key figures

(AMONTS IN NOK MILLION) PARENT BANK GROUP 31.12.01 31.12.02 31.12.03 31.12.03 31.12.02 31.12.01

from the profit and loss account 932 1 019 1 030 Net interest- and credit commission income 1 038 1 021 932 223 122 317 Total income 367 175 262 1 155 1 141 1 347 Total net income 1 405 1 196 1 194 716 747 767 Total costs 814 793 747 439 394 580 Result before losses and write-downs 591 403 447

136 239 314 Losses on loans, guarantees etc. 318 245 138 000 Gains/ losses on sale of fixed financial assets 0 00 303 155 266 Result before tax 273 158 309

99 92 56 Tax payable on ordinary result 62 94 104

204 63 210 Result from ordinary operations after tax 211 64 205

Minority interests 1 11 204 63 210 Profit for the year 210 63 204

from the balance sheet 35 267 37 890 40 899 Balance sheet total 40 892 37 879 35 266 1 908 2 186 2 435 Certificates, bonds and other interest-bearing securities 2 435 2 186 1 908 30 850 33 344 36 573 Gross loans to customers 36 869 33 574 30 973 519 669 813 Loss provisions 825 679 526 18 499 20 249 21 727 Deposits from customers 21 666 20 182 18 429

ratios 61,99 % 65,47 % 56,94 % Costs as a percentage of total net income 57,94 % 66,30 % 62,56 % 61,99 % 66,88 % 58,95 % Costs as a percentage of total net income (excl. net gains) 59,90 % 67,66 % 62,56 % 2,09 % 2,04% 1,95 % Costs as a percentage of average assets 2,07 % 2,17 % 2,18 % 0,88 % 0,42% 0,68 % Result before tax as a percentage of average assets 0,69 % 0,43 % 0,91 %

2,09 % 3,18% 3,03 % Gross commitments in default as a percentage of gross lending 3,11 % 3,20 % 2,11 % 1,31 % 2,13 % 1,68 % Net commitments in default as a percentage of gross lending 1,75 % 2,13 % 1,32 % 1,68 % 2,01 % 2,22 % Loss provisions as a percentage of gross lending 2,24 % 2,02 % 1,70 % 0,44 % 0,72 % 0,86 % Net loan losses as a percentage of gross lending 0,86 % 0,73 % 0,45 % 59,96 % 60,73 % 59,41 % Deposits as a percentage of gross lending 58,76 % 60,11 % 59,50 %

19,13 10,29 14,01 Profit per PCC (NOK) 1) 14,78 4,35 14,01 Profit per PCC (NOK) 2) 148,70 149,01 149,01 Equity capital per PCC (NOK) 3) 15,00 10,00 14,00 Dividend paid 47,45 47,75 47,75 Dividend Equalisation Fund per PCC 10,86 % -18,57 % 52,16 % Pre-tax return per PCC 4)

11,66 % 11,29 % 12,24 % Capital adequacy 11,82 % 9,98 % 10,58 % 9,31 % 2,72 % 9,04 % Return on equity capital after tax 9,04 % 2,76 % 9,36 %

1) After-tax profit multiplied by the PCC holders' share of the equity capital as at 1.1, divided by the number of PCCs outstanding. 2) After-tax profit multiplied by the PCC holders' share of the equity capital as at 1.1, 3) PCC capital + Premium Fund + Dividend Equalisation Fund, divided by the number of PCCs outstanding. 4) It has been assumed that the investment has been made at the beginning of the year in question. 3) It has been assumed that the investment has been made at the beginning of the year in question.

annual report 2003 3 contents

key figures 3

annual report 2003 5

profit and loss account 14

balance sheet 15

cash flow analysis 16

notes to the annual report 2003 17

profit analysis and key financial figures 51

auditor’s report | report from the control committee 53

sparebank 1 nord-norge “for and in north norway” 54

sparebank 1 nord-norge’s history and structure 55

group management structure 60

strategy and intellectual capital 61

ownership structure 66

supervisory, executive and regional bodies 69

ORG. NR.: NO 952 706 365

P.O. BOX 6800 | N-9298 TROMSØ | NORWAY

PHONE: (+47) 77 62 20 00 | FAX: (+47) 77 62 25 71 | WWW.SNN.NO

DESIGN: TANK | PRINTING: FAGTRYKK ALTA AS

4 annual report 2003 The story about the bank and the annual report 2003 company which restored faith in >>> a small local community.

Solidarity creates strength. In the small, local community of Fiskeboel in the munici- pality of Hadsel, the co-operation between NorLense and SpareBank 1 Nord-Norge helps to decide the future of the village. If it had not been for the partnership between NorLense and the Bank, there might not have been too many jobs available in this idyllic village.

Each year, NHO, the Confederation of Norwegian Business and Industry presents an award for particularly promising innovations in business. In 2001, NorLense, received this award. NorLense is one of Norway’s leading companies within the manufacturing of bilge pump- and emergency equipment for the oil industry, and sells its products in the global market.

Terje Olav Hansen, Chairman of NorLense’s Board of Directors, says: “SpareBank 1 Nord-Norge has had a relationship with the company since 1993. Together with our bank, we have worked hard to keep our local community as strong and dynamic as possible. Amongst other things, we support the local school, informing the children of the various opportunities which exist in our village.”

“The Bank has local roots and knows all about our small community. This means that the Bank is able to take on risks which centrally managed banks would never be willing to consider,” concludes Hansen. annual report 2003 sparebank 1 nord-norge

Good revenue generation from the core banking Area of operations and overall corporate aim operations, but increased provisions against credit One of Sparebank 1 Nord-Norge’s main aims is to losses be a comprehensive provider of financial products and services in North Norway. In addition to loans, • The pre-tax operating result totalled deposits and payments transmission services, this NOK 273 million (2002: NOK 158 million) also comprises most other savings products, as well as life- and non-life insurance products. Services and • Higher loss provisions – NOK 318 million products are made available either by the Bank and (2002: NOK 245 million) its subsidiaries, or by Sparebank 1 Gruppen AS’s product companies. • Reduction in overall manning levels The Bank has implemented a multi-channel dis- – by 107 man-years tribution strategy, making its products and services available through 98 branches, one service centre • Substantial growth in customers’ levels of savings accessible by telephone on all weekdays, and the – Deposits increased by NOK 1,484 million Bank’s Internet pages. – Sale of other savings products was up by NOK 358 million SpareBank 1 for North Norway Ongoing customer satisfaction- and market position • Strong loan growth in retail banking market surveys show – both within the retail banking- and – 15.5 per cent corporate banking markets – that customers are sat- isfied with the Bank. A broad range of products and • Substantial improvement in services, proximity to the customers and proactive SpareBank 1 Gruppen AS’s result staff represent the Bank’s most important competi- tive edges. • 9.04 per cent after-tax cent return on equity The SNN Group will continue to work as an capital active and long-term partner as far as the further development of North Norway is concerned: • Profit/earnings per PCC (Primary Capital Certificate) ended up at NOK 14.01 • The Bank’s primary task will be to offer complete financial solutions to local people, businesses, • Proposed cash dividend per PCC for 2003: public sector entities, clubs and associations. NOK 14.00 The Bank’s services will be characterised by closeness and proximity to its customers, solu- Overall results tions which have been adapted to users’ needs, The SpareBank 1 Nord-Norge Group’s 2003 operat- local knowledge and corporate professionalism. ing result, after credit losses, but before tax, totalled NOK 273 million. This is NOK 115 million better • The Bank will also take an active part in the than in 2002. development of local communities through its The 2003 result is influenced by increased loan commitment and the sharing of knowledge. loss provisions and a poor result from securities, despite large price increases on the Oslo Stock • Through its direct and indirect involvement in Exchange. equity capital markets, the Bank will try to ensure Tax has been estimated at NOK 62 million. The that the region benefits from local ownership as result after tax and minority interests finished up at well as an environment of high skills and NOK 210 million. innovation. The main Board of Directors proposes payment of a NOK 14.00 dividend per PCC for 2003. • The Bank will further develop active networks for the sharing of knowledge, both nationally and internationally.

• SNN will support local commerce and industry through partnership solutions and development contracts.

6 annual report 2003 Sale of other financial products and services Operating costs One of SpareBank 1 Nord-Norge’s strategic aims is Aggregate Group operating costs totalled NOK 814 to increase revenue generation from risk-free areas, million in 2003, up by NOK 21 million or 2.6 per cent by offering its customers a broad range of products on 2002. and services within the savings- and placement mar- In relative terms, however, there was further ket, and through the sale of non-life insurance. improvement in 2003 to. In relation to average Commission income from the above-mentioned assets, operating costs amounted to 2.07 per cent, product areas totalled NOK 68 million in 2000, NOK down from 2.17 per cent a year earlier. 86 million in 2001, NOK 84 million in 2002 and NOK The increase in operating costs in cash terms is due 95 million in 2003. to NOK 14 million provisions for restructuring SpareBank 1 Nord-Norge is an important player measures relating to a shrinkage in overall manning in the savings- and placement market within the levels, and to higher pension costs, up by NOK 4 region. Deposits from customers improved by NOK million. In 2003, total staff numbers were cut by the 1,484 million in 2003, whereas the sale of other equivalent of 107 man-years and 8 bank buildings savings- and placement products totalled NOK 358 were sold. million. The Bank will continue to make every effort to Credit losses and commitments in default boost income from risk-free product areas. As expected at the beginning of 2003, commitments in default as well as bad and doubtful commitments Interest- and credit commision income were high throughout the year. This is primarily Total net interest- and credit commission income ascribable to the fact that the marine sector in the increased by NOK 17 million during the last 12 region had a difficult year in 2003 too. However, at months. This is ascribable to higher lending- and the end of 2003, the commitments in default situa- deposit volumes. However, there was a shrinkage in tion improved, partly as a result of significantly lower the average interest margin. This was mainly due to domestic interest rates and a weaker krone. the lower level of domestic interest rates, which pro- In 2003, NOK 318 million was charged to the vided a lower return on the Bank’s equity capital as profit and loss account in respect of specific losses, well as an increase in the reversal of interest. Against equivalent to 0.86 per cent of gross lending. The cor- the background of today’s low Norwegian interest responding figures for 2002 were NOK 203 million rates, the Bank has increasingly been prioritising risk and 0.60 per cent. pricing, both within the retail banking- and corporate Specific loan losses relating to corporate- and markets. retail banking commitments totalled NOK 298 million and NOK 20 million respectively. Other (non-interest) income Corporate losses relating to export-related Other income amounted to NOK 367 million in customers (especially within the fishing industry and 2003, up by NOK 192 million compared with 2002. fish farming) accounted for approximately 80 per This is primarily attributable to the reduced loss cent of total credit losses. made by SpareBank 1 Gruppen AS. After adjusting At the end of 2003, net commitments in default for this factor, other income was up by NOK 36 mil- plus bad and doubtful commitments totalled NOK lion during the last 12 months. 644 million – down by NOK 72 million on 2002 – Group holdings of certificates and bonds representing 1.75 per cent of gross lending. The totalled NOK 2,435 million at the end of 2003. corresponding ratio in 2002 was 2.13 per cent. Interest rate exposure relating to interest-bearing Total specific loss provisions amounted to NOK securities is managed within the limits fixed by the 503 million, equivalent to 71.9 per cent of all Bank’s Board of Directors. These limits also apply to commitments in default plus bad and doubtful interest rate exposure in respect of the portfolio of commitments. financial derivatives and other short-term financial Provisions against non-specific losses totalled transactions. The Bank’s activity as far as off-balance NOK 322 million, unchanged from 2002. In view of sheet financial instruments are concerned is limited the reduction in loans in default and an increase of and mainly involves actual hedging transactions. In only 3 per cent in corporate lending in 2003, the this connection, reference is also made to the sepa- Board of Directors decided not to increase loss rate section dealing with financial risk. provisions. Non-specific loss provisions represented 0.87 per cent of total lending.

annual report 2003 7 Allocation of profit for the year The better overall results were achieved through a The Board of Directors proposes that the profit for targeted programme of improved effectiveness, the year is allocated as follows (amounts in NOK implemented throughout SpareBank 1 Gruppen. million): Comprehensive changes to the way in which the group was managed were introduced, with particular Parent Bank’s profit for the year after tax 210 emphasis on risk management. The areas focused on were effective operations, enhanced skills and allocations: improved profitability. Set aside for payment of cash dividend 92 The programme of improved effectiveness – Set aside for the Dividend Equalisation Fund 0 which was initiated at the beginning of the 4th quar- Donations 15 ter of 2002 – produces an annual improved effective- Transferred to the Savings Bank’s Fund 103 ness bonus of NOK 244 million, the full effect of Total allocations 210 which will apply from 2004. FöreningsSparbanken is the largest shareholder Balance sheet in SpareBank 1 Gruppen AS with 25 per cent. In the Group assets rose by NOK 3,013 million, standing at early part of February 2003, SpareBank 1 and NOK 40,892 million at the end of 2003. This repre- FöreningsSparbanken renewed their joint venture sented an 8.0 per cent increase during the last 12 agreement. months. In 2003, SpareBank 1 Gruppen AS sold business Gross loans expanded by 9.8 per cent, from interests which had failed to produce the desired NOK 33,574 million at the end of 2002 to NOK results. In 2003, SpareBank 1 Gruppen AS sold its 65 36,869 at the close of 2003. Retail banking- and cor- per cent shareholding in EnterCard AS. porate loans grew by 15.5 and 3.1 per cent respec- SpareBank 1 Vest decided to withdraw from the tively, whereas public sector borrowings fell. Retail alliance at the end of 2003, but the bank will continue banking-, corporate banking- and public sector loans to sell SpareBank 1 products. accounted for 58, 41 and 1 per cent respectively of the Bank’s total lending. Corporate governance In its lending activities, the Bank attaches partic- – good operational management ular importance to borrowers’ ability to service their Against the background of the developments which outstanding commitments and also to satisfactory have taken place within the financial industry and the security coverage, in order to maintain overall credit challenges facing it, and in view of recommendations risk at an acceptable level. received from foreign advisors, the Bank has Deposits from customers rose by NOK 1,484 increased its efforts in order to further develop an million or 7.4 per cent to NOK 21,666 million during effective corporate governance structure. This has the last 12 months. Retail banking-, public sector- been described in more detail elsewhere in this and corporate deposits were up by 8.0, 9.3 and 5.5 Annual Report. per cent respectively. The relative composition of gross lending to, Different categories of risk – capital adequacy and deposits from customers, resulted in a 58.8 per The Board of Directors attaches great importance to cent ratio for internally generated funding at the end the ongoing management, monitoring and follow-up of 2003, the corresponding ratio being 60.1 per cent of risk. The overall aim is that the Group’s aggregate a year earlier. risk level should be moderate, reassuringly conserva- tive and well within the limits fixed in relation to the SpareBank 1 Gruppen AS – The SpareBank 1-alliance Bank’s equity and related capital, plus other provi- The SpareBank 1-alliance is a Nordic banking- and sions. Through good risk management, the Group product joint venture in which the SpareBank 1 will achieve stable and predictable levels of revenue banks in Norway work together through the jointly- generation and results. owned holding company, SpareBank 1 Gruppen AS. A competitive return on equity capital is the SpareBank 1 Nord-Norge’s equity stake in most important performance target. This is achieved SpareBank 1 Gruppen AS reflects the Bank’s partici- partly through paying more attention to the risk- pation in a joint venture, and is incorporated in the adjusted return on assets (lending): risk pricing is balance sheet according to the equity method of accordingly a key factor in all credit matters. accounting. This means that the Bank’s 14.1 per cent The general risk picture in 2003 was charac- share of SpareBank 1 Gruppen AS’s 2003 loss was terised by a leveling out of the economic downturn, charged to the profit and loss account. coupled with generally increasing optimism under- SpareBank 1 Gruppen AS made a NOK 54 mil- pinned by a historically low level of Norwegian inter- lion after-tax loss in 2003 (2002: a NOK 1,290 million est rates, reduced domestic cost inflation, improved loss). SpareBank 1 Nord-Norge’s share of that loss is conditions (a weaker krone) for the export-related NOK 7 million (2002: a loss share of NOK 168 industry, higher private spending and higher share million). prices. Overall, this resulted in a lower risk level at the end of 2003 than 12 months earlier.

8 annual report 2003 Strategic risk Market risk The Board of Directors monitors, at all times, the Market risk is defined as the sum of the Group’s Bank’s strategy in relation to the results achieved and positions and transactions within the interest rate-, the changes occurring, both internally, within the foreign exchange- and share markets. The Bank has Bank’s markets and as far as its framework condi- no exposure in the foreign exchange markets except tions are concerned. The use of “Balanced that which relates to trading on behalf of customers. Scorecard” has proved to be useful for the purpose As at 31.12.2003, the aggregate foreign exchange of monitoring the Bank’s operations. The Board of position amounted to US$ 0.85 million. The Bank’s Directors is provided with good management infor- portfolio of shares was further reduced in 2003 due mation through the ongoing focus on those indica- to the distorted relating to large equity stakes in two tors which are crucially important in order that the transport- and travel companies. The Board of Bank’s agreed targets may be met. Directors has made every effort to reduce this expo- sure. At the end of 2003, the Bank’s portfolio of equi- The big changes within North Norway’s financial ties, shares in unit trusts and PCCs had a book value services markets, the merger between DnB and Nor, of NOK 372 million, down by NOK 224 million dur- and DnB’s acquisition of Nordlandsbanken have ing the last 12 months. brought about important market opportunities, but The Board of Directors has decided to keep the have also resulted in more challenges for the Bank, Bank’s overall interest rate risk at a low level. At the as the only larger regional provider of financial end of the year, this risk (measured as an overall products and services. change in value following a 1 percentage point shift The combination of new technology and the in interest rates) amounted to NOK 9.6 million, com- changes in the way in which customers access and pared with NOK 8.3 million a year before. use banking services has enabled the Bank to apply a more flexible approach to the composition of its Credit risk distribution network, bringing about more cost- The Board of Directors monitors, on an ongoing effective operations. Flexibility in distribution also basis, the risk contained in the Bank’s lending enables the Bank to adapt better to the demographic portfolio, adapting the Bank’s credit policy accord- changes taking place within the region. ingly. The policy is made operational through dele- gated lending (and other) authority and special Financial risk requirements in relation to different sectors of com- Liquidity risk merce and industry, purpose, the amounts involved The Board of Directors pays a great deal of attention and consultation. The Board of Directors considers it to predictability and stability, in order to ensure that very important to identify any relevant development incidental events do not have a serious impact on features as early as possible in order to be able to the Bank’s overall ability to meet its commitments. make any necessary adjustments to the Bank’s credit At the end of 2003, deposits from customers, long- policy. In 2003, the Bank’s credit policy was tightened term funding loans and equity capital were equiva- up further, particularly in order to prevent taking on lent to 90 per cent of the Bank’s illiquid assets, up new risk following reduced competition within from 83 per cent a year earlier. This ratio illustrates North Norway’s financial services market, and also the extent to which the Bank’s illiquid assets are cov- because the Bank did not wish to increase its existing ered by long-term funding, called Funding Indicator 1 exposure to businesses exposed to international (‘Likviditetsindikator 1) by the Banking, Insurance competition. In terms of risk, the Bank’s lending and Securities Commission (BISC). In 2003, the breaks down as follows: Bank substantially increased the ratio of long-term Bad and funding loans. The Board of Directors intends to doubtful reduce the Bank’s overall funding risk, by focusing Low Medium High commit- on deposits from its own customers, diversification risk risk risk ments of funding loans through different markets, sources 31.12.01 74.8 % 11.1 % 12.0 % 2.1 % and instruments. The Bank’s credit rating by the two 31.12.02 72.7 % 15.8 % 8.3 % 3.2 % international rating agencies, Moody’s and Fitch 31.12.03 72.7 % 15.3 % 8.9 % 3.1 % Ipca, is regarded as very important as far as the access to international funding sources is concerned. As can be seen from the above table, the risk expo- The Bank’s rating in 2003 remained unchanged. At sure contained in the Bank’s lending portfolio has the end of 2003, the ratio between deposits from cus- developed in a satisfactory manner, despite a weaker tomers and lending was 58.8 per cent, as against performance in 2002 by a great number of our corpo- 60.1 and 59.5 per cent respectively in 2002 and 2001. rate customers. Systematic efforts focusing on credit Short-term (original maturities up to 12 months) risk has, in spite of a difficult market, paid dividends. funding loans amounted to NOK 4,507 million at the This work will be given a great deal of attention by end of 2003. This was NOK 2,673 million lower than the Board of Directors in 2004 too. 12 months earlier.

annual report 2003 9 Operational risk amounting to 9 man-years has been agreed. These Through ongoing reporting of quality, the Board of employees will leave the Bank during the first quarter Directors is well informed of any errors and deficien- of 2004. The reduction has, in its entirety, been cies arising as a consequence of deficient systems, achieved through voluntary measures and natural routines, professional skills and competence. This wastage. Female- and male employees account for internal control has shown that operational errors do 64 and 43 man-years respectively of the total shrink- happen from time to time. This in particular is the age of overall staff levels agreed. There are two rea- case with loan commitments. sons for this ratio: The Group employs many more Internal control within the Bank is defined as women than men; furthermore, the staff shrinkage line responsibility; self- assessment is done and the largely involves operational areas where the percent- result reported to the Board of Directors. Reporting age of female staff is decidedly largest. comprises all elements of risk relating to external In 2003, the Group management team included and internal circumstances. In 2003, in order to fur- only one woman, who left the Bank to take up a posi- ther develop risk management throughout the Bank, tion in another company last autumn. the Board of Directors decided to establish a sepa- rate risk management function which will be respon- Activities relating to equality between the sible for monitoring and reporting on risk to the sexes Bank’s Managing Director and Board of Directors. The Group has a clearly defined approach to the challenge relating to equality between the sexes. In Basle II all the Bank’s internal- and external job advertise- The comprehensive international framework relating ments, women in particular are encouraged to apply. to capital adequacy requirements, rules and regula- Several of the appointments made in 2003 also show tions will come into force in 2007/2008. This frame- that the Bank’s policy in this connection has yielded work implies significant changes also for the actual results. In 2003, the Bank appointed 12 Norwegian financial services industry. Through its General Managers, 6 of whom were women. close cooperation with the SpareBank 1 alliance, SpareBank 1 Nord-Norge will have adapted to the Planned activities in 2004 new framework in good time. The Group will continue focusing on the challenges relating to equal opportunities, both with regard to Equity and relates catial – capital adequacy the ratios of women in different positions, salary lev- In 2003, risk-weighted assets increased by NOK els and working environment. 2,424 million or 9.1 per cent, totalling NOK 29,019 In 2004, together with Mack AS and TFDS ASA, million at the end of the year. During the second half the Bank will initiate a comprehensive trainee of 2003, the Bank increased its core capital through arrangement. When assessing job applications, we the issuance of a US$ 60 million bond perpetual shall make sure that there is an even distribution of non-call. female- and male candidates. At the end of 2003, the Bank’s core capital totalled NOK 2,355 million, after deductions of items Skills and competence not to be included when calculating the level of core Improvement of levels of skills and competence has capital. After this, the core capital ratio amounted to been an important area on which the Bank focused 9.03, up from 7.87 per cent a year earlier. The Parent its attention in 2003. Attention has mainly been Bank’s core capital ratio was 9.26 per cent at the end given to the following four areas: certification of of the year. staff’s achievement of certain quality standards with- Aggregate equity and related capital at the end in the Bank’s different business areas, availability of of 2003 amounted to NOK 3,430 million, deductions further education, the scholarship scheme, as well as having been made for equity capital participations in training within sales and sales management. By April other financial institutions. This produced a capital 2004, all staff must have qualified as sales staff with- adequacy ratio of 11.82 per cent, as opposed to 9.99 in all the Bank’s four business areas (placements, per cent at the end of 2002. financing, insurance and payments transmission services). The overall effort involved has been Personnel tremendous – and by the end of last year, 1,279 tests Equality between the sexes had been successfully completed. Actual position, with reference to the Equal Opportunities Act, paragraph 1 a As at 1 January 2004, the SpareBank 1 Nord-Norge Group employed 837 staff (714 full- time and 123 part-time). There were 472 women and 365 men. This was the equivalent of 770 man-years, the Parent Bank and its subsidiaries accounting for 707 and 63 respectively. In 2003, the number of man-years work- ing in the Group shrank by 98. A further reduction

