any employees. Further details • the risk and information system – follow-up of areas of the remuneration of senior management can be found in the earmarked for improvement notes to the Bank’s annual accounts.
These systems are used actively throughout the Group, and they are a central part of the Main Board of Directors’ follow-up 12. Comprehensive information and of the Group’s targets. effective communication Every manager prepares an annual statement confirming that Comprehensive information and effective communication the frameworks, guidelines and routines have been observed, support the relationship of trust between owners, the Main and that systems are used actively to follow up each manager’s Board of Directors and the Bank’s management, and this gives profit centre. the Bank’s stakeholder groups an ongoing opportunity to assess and relate to the Bank. The Main Board of Directors receives an independent assessment annually from the internal auditor and the responsible auditor The Bank’s information policy therefore places emphasis of the Group’s risk, confirming whether the internal control on an active dialogue with the Bank’s various stakeholder works in an appropriate and reassuring manner. groups, in which there is focus on openness, predictability and transparency. SpareBank 1 Nord-Norge’s Main Board of Directors has the primary responsibility for defining the limits for and monitoring The Bank also attaches importance to the fact that correct, the Group’s risk exposure. SpareBank 1 Nord-Norge’s risks are relevant and timely information on the Bank’s performance measured and reported in accordance with the principles and and results will inspire the confidence of the investor policy adopted by the Main Board of Directors. market. Information is distributed to the market through the Bank’s quarterly investor presentations, website, stock The principal aim is to ensure that the Group’s overall risk exchange disclosures and press releases. In addition, regular level is moderate and within the limits set by the Group’s presentations are arranged for the Bank’s international partners, subordinated capital and other provisions. The Group should lenders, investors and other stakeholder groups.
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Risk management, internal control and capital management
Risk management, internal control and capital management are key areas with respect to financial activities, and the control and management of risk is a strategic tool used at SpareBank 1 Nord-Norge to increase the creation of value.
For SpareBank 1 Nord-Norge it is important that external and internal reporting maintains a high level of quality. The Main Board of Directors Group is dependent on a good reputation and trust among its customers, owners, the authorities and other business Stipulates the Group's risk profile and ensures that the Group associates in order to be an attractive partner and a natural first has subordinated capital that is prudent based on choice. In order to achieve this, the Group must have a clear the Group's risk and the authorities requirements and efficient structure for the division of responsibility and management. Chief Executive Risk Management Officer, SpareBank 1 Nord-Norge shall operate at any given time in and Compliance Internal Auditing business units and accordance with the relevant laws, regulations and internal Department support departments guidelines, including the Group’s core values and code of ethics (SNN code). First line Second Third of defence line of defence line of defence The Group’s goal is for good risk management to ensure Day-to-day General risk Independent financial stability and prudent asset management. This is to be risk management reporting verification achieved through: and follow-up • a strong organisational culture characterised by a high Instructions, limits and authorisations Formal reporting awareness of risk management high quality. • a good understanding of what risks drive earnings. • striving towards an optimal application of capital within the adopted business strategy. A strong risk culture that is characterised by a high degree • avoiding that unexpected incidents can seriously damage the of awareness of risk and risk management throughout the group’s financial position. entire Group will be an important foundation for efficient risk • exploitation of synergy and diversification effects. management. Such a foundation entails that all the employees must have a good understanding of their own activities and The Group aims to have a moderate risk profile and at least actions, as well as the associated risks. maintain its present international rating. This will ensure a long-term and good supply of funding from the capital The responsibility for continuous risk management is shared markets. by the Main Board of Directors, boards of the subsidiaries, group management, specialist advisers and line management. Risk management and control is part of SpareBank 1 SR-Bank’s Group’s control and management model corporate governance, which is described in the “Corporate Governance” section. Emphasis is placed on responsibility The Group’s control and management model aims to ensure the through personal authority and independence between the independence of risk reporting, in which responsibilities and business areas and departments/persons that monitor the roles in day-to-day risk management are stressed in particular. business areas.
SpareBank 1 Nord-Norge has invested a great deal of resources The Main Board of Directors of SpareBank 1 Nord-Norge has in the development of effective risk management processes for the overall responsibility for the Group’s risk exposure and the identification, measurement and management of risk under management of risk. This entails responsibility for stipulating its own direction and through the SpareBank 1 cooperation over the overall objectives such as the risk profile, return targets and many years. how the capital is to be divided between the various business areas. The Main Board of Directors also stipulates the overall All managers are responsible for having full insight into the risk limits, authorities and guidelines for risk management in the picture in their own business areas and/or area of expertise at group, as well as significant aspects of the risk management any given time. In order to satisfy the Group’s primary goals, the models and decision-making processes. Group has chosen to divide the risk management process into three parts:
140 The Risk Management and Compliance Department is In order to ensure an efficient and appropriate process for risk organised independently of the business areas and reports and capital management, the framework has been based on to the Group Chief Executive. The department has overall significant elements that reflect the manner in which the Main responsibility for comprehensive risk management, internal Board of Directors and management manages the Group. control and the Group’s compliance with rules and provisions, • Strategic goals including responsibility for the Group’s risk models and the • Organisation and organisational culture further development of effective risk management systems. • Identification of risk • Risk analysis • Risk strategies The Credit Department is the Group’s central department in the • Capital management (including return and capital adequacy) credit area. The department is responsible for the preparation • Reporting and maintenance of targets, strategies, guidelines and routines, • Follow-up operative management and follow-up of the Group’s credit • Contingency plans operations and credit risk management. The credit department • Compliance has an independent role in relation to the business areas and local banks. In the process for risk and capital management the organisational culture is the foundation for the other elements. The organisational Internal auditing is to provide objective advice to the Board culture comprises management philosophy, management style and management concerning the Group’s risk management and and human resources in the organisation, with their individual formulation of controls, as well as compliance with established qualities such as integrity, core values and personal ethics. It can routines, procedures and guidelines. An external supplier of be difficult to compensate for a defective organisational culture auditing services has professional responsibility for the Group’s by other control and management measures. SpareBank 1 Nord- internal auditing function, which ensures independence, Norge has, therefore, established clearly defined core values and competence and capacity. ethical guidelines, which have been clearly communicated and made known throughout the organisation. The Group Credit Committee makes recommendations in any matter that is to be reviewed by the Main Board of Directors in The Main Board of Directors’ tasks are set out in a separate accordance with the Group’s guidelines. The committee plays a annual plan that is revised annually. This is to ensure that the central role in connection with the formulation of the Group’s Main Board of Directors has a focus on and time for the key credit strategies, credit policies and credit regulations. duties assigned to them. The Balance Sheet Committee is headed by the Deputy Chief The Group Chief Executive is responsible for the Group’s risk Executive Officer. The committee deals with matters related to management, including the development of efficient management the management of market and financial risk, and it is responsible systems, internal control and continuous follow-up. The Group for following up compliance with the frameworks stipulated Chief Executive is also responsible for the delegation of authority by the Main Board of Directors. The committee follows up and and reporting to the Main Board of Directors. stipulates the transfer pricing of capital and the capital structure.
The business areas are responsible for the overall risk The Validation Committee is headed by the Deputy Chief management within their own area. This means that the managers Executive Officer. The committee’s main duties are to ensure that: must establish and execute responsible risk management within • IRB system is adapted to the portfolios on which it is used. their areas of responsibility and make sure that this responsibility • the prerequisites on which the IRB system is based are is exercised in an active manner in accordance with the Bank’s reasonable. policy for risk management, authority, instructions and routines. • IRB system measures what it is meant to measure. • IRB system is well-integrated throughout the organisation and represents a key part of the Group’s risk management and decision-making process. • SpareBank 1 Nord-Norge complies with the Capital Requirements Regulations.
Strategic goals
Risk Follow-up identification Capital adequacy Return Organisation and Reporting Risk analysis organisational culture Regulatory Internal Return on equity Risk-adjusted return Core capital adequacy Creditor Capital management Stress tests Capital adequacy protection
Risk management strategies
Strategies Contingency plans
Strategic Operational Growth Capital market Liquidity Capital adequacy Operations ICT equity stakes activities
Risk Management and Compliance Policy Annual Report
Internal control and risk management Strategic risk Key executives, defined as directors, bank managers, specialist Risk of inadequate earnings or generation of capital attributed to managers and department managers shall report upwards in changes in the framework conditions, poor business decisions, the organisation in their respective areas of responsibility poor implementation of decisions or failure to adapt to changes how risk management has been carried out in relation to the in the commercial framework conditions. approved framework and risk exposure. This shall give the Group Chief Executive and Main Board of Directors adequate SpareBank 1 Nord-Norge revises the Group’s strategy on an documentation to determine whether risk management is ongoing basis. This entails a review of changes in the regulatory carried out properly. Such verification or reporting shall framework, including the competitive situation, requirements take place at least once a year or when dictated by major from public authorities, changes in customer behaviour and circumstances. The manager verification is coordinated by the requirements for competence and organisation. risk management department. Reputation risk The purpose of the annual reporting is primarily: Risk of inadequate earnings and funding due to declining • to fulfil the managers’ responsibility for proper and goal- confidence and reputation in the market, i.e. customers, oriented operations and to ensure that this responsibility is contracting parties, equity certificate holders and the fulfilled in a systematic and uniform manner throughout the authorities. Bank/Group. • to lay the foundation for the active involvement of the Bank’s The Group’s limits and guidelines for “Good Corporate boards, Control Committee and general managers. Governance” and the “SNN Code” play an important role in • to help the Bank’s organisation and managers regularly assess the commercial management of the operations. The guidelines the various commercial and control-related risks, as well as focus on attitudes and ethics and how SpareBank 1 Nord-Norge the implementation of control measures. does business with its customers and other associates.
A goal is that reporting shall be used actively in the management The Group’s strategy for social commitment shall facilitate development process to create a better understanding of the strategic use of communication in SNN and strengthen the significance of good risk management and quality. This external and internal relationships. Our social commitment is reporting should be a key tool in connection with training in to be an instrument for strengthening SNN’s reputation among the Bank. all relevant interest groups.
Credit risk Risk areas Risk of loss due to customers not having the ability or willingness to fulfil their obligations. SpareBank 1 Nord-Norge identifies and manages risk in the following general risk areas: Credit risk is the dominant type of risk in the Bank’s operations. The Bank shall have good capacity in the credit area and shall offer good customers credit at competitive terms. Good credit risk management requires a high level of Regulatory capital expertise among everyone who works with granting credit.