10 annual report 2003 Health, safety and environment (HSE) Pollution of the external environment as a result of Absenteeism through illness the Bank’s business activities is minimal. Absenteeism through illness has proved to be a big challenge for the Group. In 2003, absenteeism Subsidiaries amounted to 7.3 per cent in all, equivalent to 58.9 SpareBank 1 Finans Nord-Norge AS man-years. The high level of absenteeism through ill- The company complements the Group’s range of ness is costly for the Bank, requires a good deal of financial products by offering leasing, as well as management time, results in lost income and repre- administrative- and financial factoring. In addition, it sents considerable extra strain on staff. The levels of does vehicle financing. The company has 24 staff. Its absenteeism through illness vary a great deal from core market area is North Norway. Factoring services one region to another (from 3.1 to 13.6 per cent). are also made available through the SpareBank 1- The personnel- and organisation department alliance’s member banks. will be in charge of a project, the purpose of which will be to cut absenteeism through illness from 7.3 EiendomsMegler 1 Nord-Norge AS to 5 per cent by the end of 2004. The aim is for the The company is a real estate brokerage business, Bank to be among the best within Norway’s financial dealing with the sale of all types of property, such as services industry, and for this ratio to end up below 4 detached houses, flats and apartments (including per cent. The project will be making particular efforts those organised through housing co-operatives), to train the Bank’s managers, focusing on the above- holiday homes, new buildings, building development mentioned challenge and work relating to the cre- projects, as well as commercial- and industrial prop- ation of the best possible working environment, cor- erty. The company has offices in Tromso, Alta, Bodo, porate ethics and attitudes. Our employee represen- Harstad and Hammerfest and employs 28 people. In tatives and safety organisation will represent impor- addition, the company has a franchise operation at tant parts in this work. Svolvaer. The Board of Directors has decided to close the company’s Harstad branch. Work relating to safety The company is linked to the EiendomsMegler 1 The work relating to safety is regarded as very impor- nationwide chain. tant within the organisation; there is a senior safety representative for the Group, on a full-time basis, as SpareBank 1 Nord-Norge Securities ASA well as an employee safety representative in each of 65 per cent of the company’s shares is owned by the the Bank’s regions. The necessary work- and docu- Parent Bank, 25 per cent by First Securities and 10 mentation tools relating to HSE has been put in per cent by its staff. In addition to stock exchange place and is in the process of being implemented business, the company is active within the areas of both by safety representatives and managers. In asset management, evaluations and other corporate 2004, we shall continue the training of our safety rep- services. The company has 12 employees. resentatives and managers within this area, the pur- pose being to make it an important support function Eiendomsdrift AS for the Group as a whole. The company manages, operates and rents out prop- The internal framework for HSE shall provide erty. The property management part of its business the required guidance for the Bank’s preventive mainly relates to SpareBank 1 Nord-Norge’s distri- work, making sure that every effort is made in order bution network; this means that the entire property to create a better physical environment, encouraging portfolio is located in North Norway. The rental cooperation among staff. The aim is to make inspec- market for commercial- and industrial property tion visits at all the Bank’s branches. In 2003, such within the company’s area of operations changed visits were made at 17 of the Bank’s 93 branches. In little during 2003. At the end of the year, the 2003, efforts have been focused on the training of company employed 4 people. Efforts to sell those safety representatives, as well as the structuring and parts of the Bank’s buildings which are not used for concentration on important areas. its banking operations have been intensified – The Bank has created a full-time position for a 8 bank buildings were sold last year. safety representative. In 2003, 5 meetings were held by the Group AS Fiskerikreditt Environment Committee; representatives from all The company has a licence to conduct business as a regions participated. The focus has been on training, credit institution, covering the whole of Norway. At structuring and concentration on the most impor- present, the company is not active within the area of tant problem areas in the regions. credit business. It is considered very important that all staff act and behave in accordance with the Bank’s basic set of values. In the opinion of the Board of Directors, the Bank’s ethical core values help create good and lasting relationships with customers, as well as a good working environment.

annual report 2003 11 The Bank’s PCCs and PCC-holders Prospects for 2004 At the end of 2003, SpareBank 1 Nord-Norge’s PCC- All leading economic indicators paint an optimistic capital totalled NOK 659.7 million, consisting of picture – the marked current upturn in the global 6,597,018 certificates. The PCC-capital represents economy is primarily driven by the US and East Asia. 24.9 per cent of the Bank’s core capital. The turnaround in the Norwegian economy is also In accordance with currently valid dividend poli- pronounced, stimulated by good growth in private cy, PCC-holders will be allocated a share of the spending and investment in the oil industry. This Parent Bank’s profit for the year which is commensu- development has been triggered by the easing in rate with their share of the Bank’s equity capital as at monetary policy, both through domestic interest rate 1 January 2003. This share amounts to 43.91 per cuts and a weaker krone. This has halted the rise in cent. The dividend payment for 2003 has been fixed unemployment and also improved conditions for at NOK 14.00 per PCC. The Dividend Equalisation Norway’s export industry. Against this background, Fund amounted to NOK 315 million after this trans- there is accordingly significant optimism within fer. most commercial and industrial sectors at the begin- At the end of the year under review, the total ning of 2004. Increased credit demand is expected number of PCC-holders was 4,320, as opposed to from commerce and industry, with continued, large 3,499 a year earlier. Foreigners’ equity stake in the borrowing requirements from private households. In Bank amounted to 13.6 per cent, a little higher than view of lower interest rates and expected, good finan- in 2002. Certificate holders with addresses in North cial and economic development, customers’ savings Norway numbered 1,774, representing 25.4 per cent are likely – to a larger extent than in 2003 – to be of the Bank’s total PCC-capital, up from 25.1 per cent invested in shares and unit trusts. Furthermore, larg- 12 months before. er long-term saving is anticipated, due to the One of the Bank’s stated aims is that as many increased uncertainty about the level of future pen- of its employees as possible should have an equity sion payments. stake in the Bank. During the last 5 years, therefore, SpareBank 1 Nord-Norge is well placed to make private placements and sale of PCCs have been the most of the challenges and opportunities within arranged for the benefit of the Bank’s staff. In 2003, a the region. The implementation of the ongoing substantially larger number of the Bank’s PCCs was structural changes in the fishing industry will repre- traded than during the previous year. sent the most important industrial challenges in North Norway in 2004.This applies in particular to The Board of Directors and Group management the current overcapacity relating to fishing vessels Siv Eggesvik, the employees’ elected representative, and the industry involving the whitefish sector. stepped down from the Board of Directors in SpareBank 1 Nord-Norge will therefore continue to November last year. Vivi Ann Pedersen was elected apply its strict credit policy within the marine sector as the new Board member representing staff. 4 of in 2004. the 9 Board members are women. SpareBank 1 Nord-Norge’s market position was Hanne Christiansen, Senior Group General strengthened in 2003, both through the Bank’s own Manager, a member of the Group management activities and as a result of structural changes within team, left the Bank in September last year. the national and local financial services markets. The The Bank’s Chief Executive Officer’s pension Bank will take advantage of this in order to further agreement with the Bank entitles him – from the age improve its position within the most profitable cus- of 62 years – to a pension equivalent to 70 per cent tomer segments. This will be achieved by focusing of annual leaving salary. Furthermore, if he should so internally on continued enhancement of staff’s rele- wish, he could exercise an option to retire at 60. vant skills. Comprehensive certification programmes Information about salaries, other remuneration and are being implemented within the most important staff loans for the Bank’s Chief Executive Officer and business areas; in addition, specialist skills within elected representatives may be found in Notes to the the savings-/placement- and credit areas are being Account, Notes 7 and 14. significantly strengthened. Improved cost effective- ness throughout the organisation will be given con- tinued and considerable attention. However, no sig- nificant changes are planned as far as the Bank’s large distribution network is concerned, although it will at all times be adapted to market changes and the opportunities provided by new technology. This particularly applies to the use of electronic solutions, both for ordinary trading and banking services. The Bank will actively look for new business areas within this field.

12 annual report 2003 Concluding remarks Vote of thanks The annual financial statement has been prepared All staff have made a good, concerted effort con- on the assumption of a going concern. This assump- tributing to the Bank’s improved revenue generation. tion is based on prognoses for the Bank’s results The Board of Directors would like to thank all between 2004 and 2006, and on the Bank’s long- employees for their contribution to the further devel- term strategic plan. The Bank is in a financially opment and progress of the Bank. strong position. The Board of Directors would also wish to In 2003, the Bank made further efforts to boost express its appreciation to all customers and other the sale of financial products and services. This par- good contacts for their co-operation during 2003. ticularly involves different savings- and insurance products. As has been mentioned earlier in this Tromsø, 31 December 2003 | 2 March 2004 annual report, these intensified efforts have pro- duced substantial results during the last 4 years.

Harald Overvaag Tom Veierød chairman deputy chairman Turid Holberg Trine Nøvik Erik Sture Larre Jr.

Hans Olav Karde Åse Annie Opsjøn Rolf pedersen Vivi Ann Pedersen ceo

the main board of directors of sparebank 1 nord-norge

Harald Overvaag Tom Veierød Turid Holberg Trine Nøvik Erik Sture Larre jr. chairman deputy chairman

Åse Annie Opsjøn Rolf Pedersen Vivi Ann Pedersen Hans Olav Karde chief executive officer

annual report 2003 13 profit and loss account

(AMOUNTS IN NOK MILLION) PARENT BANK GROUP 31.12.01 31.12.02 31.12.03 NOTES 31.12.03 31.12.02 31.12.01

2 889 2 972 2 448 Interest- and similar income 2 2 452 2 965 2 880 1 957 1 953 1 418 Interest- and similar costs 2 1 414 1 944 1 948 932 1 019 1 030 Net interest- and credit commission income 1 038 1 021 932

Dividends and other income 47 23 15 from securities with variable yield 3 3 20 37 -57 -163 -7 Income from shareholdings in Group companies 3 -7 -163 -57 Commission income and revenues 296 302 329 from banking services 4 355 328 310 Commission costs and expenditure 72 76 75 generated from banking services 86 85 72 Net change in value and gains/losses from securities 02446 and foreign exch.classified as curr. assets 5 46 24 0 912 9 Other operating income 6 56 51 44 223 122 317 Total other income 367 175 262

1 155 1 141 1 347 Total net income 1 405 1 196 1 194

540 570 596 Wages, salaries and general administration costs 7 647 619 584 57 53 45 Depreciation etc. of fixed and intangible assets 8 59 68 70 119 124 126 Other operating costs 9 108 106 93 716 747 767 Total costs 814 793 747

439 394 580 Result before losses and tax 591 403 447

136 239 314 Losses on loans, guarantees etc. 10 318 245 138 Write-downs/reversed write-downs and gains/losses 000 on securities classified as fixed assets 0 00 136 239 314 Net losses and write-downs 318 245 138

303 155 266 Result before tax 273 158 309

99 92 56 Tax payable on ordinary result 11 62 94 104 204 63 210 Result from ordinary operations after tax 211 64 205

Minority interests 1 11 204 63 210 Profit for the year 210 63 204

transfer and allocations Transfer from funds -60 -86 Transferred from the Fund for Evaluation Differences -60 -86 Total transfer from funds

allocation of profit for the year 99 66 92 Return on Primary Capital Certificates 15 Donations Transferred to the Fund for Evaluation Differences 138 81 103 Transferred to the Savings Bank's Fund 27 2 0 Transferred to the Dividend Equalisation Fund 264 149 210 Total allocations 204 63 210 Total transfer and allocations

14 annual report 2003 balance sheet

(AMOUNTS IN NOK MILLION) PARENT BANK GROUP 31.12.01 31.12.02 31.12.03 NOTES 31.12.03 31.12.02 31.12.01

assets 345 436 548 Cash-in-hand and claims on central banks 548 436 345 659 848 709 Loans to and claims on credit institutions 12 101 289 184 30 850 33 344 36 573 Loans to and claims on customers 13,14 36 869 33 574 30 973 241 351 495 - specific loss provisions 503 357 245 278 318 318 - non-specific loss provisions 322 322 281 30 331 32 675 35 760 Net loans to and claims on customers 36 044 32 895 30 447 797 Repossessed assets 15 8 97 Certificates, bonds and other 1 908 2 186 2 435 interest-bearing securities with fixed yield 16 2 435 2 186 1 908 825 595 369 Shares and other securities with variable yield 17 372 596 827 Equity stakes in associated 319 266 258 companies and joint ventures 18 258 266 319 145 147 152 Equity stakes in Group companies 19 0 00 29 22 9 Deferred tax benefit 20 38 56 58 144 134 131 Fixed assets 21 553 565 591 94 84 50 Other assets 22 59 93 119 461 488 471 Prepayments and accrued income 23 476 488 461 35 267 37 890 40 899 Total assets 40 892 37 879 35 266

liabilities and equity capital 3 175 4 478 3 394 Liabilities to credit institutions 24 3 366 4 452 3 142 18 499 20 249 21 727 Deposits from and liabilities to customers 25 21 666 20 182 18 429 9 772 9 298 11 171 Borrowings raised through the issuance of securities 26 11 171 9 298 9 772 339 325 314 Other liabilities 27 329 340 379 357 432 435 Incurred costs and prepaid income 28 494 490 411 000 Provisioning against incurred liabilities and costs 5 54 885 871 1 503 Subordinated loan capital 29 1 502 871 885 33 027 35 653 38 544 Total liabilities 38 533 35 638 33 022

Minority interests 4 44

660 660 660 PCC capital 30 660 660 660 888 Premium Fund 30 8 88 668 668 668 Total paid in equity capital 668 668 668 86 0 0 Fund for evaluation differences 30 0 020 1 173 1 254 1 357 The Savings Bank's Fund 30 1 357 1 254 1 173 313 315 315 Dividend Equalisation Fund 30 315 315 313 0015 Donations 30 15 066 1 572 1 569 1 687 Total retained earnings 1 687 1 569 1 572 2 240 2 237 2 355 Total equity capital 2 355 2 237 2 240

35 267 37 890 40 899 Total liabilities ang equity capital 40 892 37 879 35 266

transactions of an off-balance sheet nature Contingent liabilities 32,33

Tromsø, 31 December 2003 | 2 March 2004

Harald Overvaag Tom Veierød Turid Holberg Trine Nøvik Erik Sture Larre jr chairman deputy chairman

Åse Annie Opsjøn Rolf Pedersen Vivi Ann Pedersen Hans Olav Karde chief executive officer

annual report 2003 15 cash flow analysis

(AMOUNTS IN NOK MILLION) PARENT BANK GROUP 2001 2002 2003 2003 2002 2001

311 155 266 Result from ordinary operations 273 158 317 57 52 45 + Ordinary depriciation 58 66 70 010 + Write-downs, gains/losses fixed assets 1 20 136 239 314 + Losses on loans, guarantees etc. 318 245 138 99 92 56 - Taxation costs 62 94 104 000 - Group contributions 0 00 99 66 92 - Dividend paid on PCCs 92 66 99

306 289 477 Provided from the year’s operations 496 311 322

68 61 -8 Change in sundry liabilities: + increase/ - decrease -7 41 91 -101 -12 65 Change in various claims: - increase/ + decrease 64 -2 -132 Change in gross lending to and -1 684 -2 583 -3 399 claims on customers: - increase/ + decrease -3 467 -2 693 -1 779 151 -48 -23 Change in short term-securities: - increase/ + decrease -25 -47 151 Change in deposits from and 1 097 1 750 1 478 debt owed to customers: + increase/ - decrease 1 484 1 753 1 112 599 1 303 -1 084 Change in debt owed to credit institutions: + increase/ - decrease -1 086 1 310 590

436 760 -2 494 A. Net liquidity change from operations -2 541 673 356

-50 -43 -41 - Investment in fixed assets -64 -56 -75 400 + Sale of fixed assets 17 14 6 -595 51 3 Change in holdings of long-term securities: - increase/ + decrease 8 53 -586

-641 8 -38 B. Liquidity change in respect of investments -39 11 -655

Change in borrowings through the 242 -474 1 873 issuance of securities: + increase/ - decrease 1 873 -474 242 -17 -14 632 Change in subordinated loan capital: + increase/ - decrease 631 -14 -17

225 -488 2 505 C. Liquidity change from finacing 2 504 -488 225

20 280 -27 A + B + C. Total change in liquidity -76 196 -75 984 1 004 1 284 + Liquid funds at the start of the period 725 529 604

1 004 1 284 1 257 = Liquid funds at the end of the period 649 725 529

Liquid funds are defined as cash-in-hand, claims on central banks, plus loans to and claims on credit institutions.

16 annual report 2003 The story about the bank which notes to the became of pivotal importance annual report 2003 to its customer’s enterprise. >>>

Per Strand is not just anybody from “up north”. The energetic entrepreneur is the Chairman of the Board of Per Strand AS, a company consisting of seven Byggmakker stores from Narvik to Tromsø. With only his own go-ahead enthusiasm and drive as starting capital and no employees other than himself, Strand has developed his company into a building articles empire in North Norway.

Large buildings need solid foundations. For Strand’s group, SpareBank 1 Nord-Norge is certainly one of the cornerstones. From being a secondary banking connection for only some parts of the group, SpareBank 1 Nord-Norge has now taken over as the main bank for Strand’s entire business activities. “SpareBank 1 Nord-Norge has earned its position with us. Over a long period of time, the Bank has proved to be a committed and flexible provider of financial services”, says Strand.

It’s all about working well together! notes to the annual report 2003

NOTE 1 – ACCOUNTING PRINCIPLES Shares of the result for the year are incorporated in the profit and FOR SPAREBANK 1 NORD-NORGE loss account and shown as separate items under “Dividends and other income received from securities with variable yield”. In the General background balance sheet, such participations are shown as separate items The annual financial statements for 2003 have been prepared in under “Equity stakes in associated companies and joint accordance with the Accounting Act of 1998, Norwegian ventures”. Accounting Standards, applicable and currently valid rules and regulations, and good accounting practice. Information con- Joint ventures tained in Notes to the Accounts applies to the Group unless stat- A joint venture enterprise comprises financial and economic ed otherwise in the particular note in question. All amounts in activities regulated by an agreement entered into by the Bank and the profit and loss account, balance sheet and notes are in NOK one or several other partners, who together exercise joint control million unless a different basis has been specified. of the business. No partner has a controlling influence. In the Parent Bank- and Group accounts, the joint venture of Group accounts SpareBank 1 Gruppen AS is incorporated according to the equity Subsidiaries method of accounting. The reason for this is that SpareBank 1 Subsidiaries are defined as companies in which the Bank, on its Gruppen AS’s operations are substantially different from the own or together with subsidiaries, owns more than 50% of the Bank’s other business activities; if the gross method of calcula- voting shares or has a controlling influence, and where the own- tion were to be used, relevant accounting information would ership/equity holding is regarded as permanent. Subsidiaries are have been difficult to access. Application of the equity method of incorporated in the Company’s accounts in accordance with the accounting has been duly agreed with the Oslo Stock Exchange. equity method of accounting. In the case of newly acquired com- In the profit and loss account, the share of the overall result is panies, such subsidiaries are consolidated into the Group’s shown under the item, “Dividends and other income received accounts from such a time as the Bank achieves a controlling from securities with variable yield”, whereas equity participations influence. Any subsidiaries which are sold are included until the are included in the balance sheet under the heading, “Equity time of divestment. stakes in joint ventures”. All identifiable assets and liabilities are incorporated in the balance sheet on the basis of their value at the time of acquisi- Accrual accounting tion. Goodwill acquired through the purchase of subsidiaries is Interest, commisions, fees and share dividends depreciated over a 5-year period. Interest and commissions are included in the profit and loss In the Company’s accounts, equity stakes are shown in the account as they are earned as income or incurred as expenditure. balance sheet under the item, “Equity stakes in Group compa- Front-end establishment fees payable by the customer at the out- nies”; the share of the result is included in the profit and loss set of a loan arrangement, are booked as income in their entirety account under the item, “Dividends and other income received in that same year, as those fees are deemed to cover the costs from securities with variable yield”. relating to the establishment of the loan in question. All significant intra-group items in the Group profit and loss Share dividends from companies not evaluated according to account and balance sheet have been netted out against each the equity method of accounting are booked as income during other. the year in which they are received. Minority interests’ shares of equity capital and result are shown as separate items in the balance sheet and profit and loss Income and costs account. Prepaid income and incurred costs of significant magnitude are Group accounts are prepared according to uniform princi- subject to accrual accounting and booked as liabilities. Accrued ples, subsidiaries adhering to the same accounting principles as income and prepaid costs involving substantial amounts are the Parent Bank. included as income and shown as assets.