Credit risk Market risk Operational risk The bank has a comprehensive framework for managing the credit area. The use of credit score models for granting credit, portfolio management and as a basis for the calculation of Economic capital capital requirements places great demands on the structure, follow-up and reporting. Concentration Business Ownership Market risk risk risk risk Through the formulation of the framework and principles for good credit management SpareBank 1 Nord-Norge has stressed Strategy and growth the importance of the following main principles: Strategic risk Market growth Macroeconomic risk • Completeness; there must be provisions that regulate the business operations. • Reporting; all actions and decisions must be traceable, and Other risks compliance with provisions, routines and authorisations shall be reported. Funding risk Reputation risk Compliance risk • Independence; a distinction is made between the business units that grant credits; the credit department, which is responsible for support and following up that the guidelines As the figure illustrates, comprehensive risk management at and routines are followed; and the risk management SpareBank 1 Nord-Norge is important in order to illustrate department, which is responsible for monitoring the credit what risks the Group is exposed to, and how great the exposure risk. is. Comments on the most important risks are included below. • “Arm’s length distance”; the criteria for granting credit shall be objective. Reference is also made to more detailed information in the • Board of Directors’ and the management’s responsibilities and notes to the accounts and the Group’s Pillar 3 report at snn. duties. no.
142 Credit policy for business markets and private markets Data and analytical tools are an integral part of risk management. (BM and PM) Together with the banks in the SpareBank 1 Alliance, SpareBank 1 Nord-Norge develops the classification system on a continuous The documents describe how the Bank’s credit strategy shall basis. The system provides important support in the credit be implemented through the adoption of detailed criteria for process, and the calculation of expected losses and the risk- the granting of credit to the retail market and business market, adjusted capital (unexpected losses) is used as an integral part of respectively. Preparation and maintenance of the credit policy is the credit decision process. the responsibility of the Group Chief Executive.
Rules and regulations for granting credit Credit risk is managed through: - exercising credit authorities In the retail market all authorisations are personal and allocated Credit strategy that is adopted according to the size and risk of the commitment. With regard annually by the Main Board of Directors to exercising credit authorisations in the business market, this The credit strategy sets out the overall principles for granting takes place through credit committees. The decision-making credit and how the credit risk should be managed and priced at basis shall be in accordance with the Bank’s credit strategy and SpareBank 1 Nord-Norge. This includes the structure of the Bank’s credit policy, and it shall be characterised by completeness, good governing documents, organisation (division of responsibility quality and professionalism. This is documented by means of the and roles) of the credit function, general principles for granting Bank’s ordinary administrative support system. credit and credit strategy goals.
The management of credit risk at SpareBank 1 Nord-Norge is Classification/risk models based on the principles that have been recommended by the Basel The Bank’s risk classification system is based on a rating model Committee in the document, “Principles for the Management of as the basis for calculating the expected probability of defaults or Credit Risk”, the new capital adequacy rules and relevant laws credit losses. The Bank’s risk assessment of individual customers and regulations. is a combination of the customer’s capacity to service loans, the customer’s behaviour, size of the credit and collateral for the Guidelines for portfolio management credit. Describe the framework and guidelines that apply to the management of the credit portfolio at SpareBank 1 Nord-Norge. Probability of default (PD) This applies to the division of responsibilities and roles in Customers are classified in risk classes according to the connection with the measurement and reporting of risk and likelihood of the customers defaulting on their commitments profitability in the portfolio, as well as measures for strengthening during a 12-month period. The probability of default is the portfolio within the framework that is defined in the credit calculated based on historical data series for key financial strategy and credit policy. figures, as well as non-financial criteria such as behaviour and age. In order to classify customers according to the Management of the portfolio’s composition takes place by the probability of default, nine risk classes (A–I) are used for the adoption of principles and limits for granting new credit or healthy portfolio. In addition, the Group has two risk classes changes in existing commitments. (J and K) for customers with commitments in default and/or commitments that have been written down. Credit risk
IRB system "The models, organisation, work and decision-making processes, control mechanisms, IT systems, frameworks, internal guidelines and routines that are related to the classification and quantification of credit risk"
Risk models Application Management, reporting
and control mechanisms Decision-making process IRB system
Development and Categorisation Credit strategy BSC (LIS) Stress testing maintenance models PorTo Credit policy (Portfolio management) PD Forecasts Risk-adjusted Credit handbooks profitability Risk LGD Risk parameters classification Authorisations Validation Risk reporting EAD (verification)
Credit systems
Calibration Security Capitalisation Granting process Internal auditing (Adjustment models) evaluation (ICAAP) Organisation Requirement of independence
IT systems and process support
SpareBank 1 Nord-Norge Annual Report 2012 143 Annual Report
The table below shows the probability of default intervals for Commitments include all types of capital services that are each of the risk classes. provided to the customer through loans, credit, guarantees including letters of credit, accrued unpaid interest and commissions, and forward currency and interest rate SpareBank 1 Nord-Norge’s risk classes of default instruments. Approved, but unutilised credit limits are also Risk classes Risk Lower level Upper level included. of default (PD) A - 0,10 % The credit models are validated at least once annually with B 0,10 % 0,25 % regard to the ability to rank the customers and estimate the PD C Low 0,25 % 0,50 % D 0,50 % 0,75 % level. The validation results confirm that the model’s accuracy E 0,75 % 1,25 % is within the internal measurements and international F 1,25 % 2,50 % requirements. Medium G 2,50 % 5,00 % Expected exposure at default (EAD) H 5,00 % 10,00 % High I 10,00 % 99,99 % The Group estimates exposure at the time of default by taking J Default over the expected drawdown on committed credit limits into 100 % 100 % 90 days consideration. K Loss marked 100 % 100 % Loss given default (LGD) The Group estimates the loss given default for each loan based The Group’s overall exposure broken down into risk classes on the expected realisation value (RE value) of the underlying shows the following volume percentage within the different collateral, recovery percentage for the unsecured part of the risk classes as of 31 December 2012 and 31 December 2011. loans and direct costs for collection. The values are stipulated in accordance with fixed models, and the actual realisation IRB Businesses values are validatedIRB Mass in order market to test incl. the home models’ mortgages reliability. 70,0 % 100,0 % Based on the collateral coverage (RE value/EAD) the 90,0 % 60,0 % commitment is classified into seven classes, where the best collateral80,0 % class has collateral coverage of over 120 per cent, 50,0 % and70, the0 % lowest security class has a collateral coverage of under 20 per cent. 60,0 % 40,0 % The50, 0three % aforementioned parameters (PD, EAD and LGD) 30,0 % form the foundation for the Group’s portfolio classification 40,0 % and statistical calculation of expected losses (EL) and 20,0 % the30 ,0need % for necessary capital/risk-adjusted capital (UL). Portfolio20,0 % classification provides information on the level and 10,0 % development of the overall credit risk in the total portfolio. 10,0 %
0,0 % AIRB0,0 Corporate% Default/ Default/ Low Average High SpareBank 1 LowNord-Norge Average has receivedHigh FSAN’s approval to marked for loss marked for loss apply internal measuring methods (IRB) to credit risk. The 2011 2012 bank has received2011 approval2012 to use IRB Foundation for BM and IRB Retail for PM. IRB Businesses IRB Mass market incl. home mortgages In calculating the capital requirement according to the IRB 70,0 % 100,0 % Foundation method for BM, the risk parameter probability of 90,0 % default (PD) is based on internal models. The risk parameters 60,0 % 80,0 % conversion factor (CF) used to determine exposure at default (EAD), and loss given default (LGD) are set according to 50,0 % 70,0 % standard value rules stipulated in the Capital Requirements 60,0 % Regulations. Loss given default is statutorily set at 45 per 40,0 % cent. The validation results for SpareBank1 Nord-Norge show 50,0 % that the level of losses to non-performing loans in BM is 30,0 % 40,0 % significantly lower than that used statutorily today.
20,0 % 30,0 % The SpareBank 1 alliance began preparing the application 20,0 % 10,0 % for AIRB approval for BM about 18 months ago. Approval 10,0 % will give the bank the opportunity to use internal models in order to calculate the risk parameters conversion factor (CF) 0,0 % 0,0 % Default/ Default/ used to determine exposure at default (EAD) and loss given Low Average High Low Average High marked for loss marked for loss default (LGD). It is a comprehensive process, and the ambition 2011 2012 2011 2012 is to submit the application for FSAN during the summer of 2013.
144 Market risk Risk of loss due to changes in observable market variables The Board of Directors has decided to maintain the Bank’s such as interest rates, foreign exchange rates and securities interest rate risk at a low level. This (measured as the change in markets. value from an interest rate change of 2 percentage points) was NOK 5.0 million as of 31 December 2012. The corresponding Market risk arises in SpareBank 1 Nord-Norge primarily in figure as at 31 December 2011 was NOK 10.5 million. connection with the Bank’s investments in bonds, commercial paper and shares, and as a consequence of activities carried out to support ordinary banking operations, such as funding Operational risk and interest rate and currency trading. Risk of loss as the result of inadequate or defective internal processes or systems, human error, or external circumstances. Market risk is controlled primarily through the daily follow- Operational risk encompasses legal risk, but not strategic or up of risk exposure against the limits stipulated by the Main reputation risks. Board of Directors and an ongoing analysis of outstanding positions. The limits for exposure are reviewed and renewed Operational risk is a risk category that encompasses most on an annual basis as a minimum. SpareBank 1 Nord-Norge’s of the costs associated with quality breaches in the Bank’s market risk exposure is moderate. ongoing operations. Identification, management and control of operational risk is an integral part of the management Bonds and commercial paper show the following distribution responsibility at all levels of SpareBank 1 Nord-Norge. The by rating: manager’s most important tool in this work is professional Bonds and commercial paper insight and management expertise, as well as action plans, control routines and good follow-up systems. The bank’s 10 000 systematic work with risk assessment and management 9 000 measures contributes to increased knowledge and awareness of relevant improvement needs within the individual business 8 000 areas and areas of expertise. 7 000
6 000 The bank has implemented a special registration and follow-up tool to improve the structure and follow-up of risk, incidents 5 000 and improvement areas in the Group. 4 000 The risk management department is responsible for the 3 000 ongoing, independent monitoring of the operational risk. 2 000 The Main Board of Directors receives an annual independent 1 000 assessment of the Group’s risks, and whether internal control 0 is working in an appropriate and satisfactory manner from an internal audit and competent auditor. CCC A/A2 B/B2 CCC+ A-/A3 B-/B3 A+/A1 B+/B1 AA/Aa2 BB/Ba3 CCC/Caa AA-/Aa3 AAA/Aaa AA+/Aa1 BB+/Ba1 SpareBank 1 Nord-Norge participates in an R&D project in BBB/Baa2 BBB-/Baa3 BBB+/Baa1 the area of operational risk. The purpose of this project is to increase the understanding of operational risk and what As is illustrated in the figure, AAA rated paper represents 74.4 incidents can affect the Bank’s financial strength, profitability per cent of the portfolio, and 98.9 per cent of the portfolio has and reputation. The project also has a goal to develop methods a rating of BBB or better (investment grade). and models for calculation of the capital requirements to cover Within the currency risk limits adopted by the Main Board operational risk and improve the management of this area. of Directors, the exposure is limited. The aggregate currency position totals NOK 4.7 million as of 31/12/2012 (NOK 10.2 The Bank has not had significant operational incidents in million in 2011). In addition, the Bank has some large holdings 2012 that have entailed losses beyond what can be classified in foreign currencies. as ordinary operating expenses for the activities in which the financial Group is engaged. The Group’s share portfolio as of 31 December 2012 is somewhat lower than at the end of 2011. The book value of holdings in shares, units and equity Liquidity risk certificates at year-end was NOK 553 million. This represents Risk of the Group being unable to fund increases in assets a decrease of NOK 54 million since the previous year-end. and being unable to meet its obligations as its overall funding The largest portion of the share exposure concerns strategic requirements increase. holdings in the Parent Bank and equity investments in SNN Invest. The management of the group’s financial structure is based on an overall funding strategy that is reviewed and approved by the Main Board of Directors at least annually. The funding risk is reduced by diversification of funding over several
SpareBank 1 Nord-Norge Annual Report 2012 145 Annual Report
The Group`s funding sources are shown markets, funding sources, instruments and maturities. Too by type of borrowing much maturity concentration increases the vulnerability of refinancing. An attempt is made to limit this risk through NOK Bonds Hybrid equity Curr Bonds defined limits. Gov. Swap Subordinated Other arrangement loan capital liabilities In 2012 the Group obtained 89 per cent of its funding 8 % from the Norwegian market, while the share from the international market was 11 per cent.