Associated companies Pension costs and pension liabilities Associated companies are defined as companies where the The Bank’s pension scheme is treated in the accounts in accor- Bank’s or its subsidiaries’ equity holdings are between 20 and dance with “Norwegian Accounting Standard for Pension Costs”. 50%, and where the influence of the Bank or one of its sub- According to this standard, the pension scheme is treated in the sidiaries is significant, and the equity stake is deemed to be of a Bank’s accounts as a benefits plan. Pension costs for the year are permanent nature. Relevant figures in respect of participations in arrived at by adding together the present value of the year’s associated companies are incorporated according to the equity pension accruals, interest costs relating to the pension liabilities method of accounting, both in Parent Bank- and Group accounts. incurred, and the expected investment return on pension

18 annual report 2003 resources. Pension costs are shown in the profit and loss Portfolio of remaining ordinary securities account under the item, “Wages, salaries and general administra- Shares, bonds and certificates are assessed as separate portfo- tion costs”. lios, at the lower of aggregate market value and average acquisi- Any shortfall relating to the Bank’s pension liabilities is tion cost. incorporated in the balance sheet under “Provisions for incurred costs and liabilities”, whereas any excess funding is carried under Portfolio comprising securities the item, “Prepaid costs, not yet incurred, and income accrued, held on a long term basis not yet received”. Any shortfall/excess in respect of such funding Shares classified in this way are intended to be held on a perma- appears as the difference between the present value of incurred nent basis; the same classification is applied to shares in sub- pension liabilities, including future wage- and salary adjustments, sidiaries, associated companies and joint venture enterprises. and the value of pension resources. Both covered and uncovered Long-term holdings of shares are valued at acquisition cost. arrangements are included in the Bank’s pension liabilities. If a share’s market value is lower than its book value, and if the When preparing year-end accounts, evaluation of pension fall in value is deemed not to be of a temporary nature, in that resources and calculation of accrued liabilities are based on case such long-term holdings of shares are written down to their estimated values. These estimates are adjusted each year in actual values. accordance with statements provided by SpareBank 1 Pensjonstjenester AS; this statement contains the total estimated Leasing value of the pension resources as well as actuarial calculations of Assets which are bought for the purpose of leasing are shown in the overall extent of the pension liabilities in question. The finan- the Bank’s balance sheet under loans and depreciated in accor- cial impact of any changes in estimates and discrepancy between dance with the annuity principle (progressive depreciation). Non- estimated and actual return is included in the profit and loss accrued advance rentals relating to leasing commitments are account during the average remaining accrual time involved, only included under liabilities in the balance sheet. when the accumulated effect exceeds 10% of the higher of total The rental cost is invoiced/charged to the customer in equal, pension resources and aggregate pension liabilities respectively. periodic amounts (annuities) during the ordinary leasing period. Rental income is booked on a gross basis, depreciation being Extraoridinary items deducted from the assets in question. Substantial items which are unusual in the context of the Bank’s ordinary banking activities, and which surface on an irregular Factoring basis, are classified as extraordinary items. Interest and commissions in respect of transferred invoices/claims are booked as income in the relevant income Tax accounts. In the balance sheet, gross outstanding claims are Deferred tax is calculated against the background of temporary included under loans, whereas the difference between gross differences between values in accounting- and tax-related context claims and amounts financed for clients is carried on the liabili- at the end of the accounting year. A nominal rate of tax is applied ties side of the balance sheet as a margin/current account for the when making these calculations. Temporary differences – which customers involved. Factoring clients guarantee, as for their own have a tax-increasing- or tax-decreasing impact – are assessed debt, all transferred claims. against each other within the same period of time. Certain items are nevertheless assessed separately, including goodwill in con- Lending, commitments in default and losses nection with company acquisitions, and pension liabilities. on loans and guarantees Deferred tax benefit arises if the temporary differences available Norway, in its entirety, is defined as one geographical risk area. provide the basis for tax deductions in the future. The taxation Loans are assessed on the basis of nominal values, with the charge for the year consists of changes in deferred tax and exception of outstanding commitments which are defined as bad deferred tax benefit, coupled with tax payable on income during or doubtful. Estimated and confirmed losses are treated in the the year in question, adjusted for under- or over-provisioning accounts in accordance with currently applicable laws, rules and during the previous year. regulations

Securities Loans in default – bad and doubtful commitments The Bank’s aggregate securities portfolio is made up as follows: Default is deemed to have occurred whenever either one of a • Trading portfolio customer’s loans/credit facilities or that customer’s total out- • Remaining holdings of ordinary securities standing commitment is no longer being serviced in accordance • Portfolio comprising securities held on a with the terms and conditions of the loan agreement in question, long-term basis and in cases where 90 days have elapsed since the agreed date of maturity, or when an account has been overdrawn on a continu- Trading portfoilio ing, uninterrupted basis for 90 days, and when the amount in Bonds and certificates are assessed as separate portfolios, at default exceeds NOK 1,000.-. market value on the accounting day in question. Shares con- Payment delays of a temporary nature are not considered tained in the trading portfolio are assessed on an overall basis, at ground for default. Other bad and doubtful commitments are market value. The same assessment method is applied to defined as commitments which have not been in default for more options and the purchase of shares. than 90 days, but where a customer’s financial position would suggest that a loss is very likely to occur.

annual report 2003 19 Loans with an amended agreement mated realisation value at the time of repossession. Write-down These are renegotiated loans whose interest rates, terms and as a result of any fall in value, or loss from the sale involved, is conditions are significantly more generous than those which included in the accounts as losses on loans, whereas any gain would normally have applied. The Group’s portfolio of such loans from such a sale is shown under “Recoveries in respect of previ- is of insignificant size and the amounts in question have not ously confirmed losses”. If the Bank were to find it more appro- been discounted down to their present value. priate to keep the repossessed assets for its own use, or to man- age them for the purpose of development over time, in that case Confirmed losses such assets would be classified and assessed as fixed assets in Losses on outstanding commitments are treated as confirmed in the balance sheet. the accounts when such losses have arisen after declared and completed bankruptcy or official agreement with the creditors, in Fixed assets cases where a legal levy made against the borrower’s assets has Real estate and other fixed assets are shown in the balance sheet not been successful, following a legally valid judgment, or other- at acquisition cost, after deducting accumulated ordinary depre- wise in cases where the Bank has waived, wholly or partly, its ciation and any write-downs. The cost of any improvements is rights relating to the outstanding commitment due. In the bal- added to the fixed assets’ acquisition cost and is to be depreciat- ance sheet, confirmed losses on loans are deducted from the ed at the same rate as that which applies to the fixed assets in total amount of the loan portfolio. question. Maintenance costs are charged to the profit and loss account direct during the year in which they are incurred. Specific loss provisions Depreciable fixed assets are depreciated on a straight line basis, Bad and doubtful loans are assessed with regard to the need for spread over the estimated economic life involved. The deprecia- specific loss provisioning. When making such an assessment, tion rates used are as follows: the Bank takes into consideration a customer’s financial situa- tion, the value of the collateral pledged as security for the com- • Buildings 1-5% mitment in question, and any measures which may have been • Furnishing, fixtures and fittings 10% implemented in the case of the customer concerned. Collateral is • Machinery, electronic data processing- assessed on the basis of its estimated realisation value. Specific and transport equipment 20% loss provisioning relating to loans is dealt with in the accounts by • Electronic data processing making an appropriate deduction from the total amount of gross – software programmes 20-33% lending. Specific loss provisions against guarantees are shown as • Dwelling units, building plots and sites, a separate item under “Provisions for costs incurred and and works of art 0% liabilities”. Write-downs are applied when the difference between registered- Non-specific loss provisions and market value is substantial and not of a temporary nature, In the case of that part of the lending portfolio which does not but such write-downs are reversed in the accounts whenever the involve specific loss provisions, and where, on the accounting basis for write-down of assets no longer applies. day in question, no losses relating to specific outstanding com- Bank buildings are valued as a portfolio. The values of any mitments are expected, based on facts, figures and circum- remaining property and other fixed assets are assessed separately. stances, in such a case, non-specific loss provisioning is raised. Such provisions are made against the background of the Bank’s Other liabilities experience relating to the general economic situation, lending Bonds issued by SpareBank 1 Nord-Norge growth and the composition and diversification of the loan port- Bond debt is shown in the balance sheet at nominal value. Any folio as far as different commercial- and industrial sectors are premium or discount is incorporated in the balance sheet, concerned. Non-specific loss provisions are deducted from gross booked as income or costs respectively on a straight line basis, lending. as an adjustment to current interest costs until the maturity of the bond loan in question. Repurchase of issued bonds, where Non-accrual of interest the purpose thereof is to subsequently sell these bonds in the Inclusion of interest and commissions as income in the accounts market, is regarded as continuity as far as the underlying borrow- is stopped in the case of outstanding commitments which are ing relationship is concerned. Any gains and losses arising from deemed to be bad or doubtful, and when the assessed value of such repurchase arrangements and on-selling of the Bank’s own the collateral pledged as security for the commitment in question, bonds are spread over the remaining life of the bonds in ques- coupled with the customer’s financial situation, would suggest tion. that it is time to raise specific loss provisioning. Interest which has not bee paid is reversed in the profit and loss account, back Assets and liabilities in foregin currencies to the date on which the previous capitalisation was made. The Bank’s assets and liabilities in foreign currencies are valued at middle market prices at the Oslo Stock Exchange on the Repossessed assets accounting day in question. Income and costs in the Bank’s Assets which have been repossessed in connection with legal accounts are converted into Norwegian kroner at the exchange recovery of claims under outstanding commitments, and which rates ruling at the time when such income and costs were the Bank intends to sell on quickly, are included in the balance accrued and incurred. sheet as current assets. Such assets are assessed at their esti-

20 annual report 2003 Financial instruments of an off-balance sheet category Business area Financial instruments of an off-balance sheet nature mainly com- SpareBank 1 Nord-Norge’s operations and activities are regarded prise currency- and interest rate instruments. This involves agree- as a total and cohesive business area. ments entered into with other banks, or with customers, in respect of the fixing of future foreign exchange rates and/or inter- International Financial Reporting Standards (IFRS) est rates, terms and conditions. These types of financial instru- As a quoted company, the Group will prepare and report Group ments are used in order to deal with the Group’s overall foreign accounts in accordance with IFRS with effect from 2005. currency- and interest rate risks, and to take positions for the The Group has commenced work on the implementation of purpose of benefitting from expectations about the way in which IFRS. The consequences of the various alternative principles for interest rates and foreign exchange rates will develop. the Group in connection with the switch to IFRS have been iden- Instruments are classified at the time of entering into an agree- tified and assessed. ment as hedging- or trading transactions, depending upon the The Group will establish an opening balance as at 1.1.2004 purpose of the transaction concerned. according to IFRS. Hedging transactions are defined as agreements whose pur- The most important difference compared with today’s pose is to reduce/neutralise the Bank’s overall risk exposure to accounting principles will be the reporting and measuring of changes in interest rates and/or foreign exchange rates. In order financial instruments. Derivatives will be shown at their market to be able to classify such an agreement as a hedging transac- value and this may have an impact on instruments using deriva- tion, there accordingly has to be a large degree of negative covari- tives as a hedging instrument. In other areas, there will be small- ance between the hedging agreement and the item which has er or no significant changes. There is reason to believe that the been hedged. Revenues and expenditure relating to such hedging implementation of IFRS will mean that the Group’s profit and transactions are shown in the profit and loss account in accor- loss account and equity capital will be somewhat more volatile dance with the items being hedged. than they are today, under the current regime of accounting prin- Trading transactions comprise trading for own account in ciples. order to make a profit by taking advantage of differences and The Group will not present accounting figures in accordance changes in price. Trading transactions are assessed according to with IFRS until 2005, partly due to the uncertain background market value (marked to market). Any changes in market value is relating to the development of IFRS between now and 2005. In included on a net basis in the profit and loss account as net 2005, one year’s comparative figures (2004) will be presented, trading gains/losses. with the exception of financial instruments, which, during the year of implementation (2005), are exempted for presentation of comparative figures.

NOTE 2 – NET INTEREST – AND CREDIT COMMISION INCOME

PARENT BANK GROUP 2002 2003 2003 2002

74 74 Interest and similar income from loans to and claims on credit institutions 47 37 2 780 2 284 Interest and similar income from loans to and claims on customers 2 315 2 810 Interest and similar income from certificates, bonds and 118 90 other interest bearing securities 90 118 2 972 2 448 Total interest and similar income 2 452 2 965

133 118 Interest and similar costs in respect at liabilities to credit institutions 116 131 1 072 726 Interest and similar costs relating to deposits from and liabilities to customers 724 1 065 644 481 Interest and similar costs relating to the issuance of securities 481 644 74 61 Interest and similar costs relating to subordinated loan capital 61 74 30 32 Other interest and similar costs 1) 32 30 1 953 1 418 Total interest and similar costs 1 414 1 944

1 019 1 030 Net interest and credit commission income 1 038 1 021

1) By law, Norwegian savings banks must be members of the Savings Banks' Guarantee Fund. The purpose of the Fund is to support member banks' operations and to make sure that they meet their obligations. In 2003, the bank has paid NOK 31.5 mill to the Fund.

annual report 2003 21 NOTE 3 – DIVIDENDS RECEIVED AND OTHER INCOME FROM SECURITIES WITH VARIABLE YIELD

PARENT BANK GROUP 2002 2003 2003 2002

20 3 Income from shares, unit trusts and other securities with variable yield 3 20 -163 -7 Income from shareholdings in associated companies -7 -163 3 12 Income from shareholdings in Group companies 0 0 -140 8 Total dividends and other income from securities with variable yield -4 -143

NOTE 4 – COMMISSIONS AND INCOME FROM BANKING SERVICES

PARENT BANK GROUP 2002 2003 2003 2002

11 13 Guarantee commissions 13 11

Other fees and commission income: 16 20 Loan/credit brokerage 20 16 26 28 Securities trading, administration and trust department services 54 52 181 191 Payment transmission services 191 181 59 67 Insurance services 67 59 9 10 Miscellaneous 10 9 291 316 Total other fee- and commission income 342 317

302 329 Total commissions and income from banking services 355 328

NOTE 5 – NET VALUE CHANGES; GAINS/LOSSES ON CERTIFICATES, BONDS AND OTHER CHANGES – GAINS/LOSSES FROM FOREIGN EXCHANGE AND SECURITIES CLASSIFIED AS CURRENT ASSETS

PARENT BANK GROUP 2002 2003 2003 2002

Net value changes - gains/losses on certificates, bonds and other -8 15 interest-bearing securities 15 -8 Net value changes - gains/losses on shares and other securities 6 -5 with variable yield -5 6 26 36 Net value changes and gains/losses on for. exch. and fin. derivatives 36 26 Total value changes and gains/losses on foreign exchange and 24 46 securities classified as current assets 46 24

NOTE 6 – OTHER OPERATING INCOME

PARENT BANK GROUP 2002 2003 2003 2002

2 2 Operating income from real estate 13 13 10 7 Other operating income 43 38 12 9 Total other operating income 56 51

22 annual report 2003 NOTE 7 – WAGES, SALARIES AND GENERAL ADMINISTATION COSTS

PARENT BANK GROUP 2002 2003 2003 2002

277 290 Wages and salaries 317 304 40 42 Pensions 45 42 21 22 Social costs 27 24 232 242 Administration costs 258 249 570 596 Total wages, salaries and general administration costs 647 619584

(AMOUNTS IN NOK THOUSAND) 1 035 1 030 Fee paid to directors of the Board 220 220 Fee paid to the Control Commitee 116 258 Fee paid to Board of Directors

1 776 1) Salary and other emoluments for the Managing Director: 1 572 1 642 - Ordinary remuneration 164 134 - Other benefits subject to income tax

888 824 Average number of staff during the accounting year 888 950

1) The Chief Executive Officer has a pension agreement which commences at the age of 60. This gives him the right to a pension disbursement equal to 70% of his annual leaving salary. If he should so wish, the CEO can resign at the age of 60. The Bank's subsidy of borrowing rate paid by staff are not accounted as a separate cost, and are included as an interest income. The borrowing rate paid by staff is 80 per cent of customers standard interest rate for house mortage loans.

NOTE 8 – DEPRECIATION ETC. OF FIXED- AND INTANGIBLE ASSETS

PARENT BANK GROUP 2002 2003 2003 2002

52 45 Ordinary depreciation 58 66 1 0 Write-downs 1 2 53 45 Total depreciation etc. of fixed- and intangible assets 59 68

NOTE 9 – OTHER OPERATING COSTS

PARENT BANK GROUP 2002 2003 2003 2002

6 5 Operating costs buildings 12 11

Other operating costs: 1 1 Fees 1) 1 1 58 56 Rent paid - premises and bank buildings 2) 27 30 9 12 Operating costs - premises 12 9 50 52 Other operating costs 56 55 118 121 Total other operating costs 96 95

124 126 Total operating costs 108 106

Of which, remuneration for the External Auditor accounted for: 1 195 1 151 1) Auditing fees 1 672 1 496 2036 795 Advisory services fees 892 2 257 (included under wages, salaries and general administration costs)

2) The Bank rents most of its bank buildings from Eiendomsdrift AS. The other bank buildings are rented from different companies. Rentals of bank buildings from general partnerships include an option for the Bank to buy the buildings at the end of the rental agree- ments. The rental agreements will be terminated during the period 2003-2004.

annual report 2003 23 NOTE 10 – LOSSES ON LOANS AND GUARANTEES

PARENT BANK GROUP 2002 2003 2003 2002

238 314 Losses on loans 318 244 1 0 Losses on guarantees etc. 0 1 239 314 Total losses on loans, guarantees etc. 318 245

LOSSES INCORPORATED IN THE ACCOUNTS

PARENT BANK GROUP 2002 2003 2003 2002

+Increase in loss provisions for commitments against which specific loss 36 94 provisioning has previously been raised 94 36 + Loss provisions for commitments against which specific loss provisioning 153 224 has not previously been raised 227 159 15 30 - Reversal of previous years' loss provisions 30 18 40 0 + Change in non-specific loss provisions 42 + Confirmed losses on commitments against which specific loss provisioning 55 53 has not previously been raised 54 56 30 27 - Recoveries in respect of previous, confirmed losses 27 30 239 314 = Total losses on loans, guarantees etc. 318 245

CONFIRMED LOSSES

PARENT BANK GROUP 2002 2003 2003 2002

63 144 + Period's confirmed losses against which specific loss provisions were previously made 145 65 55 53 + Period's confirmed losses against which specific loss provisions were not previously made 54 56 118 197 = Period's confirmed losses 199 121

LOSSES BROKEN DOWN BY COMMERCIAL, INDUSTRIAL AND OTHER SECTORS

PARENT BANK GROUP 2002 2003 2003 share share share losses losses losses losses sectors losses losses

Agriculture, forestry, fisheries, 6 % 15 25 % 84 hunting and fish farming 24 % 84 17 % 47 30 % 103 Industry and mining 30 % 104 3 % 8 2 % 7 Building and construction; power- and water supply 2 % 7 Wholesale- and retail trade; 13 % 36 16 % 53 hotel- and restaurant industry 15 % 53 0 % 1 -1 % -4 International shipping and pipeline transport -1 % -4 4 % 11 4 % 15 Transport- and communication 5 % 17 28 % 75 13 % 45 Financing, property management and business services 13 % 46 3 % 7 0 % Other services 0 % 11 % 29 11 % 38 Retail banking market 11 % 38 13 % 36 0 % Non-specific losses - corporate banking sector 0 % 1 % 4 0 % Non-specific losses - retail banking sector 0 % 0 % 0 0 % Misc., not broken down by sectors (losses on reposs. assets) 0 % 100 % 269 100 % 341 Losses on loans to customers 100 % 345

30 27 Recoveries in respect of previous, confirmed losses 27 239 314 Net losses on loans to customers 318

24 annual report 2003 NOTE 11 – TAX PAYABLE ON ORDINARY RESULT

THE TAX PAYABLE IS CALCULATED AS FOLLOWS:

PARENT BANK 31.12.03 31.12.02

Ordinary result before taxation charge 266 155 Permanent differences -3 159 Change in provisional differences -80 -2 Basis for tax payable 183 312

Tax at the rate of 28% 51 87 Allowance for dividends received -1 -3 Tax payable on the result for the year 50 84

Wealth tax payable 3 3

Total tax payable 53 87

Of which is carried forward to extraordinary result 0 0

THE TAXATION CHARGE FOR THE YEAR IS COMPUTED AS FOLLOWS:

PARENT BANK GROUP 2002 2003 2003 2002

87 53 Total tax payable 57 95 7 13 Gross change in deferred tax 15 1 -2 -10 Under-/over-provision for tax last year -10 -2 92 56 Total taxation charge for the year 62 94

THE BASIS FOR DEFERRED TAX BENEFIT/DEFERRED TAX IS ARRIVED AT AS FOLLOWS:

PARENT BANK GROUP 31.12.02 31.12.03 31.12.03 31.12.02

differences to be netted out -96 -57 Current assets -71 -106 -61 -55 Fixed assets -132 -156 -10 -9 Other provisional differences (liabilities) -13 -10 Loss carried forward -10 -10 -167 -121 Basis for calculating deferred tax benefit -226 -282

-47 -34 Total deferred tax benefit -63 -79

88 90 Pension liabilities/over-funding of pension liabilities 91 88 88 90 Basis for calculating deferred tax 91 88

25 25 Total deferred tax 25 25

annual report 2003 25 LOSS CARRIED FORWARD

SUBSIDIARIES AMOUNT (AMUNTS IN NOK THOUSAND) last year in which losses may be carried out:

EiendomsMegler 1 Nord Norge AS 2013 9 549 Mynten AS 2011 600 Fiskerikreditt AS 2012 867

RISK: The “RISK” amount as at 01.01.04 has been calculated at NOK 0.01 per PCC. The “RISK” amount as at 01.01.03 has been fixed at NOK 0.24 per PCC.

NOTE 12 – LOANS TO AND CLAIMS ON CREDIT INSTITUTIONS

PARENT BANK GROUP 2002 2003 2003 2002

27 54 Loans to/claims on credit institutions - no agreed maturity or notice of withdrawal 54 27 821 655 Loans to/claims on credit institutions - with agreed maturity or notice of withdrawal 262 848 709 Total loans to/claims on credit institutions 101 289

NOTE 13 – LOANS TO AND CLAIMS ON CUSTOMERS

PARENT BANK GROUP 2002 2003 2003 2002

Loans - factoring 69 85 Leasing agreements 541 505 2 431 2 362 Overdraft- and working capital facilities 2 360 2 429 1 095 1 194 Building loans 1 194 1 095 29 818 33 017 Repayment loans 1) 32 705 29 460

Other loans 33 344 36 573 Total loans before specific and non-specific loss provisions 36 869 33 574 351 495 - Specific loss provisions 503 357 318 318 - Non-specific loss provisions 322 322 32 675 35 760 Total net loans and claims on customers 36 044 32 895

Excess of purchase price over net assets acquired – as incorporated in the accounts 1) In February 2000, SpareBank 1 Nord-Norge bought portfolios belonging to VAAR Bank in North Norway. Of the total excess value of NOK 45 million, an amount of NOK 19 million was linked to the lending portfolio. This excess value will be depreciated over 4 years, which period corresponds to the portfolio's estimated average loan period. Depreciation is shown as a reduction in interest income - of NOK 5 million per year.