6 % Customer deposits are the most important source of funding for the Group. The ratio between deposits from 4 % customers and loans for the Group was 81.3 per cent as of 64 % 31 December 2012, compared with 86.4 per cent and 85 per cent, one and two years ago, respectively. 11 % The Parent Bank is responsible for the funding of all activities in the Group. The development of the Parent 7 % Bank’s internally generated funding has shown good growth in customer deposits and exploitation of the authorities’ swap scheme, through the transfer of well-secured home mortgage loans to SpareBank 1 Boligkreditt AS, have Development of internally generated funding Parent Bank improved internally generated funding significantly in 90% recent years. The decrease in equity funding in 2012 resulted in a reduction in deposits from the public sector 80% and high lending growth.
70% Despite the unrest in the international financial markets, the Group’s liquidity situation is satisfactory as of 31/12/2012. During 2012, the Bank transferred around NOK 5 billion in 60% home mortgage loans to SpareBank 1 Boligkreditt AS, which gave a corresponding positive liquidity effect. At the end of the
50% year, the Bank had transferred NOK 21.4 billion to SpareBank 1 Boligkreditt AS. The Bank’s opportunity to transfer well- secured home mortgage loans to SpareBank 1 Boligkreditt 40% AS will also have a positive effect on the Bank’s funding requirements in the future. 30% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 The actual surplus liquidity at the end of the year was NOK 12.1 billion, defined as cash and cash equivalents in Norges Deposits % of lending Deposits % of lending incl. home mortgages Bank, Level I and Level II papers, and home mortgage loans ready for transfer to SpareBank 1 Boligkreditt AS. Of the Deposits % of total balance sheet Group’s total funding volume of NOK 21.3 billion at the end of Deposits % of total balance sheet incl. home mortgages the year, NOK 4.3 billion will be refinanced in 2012.
Bond debt broken down by maturities Failing refinancing 5 000 14 000 4 500 12 000 4 000
3 500 10 000
3 000 8 000 2 500
2 000 6 000
1 500 4 000 1 000 2 000 500
0 2013 2014 2015 2016 2017 2018 2019 2022 0 7 d 1 mth 3 mth 12 mth 15 mth 18 mth 24 mth Net refinancing 146 The Main Board of Directors focuses a great deal on The book value of equity stakes in associated companies has predictability and stability. It is important that random events increased in recent years, and the figure below shows the do not have serious consequences for the Group’s ability to development of the book value for the Parent Bank and the meet its financial obligations. The Group’s goal is that the bank Group. shall survive for 12 months without any new external funding under normal market conditions. The Group has a contingency The risk in the different companies is moderate, but the Bank plan for handling bank-specific and market-related crisis is indirectly exposed to a higher market risk through its equity scenarios. stake in the SpareBank 1 Group .
The objective in the case of “failing refinancing” is survival For the SpareBank 1 Group and Bank 1 Oslo, the Bank maintains for 12 months without access to external funding. The result a capital adequacy reserve. For the ownership interests in of the test shows positive liquidity per 12 months at NOK 7.4 SpareBank 1 Boligkreditt, SpareBank 1 Næringskreditt and BN billion. Bank, the Bank uses proportional consolidation for calculation of the regulatory capital requirement. Deposits from customers, long-term funding and equity totalled 116 per cent of the Group’s illiquid assets at year- end. The Group uses Norges Bank’s definition as its basis for Business risk calculating Liquidity Indicator 1. This is a ratio that illustrates Risk of inadequate earnings and funding related to a lack to what extent the Group’s illiquid assets are covered by long- of diversification in the commercial basis or the lack of term funding. adequate and permanent profitability due, for example, to a high cost/income rate. The Group’s treasury department is responsible for liquidity management, whereas the risk management department The business risk manifests itself by an unexpected weakening monitors compliance with the limits. The status of the limits in earnings. This decline may be attributed to competitive adopted by the Board are reported monthly to the Main Board conditions that result in lower volumes and pressure on the of Directors. prices, competitors that introduce new products, government regulations or negative media coverage. A loss arises if the Group is not able to adapt its costs to such changes. Ownership risk The risk of losses in associated companies is related to the risk Good strategic planning is the most important tool for reducing that the individual company assumes in its operations, business risk. Reputation risk is governed through policies and as well as the risk of a need for the injection of fresh capital business activities, including compliance. into one or more of these companies. Since business risk can arise as a result of different risk factors, The risk related to equity stakes in associated companies is a broad range of tools (quantitative and qualitative) are used to significant. This entails an increased risk for the volatility of identify and report such risks. the Bank’s earnings and an impact on the capital adequacy ratio. Compliance risk Associated companies are important to the Bank’s overall Risk that the Group incurs government sanctions/fines, business model, and the Bank assesses on a continuous basis financial losses or a weakened reputation as a result of what ownership interests are strategically important and the failure to comply with acts/regulations, standards or which interests can be classified as financial investments. The internal guidelines. Group’s share of the profit/loss after tax for these companies was recognised at NOK 210 million for 2012. The corresponding The Group stresses the importance of good processes to ensure figure for 2011 was NOK 195 million. compliance with the current laws and regulations. Efficient tools for these processes include: Development of associated companies (book value) • Well-defined core values that are clearly communicated and 3 500 understood throughout the organisation. • A process that detects, communicates and implements 3 000 changes in legislation and regulations. • A process to follow-up and report compliance with laws and 2 500 regulations.
2 000 Capital management 1 500 SpareBank 1 Nord-Norge’s capital management process shall ensure to the greatest possible extent: 1 000 • Effective provision and application of capital in relation to the Group’s strategic target and adopted business strategy. 500 • A competitive return. • Satisfactory capital adequacy based on the chosen risk 0 2006 2007 2008 2009 2010 2011 profile.
Group (book value) Parent Bank (historical cost) SpareBank 1 Nord-Norge Annual Report 2012 147 Strategisk Annual Report planlegging Identifisere Behov for Vurdere konsernets risikojustert kapital- Rapportering risikobilde kapital Stresstesting dekningen og oppfølging kapitalallokering og kapital- anvendelse
• Competitive terms and a good long-term supply of funding The capital management this process is an integral in the capital markets. process shall: part of the Group’s overall • That the Group manages at least to maintain its current • be risk driven and risk management: international ratings. encompass all • Exploitation of growth opportunities in the Group’s defined significant types of risk Identify the Group's market area. in the Group. risk picture • That no single incidents are able to seriously damage the • be an integral part of Group’s financial position. the business strategy, management process It is a long-term goal of the adopted business strategy that and decision-making Need for the risk-adjusted capital shall be allocated to the greatest structure. risk-adjusted capital possible extent to the areas that give satisfactory risk-adjusted • be forward-looking. return. • be based on recognised and reassuring SpareBank 1 Nord-Norge’s capital has different purposes: methods and Stress testing • Equity, plus any Hybrid Tier 1 Perpetual Capital, shall cover procedures for the the Group’s defined requirements for risk-adjusted capital. measurement of risk. The risk-adjusted capital describes how much capital is • be reviewed at regular
required to cover the actual risk that is generated by the intervals, at least once Assess capital Group’s overall activities. a year, by the main adequacy • The purpose of subordinated loans is to be a safety buffer Board of Directors that is not be exposed directly to risk.
SpareBank 1 Nord-Norge is subject to minimum capital Reporting and adequacy and financial strength regulations through legislation. follow-up The CEBS (Committee of European Banking Supervisors) has issued guidelines for supervisory authorities when they are to assess the institutions’ processes for the management of risk Strategic planning, and capital requirements in the form of an Internal Capital capital allocation and capital application Adequacy Assessment Process (ICAAP).
The Board is responsible for initiating the ICAAP process and capital planning, as well as approval of the structure and methods chosen. In addition the Board is responsible for setting targets for the Group’s capital level that are adapted to the risk profile and commercial framework conditions.
Stress tests
Macro scenario Effect on risk Change in capital Stressed and earnings needs and capital base capital adequacy
GDP Credit risk
Unemployment Market risk Capital needs
Inflation Other risks
Capital adequacy Share market Income
Profit contribution Real estate prices JVs/Associates Capital base
Interest rate Costs
Price of oil Losses on loans
148 Forecasts and stress tests combined buffer requirement. Banks which do not satisfy the Key to the assessment of the Group’s long-term capital combined buffer requirement will encounter restrictions with requirements is a process and models for stress tests. The regard to their dividend policy, bonus payments, issue of bonus purpose of this is to identify conditions that can negatively shares and buyback of shares. These restrictions increase the less affect the risk picture and capital adequacy. The stress tests the difference is between capital and the minimum requirement shall include all significant elements of the risk picture and including the necessary buffers. Banks which do not meet the an assessment of the importance to the Group’s financial combined buffer requirement must additionally submit a plan to strength. the authorities regarding how they will ensure compliance with the requirement. The stress tests should represent conditions that may occur from time to time, which SpareBank 1 Nord-Norge should Specific capital requirements over and above the aforementioned make allowances for in consideration of long-term operations. capital requirements for systemically important banks The assessment and determination of the necessary capital • Global systemically important banks requirements are included in an overall risk assessment, together • National systemically important banks with an assessment of the future growth plans and strategies. The premium for systemically important banks will be in the range of 0 - 5.0 percent Risk measurement and risk-adjusted capital Internally the Group uses risk-adjusted capital as a measure for Composition of new capital adequacy ratio requirements the calculation of risk. 20 %
Risk-adjusted capital indicates how great a loss an enterprise 18 % Subordinated can incur under extreme conditions. The calculation of the risk- 2 % loan capital 16 % Perpetual adjusted capital is a key element in the assessment of the Group’s 1.5 % capital bonds need for equity to do business in a responsible manner. Risk- 14 % adjusted capital enables the comparison of risk across types of risk and business areas. 12 % 0-5 % SIFI
The Group’s revised target is a core tier 1 capital adequacy ratio 10 % Countercyclical of 12.5 per cent or higher, before 2015. In addition, the Group’s 0-2.5 % 8 % capital buffer capital adequacy in a projected crisis scenario must have adequate Capital buffers so that the core capital adequacy does not fall below 9 per 6 % 2.5 % concervation cent. At the end of 2011 the Group’s capital adequacy ratio was Common buffer 9 % equity 13.19 per cent, 12.11 per cent of which was core capital and 10.31 4 % Tier1 Common per cent was core tier 1 capital adequacy. 4.5 % 2 % equity Tier1
Both the external and internal requirements are compared with 0 % the Group’s core capital, and the book equity and core capital Basel 2.5 Basel III will normally be higher than the risk-adjusted capital. This gives a buffer in relation to the stipulated external and internal Cessation of IRB floor minimum requirements, which gives the Group the necessary The Norwegian authorities have decided that the “IRB floor” strategic freedom of action and long-term stability. is to continue until further notice, but is to end with the introduction of Basel III. Transitional arrangements apply until further notice until 31 December 2015. Basel II/III and IRB system On 20 July 2011 the European Commission presented its proposal Innføring av høyere kapitalkrav på derivatposisjoner (CVA-tillegg) for the implementation of Basel III in the EU. These correspond The supplement shall ensure that banks are better capitalised with the Basel Committee’s new minimum requirements for than before so as to withstand changes in market pricing of the capital adequacy of banks (Basel III). The introduction of credit derivatives. CRV IV is proposed as a so-called full harmonisation directive. This means that there will be no right to national selection and Changes and new requirements for capital calculations and deviation unless specifically permitted in the directive. composition: • New requirements for hybrid capital and subordinated In order to prevent banks encountering problems in meeting the loans: Based on the proposal, perpetual hybrid tier 1 and minimum requirements in periods of heavy losses in the banking subordinated loans — as they are usually formulated in sector, banks are to hold two different capital buffers. The Norwegian banks — will no longer be eligible as core or requirement of a capital conservation buffer requires banks to primary capital. Gradual withdrawal from 2013. hold core tier 1 capital of 2.5 per cent of the basis for calculation in addition to the minimum requirements. • New deduction regulations for core capital and primary capital: It is proposed that regulatory deductions — which In order to protect the banking system from the consequences of are currently 50 per cent deducted from core capital and strong credit growth, the banks must also hold a countercyclical 50 per cent from supplementary capital — shall be 100 per capital buffer in periods of very strong credit growth. This will be cent deducted from core capital from 2013 at the earliest. in the range of 0 - 2.5 percentage points, and must also be fulfilled For SpareBank 1 Nord-Norge, this will primarily apply to the with core tier 1 capital. The sum of the capital conservation difference between the “expected loss on IRB net of write- buffer and the countercyclical capital buffer, is referred to as the downs”. SpareBank 1 Nord-Norge Annual Report 2012 149 Annual Report
• Change in capital-related consolidation rules for SpareBank 1 in 2011. Some other countries, including Sweden, have also Group/Bank 1 Oslo Akershus: According to current legislation, adopted earlier implementation. the book value of companies will be reduced by 50 percent in core tier 1 capital and 50 per cent in supplementary capital The Ministry intends to propose new legislation for the respectively. In the proposed new regulations, the book value of introduction of anticipated EEA regulations early in 2013. This companies over 10 per cent of core tier 1 capital in SpareBank corresponds with the new EU rules in the so-called CRR/CRD 1 Nord-Norge will be reduced from core tier 1 capital. IV regulations on capital and liquidity for banks, other financial institutions and securities firms. If the Storting passes new laws • Leverage ratio requirements: The proposed introduction of in spring 2013, and CRR/CRD IV is adopted by the EU, then the requirement is to rectify the weaknesses of current capital it will be appropriate to establish new regulations including adequacy calculations, which do not underpin the risk in off- stricter requirements for the extent and quality of core capital, balance sheet exposure. requirements for buffers and unweighted equity ratio reporting requirements in the second half of 2013.
EBA requirements for 9 per cent core capital adequacy As a result of the debt crisis in Europe and the subsequent Regulatory uncertainty increase in systemic risk, the European Banking Authority (EBA) - conditions that will/may affect the bank introduced a requirement that core tier 1 capital adequacy shall, There are still conditions which could affect banks in Norway as a minimum, account for 9 per cent of risk-weighted assets and SpareBank 1 Nord-Norge’s decisions and measures relating from 30 June 2012 (including the IRB floor). The buffer shall to the new and/or modified regulatory requirements. The not be used to cover state risks, but to resist stress/shock and authorities in Norway and the Nordic countries are working on thereafter continue to maintain acceptable capital adequacy. domestic and joint adaptations to the new legislation which will be of relevance to the bank. Non-compliance with the requirement could result in dividend and bonus payment limitations. FSAN has assumed that all Some areas being worked on: Norwegian banks should have at least 9 per cent core tier 1 • New capital requirements and a new capital level — due in capital as of the second half of 2012. 2013.
• Increased capital requirements related to risk in the housing Further progress in Norway market. Proposal for increased risk weightings — estimated CRR/CRD IV deemed EEA-relevant. New EEA rules corresponding spring 2013. to CRR/CRD IV are expected to demand that Norway introduces capital requirements for banks in line with the new Basel • Framework for crisis management. All banks are to have plans standards and the EU’s new CRD IV legislation. The leeway of for how serious crises are managed considering situations the Norwegian authorities will depend on the final design of the entailing capital and/or liquidity challenges. EU’s legislation and the decision of the EEA Joint Committee. • Deposit guarantee. Norway is working to extend the deposit EBA has recommended that the 9 per cent requirement should guarantee scheme to NOK 2 million. apply until further notice and until the new CRR/CRD IV legislation is in place. It has not been fully clarified how the • Liquidity regulations (LCR and NSFR). New liquidity standards relationship will be between EBA’s recommendation for at least and requirements that will be implemented in the period 2015 9 per cent of core tier 1 capital for major banks, and the new to 2018. Calculation methods and assumptions are being tested requirements of the proposed CRR/CRV IV legislation. at the largest Norwegian banks. There is an expectation in the market that banks start reporting and making plans regarding The aforementioned changes — excluding the CVA supplement the new requirements as of 2013. which will probably be introduced in 2013 — are scheduled to be introduced between 2014 and 2019 with some transitional • Nordic working group for closer cooperation on new legislation, but there is uncertainty regarding the final stage of requirements for Nordic banks. implementation. Nordic supervisory directors will look at the possibilities for: In addition to the above changes, the authorities are working at • a common understanding of the upcoming new EU and EEA a Nordic level to implement minimum capital weightings for rules regarding liquidity requirements. home mortgage loans for IRB banks. This is discussed in more • establishing a system of mutual recognition of capital detail in the next section. requirements in the Nordic countries, known as reciprocity and host country regulation. Norwegian authorities will continue to emphasise the use • cooperation on common criteria and uniform application, of national leeway in order to have a set of regulations that when regulatory authorities approve the models banks use contribute to financially sound banks. Based on financial to calculate the capital requirement, both standard and IRB stability considerations, there are good reasons to strengthen methods. capital requirements for banks, and introduce the new capital • EU proposal for the establishment of a banking union. The and liquidity requirements from the EU and the Basel Committee proposal from the Commission is part of overall efforts more quickly than in Basel III and the EU Commission’s for the establishment of a common banking union in the proposed regulations. Early implementation was also signalled EU. The Commission has announced that the next step in in the Financial market white paper (Finansmarknadsmeldinga) efforts towards a banking union is the creation of a common
150 crisis resolution mechanism and a common guarantee fund. view that it makes sense for banks to build up a capital buffer in Work on establishing a common supervisory authority and good times so as to better withstand losses as a result of adverse efforts towards a banking union are extensive and raise many economic conditions. important questions, including those regarding the relationship between national and supranational authorities. The Ministry In order to provide banks with a degree of predictability in capital of Finance is monitoring progress closely and will consider the planning, a notice period of 12 months has been proposed before implications for Norway. the regulatory authorities can implement the capital buffer. Such an announcement may be negatively perceived by the market In addition to specific measures from the banks, the authorities and have a negative influence on the banks’ ratings. This may in are also better equipped to deal with future financial crises. It is to turn adversely influence the price and availability of capital, in a be expected that the authorities will intervene early on in growing situation where it can be expected that many banks will attempt uncertainty and greater macroeconomic movements that may to build up their capital during the same period of time. A joint threaten financial stability and national growth. European announcement regarding the introduction of capital buffers will further impede banks’ access to capital.