LENDING BROKEN DOWN BY MARKETS

PARENT BANK GROUP 2002 2003 2003 2002 share lending share lending lending share lending share

56 % 18 523 58 % 21 388 Retail banking market 21 482 58 % 18 600 55 % 43 % 14 505 41 % 14 919 Corporate banking market 15 070 41 % 14 613 44 % 1 % 316 1 % 266 Public sector market 317 1 % 361 1 % 100 % 33 344 100 % 36 573 Total gross lending broken down by markets 36 869 100 % 33 574 100 %

26 annual report 2003 LENDING BROKEN DOWN BY DIFFERENT CATEGORIES OF RISK

GROUP 2003 2002 2003 2002 2003 2002 specific total commitments gross lending loss provisions expected net loss

Low risk 28 850 27 069 26 885 24 415 15 Medium risk 6 547 6 282 5 592 5 295 35 High risk 3 765 3 147 3 245 2 790 150 Bad/doubtful 1 147 1 074 1 147 1 074 503 357 40 309 37 572 36 869 33 574 503 357 200

For the corporate lending portfolio, the Bank applies a Risk pricing of corporate banking commitments reflects the class classification system for the monitoring of credit risk. of risk involved, as well as the security coverage. For retail banking commitments, borrowers' ability to service their outstanding Each individual commitment is classified on the basis of key commitments - according to standard ratios - and the security ratios involving capital strength, revenue generation and liquidity. coverage in question are taken into consideration when pricing risk. Security is not an element as far as this classification is con- cerned. Non-classified corporate customer commitments are The share of high-risk commitments increased from 8.3 in 2002 apportioned on a relative basis between the various risk groups to 8.8 per cent in 2003. The share of bad and doubtful commit- in the summary. The low risk group includes all retail-, corporate- ments reduced from 3.2 to 3.1 per cent of the lending portfolio. and public sector banking commitments with low risk, but which are not bad and doubtful. The anticipated level of annual average net credit losses is related to a period of 6 years. This estimate is within a management- High risk commitments are subjected to special scrutiny in order related limit of 0.5 per cent losses each year. Increased share of to calculate - and limit - the risk. bad and doubtful commitments are caused by increased loan portfolio. There is some uncertainty as far as the general Total commitments are defined as the sum of aggregate loan out- economic situation and therefore the expected level of credit standings, the guarantee- and credit limits, plus accrued interest. losses will develop.

Specific loss provisions are raised for retail- and corporate The calculation of non-specific loss provisions is related to the banking commitments which, according to BISC's rules and growth in lending volumes, the general economic situation and regulations, have been identified as bad and doubtful. the composition of the corporate banking loan portfolio.

LENDING BROKEN DOWN BY GEOGRAPHICAL SECTORS

GROUP 2003 2002 gross gross share lending share lending

North Norway, including Spitzbergen 92 % 33 712 93 % 31 114 Other counties 8 % 3 089 7 % 2 413 International 0 % 68 0 % 47 Total gross lending by geographical sectors 100 % 36 869 100 % 33 574

annual report 2003 27 LENDING BROKEN DOWN BY COMMERCIAL, INDUSTRIAL AND OTHER SECTORS

GROUP 2003 2002 2003 2002 2003 2002 2003 2002 total gross total, in default/ specific commitments lending bad & doubtful loss provisions

Central goverment adm., social security administration 1 1 1 1 Counties and municipalities 486 897 316 361 Agriculture, forestry, fisheries, hunting and fish farming 2 714 2 709 2 589 2 561 242 109 100 32 Production of crude oil and natural gas 10 1 10 1 Industry and mining 2 674 2 815 1 994 2 169 334 394 175 100 Building and construction, power and water supply 1 825 1 992 910 1 125 24 18 14 12 Wholesale and retail trade; hotel and restaurant industry 2 172 2 404 1 733 2 015 88 95 45 39 International shipping and pipeline transport 109 53 106 42 1 5 0 4 Transport and service industries 2 046 2 023 1 655 1 792 69 22 21 16 Financing, property management and business services 5 658 4 943 5 313 4 259 148 163 82 93 Other services 693 653 616 560 12 32 6 13 Insurance, fund management and financial services 206 129 144 88 Foreign secor retail 70 47 41 47 Retail banking market 21 645 18 905 21 441 18 553 229 236 60 48 Total gross loans and guarantees 40 309 37 572 36 869 33 574 1 147 1 074 503 357

COMMITMENTS IN DEFAULT – BAD AND DOUBTFUL COMMITMENTS

PARENT BANK GROUP 1999 2000 2001 2002 2003 2003 2002 2001 2000 1999

345 450 471 518 704 Commitments in default 723 5 258 477 451 352 43 51 173 543 404 Other 'loss annotated' commitments 424 549 178 64 49 388 501 644 1 061 1 108 Total bad and doubtful commitments 1 147 1 074 655 515 401 131 177 241 351 495 Specific loss provisions 503 358 246 181 133 257 324 403 710 613 Net bad and doubtful commitments 644 716 410 334 268

SPECIFIC AND NON-SPECIFIC LOSS PROVISIONS

PARENT BANK GROUP 2002 2003 2003 2002

specific loss provisions: 241 351 Specific provisions against losses on loans, guarantees etc. as at 1.1 1) 357 245 - Confirmed losses during the period on loans, guarantees etc. against which 63 144 specific loss provisioning has previously been raised 145 65 16 30 - Reversal of previous years' loss provisions 30 18 + Increase in loss provisions for commitments against which specific 36 94 loss provisions were previously made 94 36 153 224 + Loss provisions for commitments against which no loss provisioning was previously raised 227 159 351 495 = Specific provisions against losses on loans, guarantees etc. 503 357

non-specific loss provisions: 278 318 Non-specific provisions against losses on loans, guarantees etc. as at 1.1 322 281 40 + Period's non-specific provisions against losses on loans, guarantees etc. 41 318 318 = Non-specific provisions against losses on loans, guarantees etc. 322 322

1) Specific loss provisions for guarantees, NOK 0.3 million, are included in the Balance Sheet as liabilities, under “Provisions against liabilities”.

28 annual report 2003 ACCRUED INTEREST, NOT YET BOOKED AS INCOME

PARENT BANK GROUP 2002 2003 2003 2002

33 48 Accrued interest - not yet booked as income - on loans as at 1.1 48 33 18 12 - Previous periods' loan interest booked as income during the period 12 18 11 21 - Accrued interest - not yet booked as income - on loans no longer in balance sheet 21 11 +Period's accrued - not yet booked as income - interest on loans which have been 44 38 identified as bad and doubtful 38 44 48 53 Accrued - not yet booked as income - interest on loans in balance sheet at 31.12 53 48

SUBORDINATED LOAN CAPITAL PROVIDED FOR CUSTOMERS (AMOUNTS IN NOK THOUSAND) PARENT BANK GROUP 2002 2003 2003 2002

loans to customers 42 600 42 600 SpareBank 1 Gruppen AS 42 600 42 600 20 000 20 000 Group companies - 85 988 107 453 Other companies 108 453 86 988

bond payable to bearer 8 395 Other companies 8 395 156 983 170 053 Total subordinated loan capital provided for customers 151 053 137 983

NOTE 14 – LOANS TO TOP TEAM MEMBERS AND ELECTED REPRESENTATIVES

PARENT BANK (AMOUNTS IN NOK THOUSAND) GROSS LOANS top team members 1) Hans Olav Karde, Managing Director 854 Oddmund Aasen, Deputy Managing Director 902 Olav Karlsen, Senior Group General Manager 1 556 Kjell Kolbeinsen, Information Director 974 4 286 members of the board of directors 2) Harald Overvaag, Chairman 445 Vivi-Ann Pedersen, Director 260 Aase Annie Opsjoen, Director 663 1 368

Odd A. Nilssen, Chairman Board of Trustees 125 members of contol committee and board of trustees 2) 11 463

Total – top team members and elected representatives 17 242

1) Terms, security and guarantees for other staff 2) Terms, security and guarantees for ordinary customers

annual report 2003 29 NOTE 15 – REPOSSESSED ASSETS

PARENT BANK GROUP 2002 2003 2003 2002 (AMOUNTS IN NOK THOUSAND) 7 525 6 292 Commercial buildings 6 292 7 525 1 191 811 Dwelling units 811 1 191 355 379 Tangible moveable property 479 355 9 071 7 482 Total repossessed assets 7 582 9 071

NOTE 16 - CERTIFICATES, BONDS AND OTHER INTEREST-BEARING SECURITIES WITH VARIABLE YIELD

PARENT BANK GROUP 2002 2003 2003 2002

20 20 Certificates, bonds and other interest-bearing secs issued by public sector borrowers 20 20 2 166 2 415 Certificates, bonds and other interest-bearing secs issued by other borrowers 2 415 2 166 2 186 2 435 Total certificates, bonds and other interest-bearing securities with variable yield 2 435 2 186

CERTIFICATES AND BONDS WHICH FORM PART OF THE TRADING PORTFOLIO (AMOUNTS IN NOK THOUSAND) PARENT BANK debtor- acquisition market book quoted average category cost value value secs part effective yield 1)

Financial institutions NOK 33 795 33 814 33 814 33 814 5,20 % Financial institutions USD 152 077 152 336 152 336 152 336 3,51 % Community-owned enterprices USD 99 502 99 700 99 700 99 700 1,49 % Financial institutions SEK 3) 52 192 52 192 52 192 52 192 5,85 % Community enterprises EUR 50 037 50 037 50 037 50 037 1,36 % Community-owned enterprises EUR 179 959 180 176 180 176 180 176 5,66 % Financial institutions EUR 668 351 668 673 668 673 668 673 2,93 % Total 1 235 913 1 236 928 2) 1 236 928 1 236 928

CERTIFICATES AND BONDS CLASSIFIED AS CURRENT ASSETS – NOT IN TRADING PORTFOLIO (AMOUNTS IN NOK THOUSAND) PARENT BANK debtor- aquisition market book quoted average category cost value value secs part effective yield 1)

Kingdom of Sweden 20 000 20 000 20 000 20 000 7,41 % Credit institutions 224 784 225 187 224 784 70 057 3,06 % Saving Banks 561 893 561 683 561 893 267 035 3,53 % Counties and municipals. 20 595 20 595 20 595 20 595 6,70 % Industrial enterprises 110 001 110 263 110 001 110 001 3,96 % Energy enterprises 260 331 262 630 260 331 260 331 3,66 % Total 1 197 604 1 200 358 2) 1 197 604 748 019

1) Average effective yield is calculated as weighted average of securities included in each debtor category 2) Part of market value is secured by currency- and interest rate agreements 3) SEK are secured by interest rate agreement in USD

30 annual report 2003 NOTE 17 – SHARES AND OTHER SECURITIES WITH VARIABLE YIELD

PARENT BANK GROUP 2002 2003 2003 2002

587 369 Shares, units and PCCs 372 588 8 0 Parts in gen.- and lim. Partnerships 0 8 595 369 Total shares, units and other secs 372 596

BREAKDOWN OF SHARES, UNITS AND OTHER SECURITIES WITH VARIABLE YIELD

PARENT BANK share acquisition book market book value of classified as cost value value quoted secs

Shares and PCCs which form part of the trading portfolio 115 121 121 120

Shares, units and PCCs - classified as current assets - which do not form part of the trading portfolio 247 242 242 115

Shares and units/parts classified as fixed assets 6660 Total shares, units and other securities with variable yield 368 369 369 235

PORTFOLIO CHANGES - SHARES AND UNITS/PARTS CLASSIFIED AS FIXED ASSETS

PARENT BANK

Portfolio as at 1.1.2003 6 Additions Disposals Reclassifications (gross) Premium/discount during the year – accrual accounting applied Write-downs during the accounting year Portfolio as at 31.12.2003 6

annual report 2003 31 SHARES, UNITS/PARTS AND PCCS (AMOUNTS IN NOK THOUSAND) PARENT BANK number of our equity- our equity- shares/parts market- book company names stake – nok per cent equity stakes value value pccs – trading portfolio: SpareBank 1 Rogaland 2 630 0,35 26 300 8 495 8 495 SpareBank 1 Midt-Norge 2 108 0,34 21 084 5 081 5 081 SpareBank 1 Møre 1 295 0,23 12 950 3 186 3 186 SpareBank 1 Vest 125 0,05 1 250 203 203 Ringerikes Sparebank 5 0,01 50 88 Sandnes Sparebank 2 0,00 20 33 shares – trading portfolio: Troms Fylkes Dampskibsselskap ASA 1 140 10,68 570 215 65 005 65 005 Pan Fish ASA 6 742 0,83 168 541 779 6 742 6 742 AS Ofoten og Vesteraalens Dampskibsselsap 177 0,15 17 744 878 878 Nordea(SE) 5 000 246 246 Skandia Forsikring (SE) 5 000 121 121 DnB Holding ASA 5 00 units in share-investment funds: Odin Sverige 4 291 2 925 2 925 Odin Finland 1 774 3 577 3 577 Odin Norge 2 105 1 707 1 707 Gambak 698 2 749 2 749 Gambak Kapital 1 557 1 691 1 691 AF Pluss 355 766 766 Delphi Europa 1 965 1 856 1 856 DnB Europa 10 770 2 846 2 846 DnB USA 25 627 2 277 2 277 DnB Asia 6 260 1 131 1 131 Delphi Norden 1 630 7 350 7 350

Shares - not specified - in trading portfolio 1 878 1 878 Total PCCs ANS shares – trading portfoilo 120 721 120 721

32 annual report 2003 PARENT BANK number of our equity- our equity- shares/parts market- book company names stake – nok per cent equity stakes value value shares – other ordinary shares: Troms Fylkes Dampskibsselskap ASA 1 591 14,91 795 585 90 697 90 697 AS Ofoten og Vesteraalens Dampskibselskap 13 850 11,86 1 385 000 68 558 68 558 FöreningsSparbanken AB (publ.) (SEK) 187 500 24 602 24 602 Hammerfest Næringsinvest AS 10 000 10 000 10 000 Marin Vekst AS 80 000 8 000 8 000 GPG Norge Vannavalen Fiskeindustri AS 8 000 8 020 8 020 Nordnorsk Vekst AS 9 999 7 864 7 864

Other ordinary shares have not been specified 24 688 Total shares and units – other ordinary shares 242 429 shares and units – classified as fixed assets: Bankenes BetalingsSentral AS 5 464 3,31 218 556 5 464 AS Sparebankmateriell 231 7,31 2 307 225 Visa Norge AS 400 5,00 400 100 S.W.I.F.T. S.C. 14 11 Total shares – classified as fixed assets 5 800

Total shares, units/parts and PCCs 368 950

NOTE 18 – EQUITY PARTICIPATIONS IN ASSOCIATED COMPANIES AND JOINT VENTURES

PARENT BANK GROUP 2002 2003 2003 2002

266 258 Equity participations in associated companies 258 266 266 258 Total equity participations in other associated companies 258 266

annual report 2003 33 SHARES AND EQUITY PARTICIPATIONS INCLUDED IN ACCOUNTS ACCORDING TO EQUITY METHOD OF ACCOUNTING (AMOUNTS IN NOK THOUSAND) GROUP book value acquisition- of equity cap. book value res. booked other book value our share cost at acquisition as at 1.1.02 as inc changes as at 31.12.02 associated companies: ANS Bygginvestorer II, Havøysund 29,71 % 2 639 2 639 817 -2 -83 732 ANS Bygginvestorer III, Tana 28,41 % 1 280 1 280 372 117 -65 419 ANS Sparebankbygg, Honningsvåg 26,04 % 1 414 1 414 610 545 -632 0 Portal Eiendomsforvaltning AS, Tromsø 20,00 % 500 500 640 132 0 701 joint ventures: SpareBank1Gruppen AS 14,08 % 407 320 259 260 263 394 -7 600 0 255 794 Total 413 153 265 093 265 833 -7 407 -780 257 646

Shares and equity participations in associated companies and joint ventures are not quoted on the stock exchange.

INTRA-GROUP BALANCES RELATING TO THE BANK AND THE ABOVEMENTIONED COMPANIES (AMOUNTS IN NOK THOUSAND) 2003 2002 assets Subordinated loans 42 600 42 600 Repayment loans 66 167 46 024 Total assets 108 767 88 624 liabilities Deposits from and liabilities to customers 4 598 12 117 Total liabilities 4 598 12 117

SPAREBANK 1 GRUPPEN SpareBank 1 Gruppen AS is owned by SpareBank 1 Nord-Norge, SpareBank 1 Midt-Norge, SpareBank 1 SR-Bank, and Samarbeidende Sparebanker AS, each having a 14,08% shareholding, SpareBank 1 Vest with 8,67%, FöreningsSparbanken AB (a public company), whose equity stake is 25%, and by the Norwegian Federation of Trade Unions (LO), whose shareholding is 10%. Equity stakes in SpareBank 1 Gruppen AS are to be regarded as participation in a joint venture and are accordingly included in member banks' accounts according to the equity method of accounting.

company’s share capital share of company name nok million equity stake voting rights

SpareBank 1 Gruppen AS 1,562.40 14,08 % 14,08 %

The joint venture operations consist of the parent company, SpareBank 1 Nord-Norge has made two subordinated loans to SpareBank 1 Gruppen AS, Sparebank 1 Livsforsikring AS, SpareBank 1 Gruppen AS amounting to NOK 42.6 million. The SpareBank 1 Skadeforsikring AS, SpareBank 1 Fondsforsikring AS, loans, amounted to NOK 16.6 million and NOK 26 million, Bank 1 Oslo AS, SpareBank 1 Bilplan AS (67,24%), ODIN matures in 2006 and in 2010, and the rate of interest payable has Forvaltning AS, Sparebankutvikling AS, SpareBank 1 Medlemskort been fixed at 6-months NIBOR plus a margin of 2.25 basis points. AS, First Securities ASA (33,33 per cent). The subsidiaries con- In connection with the acquisition of VAR Gruppen ASA in 2000, duct business within the areas of banking, insurance, brokerage SpareBank 1 Nord-Norge granted a debt instrument loan of NOK and fund management. All transactions entered into between the 182 million to SpareBank 1 Gruppen AS. Regarding stock issue in Bank and SpareBank 1 Gruppen’s subsidiaries are done on com- 2002 part of loan was converted to new shares. At 31.12.03 the mercial terms. Internal payments between the Bank and loan is ammounted to NOK 45.5 million. The loan matures on 15 SpareBank 1 Gruppen AS which are not related to sale and June 2005 and the rate of interest payable has been fixed at 6- portfolio advisory services are based on the full cost principle. months NIBOR plus a margin of 0.5 basis points. SpareBank 1 Gruppen also have an ordinary credit limited to NOK 10 million, and a credit given in 2003 at NOK 33 mill.

34 annual report 2003 2003 2002

Result (NOK THOUSAND) 100 % 14,08 % 100 % 13,00 %

Result after tax 89,3 -563,9 Depreciation of goodwill and excess value -133,7 -755,7 Other eliminations -9,6 30,8 Minority share -1,4 Loss for the year -54,0 -7,6 -1 290,2 -167,7

NOTE 19 – EQUITY STAKES IN GROUP COMPANIES

PARENT BANK 2003 2002

Equity stakes in credit institutions 100 96 Equity stakes in other Group companies 52 52 Total equity stakes in Group companies 152 148

SHARES AND EQUITY STAKES INCL. IN ACCOUNTS ACC. TO EQ. METHOD OF ACC. (AMOUNTS IN NOK THOUSAND) share of equity results book value and voting acquisition book value of book value booked as other as at company names share capital cost equity capital goodwill as at 1.1.02 income changes 31.12.02

SpareBank 1 NN Finans AS,Tromsø 100,00 % 14 000 14 000 0 65 605 10 308 -5 000 70 913 A/S Fiskerikreditt, Tromsø 100,00 % 24 315 20 117 4 198 28 857 610 0 29 467 Eiendomsdrift AS, Tromsø 100,00 % 20 000 20 000 0 37 712 2 191 0 39 903 EiendomsMegler 1 Nord-Norge AS, Tromsø 100,00 % 18 000 2 062 4 938 7 568 -2 365 -661 4 542 SpareBank1 Nord-Norge Securities ASA, Tromsø 65,00 % 6 600 6 600 0 6 509 66 376 6 951 Mynten A/S, Tromsø 100,00 % 50 50 0 116 79 0 195 ANS Bygginvestorer I, Meistervik 52,36 % 1 850 1 850 0 511 31 -61 481 Total 84 815 64 679 9 136 146 878 10 920 -5 346 152 452

Shares in subsidiaries are not quoted on the stock exchange.

INTRA-GROUP ITEMS BETWEEN THE BANK AND SUBSIDIARIES (AMOUNTS IN NOK THOUSAND) 2003 2002 assets: Loans to and claims on credit institutions - no agreed maturity or notice of withdrawal 0 0 Loans to and claims on credit institutions - with agreed maturity or notice of withdrawal 607 427 558 803 Credit 2 696 2 396 Repayment loans 433 864 449 721 Other assets 0 1 854 Total assets 1 043 987 1 012 774 liabilities: Loans and deposits from credit institutions - no agreed maturity or notice of withdrawal 1 617 25 762 Loans and deposits from customers - no agreed maturity or notice of withdrawal 83 926 66 459 Other liabilities 0 13 Total liabilities 85 543 92 234

annual report 2003 35 NOTE 20 – INTANGIBLE ASSETS

PARENT BANK GROUP 2002 2003 2003 2002

0 0 Goodwill 0 2 29 22 Def. tax benefit 38 54 29 22 Total 38 56

(AMOUNTS IN NOK THOUSAND) Goodwill through acquisition - 1998,2001 and 2002 6 772 6 772 Total depreciation 6 478 4 893 Total goodwill as at 31.12. 294 1 879

Depreciation 1 585 1 355

Goodwill relates to acquisition of EiendomsMegler 1 Nord-Norge AS in 1998, ABC-Eiendom Harstad AS in 2001 and Nordnorsk Eiendom AS in 2002. The amount will be depreciated over a 5-year period.

NOTE 21 – FIXED ASSETS

PARENT BANK GROUP 2002 2003 2003 2002

128 125 Machinery, furniture etc. and transport eqt. 136 135 6 6 Buildings and other real estate 417 430 134 131 Total fixed assets 553 565

PARENT BANK GROUP bank build. machinery machinery bank build. property trans. eq. total total trans. eq. property

7 505 512 Acquisition cost 1 201 525 676 04141 Additions 64 48 16 000 Disposals 42 042 7 546 553 Acquisition cost 1 223 573 650 1 421 422 Total ordinary depreciation 669 439 230 000 Total write-downs 1 10 6 125 131 Book value 553 133 420 04545 Year's ordinary depreciation 59 49 10

As at 31.12.2003, the Group owned 36 bank-/commercial buildings and 17 other properties at a total value of NOK 411 million. In all, this amounted to 50,079 square meters of floor space, of which the Bank utilises about 80%.