Evaluation of the proposed new legislation In addition to the aforementioned weaknesses, neither the In general terms, SpareBank 1 Nord-Norge supports the proposal conservation buffer nor the countercyclical capital buffer take to increase the capital requirement for banks so as to develop a the different business models or risk management systems of more robust financial system. individual banks into account, and nor do they provide the motivation to improve risk management. One of the main One of the main weaknesses of the capital adequacy legislation objectives of the implementation of the Basel II legislation was to thus far has been that several significant risks are not underpinned provide an incentive to improve risk management. by the regulatory capital requirement. This concerns concentration risk, funding risk, business risk, reputation risk, strategic risk The implementation of new legislation for recognised losses was and certain off-balance sheet items. Furthermore, the regulatory discussed in addition to the countercyclical buffer. The proposed capital tied up in equity investments is considerably undervalued. principle works on the basis of recognised losses being based on The financial crisis has shown that the regulatory capital is expected losses. In periods of especially low losses, the difference not sufficiently able to underpin the inherent risk in several between actual losses and expected losses shall be allocated as international investment banks. an additional reserve, while in periods where losses are higher than expected, they will be deducted from turnover. The approach Leverage ratio will result in less volatility in banks’ profit/loss over an economic The introduction of the leverage ratio requirement is an attempt to cycle, and the approach will also have a mitigating effect on rectify some of this weakness, but the existence of such a proposal credit growth during economic upturns. SpareBank 1 Nord-Norge will now limit institutions which specialise in lending to the low supports this approach. risk segment to an excessive extent. The leverage ratio requirement should be differentiated according to the banks’ different business In the meantime, one should be aware that the countercyclical models. business cycle buffer and the proposed methodology changes with regard to recognised losses, are pulling in the same direction. Operational risk Both methods result in retrenchments during economic upturns, SpareBank 1 Nord-Norge is of the opinion that operational risk is and concessions during economic downturns, but it is important not sufficiently covered by the Basel III proposal. This is mainly that the combined effect of both approaches is not too strong. because an internationally recognised method for the identification and quantification of operational risk has not been established. As New rules for the recognition and write-downs of loans a consequence, the regulatory capital requirement for operational The current rules for the valuation of loans entails that write- risk only reflects the organisation-specific risk of individual banks downs shall be carried out when there are objective indications to a limited extent. Additionally, measurement methods are very of an impairment in value. This model for loan write-downs has data-driven, and consequently the focus is retrospective instead been criticised since write-downs are performed too late, and of forward-looking. that the system also leads to the recognition of excessive interest income. SpareBank 1 Nord-Norge has been the initiator of an R&D project in the area of operational risk in cooperation with the SpareBank The International Accounting Standards Board has, therefore, 1 Alliance, DNB, The Research Council of Norway and the proposed a new solution that is based on the charging of expected University of Stavanger, in order to develop unique methods and losses as an expense. The interest income will be reduced by an models which are more appropriate for the measurement and element that is to cover such losses. Expected losses will be an governance of operational risk. The ambition is to obtain approval estimate related to the portfolio at the time of the assessment, from regulatory authorities for an alternative approach which, where the current economic situation will be taken into account. over time, will become an internationally recognised methodology The losses are distributed over the expected term to maturity of the for the identification and measurement of operational risk. The commitments. The effect of the changes in expected losses, due methodology is ready for testing in banks as of 2013. for example to unanticipated aspects in financial development, will be shown on a separate line in the income statement as an Predictability and consistency estimate change. The proposal has been supported by the Basel With regard to the proposal for the implementation of the Committee, although there is continued uncertainty regarding countercyclical buffer, SpareBank 1 Nord-Norge shares the final implementation.
SpareBank 1 Nord-Norge Annual Report 2012 151 Annual Report
152 Ownership The Bank’s equity - composition of Ownership policy the equity certificate holders With its ownership and dividend policy the Bank would SpareBank 1 Nord-Norge has two owner groups. As at 31 like to contribute to the equity certificate being viewed as an January 2012 the Bank’s equity certificate holders own 41.6% attractive and liquid financial instrument. The Bank aims to of the Bank’s equity capital through the equity certificate manage the Group’s resources so that a good long-term and capital, while 58.4% is community-owned. The ownership competitive return on the Bank’s equity is achieved, compared fraction as at 1 January 2012 was 42.1%. with comparable investments and taking the Bank’s risk profile into account. For the Bank’s equity certificate holders, The Bank’s ownership policy states that the two groups of the return will be in the form of a cash dividend and price owners shall be treated equally. appreciation. The equity of SpareBank 1 Nord-Norge consists of two main parts: the equity certificate capital belonging to the SpareBank 1 Nord-Norge’s equity certificate capital totals NOK Bank’s equity certificate holders and the Bank’s community- 1,655,224,675 divided into 66,208,987 equity certificates with owned equity. The Bank aims to make provisions so that the a nominal value of NOK 25 each. The Bank’s equity certificates Bank can continue to be a savings bank with a significant are listed on Oslo Børs. As at 31 December 2012 the number share of community ownership over time. Furthermore, the of equity certificate holders was 8,015, compared with 8,139 at Bank aims to treat the Bank’s two ownership groups equally in the previous year end. accordance with the intentions of the current legislation. This means that the Bank will seek to avoid undesired saturation Note 23 includes a summary of the equity certificates owned and dilution effects as a result of treating the two ownership by the Bank’s managers and elected officers. At the end of the groups differently. year, the number of North Norwegian equity certificate holders was 2,412, compared with 2,434 at the previous year end. Dividend policy Corresponding figures for 2010, 2009 and 2008 were 2,423, In consideration of the Bank’s solidity, the Bank anticipates 2,199 and 2,554 respectively. that up to 50% of the profit for the year can be distributed as a dividend (cash dividends and donations to charitable The share of North Norwegian equity certificate holders as causes). at 31 December 2012 was 25.5% (24.8%) of the Bank’s total equity certificate capital. The Bank would still like to increase The Savings Bank Foundation SpareBank 1 Nord-Norge is the number and percentage owned by North Norwegian a charitable foundation. It is one of the Bank’s largest equity equity certificate holders. For many years, the Bank has certificate holders and the main purpose of the foundation sought to encourage its staff’s ownership in the Bank. This is to be a long-term and stable owner of SpareBank 1 Nord- has been accomplished through the sale of equity certificates Norge. Please refer to the separate section on the foundation to employees at a discount, and by private offerings to in the Board of Directors’ Report for further information. employees. The highest and lowest price for the Bank’s equity certificate was NOK 34.70 and NOK 23.80, respectively, in 2012. The number of equity certificates traded on Oslo Børs in 2012 was 9,352,037. The corresponding figure for 2011 was NOK 12,066,852.
Trading, liquidity and price performing
160 1200,0
140 1000,0 120 800,0 100
80 600,0
60 400,0 Volume (`000) 40 200,0 20
0 0,0 31.12.2009 31.12.2010 31.12.2011 31.12.2012
SpareBank 1 Nord-Norge Norwegian Savings Banks Nordic Banks European Banks
Volume (`000) Annual Report
The Savings Bank Foundation SpareBank 1 Nord-Norge is a The highest and lowest price for the Bank’s equity certificate charitable foundation. It is one of the Bank’s largest equity was NOK 34.70 and NOK 23.80, respectively, in 2012. The certificate holders and the main purpose of the foundation is number of equity certificates traded on Oslo Børs in 2012 to be a long-term and stable owner of SpareBank 1 Nord-Norge. was 9,352,037. The corresponding figure for 2011 was NOK Please refer to the separate section on the foundation in the 12,066,852. Board of Directors’ Report for further information.
Key figures 2012 2011 2010 2009 Number of equity certificates 66 208 987 66 208 987 47 765 528 47 765 528 Equity certificate capital (NOK) 1 655 224 675 1 655 224 675 895 603 650 895 603 650 Price as of 31.12. (NOK) 27.75 32.30 45.00 41.25 Dividend for the financial year (NOK) 1.15 1.40 2.16 2.53 Dividends paid for the previous year (NOK) 1.40 2.16 2.53 1.13 Direct dividend 1) 4.14 % 4.33 % 4.79 % 6.14 % Pre-tax % yield (arithmetic) 2) -35.78 % -15.56 % 15.23 % 156.82 % Market value as of 31.12. (Mill NOK) 1 837 2 139 2 149 1970 Equity capital per equity capital certificate 3) (NOK) 35.58 33.73 31.03 31.19 Ownership fraction 4) 41.59 % 42.07 % 34.54 % 34.54 % Distribution ratio equity certificate 5) 35.1 % 54.9 % 50.0 % 48.8 % Distribution ratio community owned capital 6) 10.1 % 45.3 % 49.9 % 48.7 % Profit per equity certificate, Parent Bank 7) (NOK) 3.27 2.55 4.32 5.19 Profit per equity certificate, Group 8) (NOK) 3.78 3.07 5.90 6.20 Equalisation fund per equity certificate 9) (NOK) 6.89 5.03 9.69 9.86 Turnover rate for equity certificates 10) 42 % 52 % 18 % 16 %
Definitions:
1) Direct return: dividend for financial year/price as of 31.12. The Group’s pure core capital adequacy at year end was 2) Pre-tax % yield (arithmetic): (paid dividend + price 10.31%. Reference is otherwise made to the relevant note change 01.01. - 31.12.)/price as of 01.01. in the quarterly accounts. The group’s capital adequacy is 3) Book equity capital per equity certificate: (equity certificate deemed to be satisfactory. capital + share premium reserve + equalisation fund)/ number of equity certificates. Financial calendar 4) Ownership fraction: (equity certificate + equalisation First quarter 26 April 2013 fund)/(total equity capital – valuation difference fund) 5) Distribution ratio equity certificate: (Total dividends + Second quarter 14 August 2013 allocation to the equalisation fund)/profit for the year after Third quarter 31 October 2013 group contributions. Preliminary Annual Report 2013 Early February 2014 6) Distribution ratio community owned capital: (Total dividends/donations + allocation to theSavings Bank’s Fund)/profit for the year after group contributions. 7) Profit per equity certificate, Parent Bank: Profit for the year for the Parent Bank /number of equity certificates. 8) Profit per equity certificate, Group: Profit for the year for the Group/number of equity certificates. 9) Equalisation fund per equity certificate: Equalisation fund as of 31.12./number of equity certificates 10) Number of equity certificates traded/number of issued equity certificates
154 The 20 largest equity certificate holders as at 31 December 2012
Name Number of ECs Share Pareto Aksje Norge 3 356 910 5,07 % MP Pensjon PK 1 766 431 2,67 % Pareto Aktiv 1 433 383 2,16 % Frank Mohn AS 1 355 745 2,05 % Protector Eiendom AS 1 327 479 2,00 % Tonsenhagen Forretningssentrum AS 1 314 149 1,98 % Sparebankstiftelsen SpareBank 1 Nord Norge 1 134 493 1,71 % Morgan Stanley & Co. Llc, USA 916 561 1,38 % Framo Developments AS 906 588 1,37 % Nordea Bank Norge AS 848 925 1,28 % Pareto Verdi 804 184 1,21 % SpareBank 1 SR-Bank pensjonskasse 782 386 1,18 % Citibank N.A. New York Branch 763 674 1,15 % Forsvarets Personellservice 620 854 0,94 % Sparebankstiftelsen DNBNOR 545 614 0,82 % Goldman Sachs & Co. - Equity, USA 509 354 0,77 % Trond Mohn 479 950 0,72 % Karl Ditlefsen 459 243 0,69 % Terra Utbytte vpf. 450 000 0,68 % Morgan Stanley & Co. LLC, Klientkonto 1 USA 446 664 0,67 %
20 largest EC-holders 20 222 587 30,50 % Other EC-holders 45 986 400 69,50 %
ECs issued 66 208 987 100,00 %
Equity certificate ownership 2012 2011 2010 2009 2008 2007 2006 North Norwegian owners 25,5 % 24,8 % 27,9 % 26,5 % 32,1 % 22,6 % 21,6 % Other Norwegian owners 64,1 % 67,3 % 66,6 % 66,2 % 59,9 % 63,3 % 60,2 % Foreign owners 10,3% 7, 9 % 5,5 % 7,3 % 8,0 % 14,1 % 18,2 %
Rating, status Moody´s Fitch Ratings Long-term Short-term Outlook Long-term Short-term Outlook SpareBank 1 Nord-Norge A1 P-1 “Under review” A F1 Stable
SpareBank 1 Nord-Norge Annual Report 2012 155 Annual Report
Business description Retail banking market Professional advice and competent employees Savings and insurance SpareBank1 Nord-Norge works continuously to satisfy its The Bank focuses on increasing the share of income from customers’ needs and expectations for professional advice and off-balance sheet products. This corresponds with a growing to provide complete financial solutions. Through the Bank’s interest from customers, who are seeking access to the full broad distribution network, customers meet committed and breadth of financial services in one place. We are seeing, in competent advisors who help each individual customer to particular, that customers are needing advice in connection find good solutions for their financial requirements. In order with saving for their own pensions. The financial instability to safeguard a high level of competence, there is an internal in the global economy continues to affect customers’ choices requirement that all the Bank’s general advisory officers of savings solutions, which is leading to safe savings products must have completed and fulfilled the national authorisation in the Bank being chosen rather than more volatile fund scheme requirements products. The Bank has been very successful at selling both non-life insurance and life insurance. However, the non-life insurance market is characterised by strong competition and Use of the Bank little customer loyalty. - across several distribution channels SpareBank1 Nord-Norge is the region’s own bank! The Bank Lending and deposit growth is accessible to its customers through 74 physical branches, online banking, telephone banking, mobile banking and the Compared with growth in the country as a whole, the Bank customer centre. During the course of 2012 there have not been has increased its market shares in Norway and also in North any significant changes to the physical distribution network, Norway - even though general growth in the north is higher but customers’ use of the distribution network is continuously than for the country as a whole. changing. Customers’ interest in easily accessible solutions for day-to-day banking services has meant that the use of mobile Private households’ demand for loans has been increasing banking (smartphones) has grown rapidly and will soon be the during the year and the annual growth of the Group’s lending most important channel for these types of banking services. The to the retail market, including the loans transferred to number of people visiting the physical branches is markedly SpareBank 1 Boligkreditt, was almost 12 per cent. There is still reduced with regard to simple banking services. However the strong competition for the best customers in the retail market, number of customer meetings for more complicated financial but during 2012 it has been possible to keep customer interest services is rapidly rising. The customers are seeking advice rates roughly unchanged, while the Bank’s funding costs have and affirmation from the Bank when important choices are to fallen. This has improved earnings in this market in 2012. be made that have financial implications. The combination of a physical presence with knowledgeable members of staff and Bank deposits from retail customers have been developing good online and mobile solutions provides a good service to favourably for several years. In 2012 the growth was as high as the customers. 8.8%. There is a high degree of customer loyalty to the Bank when it comes to deposits. Even though competition in this market Just over half of the population in North Norway has a banking is strong, customers choose to stick to “their” bank as long as relationship with SpareBanken Nord-Norge. This proportion the conditions are in line with the market. Requirements from is roughly unchanged, but varies greatly between the different the authorities for banks’ liquidity reserves have contributed to areas in the region. The market shares within the different higher interest rates on deposits and this product has therefore product groups vary from about 20% to 40% and have been become less profitable than it previously was. increasing in recent years. This particularly applies to deposit and lending products. Percentage growth 2011 2012 Retail market lending 8.4% 11.0% Retail market deposits 6.4% 8.8%
156 Corporate market The level of interest rates has been relatively stable and low Of the 46,000 companies in North Norway, over 31,000 are throughout 2012. Very good private finances and very low Bank customers. The bulk of these customers are small and unemployment have contributed to a steady low level of medium sized businesses The Bank also has a large number defaults and very low losses for the year. The Bank’s customers of clubs and associations as customers. The number of both shall be well equipped to face both higher interest rates and a corporate customers and clubs/associations is relatively potential fall in housing prices. The loan to value ratio for each stable. As in the retail market, the market share for the various property has been reduced in 2012 and the customer must product groups is however lower than it is for the number of have sufficient liquidity to tolerate an increase in interest rates customers. of 5 percentage points Continued increasing use of cards
A very high proportion of retail market customers in SNN own Good risk development cards. And the use of cards as a means of payment is increasing each year. The number of transactions in shop terminals in As a result of the good business conditions in North Norway, Norway and abroad has been steadily rising in recent years. the calculated risk of the Bank’s portfolio has fallen in 2012 as The use of cards to withdraw cash from ATMs has been well. The reduced risks are also due to the influx of new low- trending downwards from 2009 to 2011, but increased sharply risk customers and the Bank’s systematic work with high-risk last year. The change can probably be viewed in the context of customers the closure of manual cash functions in the local banks. This has resulted in a migration of channel use, and an increase in Lending by risk class the prevalence of use. Customers who previously had a card, 70.000 but made use of manual services have changed their behaviour, and more customers who did not previously have a bank card 60.000 have now obtained one. We are anticipating a reduction in the number of transactions at ATMs in the future. The increase 50.000 from 2011 to 2012 is due to the special conditions relating to the restructuring of cash functions in recent years. 40.000
Number of transactions 2010 2011 2012 % change in millions 30.000 Cards in payment 40.7 44.4 48.1 8.3 terminals in Norway 20.000 Cards abroad 5.3 5.9 6.6 11.8 (Visa transactions) 10.000 Withdrawals from 3.4 3.3 3.7 12.1 the Bank’s ATMs 0 Low Medium High Default and write-downs 31.12.06 31.12.07 31.12.10 31.12.08 31.12.09 31.12.10 31.12.06
Deposit growth
Deposits from companies totalled over NOK 12 billion, i.e. an increase of NOK 600 million in 2012. The growth of just 3.4% reflects that the companies are using their capital in their businesses rather than depositing it in traditional bank savings
Over a number of years, the Bank has actively sought to identify the need for alternative savings and investment opportunities for companies. The Bank is gradually seeing the results of these efforts.
Good lending trends Percentage growth 2011 2012 Lending to the corporate market 10.5% 12.9% Corporate market deposits -0.9% 3.4%
SpareBank 1 Nord-Norge Annual Report 2012 157 Annual Report
The Group’s lending to the corporate market grew by 12.9% The principal activities of North-West 1 Alliance Bank are in 2012. The corresponding figure for 2011 was 10.5%. Since the provision of financial products and services to Nordic 2008 lending growth to companies in North Norway has companies and persons operating businesses in Russia, but been significantly higher than the corresponding growth on also include retail market customers and smaller companies in a national level. This is a confirmation of the growth of new Russia. Importance is attached to operating the business with a businesses in the region at the same time as the traditional low to moderate level of risk. businesses are performing well. In both 2011 and 2012 the Bank has strengthened its position as an important bank for The Bank attaches a great deal of importance to avoiding trade and industry in the north as well. damage to its reputation as a result of being involved in corruption or businesses with poor ethical standards.
Occupational pensions for the corporate market in 2012 Public sector In line with the Bank’s aims, it saw good growth in the sale The market is characterised by strong competition, and there of pension-related products. The Bank recorded NOK 37 is substantial interest in deposits from the public sector. In million of new sales, the best performance since 2006. This 2012 SpareBank 1 Nord-Norge has managed to maintain its corresponds to a net growth of 90 new pension contracts. The strong position within the public sector and among the county Bank now has 2,413 companies with an occupational pension councils and county municipalities in North Norway. The Bank contract. The growth in annual premium volume has been has participated in 27 competitive tenders for county council NOK 27 million, an increase of 22%. Few customers have left customers. 18 county councils chose to renew their main the portfolio. banking agreement with SpareBank1 Nord-Norge. In addition, two new customers established main banking agreements with Currently, 14,078 employees in companies in North Norway the Bank. Three of our county council customers selected have an occupational pension through SNN. This represents another main bank after the competitive tender. In addition, an increase of 318 over 2011. In terms of the number of four competitive tenders were submitted for county councils companies involved, the Bank’s market share in North Norway with another bank, but the Bank did not win the tenders. is 24% Many smaller companies are choosing the Bank as their occupational pension provider. The Bank’s commitments in the county council sector in North Norway The Bank has had 22% growth in the portfolio’s premium reserves, which is equivalent to an increase of NOK 91 million. Region Number of SNN as their Market The total defined contribution pension portfolio is valued at municipalities/ main bank share NOK 500 million and the defined benefit pension at NOK 178 county adminis- trations million. The number of companies with a defined benefit pension scheme has fallen due to the conversion to defined Finnmark 20 15 75 % contribution pension schemes. Troms 20 20 100 % Hålogaland 20 12 60 % Salten 14 9 64 % Credit loss development Helgeland 17 6 35 % The Group’s net losses on loans totalled NOK 195 million Total 91 62 68 % in 2012, equivalent to 0.26% of the lending portfolio. This is an increase of about NOK 94 million compared with the Government enterprises: previous year. The loss development in 2012 must be viewed SpareBank 1 Nord-Norge is the main bank for 18 government in connection with the fact that the losses relate to a small enterprises. number of commitments with a large loss potential within the corporate market. Future outlook The Group has reduced Group write-downs by NOK 2 million the last year. The reason for this is the positive risk At the start of 2012 Norway was still somewhat marked by the development of the lending portfolio, and a satisfactory repercussions of the unrest in the financial markets and the macroeconomic outlook associated low level of investment activity. Industries that are exposed to competition were particularly affected. In North Norway the consequences have been much more limited. Banking operations in Russia In Norway and North Norway the level of activity in SpareBank 1 Nord-Norge’s banking operations in Russia, trade and industry is currently strong and increasing. through the North-West 1 Alliance Bank, are owned by Employment is very high, and this is putting pressure on SpareBank1 Nord-Norge (75%) and the Bank’s Russian partner wages. For the northernmost region the struggle to attract Bank Tavrichesky (25%) in St. Petersburg. competent manpower continues, and labour migration has been a necessary and good supplement to the local labour market. Upper secondary education, college and university environments are increasingly showing a willingness to invest
158 in and develop study programmes that are tailored to the SpareBank 1 Nord-Norge region’s opportunities. This is important for raising the level of expertise and attracting young people and the necessary manpower. Good growth in wages and low unemployment Markets give the private sector purchasing power that will ensure high SNN Markets is SpareBank 1 Nord-Norge’s investment firm, demand for goods and services. and provides a range of services including: • Purchase and sale of shares and funds After several years of subdued residential housing market • Interest rate and currency trading activity in Tromsø and Bodø, there has been a favourable level of • Sale of Norwegian bonds and commercial paper, building activity in 2012. Residential property sales have been and bond market issues buoyant and the time taken to sell property has normalised. In • Trading in commodity derivatives the largest towns and other more densely populated areas with • Separate corporate department that undertakes equity many new company start-ups and population growth, certain issues, performs valuations and provides other financial types of housing is now in short supply. This may result in services. unwanted pressure on prices. It can also be seen as challenging • Investment advice that young people are struggling to enter the housing market in • Discretionary asset management through the largest towns, due to high capital requirements. SNN Forvaltning ASA
There is a very high level of optimism in the region and The investment firm comprises the following departments positive expectations for 2013. This particularly applies to industry sectors that are based on commodities and nature. Major exploration activities and finds in the Barents Sea and Markets the Norwegian Sea are important forces that are driving further development in North Norwegian businesses. In addition, direct and derived activities from the oil and gas industry in the north will result in more new companies and new jobs. Substantial investments have been made in the energy and Shares Corporate power sector in 2012, especially in small power plants. The power grid will be expanded in the coming years.