NOTE 22 – OTHER ASSETS

PARENT BANK GROUP 2002 2003 2003 2002

12 9 Clearing and intra-Group accounts 11 14 4 4 Tenants' deposits 4 4 43 7 Other debtors 7 49 25 30 Other assets 37 26 84 50 Total other assets 59 93

36 annual report 2003 NOTE 23 – PREPAID COSTS, NOT YET INCURRED AND ACCRUED INCOME, NOT YET RECIEVED

PARENT BANK GROUP 2002 2003 2003 2002

396 373 Accrued income, not yet received 375 396 Prepaid costs, not yet incurred 86 90 Over-funding of pension liabilities 92 86 6 8 Other prepaid costs, not yet incurred 9 6 488 471 Total prepaid costs, not yet incurred and accrued income, not yet received 476 488

PENSION LIABILITIES SpareBank 1 Nord-Norge has group pension schemes for its staff. the pension recources' transferable value and according to acturial There schemes are administeres through a separate pension computations in respect of the total amount of liabilities involved. fund, SpareBank 1 Nord-Norges Pensjonskasse, which manages The value of the pension fund's liabilities, the pension insurance the pension resources within the rules and regulations to pension arranged through Vital Forsikring AS , and the uncovered commit- funds. The main terms and conditions in this connection involve ments, have been included in the calculatins set out below. 30 years pensionable accurals and a pension at normal retirement age of some 70 per cent leaving salary. The pensionable age is 67 The increase in pension costs are mainly effected by lower income years. All pension benefits are coordinated with the benefits than expected in SpareBank 1 Nord-Norges Pensjonskasse, and expected to be recieved from the National Insurance Fund. As at use of a new standard factor in calculation of inability to earn a 31.12.03, 1,232 employees were members of the Bank's pension living. Based on the general interest development in 2003, the fac- scheme. In addition to the Bank's pension liabilities, which are tors for rate of discounting and expected rate of return on avail- taken care of through the pension fund, the Group has arranged able resources, has been reduced i 2003 with 1 per cent. On 1 separate insurance through Vital Forsikring AS for certain January 1997, expected liabilities in respect of the statutory retire- members of staff - when 70 per cent of ordinary salary exceeds a ment pension scheme (referred to elsewhere in this report as predetermined figure fixed by the government. When assessing “SRPS” were incorporated in the accounts with an amount of the value of the pension resources, and when calculating the NOK 33.0 million. It has been agreed to amortise the fund accured liabilities, estimated values are applied. These estimates involved over the remaining period on a straight-line basis. are adjusted each year in accordance with statements confirming calculations have been based on the following factors: 2003 2002

Rate of discounting 6,00 % 7,00 % Future wage- and salary development 3,30 % 3,30 % Adjustment of basic amount 2,50 % 2,50 % Expected rate of return on available resources 7,00 % 8,00 % Increase in current pensions 2,50 % 2,50 % Employers' social security contributions 14,10 % 5,10 % Turnover for all ages 2,00 % 2,00 % Staff's average, estimated propensity to opt for SRPS at the age of 62 30,00 % 30,00 %

PENSION COSTS FOR THE YEAR ARE ARRIVED AT AS FOLLOWS:

PARENT BANK GROUP 31.12.02 31.12.03 31.12.03 31.12.02

23 27 Present value of pensionable accruals for the period 30 25 32 31 Interest cost of pension liabilities incurred 31 33 -29 -30 Expected rate of return on pension resources -31 -30 12 12 Amortisation for the year 13 12 38 40 Net pension costs for the year 43 40 2 2 Employers' social security contributions - subject to accrual accounting 2 2 40 42 Net pension costs, including employers' social security contributions 45 42

annual report 2003 37 PENSION LIABILITIES AND PENSION RESOURCES INCLUDED IN BALANCE SHEET

PARENT BANK GROUP 31.12.02 31.12.03 31.12.03 31.12.02

420 502 Present value of future pension liabilities 526 434 397 447 Estimated value of pension resources 465 409 126 163 Financial impact of estimated discrepancies not incl. in profit&loss acct. 173 129 -103 -108 Net liabilities (+)/resources (-) -112 -104 -4 -4 Employers' social security contributions - subject to accrual accounting -4 -5 -107 -112 Total liabilities in balance sheet (+)/resources (-) -116 -109

PENSION LIABILITIES AND RESOURCES IN UNCOVERED SCHEMES INCLUDED IN BALANCE SHEET

PARENT BANK GROUP 31.12.02 31.12.03 31.12.03 31.12.02

85 44 Present value of future pension liabilities 47 87 0 0 Estimated value of pension resources 0 0 -65 -24 Financial impact of estimated discrepancies not incl. In profit&loss acct. -24 -65 20 20 Net liabilities (+)/resources (-) 23 22 1 2 Employers' social security contributions - subject to accrual accounting 1 1 21 22 Total liabilities in balance sheet (+)/resources (-) 24 23

NOTE 24 – LIABILITIES TO CREDIT INSTITUTIONS

PARENT BANK GROUP 2002 2003 2003 2002

eff. yield 1) Loans and deposits from credit institutions 30 19 1,39 % with no agreed maturity or notice of withdr. 19 33 Loans and deposits from credit institutions 4 447 3 375 3,03 % with agreed maturity or notice of withdr. 3 347 4 419 4 478 3 394 2,99 % Total liabilities to credit institutions 3 366 4 452

broken down by the most important currencies: 1 583 717 USD 717 1 58 1 697 2 106 EURO 2 106 1 697 422 0 JPY 0 422 25 0 NOK 0 25 89 0 GBP 0 89 662 571 Sundry 543 636 4 478 3 394 3 366 4452

1) Effective yield is calculated as total interest cost in relation to average volume.

38 annual report 2003 ASSETS PLEDGED AS COLLATERAL SECURITY (AMOUNTS IN NOK THOUSAND) PARENT BANK GROUP book value of book value of guarantees collateral collateral collateral guarantees

2 410 2 434 Certificates and bonds 1) 2 434 2 154 0 0 Shares and other securities with variable yield 0 0 2 410 2 434 Total collateralised assets 2 434 2 154

1) Collateralised security for “D-loans” from Norges Bank.

PARENT BANK GROUP book value of book value of rest of loan collateral collateral collateral rest of loan

0 0 Buildings and other real estate 17 725 3 475 0 0 Total collateral pledged as security for loans 17 725 3 475

NOTE 25 – DEPOSITS FROM AND LIABILITIES TO CUSTOMERS

PARENT BANK GROUP 2002 2003 2003 2002 eff. yield 1)

17 404 16 559 2,80 % Deposits from and liabilities to customers - no agreed mat. 16 498 17 337 2 845 5 168 7,28 % Deposits from and liabilities to customers - agreed mat. 5 168 2 845 20 249 21 727 3,38 % Total deposits from and liabilities to customers 21 666 20 182

1) Effective rate of interest is calculated as total interest costs in relation to average volume. There are no substantial deposits in foreign currencies.

DEPOSITS BROKEN DOWN BY DIFFERENT MARKET SEGMENTS

PARENT BANK GROUP 2002 2003 2003 2002 share deposits share deposits share deposits share deposits

57,0 % 11 550 57,3 % 12 444 Retail banking market 57,4 % 12 444 57,1 % 11 520 31,6 % 6 397 31,2 % 6 768 Corporate banking market 31,0 % 6 707 31,5 % 6 360 11,4 % 2 302 11,6 % 2 515 Public sector banking market 11,6 % 2 515 11,4 % 2 302 100,0 % 20 249 100,0 % 21 727 Total deposits broken down by markets 100,0 % 21 666 100,0 % 20 182

annual report 2003 39 DEPOSITS BROKEN DOWN BY COMMERCIAL, INDUSTRIAL AND OTHER MARKETS

PARENT BANK GROUP 2002 2003 2003 2002 share deposits share deposits share deposits share deposits

3,34 % 677 3,16 % 687 Central gov. and soc. sec. administration 3,35 % 687 3,35 % 677 8,02 % 1 624 8,41 % 1 828 County municipalities and other municips.8,05 % 1 828 8,05 % 1 624 3,31 % 671 2,86 % 622 Agri., forestry, fishing, hunting, fish farming 3,32 % 622 3,32 % 671 0,04 % 8 0,01 % 3 Production of crude oil and natural gas 0,04 % 3 0,04 % 8 2,43 % 492 2,20 % 477 Industry and mining 2,44 % 477 2,44 % 492 4,89 % 990 4,16 % 903 Buil., constr., power- and water supply 4,91 % 903 4,91 % 990 4,85 % 983 4,62 % 1 004 Ret. and wholesale trade; hotels and rests. 4,87 % 1 004 4,87 % 983 0,17 % 35 0,07 % 16 International shipping and pipeline trans. 0,17 % 16 0,17 % 35 2,16 % 437 2,81 % 611 Transport and other service industries 2,82 % 611 2,17 % 437 Financing, property management and 6,13 % 1 242 6,65 % 1 445 business services 5,82 % 1 397 5,82 % 1 175 6,18 % 1252 6,16 % 1 338 Other services 5,82 % 1 338 6,20 % 1252 56,03 % 11 345 56,42 % 12 259 Retail banking market 56,21 % 12 259 56,21 % 11 345 0,86 % 175 0,85 % 185 International 0,87 % 185 0,87 % 175 Insurance, sec.funds and other 1,57 % 318 1,61 % 349 financial institutions 1,58 % 336 1,58 % 318 Total deposits from customers broken down by 100,00 % 20 249 100,00 % 21 727 commercial, industrial and other markets 100,00 % 21 666 100,00 % 20 182

DEPOSITS BROKEN DOWN BY DIFFERENT GEOGRAPHICAL AREAS

PARENT BANK GROUP 2002 2003 2003 2002 share deposits share deposits share deposits share deposits

95 % 19 175 95 % 20 626 North Norway including Spitzbergen 95 % 20 565 95 % 19 108 4 % 899 4 % 916 Other counties 4 % 916 4 % 899 1 % 175 1 % 185 International 1 % 1 858 1 % 175 100 % 20 249 100 % 21 727 Total deposits by geographical areas 100 % 21 666 100 % 20 182

NOTE 26 – BORROWINGS BY THE ISSUANCE OF SECURITIES

PARENT BANK GROUP 2002 2003 2003 2002 eff. int. 1) eff. int. 1)

3 805 3 805 4,82 % Certificates and other short-term borrowings 2) 4,82 % 3 805 3 805 - Own non-amortised certificates 5 668 7 501 4,38 % + Bond debt 3) 4,38 % 7 501 5 668 175 135 3,32 % - Own non-amortised bonds 3,32 % 135 175 9 298 11 171 4,56 % Total borrowings by issuance of securities 4,56 % 11 171 9 298

1) Effective interest is calculated as total interest costs in relation to average volume. 2) Certificate- and bond debt – in NOK only 3) Bond debt in NOK : 5.879

40 annual report 2003 NOTE 27 – OTHER LIABILITIES

PARENT BANK GROUP 2002 2003 2003 2002

87 86 Bank drafts and advised giro payments 86 87 18 16 Tax deductions 16 18 66 79 Set aside for dividend payments 81 68 88 52 Tax incurred 58 91 41 68 Other creditors 75 51 25 Unrealized loss bonds 1) 25 325 301 Total other liabilities 316 340

1) Time-limited agreeement of buying 600.616 shares, for a fixed price, in Troms Fylkes Dampskibsselskap AS.

NOTE 28 – INCURRED COSTS AND PREPAID INCOME

PARENT BANK GROUP 2002 2003 2003 2002

311 393 Incurred interest costs 394 312 38 32 Incurred costs/bonus payments 41 46 6 0 Prepaid interest 1 6 5 6 Prepaid other income 54 52 72 4 Miscellaneous 4 74 432 435 Incurred costs and prepaid income 494 490

NOTE 29 – OTHER SUBORDINATED LOAN CAPITAL

PARENT BANK GROUP 2002 2003 maturity structure int. rate 2003 2002

0 300 Maturity 2013 - option to repay in 2008 (NOK) 3 m. float 300 0 0 232 Maturity 2013 - option to repay in 2008 (NOK) 3 m. float 233 0 175 67 Maturity 2009 - option to repay in 2004 (NOK) 6 m. float 66 175 221 0 Maturity 2008 - option to repay in 2003 (NOK) 6 m. float 0 221 200 200 Maturity 2010 - option to repay in 2005 (NOK) 3 m. float 200 200 100 100 Maturity 2010 - option to repay in 2005 (NOK) 3 m. float 100 100 175 204 Sub. loan, maturity 2009 - option to repay in 2004 (SEK) 3 m. float 204 189 0 400 Sub.loan, option to repay in 2013 (USD) 6 m. float 400 0 871 1503 Total subordinated loan capital 1503 871

Subordinated loan, SEK 220 million and UDS 60 million. The loan is shown in the accounts at the middle foreign exchange rate as at 31.12.2003. The exchange risk of the loan has been hedged. All subordinated loan capital is included in the Bank's equity and related capital.

annual report 2003 41 NOTE 30 – EQUITY CAPITAL

PARENT BANK GROUP 2002 2003 2003 2002

minority interests 4 4 Paid-in equity capital Share capital 660 660 PCC-capital 660 660 8 8 Premium Fund 8 8 668 668 Total paid-in capital 668 668

retained equity capital Fund for Evaluation Differences 1 254 1 357 Savings Bank's Fund 1 357 1 254 315 315 Dividend Equalisation Fund 315 315 15 Donations 15 1 569 1 687 Total retained equity capital 1 687 1 569

2 237 2 355 Total equity capital 2 355 2 237

PCC-CAPITAL The Bank's PCC-capital amonts to NOK 659,701,800, made up of 6,597,019 certificates, each of a nominal value of NOK 100. As at 31.12.2003, the Bank had 3,320 PCC-holders (3,499 as at 31.12.2002)

THE 20 LARGEST PCC-HOLDERS: name: number of pccs share

Swedbank (client account) 642 350 9,73 % Folketrygdfondet 290 000 4,39 % Weenaas Holding AS 125 350 1,90 % Tine Pensjonskasse 124 400 1,88 % Framo Development AS 115 750 1,75 % Tonsenhagen Forretningssenter AS 101 750 1,54 % Troms Fylkes Dampskibsselskap AS 87 700 1,32 % SpareBank 1 Rogaland 84 567 1,28 % Haugaland Kraft AS 76 310 1,15 % Rasmussen Holding AS 72 000 1,09 % JP Morgan Chase Bank klientkonto 63 280 0,95 % Bergen Kommunale Pensjonskasse 60 000 0,90 % SIS Segaintersettle 51 869 0,78 % Ringerikes Sparebank 51 700 0,78 % Troms Kraft AS 46 000 0,69 % Warrenwicklund Utbyt 45 835 0,69 % National Financials Citybank N.A. 44 985 0,68 % Olsen, Fred & Co's Pensjonskasse 42 500 0,64 % Holla Sparebank 38 500 0,58 % Meltzers Høyskolefond 35 000 0,53 % 20 largest PCC-holders 2 199 846 33,25 % Other PCC-holders 4 397 173 62,35 % PCCs issued 6 597 019 100,00 %

42 annual report 2003 PCCs HELD BY SPAREBANK 1 NORD-NORGE’ ELECTED REPRESENTATIVES AS AT 31.12.03: name: number of pccs held main board members/deputy members Erik Sture Larre jr. 101 750 Rolf Pedersen 1 300 Tom Veierød 700 Vivi-Ann Pedersen 182 board of trustee members/deputy members Trond Mohn 115 750 Erik Sture Larre 101 750 Bjarne Rasch-Tellefsen 25 500 Brith Sand 419 Inger Løkken 339 Marit Øien 313 Odd Martinsen 300 Johannes Rørtveit 200 Randi Hanssen 132 Odd Iversen 104 Svein Brustad 100 Linda Bornø 93 top team members Hans Olav Karde, Managing Director 1 604 Oddmund Aasen, Deputy Managing Director 810 Olav Karlsen, Senior Group General Manager 670 Kjell Kolbeinsen, Information Director 608

The above figures show the number of PCCs held in SpareBank 1 Nord-Norge as at 31.12.2003. PCCs owned by close family members or by companies of which the abovementioned persons are general partners or directors have also been included.

annual report 2003 43 CHANGES IN EQUITY CAPITAL

PARENT BANK GROUP 31.12.02 CHANGE 31.12.03 31.12.03 CHANGE 31.12.02

paid-in equity capital 660 660 PCC-capital 660 660 8 8 Premium Fund 8 8 668 668 Total paid-in capital 668 668

retained earnings/equity capital 0 0 Fund for Evaluation Differences 0 0 - transferred from Fund for Evaluation Differences - transferred to Fund for Evaluation Differences 1 254 1 357 Savings Bank's Fund 1 357 1 254 - transferred from Savings Bank's Fund 103 - transferred to Savings Bank's Fund 103 315 315 Dividend Equalisation Fund 315 315 - transferred from Dividend Equalisation Fund 0 - transferred to Dividend Equalisation Fund 0 0 15 Other equity capital - Donations 15 0 - transferred from Other equity capital 15 15 - transferred to Other equity capital 1 569 118 1 687 Total retained earnings/equity capital 1 687 118 1 569

2 237 118 2 355 Total equity capital and changes 2 355 118 2 237

EQUITY AND RELATED CAPITAL – CAPITAL ADEQUACY RATIO

PARENT BANK GROUP 2002 2003 2003 2002

660 660 PCC-capital 660 660 8 8 Premium Fund 8 8 Fund for Evaluation Differences 1 254 1 357 Savings Bank's Fund 1 357 1 254 315 315 Dividend Equalisation Fund 315 315 15 Donations 15 2 237 2 355 Total equity capital 2 355 2 237

86 90 - over-funding of pension fund 90 86 22 9 - intangible assets 38 56 397 + perpetual non-call 392 - Fund for Evaluation Differences 2 129 2 653 Total core capital 2 619 2 095

supplementary capital in addition to core capital: 871 1 102 Subordinated loan capital 1 102 871 -reductions during the last 5 years 2 + perpetual non-call 7 249 - eq. and subord. capital participations in other financial institutions - capital adequacy reserve 298 306 2 999 3 508 Net equity and related capital 3 430 2 660

26 546 28 662 Total risk-weighted asset base: 29 019 26 595 26 526 28 839 Assets which are not part of trading portfolio 29 257 26 891 425 552 Off-balance sheet items which are not part of trading portfolio 552 425 Total calculation basis for foreign exchange risk and 343 421 items which form part of trading portfolio 421 343 11,29 % 12,24 % Capital adequacy ratio 11,82 % 9,99 % 8,01 % 9,26 % - core capital ratio 9,03 % 7,87 % 3,28 % 2,98 % - supplementary capital ratio 2,79 % 2,12 %

44 annual report 2003 NOTE 31 – REMAINING LIFE OF ASSET- AND LIABILITIES ITEMS BROKEN DOWN BY DIFFERENT PERIODS

PARENT BANK up to from 1 to 33months from 1 to without (AMOUNTS IN NOK THOUSAND) 1 month months to 1 year 5 years over 5 yrs. rem. life total

Cash-in-hand and claims on central banks plus debt instrs. which can be refinanced at central banks - NOK 334 725 202 193 536 918 - foreign currencies 11 538 11 538 Loans to and claims on credit institutions - NOK 569 494 43 500 612 994 - foreign currencies 79 045 1 967 14 745 95 757 Loans to and claims on customers - NOK 2 547 465 521 264 3 168 643 8 110 810 19 569 896 -813 232 33 104 846 - foreign currencies 885 112 1 770 223 2 655 335 Bonds, certificates and other interest-bearing securities - NOK 50 000 35 000 17 500 1 005 670 89 455 1 197 625 - foreign currencies 50 036 1 100 864 86 005 1 236 905 Equity stakes in associated companies 257 646 257 646 Equity stakes in Group companies 152 452 152 452 Other assets - with remaining life - NOK 301 448 130 229 10 945 8 842 451 464 - foreign currencies 12 145 5 966 14 071 32 182 Other assets - without remaining life 553 427 553 427 Total asset items 3 894 322 744 462 3 225 904 11 111 298 21 559 079 364 024 40 899 089 - NOK 3 803 132 686 493 3 197 088 9 125 322 19 702 851 352 486 36 867 372 - foreign currencies 91 190 57 969 28 816 1 985 976 1 856 228 11 538 4 031 717

Liabilities to credit institutions - NOK 44 486 44 486 - foreign currencies 551 107 1 170 138 575 715 884 488 168 474 3 349 922 Deposits from and liabilities to customers - NOK 21 000 562 341 837 251 660 21 594 059 - foreign currencies 132 867 132 867 Borrowings through issuance of securities - NOK 350 000 1 845 000 1 610 000 4 744 029 1 000 000 9 549 029 - foreign currencies 1 621 710 1 621 710 Non-interest-bearing liabilities - NOK 730 326 730 326 - foreign currencies 19 879 19 879 Subordinated loan capital - NOK 898 000 898 000 - foreign currencies 203 852 400 602 604 454 Equity capital 2 354 357 2 354 357 Total liabilities and equity capital 22 282 874 3 356 975 2 437 375 7 250 227 2 467 076 3 104 562 40 899 089 - NOK 21 395 048 2 186 837 1 861 660 4 744 029 1 898 000 3 084 683 35 170 257 - foreign currencies 887 826 1 170 138 575 715 2 506 198 569 076 19 879 5 728 832

Net funding exposure relating to balance sheet items - NOK -17 591 916 -1 500 344 1 335 428 4 381 293 17 804 851 -2 732 197 1 697 115 - foreign currencies -796 636 -1 112 169 -546 899 -520 222 1 287 152 -8 341 -1 697 115 Payments received (+) and made (-) in respect of off-balance sheet financial derivatives - NOK -6 372 146 009 -5 530 21 184 49 077 204 368 - foreign currencies 250 -548 -2 036 27 498 331 013 356 177 Net total - all items - NOK -17 598 288 -1 354 335 1 329 898 4 402 477 17 853 928 -2 732 197 1 901 483 - foreign currencies -796 386 -1 112 717 -548 935 -492 724 1 618 165 -8 341 -1 340 938

Building loans, overdraft- and working credit facilities are classified in the 3–12 months range.

annual report 2003 45 REMAINING LIFE OF ASSET- AND LIABILITIES ITEMS BROKEN DOWN BY DIFFERENT PERIODS

PARENT BANK up to from 1 to 33months from 1 to without (AMOUNTS IN NOK THOUSAND) 1 month months to 1 year 5 years over 5 yrs. rem. life total

Cash-in-hand and claims on central banks plus debt instrs. which can be refinanced at central banks - NOK 334 725 202 193 536 918 - foreign currencies 11 538 11 538 Loans to and claims on credit institutions - NOK 5 568 5 568 - foreign currencies 79 045 1 967 14 745 95 757 Loans to and claims on customers - NOK 2 208 015 528 477 3 224 271 8 607 673 19 644 937 -825 030 33 388 343 - foreign currencies 885 112 1 770 223 2 655 335 Bonds, certificates and other interest-bearing securities - NOK 50 000 35 000 17 500 1 005 670 89 455 1 197 625 - foreign currencies 50 036 1 100 864 86 005 1 236 905 Equity stakes in associated companies 257 646 257 646 Equity stake in Group companies Other assets with remaining life - NOK 305 823 130 229 23 761 8 842 468 655 - foreign currencies 12 145 5 966 14 071 32 182 Other assets without remaining life 1 005 062 1 005 062 Total asset items 2 995 321 751 675 3 294 348 11 608 161 21 590 620 651 409 40 891 534 - NOK 2 904 131 693 706 3 265 532 9 622 185 19 734 392 639 871 36 859 817 - foreign currencies 91 190 57 969 28 816 1 985 976 1 856 228 11 538 4 031 717

Liabilities to credit institutions - NOK 18 700 18 700 - foreign currencies 551 107 1 167 176 575 715 884 488 168 474 3 346 960 Deposits from and liabilities to customers - NOK 21 534 440 21 534 440 - foreign currencies 131 640 131 640 Borrowings through the issuance of securities - NOK 350 000 1 995 000 1 460 000 4 744 030 1 000 000 9 549 030 - foreign currencies 1 491 950 129 759 1 621 709 Non-interest-bearing liabilities - NOK 812 365 812 365 - foreign currencies 19 879 19 879 Subordinated loan capital - NOK 166 000 732 000 898 000 - foreign currencies 203 852 400 602 604 454 Equity capital 2 354 357 2 354 357 Total liabilities and equity capital 22 789 739 3 162 176 2 035 715 7 286 468 2 430 835 3 186 601 40 891 534 - NOK 21 903 140 1 995 000 1 460 000 4 910 030 1 732 000 3 166 722 35 166 892 - foreign currencies 886 599 1 167 176 575 715 2 376 438 698 835 19 879 5 724 642

Net funding exposure in respect of balance sheet items - NOK -18 999 009 -1 301 294 1 805 532 4 712 155 18 002 392 -2 526 851 1 692 925 - foreign currencies -795 409 -1 109 207 -546 899 -390 462 1 157 393 -8 341 -1 692 925 Payments received (+)/and made (-) relating to off-balance sheet financial derivatives - NOK -6 372 146 009 -5 530 21 184 49 077 204 368 - foreign currencies 250 -548 -2 036 27 498 331 013 356 177 Net total - all items -NOK -19 005 381 -1 155 285 1 800 002 4 733 339 18 051 469 -2 526 851 1 897 293 - foreign currencies -795 409 -1 109 207 -546 899 -390 462 1 157 393 -8 341 -1 692 925

Building loans, overdraft- and working credit facilites classified in the 3-12 month range.