The building and construction sector has performed well in Foreign exchange Investment advisors 2012. The same applies to transport, commodity trade, tourism and interest and service industries. We expect this trend to continue in 2013 as well. Research and university environments have strengthened their position to safeguard North Norway’s appeal and skills development. Transport and good communications SNN Asset Management ASA solutions are other crucial prerequisites. There is also an expectation for the public sector to facilitate and contribute to investments in necessary infrastructure, to enable the potential for greater value creation to be realised in North Norway. 2012 has been a year with good activity levels and earnings in the interest rate and currency area, while equities and corporate have had many challenges and weak earnings.
Markets Equities
The equities section trades all the major listed Norwegian shares andAksjer equity certificates Valutaon behalf og renter of customers in NorthCorporate Investeringsrådgivere SNN Forvaltning ASA Norway. After excellent results reported from 2005 to 2007, the market has proved more difficult in recent years and earnings in this area have therefore been lower. As in 2011, the equities section has only just managed to cover its costs in 2012.
The brokers work in close cooperation with SpareBank 1 Markets, which is the SpareBank 1 Alliance’s brokerage house in Oslo. This cooperation comprises a shared settlement function for all equities traded within the SpareBank 1 Alliance, and all trading is channelled via SpareBank 1 Markets’ broker identity on the stock exchange. The benefits from this cooperation are that cost synergies can be realised and vulnerability on the system and settlement side is reduced. The brokers also have access to SpareBank 1 Markets’ research environment, and this is actively utilised during contact with customers.
SpareBank 1 Nord-Norge Annual Report 2012 159 Annual Report
Investment advice SNN Forvaltning ASA
The investment advisors in SNN Markets operate in a market SpareBank 1 Nord-Norge Forvaltning ASA shall offer for larger investments, primarily with customers holding discretionary asset management services, primarily to over NOK 500,000 of investable assets, and with all sales of customers in North Norway, with distribution via SNN Markets. investments categorised as complex savings products. Through closeness to the customers and prudent management, the company aims to be the customers’ first choice in the The investment advisors are situated in regional offices, but are provision of these services. The interaction between the a part of SNN Market’s organisation. Accordingly, Markets will investment advisors in SNN Markets and the managers in SNN be represented in all of the Bank’s regions with the exception Forvaltning shall help the companies achieve their target to of Helgeland, where a professional group is to be established increase the amount of capital under management. in Bodø to cover both Helgeland and Salten. The target groups for the company’s products are private In 2012, the investment advisors have managed to increase and institutional investors. The private target group consists the total investment volume by about NOK 360 million. The primarily of wealthy private individuals and small investment increase is partly a result of the existing portfolio rising in companies, and the institutional target group consists primarily value, and partly comes from new customer investments. of companies, large investment companies and public sector customers (municipalities, foundations and pension funds). Both groups are seeking advice and traditional exposure to Corporate bonds and equities, also including equity certificates.
Corporate Finance in SNN Markets is mainly involved in the Despite the challenging market conditions during the year, following: SNN Forvaltning achieved an increase in the volume of assets • Equity and loan capital issues under management of NOK 155 million to a total of NOK 1,876 • Acquisition and sale of companies million, and reported a pre-tax profit of just under NOK 1.3 • Purchase and sale of shareholdings million in 2012. The company aims to have NOK 2 billion of • Valuations assets under discretionary management by year-end 2013.
The corporate department, comprising three persons, works in close cooperation with SpareBank 1 Markets and the other corporate groups within the SpareBank 1 Alliance. With such a cooperation, the Alliance aims to be a national provider of corporate assignments.
2012 has been a very demanding year for the corporate department. Work has been conducted on a number of projects which were not able to be realised in the market. This has led to a negative result in 2012.
Currency and interest rates
SNN Markets’ section for currency and interest rates reported revenues of over NOK 57 million in 2012, about NOK 2 million lower than in 2011, which was a particularly good year. Compared with 2011, there is a marked decline in revenues from currency trading and a marked increase from interest rate hedging and bond trading. Revenues are principally from trading in currencies and interest rate hedging on behalf of customers. The department does not trade securities to any great extent for its own account.
There are six brokers in the department. The department’s activities can be divided into the following main categories:
• Currency hedging and spot trading • Currency trading • Currency financing • Interest rate hedging instruments • Interest-bearing securities such as bonds and commercial paper.
160 SpareBank 1 Nord-Norge Annual Report 2012 161 Annual Report
SpareBank 1 Alliance and SpareBank 1 Group
The SpareBank 1 Alliance was founded in 1996. The Alliance There are two common main functions is a cooperation of banking and products, in which the SpareBank 1 banks in Norway cooperate through the jointly- of the SpareBank 1 Alliance: owned holding company SpareBank 1 Gruppen AS. A primary 1. Running and developing the financial services group by goal of the SpareBank 1 Alliance is to ensure the individual producing and delivering competitive products and services banks’ independence and regional presence through strong for distribution through the Alliance banks, other banks that competitiveness, profitability and financial strength. At the have distribution agreements with companies in SpareBank same time the SpareBank 1 Alliance represents a competitive 1 Gruppen, and LO. This work is organised in the company and complete banking alternative on a national level. SpareBank 1 Gruppen AS.
In aggregate, the SpareBank 1 Alliance is one of the largest 2. Running and developing the Alliance cooperation with providers of financial products and services in the Norwegian shared management, development and implementation of market. The Alliance has established a national marketing activities that provide economies of scale and competence profile and developed a joint strategy for branding and benefits. This work is organised in the company Alliance communication. The market strategic platform also forms cooperation SpareBank 1 DA, which constitutes the the basis for joint product and concept development. Market administrative superstructure for the Alliance cooperation. efforts are principally directed towards the retail market, small The company attends to the financing and ownership of the and medium sized businesses and trade unions associated applications, concepts, contracts and brand on behalf of the with the Norwegian Confederation of Trade Unions (LO). Both participants in the Alliance cooperation. the banks and the product areas are competitively positioned, and the earnings performance has been strong. The banks in the SpareBank 1 Alliance distribute the products offered by SpareBank 1 Gruppen and collaborate on central The SpareBank 1 Alliance consists of 15 independent banks areas such as branding, work processes, building of competence, in total, SpareBank 1 Gruppen with subsidiaries, Bank 1 Oslo IT operations, system development and procurement. The Akershus AS and BN Bank ASA. Alliance has entered into strategic collaboration agreements with LO and its associated trade unions, and provides financial products and services to LO’s members through the benefits programme LOfavør.
The product companies, established under SpareBank 1 Gruppen AS and the Alliance banks have developed a joint technology platform. Sharing of experience and skills transfer within the Alliance, based on best practice, are important elements in further developing the Alliance. As part of these efforts, competence centres have been established for credit management in Stavanger, payment transmission services in Trondheim and training in Tromsø respectively.
162 SpareBank 1 Alliance The Alliance structure
SpareBank 1 SpareBank 1 SpareBank 1 Sparebanken Samarbeidende LO/ SR-Bank SMN Nord-Norge Hedmark Sparebanker LO-forbund and SpareBank 1 Group (19,50 %) (19,50 %) (19,50 %) (12 %) (19,50 %) (10 %)
SpareBank 1 Gruppen AS
SpareBank 1 Forsikring ODIN Forvaltning SpareBank 1 Markets SpareBank 1 Medlemskort (100 %) (100 %) (97 %) (100 %)
SpareBank 1 Gruppen Finans (100 %)
Jointly-owned companies in the SpareBank 1 Alliance
Sparebank 1 BN Bank Bank 1 Oslo Akershus Sparebank 1 Boligkreditt Næringskreditt
Eiendomsmegler 1
Alliance cooperation
Technology, brand, competence, purchasing and common processes and use of best practices. Regional competence centres: Payment services/Trondheim, Credit/Stavanger and Training/Tromso
SpareBank 1 Nord-Norge Annual Report 2012 163 164 Corporate Responsibility
SpareBank 1 Nord-Norge is the region’s own bank. The Bank believes it is important for our region to have an exciting and diverse sporting and cultural life. This contributes to the growth and development of our local community, and also helps to attract skilled manpower to our region.
SpareBank 1 Nord-Norge Annual Report 2012 165 SpareBank 1 Nord-Norge Equity certificate owners Community owned capital 41.6% 58.4% SpareBank 1 Nord-Norge Equity certificate ownersProfit Parent Bank Community2012 owned capital 41.6% 58.4% 515 mill NOK
Profit Parent Bank 2012 Together we 515get mill NOK Dividend Support and donations 76 mill NOK to the region SNN fund 30 mill NOK SNN Savings Bank Dividend Support and donations Foundation 0 mill NOK things to 76happen mill NOK to the region Total 30 mill NOK SNN fund 30 mill NOK SpareBank 1 Nord-Norge is the region’s own bank. The BankSNN Savingsbelieves Bank it is Foundation 0 mill NOK important for our region to have an exciting and diverse sportingTotal and cultural30 mill NOK life. This contributes to the growth and developmentWithheld of our Withheldlocal community, and also helps to attract skilled sharemanpower of profits to our shareregion. of profits 141 mill NOK 268 mill NOK Withheld Withheld Charitableshare of profits donationsshare in 2012 of profits hrough the Bank’s commitment to corporate social In141 2012 mill the NOK Bank distributed268 donations mill NOK to 331 projects. 154 responsibility it provides support to several hundred cultural projects, 139 sports projects and 38 knowledge Tlarge and small projects each year, in addition to the Bank’s projects were the beneficiaries of a total of NOK 44.9 million, sponsorship agreements with sports clubs, cultural groups of which NOK 33.4 million went to projects aimed at children and organisations. Here you can read more about the Bank’s and youths. corporate social responsibility and some of the projects we supported in 2012. Sports and athletics Knowledge-based and research projects Cultural purposes The SpareBank 1 Nord-Norge Fund Sports and athletics SpareBank 1 Nord-Norge creates a great deal of value through Knowledge-based and research projects its operations, which is channelled back into and retained in 39 % 24 % the region. The Bank is owned by two owner groups. 42% is Cultural purposes owned by the equity certificate holders, while 58% is owned by the community. Dividends from the Bank’s profit from the 39 % 24 % community owned capital can be allocated and distributed to charitable causes in the Bank’s market area.
SpareBank 1 Nord-Norge Equity certificate owners Community owned capital 37 % 41.6% 58.4%
37 % Profit Parent Bank 2012 515 mill NOK Sponsorship portfolio Sponsorship is the commercial part of the Bank’s corporate social responsibility and is included as part of the marketing and brand building efforts at SpareBank 1 Nord-Norge. The Dividend Support and donations Bank’s sponsorship portfolio was NOK 27.2 million in 2012, 76 mill NOK to the region distributedSports across and athletics agreements with 133 sports clubs, 27 SNN fund 30 mill NOK culturalKnowledge-based groups and 14 knowledge-based and research projects sponsorships. SNN Savings Bank Foundation 0 mill NOK Cultural purposes Sports and athletics Total 30 mill NOK Knowledge-based and research projects 88 % 4 % Cultural purposes
8 % Withheld Withheld 4 % share of profits share of profits 88 % 141 mill NOK 268 mill NOK 8 %
166
Sports and athletics Knowledge-based and research projects Cultural purposes
39 % 24 %
37 %
Sports and athletics Knowledge-based and research projects Cultural purposes
88 % 4 %
8 % SpareBank 1 Nord-Norge Annual Report 2012 167 Spaceship Aurora
Most people at one time or another have dreamed about embarking on a journey into outer space. Among the stars and planets, through the northern lights’ fiery veil. When the Andøya Rocket Range opens Spaceship Aurora next year, you will be able to do exactly that - take a trip into outer space.
hen Spaceship Aurora opens in January 2013, this will be a completely unique attraction in Wthe Nordic area,” says Andøya Rocket Range CEO, Odd Roger Enoksen. Aurora Spaceship forms part of the operations of the Norwegian Centre for Space-related Education (NAROM).
NAROM, a non-profit organisation affiliated with the Andøya Rocket Range, works in close collaboration with national and international educational centres. The centre focuses especially on research into the northern lights, which has been the backbone of Norwegian aerospace operations and among the main activities at the Andøya Rocket Range.
“Spaceship Aurora will give visitors a feeling of what it is like to be in a space centre, and they will also gain an insight into how we conduct research on the northern lights,” says Enoksen.
Exciting educational scheme Ground Control to Spaceship Aurora SpareBank 1 Nord-Norge has donated NOK 5 million for the Spaceship Aurora will be over 600 square metres in size and purposes of establishing exhibitions at the new knowledge and contain several divisions. discovery centre on Andøya. “Here the public is welcome to come on board a virtual “The Bank thinks that Spaceship Aurora is a unique project, spaceship that can take the participants on a voyage into outer because it is an exciting experience for the general public, which space. You can also be a rocket scientist for a day, at the ship’s also emphasises lifelong learning, and exciting educational control stations and in the laboratories,” says the General schemes for school children and students who visit the centre,” Manager at NAROM, Arne Hjalmar Hansen. says the Regional Director of SpareBank 1 Nord-Norge, Kåre A. Markussen. Knowledge about space technology, the northern “We are looking forward to opening the new centre, and we lights and outer space is captivating for both adults and think that this will be an exciting and compelling attraction children. Spaceship Aurora will be a popular attraction, that for pupils, students, teachers and people from far and wide,” will also contribute to creating knock-on effects for various says Hansen. industries in this region, says Markussen.
168 SpareBank 1 Nord-Norge Annual Report 2012 169 On a campervan tour with Hekla Stålstrenga
“SpareBank 1 Nord-Norge was enthusiastic from the start when presented with the idea of collaborating with Hekla Stålstrenga as they were planning to embark on a campervan tour in North Norway,” says Geir Håvard Hanssen, Head of Communications at SpareBank 1 Nord-Norge.
or those who are not familiar with Hekla Stålstrenga, they are a band composed of four talented musicians. FThe band creates songs that are rooted in North Norwegian folk music, and has developed its own unique sound - Hekla music.
In autumn 2012 the band embarked on a campervan tour of North Norway, with support from SpareBank 1 Nord-Norge. Hekla Stålstrenga played 24 small venues in Helgeland, Salten, Hålogaland and in Troms.
“The concerts were held at youth centres, community centres and in school gymnasiums, with school bands, sports associations and local choirs organising the arrangements,” says the band’s lead singer Anne Nymo Trulsen. The local organisers did not pay us a fee, or pay the travelling and lodging expenses. We were playing for the ticket sales at the door. This means there’s not much risk for the local organisers, except that perhaps they don’t manage to sell all the waffles, laughs Trulsen.
“The Bank wants to contribute to creating energy and activity in our local community. By supporting Hekla Stålstrenga’s tour, they gave us a great opportunity to provide high quality cultural events at several venues in the Bank’s market area,” says Hanssen.
Branch concerts - a resounding success NRK has previously organised office concerts at Norwegian companies - with great success.
“That is precisely what SpareBank 1 Nord-Norge also wanted to give to its banking customers,” says Reidun Lunndal, senior advisor for CSR at SpareBank 1 Nord-Norge.
We sent out invitations to exclusive free concerts with the band at a selection of our branches along the route of the tour. Brønnøysund, Fauske, Finnsnes and Harstad were the lucky branches that were chosen. Then with the help of the press, social media and the band’s blog, we encouraged people to bring a colleague or a friend - and stop by the Bank for a free concert with one of Norway’s best live bands. The concerts at our branches were a resounding success, and the Bank showed that we are more than simply a bank. We also demonstrated that we have a special place in our hearts for the region’s cultural life, says Lunndal.
170 On a campervan tour with Hekla Stålstrenga
SpareBank 1 Nord-Norge Annual Report 2012 171 Andsnes opens the Storm
When the celebrated pianist Leif Ove Andsnes plays at the opening ceremony of Bodø’s new culture centre, the Storm in 2014, it will be thanks to a donation from the SpareBank 1 Nord-Norge Fund - a brand new concert grand piano from Steinway & Sons.
he Steinway grand piano, which is in the current culture centre, was acquired prior to the remodelling Tof Aspåsen Aula in 1985. “This piano is now over 25 years old, and with the strict requirements for a concert grand piano in the new culture centre, this could no longer be used as the main instrument,” says Rolf-Cato Raade, Head of the Storm Culture Centre.
Steinway & Sons grand pianos are considered to be collectors’ items as soon as they leave the factory. 90% of the world’s leading concert venues today choose their concert grand pianos. These instruments are handcrafted, with an individual sound. The selection should therefore be made by an experienced and skilled pianist, states Raade. Bodø Culture Centre has brought in pianist and professor Leif Ove Andsnes to make a decision on this important matter. Andsnes is regarded as one of the world’s leading pianists. And we are proud that he has agreed to do this, and not least, to perform during the opening ceremony of the Storm, says Raade.
A boost for Salten “Bodø Culture Centre’s application for support from the Sparebank 1 Nord-Norge Fund was very good and had high ambitions,” says Trude Glad, Regional Director of SpareBank 1 Nord-Norge. It differentiated itself with its ambitious and unique form. We think it is exciting that applicants dare to dream at this level. A grand piano of this caliber will be a boost for the entire region, and will be a pearl in the new culture centre. We also hope that such an instrument can attract internationally renowned musicians, and enrich the general public both locally and nationally. The donation of NOK 1.2 million for the acquisition of the new concert grand piano is therefore a gift to the whole of Salten, says Glad.
“A new concert grand piano is a great boon for us, so we are very humbled by the generosity of this donation from the SpareBank 1 Nord-Norge Fund,” says Raade.
172 SpareBank 1 Nord-Norge Annual Report 2012 173 Tromsø students receive Sirkus Eliassen as a donation from the Bank
Late last autumn the word spread that StudentUKA in Tromsø had received a donation from the SpareBank 1 Nord-Norge Fund. The donation was earmarked to attract a headliner to perform at the student festival. This enabled StudentUKA in Tromsø to book one of Norway’s most popular bands, Sirkus Eliassen.
ur region needs expertise to realise the diversity of possibilities that exist in the North. One of ONorth Norway’s greatest challenges is to retain and attract skilled manpower,” says Markus Hansen, Bank Manager at Jektabanken. The donation to StudentUKA, and their booking of Sirkus Eliassen, are thereby also helping to make Tromsø an even more attractive student town, continues Hansen.
A gift box to the students The support from the SpareBank 1 Nord-Norge Fund has given the UKA managers the chance to create both a better festival and offer lower priced tickets than would otherwise have been possible.
“Students, by and large, have limited financial resources, and one of the goals of the Board of UKA is to keep the ticket prices as low as possible. We would like all the students to have the wherewithal to participate, not just at one concert, but several. We have now reached this goal, but it would not have been possible without the support from organisations like SpareBank 1 Nord-Norge,” says Lise Setsaas, head of UKA. The support from SpareBank 1 Nord-Norge is therefore a gift to all the students in Tromsø, says Setsaas.
174 SpareBank 1 Nord-Norge Annual Report 2012 175 SpareBank 1 Nord-Norge Org. nr.: NO 952 706 365 Postboks 6800, 9298 Tromsø, telefon 02244, faks 77 62 25 71, www.snn.no