46 annual report 2003 REMAINING LIFE OF ASSET- AND LIABILITIES ITEMS, BROKEN DOWN BY THE TIME PERIODS UNTIL NEXT INTEREST RATE ADJUSTMENT/FIXING

PARENT BANK up to from 1 to 33months from 1 to without int. (AMOUNTS IN NOK THOUSAND) 1 month months to 1 year 5 years over 5 yrs. exposure total Cash-in-hand and claims on central banks plus debt instrs. which can be refinanced at central banks - NOK 334 725 202 193 536 918 - foreign currencies 11 538 11 538 Loans to and claims on credit institutions - NOK 547 602 27 147 18 245 20 000 612 994 - foreign currencies 79 045 1 967 14 745 95 757 Loans to and claims on customers - NOK 7 616 121 22 709 986 394 766 3 043 490 153 715 -813 232 33 104 846 - foreign currencies 155 752 2 499 583 2 655 335 Bonds, certificates and other interest-bearing securities - NOK 372 933 612 158 212 534 1 197 625 - foreign currencies 50 036 1 093 363 93 506 1 236 905 Associated companies 257 646 257 646 Group companies 152 452 152 452 Other assets with remaining life Other assets without remaining life - NOK 1 004 891 1 004 891 - foreign currencies 32 182 32 182 Total asset items 9 106 178 25 900 877 640 290 4 156 853 247 221 847 670 40 899 089 - NOK 8 871 381 23 349 291 625 545 3 063 490 153 715 803 950 36 867 372 - foreign currencies 234 797 2 551 586 14 745 1 093 363 93 506 43 720 4 031 717

Liabilities to credit institutions - NOK 44 486 44 486 - foreign currencies 551 107 2 223 100 575 715 3 349 922 Deposits from and liabilities to customers - NOK 21 000 562 341 837 251 660 21 594 059 - foreign currencies 132 867 132 867 Borrowings through the issuance of securities - NOK 885 013 6 295 000 1 610 000 759 016 9 549 029 - foreign currencies 294 830 1 326 880 1 621 710 Other liabilities with remaining life Liabilities without remaining life - NOK 730 326 730 326 - foreign currencies 19 879 19 879 Subordinated loan capital - NOK 200 000 298 000 400 000 898 000 - foreign currencies 203 852 400 602 604 454 Equity capital 2 354 357 2 354 357 Total liabilities and equity capital 23 312 717 10 484 817 2 837 375 1 159 618 3 104 562 40 899 089 - NOK 22 130 061 6 934 837 2 261 660 759 016 3 084 683 35 170 257 - foreign currencies 1 182 656 3 549 980 575 715 400 602 19 879 5 728 832

Net interest exposure relating to balance sheet - NOK -13 258 680 16 414 454 -1 636 115 2 304 474 153 715 -2 280 733 1 697 115 - foreign currencies -947 859 -998 394 -560 970 692 761 93 506 23 841 -1 697 115 Off-balance sheet financial derivatives affecting the overall interest exposure - NOK -412 240 -3 053 906 1 414 000 -264 094 865 000 -1 451 240 - foreign currencies 42 119 353 619 -400 602 -338 515 309 996 -33 383 Net interest exposure including off-balance sheet financial derivatives - NOK -13 670 920 13 360 548 -222 115 2 040 380 1 018 715 -2 280 733 245 875 - foreign currencies -905 740 -644 775 -961 572 354 246 403 502 23 841 -1 730 498 Net interest exposure expressed as average of total assets - NOK -580,66 % 567,48 % -9,43 % 86,66 % 43,27 % -96,87 % 10,44 % - foreign currencies -38,47 % -27,39 % -40,84 % 15,05 % 0,00 % 1,01 % -73,50 % annual report 2003 47 REMAINING LIFE OF ASSET- AND LIABILITIES ITEMS, BROKEN DOWN BY THE TIME PERIODS UNTIL NEXT INTEREST RATE ADJUSTMENT/FIXING

PARENT BANK up to from 1 to 33months from 1 to without int. (AMOUNTS IN NOK THOUSAND) 1 month months to 1 year 5 years over 5 yrs. exposure total

Cash-in-hand and claims on central banks plus debt instrs. which can be refinanced at central banks - NOK 334 725 202 193 536 918 - foreign currencies 11 538 11 538 Loans to and claims on credit institutions - NOK 5 568 5 568 - foreign currencies 30 365 27 147 18 245 20 000 95 757 Loans to and claims on customers - NOK 7 255 734 23 364 201 394 871 3 044 852 153 715 -825 030 33 388 343 - foreign currencies 155 752 2 499 583 2 655 335 Bonds, certificates and other interest-bearing securities - NOK 50 000 35 000 17 500 1 005 670 89 455 1 197 625 - foreign currencies 50 036 1 100 864 86 005 1 236 905 Associated companies 257 646 257 646 Group companies Other assets without remaining life - NOK 1 473 717 1 473 717 - foreign currencies 32 182 32 182 Total asset items 7 832 144 25 975 967 430 616 5 171 386 329 175 1 152 246 40 891 534 - NOK 7 646 027 23 399 201 412 371 4 050 522 243 170 1 108 526 36 859 817 - foreign currencies 186 117 2 576 766 18 245 1 120 864 86 005 43 720 4 031 717

Liabilities to credit institutions - NOK 18 700 18 700 - foreign currencies 552 312 2 285 700 508 948 3 346 960 Deposits from and liabilities to customers - NOK 21 534 440 21 534 440 - foreign currencies 131 640 131 640 Borrowings through the issuance of securities - NOK 885 014 6 444 999 1 439 431 779 585 9 549 029 - foreign currencies 294 830 1 326 880 1 621 710 Liabilities without remaining life - NOK 812 365 812 365 - foreign currencies 19 879 19 879 Subordinated loan capital - NOK 200 000 298 000 400 000 898 000 - foreign currencies 203 852 400 602 604 454 Equity capital 2 354 357 2 354 357 Total liabilities and equity capital 23 820 788 10 355 579 2 748 981 779 585 3 186 601 40 891 534 - NOK 22 638 154 6 742 999 1 839 431 779 585 3 166 722 35 166 891 - foreign currencies 1 182 634 3 612 580 909 550 19 879 5 724 643

Net exposure involving balance sheet items - NOK -14 992 127 16 656 202 -1 427 060 3 270 937 243 170 -2 058 196 1 692 926 - foreign currencies -996 517 -1 035 814 -891 305 1 120 864 86 005 23 841 -1 692 926 Off-balance sheet financial derivatives affecting overall interest exposure - NOK -412 240 -3 053 906 1 414 000 -264 094 865 000 -1 451 240 - foreign currencies 42 119 353 619 -400 602 -338 515 309 996 -33 383 Net interest exposure including off-balance sheet financial derivatives - NOK -15 404 367 13 602 296 -13 060 3 006 843 1 108 170 -2 058 196 241 686 - foreign currencies -954 398 -682 195 -1 291 907 782 349 396 001 23 841 -1 726 309 Net interest exposure expressed as average of total assets - NOK -37,67 % 33,26 % -0,03 % 7,35 % 2,49 % -5,03 % 0,37 % - foreign currencies -2,33 % -1,67 % -3,16 % 1,86 % 0,00 % 0,06 % -4,27 %

48 annual report 2003 NOTE 32 – GUARANTEES

BREAKDOWN OF GUARANTEE LIABILITIES

PARENT BANK GROUP 2002 2003 2003 2002

601 661 Payment guarantees 661 601 168 224 Contract guarantees 224 168 5 8 Loan guarantees 8 5 0 0 Guarantees for tax payment 0 0 141 154 Miscellaneous 154 141 26 26 Guarantee in favour of Savings Banks' Guarantee Fund (SBGF) 26 26 941 1 073 Total guarantee liabilities 1 073 941

GUARANTEES BROKEN DOWN BY COMMERCIAL, INDUSTRIAL AND OTHER SECTORS

PARENT BANK GROUP 2002 2003 2003 2002

8 7 Agriculture, forestry, fisheries, hunting and fish farming 7 8 Production of crude oil and natural gas 135 194 Industry and mining 194 135 379 414 Building and construction; power- and water supply 414 379 106 136 Retail- and wholesale trade; hotel- and restaurant industry 136 106 11 5 International shipping and pipeline transport 5 11 138 146 Financing, property management and business services 146 138 83 96 Transport and other service industries 96 83 Municipalities 23 24 Retail banking market 24 23 883 1 022 Total guarantees 1 022 883

58 51 Financial institutions 51 58 941 1 073 Total guarantees by commercial, industrial and other sectors 1 073 941

GUARANTEES BROKEN DOWN BY DIFFERENT GEOGRAPHICAL AREAS

PARENT BANK GROUP 2002 2003 2003 2002

912 1 041 North Norway including Spitzbergen 1 041 912 29 32 Other counties 32 29 941 1 073 Total guarantees broken down by geographical sectors 1 073 941

annual report 2003 49 NOTE 33 – INTEREST RATE- AND CURRENCY INSTRUMENTS

2003 risk-weighted market book bought sold volume value value trading portfolio: IInterest rate agreements 0000 0 Currency agreements/combined agreements 1) 6 230 6 230 27 30 30 hedging portfolio: Interest rate agreements 9 500 9 500 Currency agreements/combined agreements 2 613 2 621

1) Including NOK bought and sold forward. Figures for purchases and sales are nominal amounts, i.e. the underlying principal amounts involved.

Currency- and interest rate agreements consist of: interest rate swaps: Agreements relating to the swapping of interest rates for an agreed amount over an agreed period. fras: Agreements in respect of interest rates relating to a fixed amount for an agreed future period. forward exchange contracts: 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 amounts at an exchange rate and for a peeriod which both have been agreed at the outset. 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.

The Bank's Board of Directors has approved guidelines for the foreign currency markets; appropriate interest rate - and foreign Bank's interest rate- and foreign currency positions. Routines currency positions, within agreed parameters predetermined by have been established, ensuring that agreed positions are the Board, are always very important considerations. Transactions adhered to. Foreign currency trans. Are largely done with fin. included in the trading portfolio involved standard market Sound dom. And int. banks, inv. Only a few diff. Currencies. products with a high degree of liquidity.

Amounts of credit risk (risk-weighted volumes) are computed Transactions relating to ordinary banking business are done in according to BISC's rules and regulations. The bank has not order to reduce the overall risk in respect of the Bank's funding entered into any legally binding netting agreements. operations in the financial markets, and to lessen the risk in con- nection with customer related business. Such transactions are to The trading portfolio comprises transactions relating to the be regarded as hedging transactions, intended to stay on the Bank's activities within domestic and international money- and books until maturity.

FOREIGN EXCHANGE POSITIONS The table below shows SpareBank 1 Nord-Norge's net positions within the most important, different currencies and also the overall position. Foreign exchange positions are shown in accordance with the definition provided by Norges Bank, comprising net assets, after deduction of liabilities and equity capital, as well as forward contracts and settlements for each different currency involved.

other amounts in nok million usd sek euro currencies total

Net foreign exchange positions as at 31.12.2003 0 3 -6 -2 -5 Average net foreign exchange positions in 2003 1) 01124 The biggest net foreign exchange positions in 2003 1) 245149

1) Expressed in actual amounts

50 annual report 2003 profit analysis and key financial figures

GROUP AMOUNTS IN NOK MILLION AS A PERCENTAGE OF AVERAGE ASSETS FROM THE PROFIT AND LOSS ACCOUNT 31.12.03 31.12.02 31.12.01 31.12.00 31.12.99 31.12.03 31.12.02 31.12.01 31.12.00 31.12.99

Interest- and similar income 2 452 2 965 2 880 2 530 2 227 6,23% 8,11% 8,41% 8,06% 8,07% Interest- and similar costs 1 414 1 944 1 948 1 601 1 365 3,59% 5,32% 5,69% 5,10% 4,94% Net interest- and credit commission income 1 038 1 021 932 929 862 2,64% 2,79% 2,72% 2,96% 3,13% Dividends and other income from securities -4 -143 -20 13 15 -0,01% -0,39% -0,06% 0,04% 0,05% Commission income and revenues from banking services 355 328 310 256 197 0,90% 0,90% 0,91% 0,82% 0,71% Commission costs and expenditure generated from banking services 86 85 72 66 49 0,22% 0,23% 0,21% 0,21% 0,18% Net gains/ losses from securities and foreign exchange 46 2402830,12% 0,07% 0,00% 0,01% 0,30% Other operating income 56 51 44 36 30 0,14% 0,14% 0,13% 0,11% 0,11% Net overall contribution 1 405 1 196 1 194 1 170 1 138 3,57% 3,27% 3,49% 3,73% 4,12% Wages, salaries and general administration costs 647 619 584 576 526 1,64% 1,69% 1,71% 1,83% 1,91% Depreciation etc. of fixed and intangible assets 59 68 70 65 67 0,15% 0,19% 0,20% 0,21% 0,24% Other operating costs 108 106 93 172 103 0,27% 0,29% 0,27% 0,55% 0,37% Result before losses 591 403 447 357 442 1,50% 1,10% 1,31% 1,14% 1,60% Losses on loans, guarantees etc. 318 245 138 102 93 0,81% 0,67% 0,40% 0,32% 0,34% Gains/ losses on sale of fixed financial assets 0 0 0 -249 51 0,00% 0,00% 0,00% -0,79% 0,00% Result before tax 273 158 309 504 400 0,69% 0,43% 0,91% 1,61% 1,26% Tax 62 94 104 120 106 0,16% 0,26% 0,30% 0,38% 0,38% Result from ordinary operations after tax 211 64 205 384 294 0,54% 0,17% 0,60% 1,23% 0,88% Minority interests 1 11000,00% 0,00% 0,00% 0,00% 0,00% Profit for the year 210 63 204 384 294 0,53% 0,17% 0,60% 1,23% 0,88%

PARENT BANK (AMOUNTS IN NOK) PRIMARY CAPITAL CERTIFICATE (PCC) RELATED KEY FIGURES 31.12.03 31.12.02 31.12.01 31.12.00 31.12.99

PCC capital (NOK thousand) 659 702 659 702 659 702 659 702 649 249 Quoted/market price as at 31.12 184,00 127,50 175,00 175,00 174,00 Profit/earnings per PCC (in NOK) 8 14,01 4,35 14,78 29,37 23,99 Adjusted profit/earnings per PCC (in NOK) 9 14,01 10,29 19,13 27,46 23,25 Cash dividend per PCC to be paid 14,00 10,00 15,00 19,00 17,00 Equity capital per PCC (in NOK) 10 149,01 149,01 148,70 144,61 139,85 Dividend Equalisation Fund per PCC 47,75 47,75 47,45 43,35 39,74 Direct rate of return on PCCs 11 7,61 % 7,84 % 8,57 % 10,86 % 9,77 % Dividend/effective yield on PCCs 12 52,16 % -18,57 % 10,86 % 10,34 % 26,85 % PCC ratio overall 13 42,03 % 43,94 % 45,54 % 47,82 % 50,56 % Cash div.as % of PCC-holders' share of corr.result 99,94 % 97,22 % 78,43 % 69,19 % 73,11 % Change in D.E.Fund as % of PCC-holders' share of result 0,00 % 2,95 % 21,40 % 13,16 % 30,74 % P/E (Price/Earnings) 14 13,14 12,40 9,15 6,37 7,48 P/BV (Price/Book Value) 15 1,23 0,86 1,18 1,21 1,24 'RISK' adjustment 2,01 0,24 4,15 8,48 22,54 Number of PCCs issued 6 597 018 6 597 018 6 597 018 6 597 018 6 492 486 Number of PCC-holders 4 320 3 499 3 540 3 430 2 681

annual report 2003 51 GROUP RATE OF RETURN/PROFITABILITY 31.12.03 31.12.02 31.12.01 31.12.00 31.12.99

Costs as a percentage of overall contribution margin 57,94 % 66,30 % 62,56 % 69,49 % 61,16 % Costs as a percentage of overall contribution margin 59,90 % 67,66 % 62,56 % 69,61 % 65,97 % (excluding net gains from foreign exchange and securities) Pre-tax return on equity capital 1 11,75 % 7,06 % 14,10 % 25,23 % 22,75 % After-tax return on equity capital 2 9,04 % 2,76 % 9,36 % 19,22 % 16,72 %

LENDING PORTFOLIO AND LOSS PROVISIONS 31.12.03 31.12.02 31.12.01 31.12.00 31.12.99

Net losses on loans as a percentage of gross lending 3 0,86 % 0,73 % 0,45 % 0,35 % 0,37 % Loss provisions as a percentage of gross lending 4 2,24 % 2,02 % 1,70 % 1,44 % 1,29 % Specific loss provisions as a percentage of gross loans 1,36 % 1,06 % 0,79 % 0,62 % 0,53 % Non-specific loss provisions as a percentage of gross loans 0,87 % 0,96 % 0,91 % 0,82 % 0,76 % Total bad and doubtful commitments as % of gross lending 3,11 % 3,20 % 2,11 % 1,76 % 1,61 % Net bad and doubtful commitments as % of gross loans 1,75 % 2,14 % 1,32 % 1,14 % 1,08 %

CAPITAL ADEQUACY 31.12.03 31.12.02 31.12.01 31.12.00 31.12.99

Capital adequacy ratio 5 11,82 % 9,99 % 10,58 % 10,36 % 10,59 % Core capital ratio 9,03 % 7,87 % 8,44 % 8,29 % 8,49 % Risk-weighted asset base for capital 29 009 26 595 24 988 24 570 21 050

BALANCE SHEET 31.12.03 31.12.02 31.12.01 31.12.00 31.12.99

Total assets 40 892 37 879 35 266 33 143 28 629 Asset growth 7,95 % 7,41 % 6,41 % 15,77 % 9,58 % Average assets 6 39 347 36 572 34 250 31 404 27 604 Certificates, bonds and other interest-bearing securities 2 435 2 186 1 908 1 550 1 954 Gross loans made to customers 36 869 33 574 30 973 29 237 24 904 Growth in gross loans to customers 9,81 % 8,40 % 5,94 % 17,40 % 9,80 % Loss provisions 825 679 526 421 322 Deposits from customers 21 666 20 182 18 429 17 317 14 492 Growth in deposits from customers 7,35 % 9,51 % 6,42 % 19,49 % 1,79 %

PERSONNEL 31.12.03 31.12.02 31.12.01 31.12.00 31.12.99

Number of man-years at the end of the year 7 770 868 879 854 848 definitions: 1 Pre-tax result as a percentage of average equity capital 2 After-tax result as a percentage of average equity capital 3 Credit losses as a percentage of gross lending 4 Loss provisions (specific and non-specific) as a percentage of gross lending 5 Net equity and related capital as a percentage of total risk-weighted assets 6 Calculated as average of quarterly assets each year, plus opening balance 7 Man-years are defined as man-years relating to permanent positions on a Group basis. 8 PCC-holders' share of profit for the year per PCC (based on “PCC ratio” as at 1.1.) 9 PCC-holders' share of adjusted annual profit per PCC (based on “PCC ratio” as at 1.1) 10 PCC-capital, Premium Fund and Div. Eq. Fund in relation to number of PCCs 11 Set aside for cash dividend payment, in relation to PCC price on Oslo Stock Exch. on 31.12 12 Change in PCC price during the year + cash dividend paid, in relation to market price on 1.1. 13 PCC-capital, Div. Eq. Fund and Premium Fund, as % of eq. cap., minus Fund for Ev. Diff. 14 Price on Oslo Stock Exchange on 31.12, divided by profit/earnings per PCC 15 Price on Oslo Stock Exchange on 31.12, divided by book value of eq. capital per PCC

Key figures for comparable periods have not been adjusted acc. to changes in new Acc. Act.

52 annual report 2003 auditor’s report | report from the control committee

REPORT FROM THE CONTROL COMMITTEE

During the business year of 2003, 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, the Board of Trustees’ resolutions 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 committee is of the opinion that the 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 2003.

Tromsø, 5 March 2004

Dag Nafstad Kjell N. Olsen Inger J. Pettersen

annual report 2003 53 sparebank 1 nord-norge “for and in north norway”

pareBank 1 Nord-Norge’s recent history is briefly industry is located in many of the country’s districts. Stold. Its establishment during the summer of For many companies today it is difficult to find alter- 1989 was a result of the first signs of a national bank- native banks to look after their financial requirements. ing crisis. But the Bank’s full history goes back to This new situation has meant that corporate 1832 and tells us about the importance of having a customers, the political environment and other inter- well-functioning banking system during changing est groups today expect more from their regional economic times – a banking system which is depend- savings banks. This represents a big challenge for able and of a long-term nature. SpareBank 1 Nord- SpareBank 1 Nord-Norge. On the one hand, the Norge’s corporate vision statement finishes with the Bank is a significant part of the financial infrastruc- words “for and in North Norway”. This signals the ture within its region, with over 90 branches and in Bank’s intention of remaining in the region; people, excess of 100 minibanks; this means that even the businesses and other enterprises may rest assured smallest corporate changes in the distribution net- that SpareBank 1 Nord-Norge’s approach to its cus- work attracts critical attention. On the other hand, tomers will always be long-term. This region has the Bank is expected to take a substantial level of experienced many difficult times during which banks credit risk in connection with the required restructur- without local roots – which are quick to offer their ing and renewal of commerce and industry in the assistance when times are good – are equally quick region. In 2003, the Bank’s credit losses totalled to apply a short-term approach to business when more than NOK 300 million, of which some 80 per conditions become more difficult. Against this back- cent was accounted for by the fisheries or fisheries- ground, I would like to reflect briefly on the signifi- related sectors. This clearly illustrates the Bank’s will- cant changes which have taken place within the ingness to take risks and not least its readiness to Norwegian financial services industry during the last adopt a long-term approach as far as such corporate two years. commitments are concerned. In many cases, The political wish to have a large Norwegian SpareBank 1 Nord-Norge has chosen to acquire an bank has become reality through the merger of DnB equity stake in the business in question, in order to and Sparebanken Gjensidige NOR. The new large help achieve the appropriate restructuring needed in bank also incorporates Postbanken and such situations, despite the fact that the bankruptcy Nordlandsbanken. The merger of these banks have route may have been a better solution financially for received broad support both from political and the Bank, from a short-term point of view. administrative bodies, although the Norwegian This new situation within the financial services Supervisory Board of Competitive Practices had sev- industry is unlikely to be beneficial to the develop- eral comments to make in this connection, without ment of the various regions of Norway. The burden this resulting in any significant requirements being on the regional banking industry will be too heavy for made as far as the merged bank was concerned. it to manage; this will lead to a considerable gap The authorities approved the merger mainly between the various communities’ expectations of because of their perception of the competitive situa- their local banks and the actual results which, in tion between banks within the Nordic and national these circumstances, they will be able to produce. markets. As a result of this merger, the Norwegian For SpareBank 1 Nord-Norge, our corporate financial services market has now largely been vision of being “for and in North Norway” will con- restructured, although many small local savings tinue to apply. This aim is best achieved through the banks and some regional savings banks complete Bank’s effective operations and continued profitabili- the overall picture. In regional context, the ty, from which the various interest groups involved Norwegian Supervisory Board of Competitive will benefit. This will also ensure that our region still Practices has underestimated the importance of and has an independent bank offering local competence need for regional competition. Good banking – and a bank which is able to take decisions locally. requires local presence, as well as local knowledge of commerce and industry. The strong trend of mergers within the Norwegian banking industry in recent years has undoubtedly reduced competition in the various regions of the country. This has in particular been felt within the different business sectors. The consequences of this have been particularly evident, as the resulting centralisation has occurred during a very difficult period for the Norwegian export indus- Hans Olav Karde try. In addition, the bulk of the Norwegian export Chief Executive Officer

54 annual report 2003 Going out for 4 weeks seemed a sparebank 1 nord-norge’s long time. Now they are getting history and structure a loan for more than 20 years. >>>

Certain events in life have big financial consequences. Rest assured that the Bank will be there to help you. sparebank 1 nord-norge’s history and structure

pareBank 1 Nord-Norge has long historical SpareBank 1 Nord-Norge’s subsidiaries Straditions, from the establishment of Tromsø Fiskerikreditt AS, a wholly-owned subsidiary of the Sparebank in 1836 to today’s financial services Bank, is a credit institution which provides finance group, which has been built on the basis of four for fishing vessels and factories within the fisheries merged banks: sector. At the end of 2003, the company’s assets totalled NOK 29.4 million, up by NOK 0.5 million on • Sparebanken Nord and Tromsø Sparebank 2002. The company made a profit of NOK 0.6 million merged on 1 July 1989. in 2003, after credit losses and taxation costs. • Nordkapp Sparebank was merged with SpareBank 1 Nord-Norge on 1 July 1991. Eiendomsdrift AS is a wholly-owned subsidiary of • Sparebanken Nordland was merged with SpareBank 1 Nord-Norge. The company’s main SpareBank 1 Nord-Norge on 1 January 1992. business consists of the management and further development of buildings owned by the Group as Through these mergers, SpareBank 1 Nord-Norge well as any property and buildings the Bank has had has become a group consisting of some 40 savings to repossess. During the course of 2003, 8 buildings, banks located in Nordland, Troms and Finnmark. all used by the Bank for its business operations, were SpareBank 1 Nord-Norge is a leading provider sold. This is part of a strategy according to which the of financial products and services within the retail Bank wishes to rent rather than own office buildings. banking- and corporate banking markets throughout In 2003, the company made a NOK 2 million profit the region. The Bank has a total customer base of after tax. some 250,000 retail banking customers and approxi- mately 41,000 corporate clients, including public sec- SpareBank 1 Nord-Norge Securities ASA is the tor entities, clubs and associations. The Bank has 92 Bank’s securities brokerage firm. The company, branched in Finnmark, Troms, Nordland and on whose core market is North Norway, has a high level Svalbard. of competence within this area and focuses in Our co-operation with the SpareBank 1-alliance particular on the following sectors: hydro-electric and equity stake in SpareBank 1 Gruppen AS will power, transport, fisheries and technology. help secure and safeguard SpareBank 1 Nord- The company offers a wide range of services, Norge’s independ- including: ence and regional roots through high • Trading in shares and unit trusts. levels of competitive- • Trading in Norwegian bonds and certificates. ness, profitability New capital issues in the bond market for and capital adequacy. municipalities, power companies and other large Through its companies. subsidiaries, the • A separate corporate finance department Bank has access to handling new issues and value assessments, various forms of also providing financial advisory services, expert knowledge including analysis of listed and local companies. and skills as well as • A separate department for asset management. special products and services which SpareBank 1 Nord-Norge has a majority equity stake are in demand in in the company, other shareholders being First the market. As a Securities ASA and the company’s employees. The supplement to the after-tax result for 2003 amounted to NOK 3.1 million. Parent Bank’s range of products and SpareBank 1 Finans Nord-Norge AS is a wholly- services, its sub- owned subsidiary of SpareBank 1 Nord-Norge. The sidiaries help the company’s products – leasing, factoring and ven- Bank to fulfill its dor’s lien-based financing – are marketed within the ambition of being a public sector-, corporate- and retail banking markets. comprehensive At the end of 2003, the company’s assets totalled provider of financial NOK 744 million, up by NOK 56 million or 8 per cent products and during the last 12 months. The after-tax result in services in North 2003 ended up at NOK 10.2 million. Norway. The company’s head office is located in Tromsø; there are local sales offices in Bodø, Sandnessjøen and Hammerfest. 56 annual report 2003 EiendomsMegler 1 Nord-Norge is a wholly- A structure which ensures targeted and independent owned subsidiary of SpareBank 1 Nord-Norge. The management and control company conducts real estate brokerage business The Bank’s management structure is based on the within the residential- and commercial property Bank’s corporate vision, established aims and tar- sectors and has 6 branches located in Tromsø, Alta, gets, strategies and value bases. Hammerfest, Svolvær/Sortland and Bodø. The com- Management and control comprise all process- pany is part of a nation-wide chain consisting of 67 es and control measures which have been introduced branches, whose aggregate turnover in 2003 amount- and implemented by the Bank’s management in ed to 14,132 properties. Last year, EiendomsMegler 1 order to ensure effective operations and the imple- Nord-Norge sold 770 properties. The company made mentation of the Bank’s strategies. a NOK 2.3 million loss after tax in 2003. In order to create the necessary assurance that owners and other interest groups receive correct Corporate governance at SpareBank 1 Nord-Norge information relating to business-related and financial Corporate governance at SpareBank 1 Nord-Norge is matters, several independent control bodies have defined as the aims, targets and overall principles in been established. accordance with which the Bank is managed and In this way, the Bank’s management- and con- controlled, for the purpose of safeguarding the own- trol bodies have been allotted their different tasks ers’, depositors’ and other groups’ interests in the and purposes, where the different bodies’ roles and Bank. Accordingly, the Bank’s principles of corporate responsibilities at the highest level have been defined governance shall ensure the sound and appropriate through laws, rules and regulations, and by-laws. management of the Bank’s assets and liabilities, pro- viding increased assurance that all agreed targets, Supervising-, management- and other bodies aims and strategies are met and complied with. The Board of Trustees As a result of this, the Bank has defined the The Board of Trustees is the Bank’s most senior following main principles which are based on three management body, supervising the Board of principal aspects: openness, predictability and trans- Director’s management of the Company, adopting parency: the Annual Report and Accounts, electing members for the Bank’s Board of Directors, Control Committee • A structure which ensures targeted and and Election Committee, appointing the Bank’s exter- independent management and control. nal auditor and fixing his/her remuneration. • Systems which ensure that the relevant factors At a joint meeting, the Board of Trustees and can be measured and which make it clear where Board of Directors decide on the appointment of the the responsibility for certain aspects belong. Bank’s Managing Director, the distribution of the • Effective risk management. amount which according to the Savings Banks’ Act, • Complete and full information, as well as effec- paragraph 32, may be given to charitable and other tive communication, aimed at underpinning and deserving causes, and the raising of subordinated cementing the trust between owners, the Board loan capital. of Directors and the Bank’s management. When making the necessary preparations for the • All owners to be treated in the same way; meetings of the Board of Trustees, the Bank shall balanced relations with other interest groups. make sure that all members receive the relevant • Laws, rules, regulations and ethical standards to notice by letter and at least 8 days in advance of such be adhered to. meetings. The Board of Trustees cannot make deci- sions on any other matters than those which have All owners to be treated in the same way; been specifically stated in the notice of the meetings. balanced relations with other interest groups The Board of Trustees consists of 40 members. Through an ongoing dialogue, the Bank is to make In 2003, certain changes to the composition of the sure that owners and other interest groups are given Board of Trustees were agreed. The Board of Trustees the opportunity to express their views on the Bank’s will still have 40 members and 40 deputy members. strategic and business-related development. The The changes include the following stipulations: 16 Bank is to project an image of reliability and pre- members shall be elected from the Bank’s Primary dictability as far as the equity capital market is con- Capital Certificate (PCC) holders, 10 members from cerned. the Bank’s employees, 7 members from the Bank’s depositors and 7 to be appointed by political authori- Laws, rules, regulations and ethical standards to be ties, consisting of 2 members from each of the coun- adhered to ties of Nordland and Finnmark, and 3 from the county The compliance with laws, rules, regulations and eth- of Troms. The Board of Trustees shall normally meet ical standards is a condition and a necessity for twice each year. healthy banking operations. The Bank has estab- lished a clear value basis with appropriate ethical Election Committees guidelines, which have been made known through- Election committees for the Board of Trustees out the organisation, and which define what is The Election Committee shall consist of 4 members regarded as appropriate and inappropriate behaviour. and 4 deputy members, with representatives from all the four groups which are represented on the Board

annual report 2003 57 of Trustees. The Election Committee shall make the The composition of the Board of Directors necessary preparations for the election of the The Board of Directors consists of the Bank’s Chairman and Deputy Chairman of the Board of Managing Director plus 7-9 Board members elected Trustees, members and deputy members of the main by the Board of Trustees. Furthermore, the Board of Board of Directors and regional Boards of Directors, Directors has 8-10 deputy members. All Board mem- apart from the employees’ representatives, the bers are elected for 2 years and the deputy members Chairman of the Control Committee and its members for 1 year. Members and deputy members may be re- and deputy members, members and deputy mem- elected. In order to ensure the necessary continuity, bers of the Election Committee, and the PCC holders’ half of the Board members are elected every other year. and depositors’ election of members and deputy members of the Board of Trustees. Qualification/disqualification As far as the member and deputy member of the The members of the Board of Directors are defined as Board of Directors to be elected from the employees primary insiders and must adhere to the Bank’s regu- are concerned, only the staff’s representative on the lations as far as the purchase of PCCs in the Bank Election Committee shall be allowed to vote. and other SpareBank 1-alliance banks is concerned. This regulation also applies to the purchase of shares Election committee for the depositors’ election in companies with which the Bank has a relationship. The Election Committee consists of 3 members and 3 When a commitment involving a company where deputy members, the committee’s task being to make a member of the Board of Directors has a business the necessary preparations for the depositors’ elec- link or another interest is discussed, the Board tion of members and deputy members of the Board member in question shall declare himself or herself of Trustees, as well as members and deputy members disqualified and leave the meeting. of the Election Committee for depositors. Assessment of the Board of Directors Election committee for The Board of Directors makes an annual self-assess- the PCC holders’ election ment of its work with regard to its work methods, the The Election Committee consists of 3 members and 3 way it handles proposals submitted to it, meeting deputy members, the committee’s task being to make structure and the manner in which it prioritises the the necessary preparations for the PCC holders’ elec- various tasks for which it is responsible. tion of members and deputy members of the Board of Trustees, as well as members and deputy members Committees of the Election Committee for PCC holders. The Board of Directors has made a decision not to As part of its work, the Election Committee shall appoint sub-committees. make sure that members of the Board of Trustees, Control Committee, Election Committee and Board of Reporting Directors possess the necessary competence. In addi- The Board of Directors receives periodic reports on tion, the Election Committees should make every results, market developments, management-, person- effort to ensure that there is an appropriate regional nel- and organisational developments, as well as the composition of the members involved and that both development relating to risks and the Bank’s overall men and women are well represented. risk exposure situation. In addition, also on a periodic basis, the Bank’s The Board of Directors Balanced Score Card is presented, containing finan- The function of the Board of Directors cial, organisational, market-related and qualitative The Board of Directors is in overall charge of the targets. Bank’s operations in accordance with applicable laws, Central business- and special areas are reviewed by-laws and any detailed rules and regulations intro- at least once a year, when limits and guidelines are duced by the Board of Trustees. The Board of evaluated and agreed. Directors is responsible for the Bank’s available resources being managed in a secure and appropriate Fees/remuneration for manner. In addition, the Board of Directors has an the members of the Board of Directors obligation to ensure that all accounting and the man- Fees/remuneration for the members of the Board of agement of assets and liabilities are subject to a reas- Directors are paid as a fixed amount per year, fixed by suring level of control. the Bank’s Board of Trustees. No fees are paid in The Board of Directors also provides instruc- addition to this. tions for the day-to-day management of the savings bank, determines the Bank’s strategy, budget, market- Managing Director related and organisational targets, approves the The Managing Director is responsible for the day-to- establishment and closure of any branches in munici- day management of the Bank’s operations in accor- palities where the Bank does not have its head office dance with applicable laws, by-laws, powers of attor- or regional offices, and appoints and dismisses the ney and various instructions. The Managing head of the Bank’s internal auditing department. The Director’s responsibility does not apply to matters Board of Directors normally meets 11 times each year. which, in view of the Bank’s circumstances, are deemed to be of an unusual nature or to be of great importance. Such matters are submitted to the Board

58 annual report 2003 of Directors. The Managing Director’s overall per- Systems for measuring and for formance is assessed each year by the Board of ascertaining responsibility Directors. Effective target management is necessary in order for the Bank to be able to measure and ascertain on an Control bodies ongoing basis to what extent its various strategic tar- Control Committee gets are being met. The Bank has developed guide- The Control Committee shall make sure that the lines and benchmarks according to which its various Group is managed and run in an appropriate and profit centres are measured and managed, based on reassuring manner in accordance with applicable the concept of Balanced Scorecard. In addition, the laws, and in compliance with rules, regulations, by- Bank applies strategic planning, prognosis – and laws and guidelines stipulated by the Bank’s Board of budget management as management tools. Trustees, and according to rules and regulations laid It is important that it is always made clear who is down by the Banking, Insurance and Securities responsible for the various operations and functions Commission (BISC). The Control Committee shall involved. This will be achieved through clear commu- also make sure that the Bank’s Board of Directors nication of business plans and fixed targets for the and Managing Director monitor and control the Bank’s staff. This is made operational through clearly Parent Bank and its subsidiaries to an appropriate defined roles, responsibility and expectations; man- extent. The 3 members and 3 deputy members of the agers are responsible for the various targets being Control Committee are elected by the Bank’s Board of met within the different profit centres. Compensation Trustees. The members are elected for 2 years at the arrangements established are based on how well time. Each year, the Control Committee provides the managers and staff are doing in relation to these Board of Trustees and BISC with a report about its guidelines and benchmarks. work. Furthermore, the Control Committee makes a statement to the Board of Trustees on the subject of Effective risk management the Bank’s Annual Report and Accounts. The Control Effective risk management is an important element Committee normally holds 8 meetings each year. as far as the Bank’s achievement of its strategic tar- gets is concerned. Risk management is an integrated External Auditor part of management’s decision-making processes, The main task of the external auditor is to assess and and a key element with regard to organisation, rou- decide whether the Company’s annual financial state- tines and systems. ments have been presented in accordance with appli- Through the ongoing risk management process cable laws, rules and regulations. In addition, the in the Bank, analyses, management and follow-up of external auditor shall assess whether the Bank’s significant risks are done, for the purpose of ensuring assets and liabilities are managed in a reassuring that the Bank is managed in accordance with the manner and with appropriate control. The external approved risk profile and agreed strategies. At least auditor is appointed by the Bank’s Board of Trustees. once a year, the Board of Directors and management The external auditor shall submit a report to the review the Bank’s overall risk profile in relation to Board of Trustees and Control Committee about the strategic, operational and transaction-related various matters mentioned above. circumstances. The development of the overall risk situation is reported periodically to the Bank’s Internal Auditor Managing Director and Board of Directors. The Bank’s internal auditing function is the most important tool for the Board of Directors and the Comprehensive information Bank’s management to facilitate the monitoring of and effective communication the Bank’s control- and management process, mak- Comprehensive information and effective communi- ing sure that it is targeted and effective, and that it cation support the relationship of trust between own- functions as it is meant to do. The Bank has its own, ers, the Board of Directors and management, ensur- internal audit department, which reports to the Board ing that the Bank’s interest groups are at all times of Directors. The internal audit department’s reports informed about the Bank and able to assess its per- and recommendations with regard to improvements formance. in the Bank’s risk management and internal control The Bank’s information policy accordingly are discussed and taken into consideration on a con- attaches great importance to an active dialogue with tinuing basis. the Bank’s different interest groups, where openness, predictability and transparency are the most impor- The Bank’s function for risk management tant factors. This function is in the process of being established Furthermore, the Bank places particular empha- and is independent of the Bank’s customer units. Its sis on providing correct, relevant and up-to-date area of responsibility comprises the development of information about the Bank’s development and the Bank’s framework for uniform and overall risk results – this will build up a relationship of trust with management, overall risk reporting and follow-up. the investor market. Information for the market is Separate controller functions are being established in provided through quarterly investor presentations, order to cover the areas of credit risk, operational risk the Bank’s home page on the Internet and press and market risk (funding, interest rates and foreign releases. In addition, regular presentations are made exchange). to international contacts, lenders, investors and other interest groups. annual report 2003 59 group management structure

New organisational structure The Board of Directors has now agreed and confirmed a new organisational structure for SpareBank 1 Nord-Norge. As a result of this new organisational-/regional structure, the Board of Trustees will be arranging for the necessary changes in the Bank’s by-laws to be made during the course of the spring this year. The Bank will be organised in four regions, as follows:

The Finnmark region: The existing region The Hålogaland region: The existing region Øst-Finnmark, Vest-Finnmark and Midt-Finnmark. Sør-Troms and Ofoten, Vesterålen and Lofoten. The regional branch will be located in Hammerfest. The regional branch will be located in Harstad.

The Troms region: The existing region Nord-Troms, The Nordland region: The existing region Midt-Troms and Tromsø. The regional branch will be Salten, Helgeland and Helgelandsbankene. located in Tromsø. The regional branch will be located in Bodø.

60 annual report 2003 She is used to living in a strategy and confined space, but will intellectual capital soon want more room. >>>

Certain events in life have big financial consequences. Rest assured that the Bank will be there to help you. strategy and intellectual capital at sparebank 1 nord-norge

n addition to traditional accounting information, are based on the Bank’s ethical guidelines. This Iwe would like to present an excerpt of the Bank’s framework will help bring about solidarity, a strategy and intellectual capital. In this way, we wish common understanding of the targets involved, to tell our customers and contacts a little more individual energy and vigor, as well as good about how the various values are created at customer handling. SpareBank 1 Nord-Norge. Some important initia- tives and events in 2003 will be presented below and A strategy subject to continual development we shall also say something about the various areas The Bank’s strategy is evaluated at regular intervals and aspects on which we shall be focusing in the for the purpose of being able to adjust overall direc- future. tion in accordance with the changes happening in Our corporate vision, values and commitment the market and community in which we live. Each to serve our customers to the best of our ability quarter, we try to identify any internal and external provide an important basis for the Bank’s wealth challenges which may have an impact on the imple- creation. These elements – very much part of our mentation of the Bank’s strategy. management concept – represent the foundation for The totality of the strategy is made clear all implemented measures and the Bank’s more through our Strategic Map, which is also an impor- long-term development projects. tant tool for highlighting the reasons involved – the effect created by the relationship between chosen Corporate vision, values and ethical guidelines areas of investment and effort and strategic targets. Our values are enthusiasm, initiative and clarity. In addition to being the overall guide in our day-to-day From strategy to action work, these core values shall blend together the The strategy is implemented through day-to-day Bank’s vision, corporate culture and external image. management and development projects and is fol- Our personnel policy identifies certain action-related lowed up through the Balanced Scorecard concept. principles for co-operation and management which

62 annual report 2003 The creation and development of financial and non- seen as useful by and for the customers. The work- financial values is monitored on a monthly basis ing tools used also help to find the right level of through the application of the Balanced Scorecard, resources, competence and time to be employed. which, in addition to financial targets, comprises the The difficult economic situation in 2003 was a following measuring indicators: challenge not only for our corporate customers, but also with regard to our own skills, competence and • The customer perspective ability to provide the right type of professional advi- – Sales results sory services. In 2004, we shall intensify our efforts – Number of retail banking customers to further develop our in-house skills. In addition, we – Number of customer initiatives in the retail shall start the introduction of new customer-han- banking market dling and credit processes. – Number of meetings with corporate clients We want our customers to experience the Bank as “close to the customers and competent”, irre- • Quality of business processes spective of the way in which they choose to access – Commitments in default within the the Bank – at our local branches, through our customer portfolio Internet bank or at our customer centre. The Bank’s – The proportion of corporate banking ambition is therefore to adapt itself to customers’ commitments classified as high risk every day life and the way in which they want to – Quality of our credit work access our Bank, and not the other way around. – Number of active Internet bank users Development features – market position • Organisation and training and customer satisfaction – Number of conversations dealing with the Recent surveys show that SpareBank 1 Nord-Norge further development of staff will be heading towards a 30 per cent market share – The level of professional competence within all our business areas by 2005. At the end of – Sharing of knowledge and exchange of 2003, the Bank had 250,000 retail banking customers experience through “workshops” within the various segments.

2003 was the first full year of follow-up through BUSINESS AREA INVOLVED MARKET SHARES Balanced Scorecard. Our experience shows that this 2003 2002 works very well in connection with the follow-up of Share – retail banking customers 42.5% 41.6% our local branches and sales teams. Loans - retail banking customers 25.0% 23.4% The Balanced Scorecard is openly available Deposits – retail banking market 32.6% 32.5% through the Bank’s Intranet. The purpose is to bring Unit trusts 31.1% 28.0% about a broad understanding of the various priorities Non-life insurance 22.2% 20.6% agreed, openness with regard to efforts and results, Personal insurance 25.6% 26.6% and last, but not least, to create a system facilitating Unit Link 19.7% 16.1% feedback from all staff. The Balanced Scorecard is an Annuity/IPA 21.8% 17.7% important source for benchmarking and the sharing of knowledge between different departments, loca- Every other year, the SpareBank 1-alliance commis- tions and professional environments. sions a survey of customer satisfaction (KTI), show- The challenge will be to further develop the ing member banks’ market position in relation to its Balanced Scorecard in parallel with organisational competitors. From the feedback, we are able to iden- changes, and as the implementation of new working tify the most important factors with regard to result, methods and credit processes takes place. customer satisfaction and the Bank’s market posi- tion; this is subsequently followed up by applying the The customer perspective Balanced Scorecard. The market survey which was We must be competent in all aspects of customer completed during the summer of 2003 confirmed handling – and be close to the customers that Sparebank 1 Nord-Norge has a strong and dom- Customers’ choice of bank is increasingly based on inant brand name position both within the retail perceived and actual usefulness and value added as banking- and corporate banking markets in our far as their chosen bank is concerned. Today’s cus- region. Our position is strong due to a high “Top of tomers require personal advice and tailor-made solu- Mind” factor, a high preference factor and the fact tions adapted to their needs. In this context, the that we are the main bank for our retail banking cus- Bank’s physical presence becomes important, but tomers. Our challenge is a need to project an image this alone is not enough. We must have competent of clearer differentiation in relation to our competi- staff who are able to convert this physical closeness tors. A new customer satisfaction survey will be done into value added for our customers. This is our most in 2004. The feedback from that survey will tell us important competitive edge. whether the long-term follow-up of the most impor- In 2003, we started applying new customer-han- tant factors from the previous survey is working well dling concepts which will help improve customer fol- as far as our customers are concerned. low-up and bring about more relevant initiatives,

annual report 2003 63 Quality in our business processes Organisation and training All aspects of our operations to benefit from high quality! Customer-driven training Throughout 2003, we focused strongly on quality in In 2003, we put a great deal of effort into further all parts of our wealth creation. Quality and precision developing the level of professional competence of shall characterise all relations with our customers, all staff and have come a long way in our work aimed our business processes, the Bank’s development at creating a good training environment throughout work and not least our organisational culture. The the organisation. Balanced Scorecard monitors the quality of our cred- The further development of professional com- it- and sales processes, and internal quality reports petence shall meet customers’ need for knowledge, are provided on a quarterly basis. the Bank’s requirement for competent and motivated We want our organisational culture to be recog- staff, and each employee’s need for self-development. nised by a high degree of determination, ability and Competence accordingly consists of formal compe- willingness as far as the Bank’s overall quality is tence, professional competence and experience. concerned. At the end of the year, 25 per cent of the Bank’s staff possessed a level of formal competence equiva- A more effective bank lent to more than 40 value points; this is also a Changed customer behaviour, coupled with the requirement for new staff to be recruited. ongoing development of technical solutions, SpareBank 1’s training model is built around changes the way in which banking services are dis- basic and in-depth competence within the areas of tributed. In 2003, we launched an eDocument as a credit, investment, insurance and payment. After new service; the Internet bank has now become the completing the training up to and including the level most important payment channel. The number of of in-depth competence, each member of staff in Internet bank customers increased by 28 per cent in question has to pass a formal test in order to get the 2003, whereas minibanks were used less. required certificate, which has to be renewed every Intensified competition also means that overall other year. costs have to be kept as low as possible. As mem- bers of the SpareBank 1-alliance, the Bank benefits SPAREBANK 1 SPAREBANK 1 from synergy through the development and opera- NORD-NORGE IN TOTAL tion of effective joint solutions. The introduction of joint credit processes helps enhance both quality Basic competence 01/02 2,317 5,329 and effectiveness; in addition, the need for risk In-depth competence 01/02 971 2,152 management is taken care of. Basic competence 2003 608 6,546 In 2003, we completed a process through which In-depth competence 2003 907 6,651 the Bank’s overall manning levels were shrunk by Test – certificates in 2003 1302 1,726 110 man-years. The process benefitted throughout from close co-operation between employee represen- tatives and the Bank’s management. During the The 1,302 certificates were achieved by 712 members coming years, we shall be making periodic adjust- of staff. The aim is for all the Bank’s staff to have ments to our branch network’s range of products acquired the required certificate within all four areas and services, capacity and structure. In this by 1 May 2004. Sales- and communication training connection, we are testing new customer-handling for all staff working in a customer-handling capacity solutions at our smallest branches. is arranged at regular intervals. Reviews/conversations dealing with the further Challenges development of all staff are arranged twice a year. With fewer staff, we shall have to start using the new These sessions, coupled with the activities in our working methods, bringing about closer co-opera- workshops, are our most important ways of stimulat- tion between the Bank’s sales organisation and its ing each member of staff to embrace development various business- and support functions. and innovation. In 2004, a new trainee programme commences; this is done in conjunction with other large companies in the region.

Job satisfaction Each year, a work environment- and job satisfaction survey is done. In 2001, the job satisfaction index was 57 and in January 2003 it had gone up to 63. The increase was significant, illustrating that measures aimed at enhancing the Bank’s internal working envi- ronment produce positive results. We shall do anoth- er survey during the spring of 2004; this will tell us whether the shrinkage in overall manning levels has affected job satisfaction and the working environ- ment.

64 annual report 2003 Management Competent and motivated managers are more Corporate vision important than ever. All the Bank’s managers there- fore complete annual development programmes and SpareBank 1 Nord-Norge shall be a customer- evaluations. In addition, the training and monitoring orientated, profitable and leading financial services of sales- and other specialist managers form part of group for North Norway in North Norway. an ongoing process.

• SpareBank 1 Nord-Norge develops managers who: Business concept – represent the Bank’s overall value basis, – show initiative and a willingness to embrace any SpareBank 1 Nord-Norge shall be a profitable and necessary change, restructuring and development, leading supplier of all financial products and – make sure that conducive conditions exist for the services in North Norway. development of their staff, – make their demands clear, and support, inspire The Bank’s operations shall be based on strict and motivate, requirements relating to integrity and business – make sure that the right conditions exist for their ethics. staff to be able to join networks for the sharing of knowledge, SpareBank 1 Nord-Norge shall be an independent – focus on the day-to-day participation in the work PCC-based financial services group with roots in involved and on follow-up, North Norway. – have a clear understanding of their responsibility for the results achieved. Our promise to all customers New organisation Following the shrinkage in overall manning levels, SpareBank 1 Nord-Norge’s customers shall benefit and against the background of market challenges from the fact that we are proactive, understand and new requirements from the authorities relating their needs and provide the Bank’s products and to the credit area, there is now a need to alter the services quickly and efficiently, always offering high way in which the Bank is organised. The existing quality. Our brand name stands for closeness to the organisational structure was put in place in 1989 and customer, geographical proximity, local roots, has not been significantly changed since that time. initiative, reliability and approachability. In 1992, the Bank’s staff was equivalent to 1,160 man-years, whereas at the end of 2003, the level had Our customers will see us as a unique bank, been reduced to around 700, a reduction of 40 per characterised by good customer relations, based on cent. As a result of the structure of the line func- geographical proximity, competence and local tions, the number of managers has remained stable. knowledge. The Bank shall provide simple, modern The organisational change will among other things and high quality product solutions; our customers involve clearer classification into different business shall be able to benefit from one-stop banking, their areas, the merger of certain departments and a total requirements being met at a competitive smaller number of managers. overall price.

Challenges We shall make every effort to create a better balance Our quality targets between the number of women and men in manage- rial positions. The working environment has high pri- • We shall always meet our customers’ high ority, including the implementation of a programme expectations with regard to product quality, staff aimed at reducing the somewhat too high level of competence and personal service in all their absenteeism through illness. When we recruit new dealings with the Bank. staff we shall endeavour to create a more even age structure in the Bank. • High standards of quality relating to evaluation, decisions and the establishment of collateral- and other security shall apply to our credit handling.

• SpareBank 1 Nord-Norge shall be one of the best financial services groups in Norway as far as our customers’ use of modern payments solutions is concerned.

annual report 2003 65 ownership structure

Primary Capital Certificate (PCC) capital – During the last 5 years, the Bank has sold PCCs to its PCC-holding stucture employees at a discounted price. In 2003, this was SpareBank 1 Nord-Norge’s PCC capital totals NOK done by the Bank purchasing its own certificates in 659,701,800, consisting of 6,597,018 certificates, the market in order to sell the securities on to staff. each of a nominal value of NOK100. The bank’s In 2003, 237 employees within the Group bought PCCs are listed on the Oslo Stock Exchange. The 36,611 PCCs. Staff will be given the same opportunity number of PCC-holders at the end of the year was to acquire PCCs at a discounted price in 2004 too. 4,320, up from 3,499 a year earlier. The Bank’s 20 largest PCC-holders are shown in Turnover, liquidity and price movements Note 30, which also lists the number of certificates In 2003, the highest and lowest traded price of the held by the Bank’s elected representatives. Bank’s PCCs were NOK 184 and NOK 118 respec- At the end of the year, the number of PCC-hold- tively. ers domiciled in North Norway was 1,774, down The number of certificates traded in 2003 was from1,846 the year before. Corresponding figures 3,452,119, whereas corresponding figures for the from 2001 and 2000 were 1,955 and 1,966 respective- three preceding years were 1,955,153, 1,786,827 and ly. At the end of 2003, certificates held by investors 3,933,952. The turnover has accordingly increased domiciled in North Norway accounted for 25.4 per significantly again after two years of relatively low cent of the Bank’s total PCC capital. In the three turnover. years prior to that, the ratio was 25.1, 26.3 and 25.3 per cent respectively. The Bank would still like the number of PCCs held by local investors and their share of the total PCC capital to be higher.

2003 2002 2001 Number of PCCs issued 6 597 018 6 597 018 6 597 018 PCC capital NOK 659 701 800 NOK 659 701 800 NOK 659 701 800 PCC price as at 31.12. NOK 184,00 NOK 127,50 NOK 175,00 Dividend per PCC for the accounting year NOK 14,00 NOK 10,00 NOK 15,00 Dividend per PCC paid NOK 10,00 NOK 15,00 NOK 19,00 Direct rate of return 1) 7,6 % 7,8 % 8,6 % Percentage rate of return before tax (arithmetical) 2) 52,2 % -18,6 % 10,9 % Market value as at 31.12. NOK 1 213,9 mill NOK 841,1 mill NOK 1 154,5 mill Book value of equity capital per PCC 3) NOK 149,00 NOK 149,00 NOK 148,70 PCC share 4) 42,0 % 43,9 % 45,6 % Payout ratio 5) 43,9 % 45,6 % 47,7 % Earnings per PCC, Parent Bank 6) NOK 14,01 NOK 10,29 NOK 19,13 Dividend Equalisation Fund per PCC 7) NOK 47,75 NOK 47,45 NOK 47,45 Number of PCCs traded/number of PCCs issued 8) 52 % 30 % 27 %

definitions:

1) Direct rate of return: dividend for the accounting year/price as at 31.12 2) Percentage rate of return before tax (arithmetical): (dividend paid +price change 1.1-31.12)/price as at 1.1 3) Book value of equity capital per PCC: (PCC-capital + Premium Fund + Div.Eq. Fund)/number of PCCs 4) PCC-share: (PCC-capital + Div.Eq.Fund + Premium Fund)/(total equity capital – Fund for Evaluation Differences) 5) Payout ratio: (Total dividends + transfer to Div. Eq. fund)/profit for the year after Group contributions and change in Fund for Evaluation Differences 6) Earnings per PCC, Parent Bank: Result for the year for Parent Bank, adjusted for change in Fund for Evaluation Differences/number of PCCs 7) Dividend Equalisation Fund per PCC: Div. Eq. Fund as at 31.12/number of PCCs 8) Number of PCCs traded/number of PCCs issued

66 annual report 2003 PCC-holder policy SpareBank 1 Nord-Norge’s PCC-holder policy is of a long-term nature. The Bank aims to produce profits which will provide the basis for offering a competi- tive rate of return on the Bank’s PCCs. The rate of return will be made up of a combination of cash divi- dend and any increase in the PCC price. The level of dividend paid to PCC-holders will depend upon the annual profit. The Bank has the fol- lowing strategic aim in this connection: The sum of the dividend paid and the transfer made to the Dividend Equalisation Fund is to reflect PCC-holders’ share of the Bank’s equity capital. As far as the split between the total cash dividend payment and trans- fer to the Dividend Equalisation Fund is concerned, the Bank will endeavour to give priority to achieving a high cash dividend portion. However, when consid- ering the split between these two elements, the Board of Directors will also take the Bank’s equity capital situation into consideration. “RISK” adjustment The Bank will make transfers to and from the In order to avoid double taxation of the Company Dividend Equalisation Fund in accordance with the and its share-/PCC-holders, the tax-related opening level of profit for the year and currently applicable value of shares and PCCs is adjusted in the case of laws, rules and regulations. Norwegian holders of such securities. Such value SpareBank 1 Nord-Norge will make every effort adjustment is done in accordance with applicable to provide PCC-holders and other investors in the “RISK” rules and regulations; the price at which market with information which will improve their PCCs were bought is adjusted for any changes in the knowledge of the Bank and its market areas. Good, Company’s taxed equity capital for the period during accurate and timely information will help ensure that which the certificates were owned. the basis for pricing the Bank’s PCCs is as good as possible. The Bank will attempt to make available The “RISK” amount applying to SpareBank 1 Nord- identical information simultaneously to all investors Norge’s PCCs has been as follows in recent years: in the market. SpareBank 1 Nord-Norge’s information policy 1997 1998 1999 2000 2001 2002 2003 aims at giving the financial markets as much infor- 7.45 14.46 13.42 22.54 8.48 4.15 0.24 mation about the Bank’s future operations as possi- ble, so that PCC-holders and potential investors are The provisional “RISK” amount as at 1.1.2004 has given an opportunity to understand and assess the been estimated at NOK 0.01. Bank’s development potential. The Bank will com- municate frequently with PCC-holders and financial analysts, for instance through presentations given in connection with the publication of annual and quar- terly reports. Furthermore, in all its communication with financial markets, the Bank will seek to provide complete and up-to-date information in accordance with good and generally accepted business practice.

annual report 2003 67 Financial calendar Interim report and accounts – 1st quarter 2004 28.04.2004 Interim report and accounts – 2nd quarter 2004 13.08.2004 Interim report and accounts – 3rd quarter 2004 27.10.2004 Preliminary report and accounts 2004 At the beginning of February 2005

Investor analysis

number of number of percentage pcc-holdings pcc-holders pccs held share

1: 1–100 899 56.160 0,85 % 2: 101–500 1.910 517.135 7,84 % 3: 501–1.000 689 524.550 7,95 % 2003 4: 1.001–10.000 741 2.249.968 34,11 % 5: 10.001–50.000 67 1.302.179 19,74 % local pcc-holders: 25,4 % 5: 50.001–100.000 8 547.426 8,30 % other norwegian 6: OVER 100.000 6 1399.600 21,22 % pcc-holders: 61,0 % Total 4 320 6 597 018 100,00 % foreign pcc-holders: 13,6 %

68 annual report 2003 You know how expensive it can be to supervisory, executive go on holiday. Save for the day when and regional bodies >>> life is just one long holiday!

Certain events in life have big financial consequences. Rest assured that the Bank will be there to help you. supervisory, executive and regional bodies

Board of Trustees Members elected from the Bank’s PCC-holders Erik Sture Larre, Oslo (Chairman), lawyer Finn Haugan, Trondheim, managing director Ann-Sissel Emaus, Burfjord (Deputy Chairman), Erik Sture Larre, Oslo, lawyer printer Svein Brustad, Hvalstad, director Bjarne Rasch-Tellefsen, Harstad, wholesaler Members elected from the Bank’s depositors Tor Lægreid, Tromsø, managing director Lars Klæboe, Stokmarknes, consultant Kjell Kræmer, Tromsø, managing director Jann Sandøy, Nesna, agent for shipping company Terje Vareberg, Stavanger, managing director Reidun Kristiansen Flakstad, Gryllefjord, Trond Mohn, Paradis, managing director self-employed businesswoman Widar Slemdal Andersen, Rælingen, Elise Gjerde, Lødingen, housewife managing director Jan-Hugo Sørensen, Hansnes, deputy major Roger A. Rasmussen, Ramberg, managing director Bjørn Atle Hansen, Honningsvåg, deputy major Bente Evensen, Tromsø, Sigfred Andersen, Honninsvåg, headmaster self-employed businesswoman Torvall Lind,Tromsdalen, managing director Deputy members elected from Bodil Steen, Oslo, director the Bank’s depositors Herman Mehren, Oslo, merchant Ragnhild Verningsen, Stokmarknes, Ole Ovesen, Sørreisa, general manager health- and social security manager Alf E. Erevik, Hønefoss, managing director (banking) Johannes Foertveit, Kabelvåg, general manager Harald Erik Johannessen, Storslett, Deputy members elected from self-employed businessman the Bank’s PCC-holders Jarle Fosshaug, Bardu, accountant Marie M. Fangel, Tromsø, handicraft artist Bente Slåtto Steien, Harstad, general manager Trygve S. Myrvang, Tromsø, managing director Rune Loedemel, Honningsvåg, inspector Berit Berg, Tromsø, artist Stein Tore Hansen, Honningsvåg, senior engineer Asbjørg Jensvoll Strøm, Finnsnes, local government manager Members elected from the county council Karl-Johan Jakola, Tromsø, managing director Sissel Brufors Jensen, Andfiskå Rolf W. Karlsen, Bergen, managing director Benn Mikalsen, Svolvær Odd Erik Hansen, Tromsø, director Ann-Sissel Emaus, Burfjord, printer Brynulf Grenersen, Tønsnes Ivar B. Prestbakmo, Sjøvegan, major Jorhill Andreassen, Silsand, political adviser Kristin Vatnelid Johansen, Olderdalen Britt Bergheim, Botnhamn, teacher Magnhild Mathisen, Varangerbotn, Stein Kristiansen, Jakobsli, director organisation secretary Unn Granum, Mo i Rana, student Arne Kr. Bredahl, Vardø, senior engineer Asløv Kristian Sandnes, Vadsø Alf Boerre Lien, Finnsnes Deputy members elected from Knut Gjernes, Gravdal, civil architect the county council Øivind Berg, Moen, self-employed businessman Steinar M. Friis, Ramberg, fisherman John Hempel, Sortland Members elected from the Bank’s employees Laila Bjerke, Storslett Liv Knaplund, Bodø, adviser Roald Pedersen, Kvaløysletta Terje Sundklakk, Svolvær, adviser Alvhild Yttergaard, Tromsø Inger M. Loekken, Stokmarknes Arne Pedersen, Vestre Jakobselv Linda Bornø, Harstad, adviser Arnt H. Johansen, Vardø Odd H. Iversen, Finnsnes, adviser Hans Olav Gjøvik, Tromsø, senior consultant Randi Hansen, Lyngseidet, adviser Villy Johansen, Alta, senior adviser Ove Hagen, Hammerfest, adviser Brith Sand, Båtsfjord, adviser

70 annual report 2003 Deputy members elected from Control Committee the Bank’s employees Members Roger Lorentzen, Sandnessjøn, adviser Dag Nafstad, Tromsø (Chairman), presiding judge Svanhild Berlin Nilssen, Kabelvåg, adviser Inger Johanne Pettersen, Bodø, Stian Reinholdtsen, Myre, adviser senior research assistant Kaija Thomassen, Harstad, adviser Dag Norvang, Tromsø, general manager May-Sissel Johansen, Finnsnes, adviser Nan Sissel Yttergård, Tromsø, senior consultant Deputy members Lisbeth Birkelund, Skjervøy, adviser Selma Olsen, Tromsø, auditor Marit Øien, Alta, adviser Leif Oddgeir Pettersen, Sigerfjord, captain Bjørg Bangsund, Hammerfest, adviser Rune Lødemel, Honningsvåg, inspector Anne Britt Bangsund, Berlevåg, adviser Board of Directors The Board of Trustees’ Election Committee Members Members Harald Overvaag, Tromsø (Chairman), director Erik Sture Larre, Oslo (Chairman), lawyer Tom Veierød, Oslo (Deputy Chairman), director - elected from the Bank’s PCC-holders Elisabeth Johansen, Stamsund, publisher Jan-Hugo Sørensen, Hansnes, deputy major Erik Sture Larre jr., Oslo, engineer - elected from the Bank’s depositors Trine Nøvik, Bodø, marketing director Sissel Brufors Jensen, Andfiskå Aase Annie Opsjøn, Stokmarknes, sales manager - elected from the county council Rolf Pedersen, Alta, general manager Linda Bornø, Harstad, adviser - public sector representative - elected from the Bank’s employees Vivi Ann Pedersen, Tromsø, main employee representative Deputy members - elected by and from the Bank’s employees Ann-Sissel Emaus, Burfjord, printer Hans Olav Karde, Managing Director - elected from the county council Lars Klæboe, Stokmarknes, consultant Deputy members - elected from the Bank’s depositors Roar Dons, Tromsø, company chairman Kjell Kræmer, Tromsø, managing director Elsa Eriksen, Finnsnes, school inspector - elected from the Bank’s PCC-holders Hermann Stroemmesen, Brensholmen, Hans Olav Gjøvik, Tromsø, senior consultant general manager - elected from the Bank’s employees Gunnar Mathisen, Alta, businessman - public sector representative Depositors’ Election Committee Gunnar Kristiansen, Sortland, elected representative Members - employee representative Jan-Hugo Sørensen, Hansnes (Chairman), Ellinor Oftedal, Svolvær, elected representative deputy mayor - employee representative Lars Klæboe, Stokmarknes, consultant Oddmund Åsen, Deputy Managing Director Bjørn Atle Hansen, Honningsvåg, deputy mayor Regional Board of Directors – Salten/Helgeland Deputy members Members Jann Sandøy, Nesna, agent for shipping company Eivind Solheim, Bodø (Chairman), hospital director Reidun Kristiansen Flakstad, Gryllefjord, Åshild Nordnes, Bodø (Deputy Chairman), self-employed businesswoman personnel manager Sigfred Andersen, Honningsvåg, headmaster Odd Torrissen, Halsa, businessman Steinar Olaisen, Lovund, salmon fish farmer PCC-holders’ Election Committee Jon Tørset, Bodø, county council chairman Members - public sector representative Erik Sture Larre, Oslo (Chairman), lawyer Gunn Helen Kristensen, Rognan, Kjell Kræmer, Tromsø, managing director elected representative Tor Lægreid, Tromsø, managing director - employee representative Kjell-Ivar Helgesen, Regional General Manager Deputy members Trond Mohn, Paradis, managing director Deputy members Bente Evensen, Tromsø, Ove Sørdahl, Straumen, financial manager self-employed businesswoman Kjell Hveding, Korsnes, general manager Asbjørg Jensvoll Strøm, Finnsnes, Marit E. Tennfjord, Båsmoen, local government manager environmental therapist - public sector representative Aud Jorun Skaret, Meløy, employee representative - employee representative Anna Jacobsen, Bodø, employee representative - employee representative

annual report 2003 71 Regional Board of Directors – Lofoten Deputy members Members Jan Petter Pettersen, Narvik, managing director Odd Magne Steffensen, Svolvær (Chairman), Trine-Lise W. Fossland, Harstad, project manager general manager Ottar Antonsen, Harstad, pensioner May Britt Paulsen, Svolvær (Deputy Chairman), - public sector representative sales manager Vivi Ann Movik, Harstad, employee representative Karl Johan Nilsen, Ballstad, fisherman - employee representative Steinar Lian, Svolvær, general manager Ingny Eide Eriksen, Borkenes, Oddleif Olavsen, Bodø employee representative - public sector representative - employee representative Ellinor Oftedal, Svolvær, employee representative - employee representative Regional Board of Directors – Midt-Troms Jan R. Bergmo, Regional General Manager Members Kåre Brynjulfsen, Silsand (Chairman), Deputy members general manager Erling Sandnes, Gravdal, departmental inspector Reidar Karlsen, Øverbygd (Deputy Chairman), farmer May Jakobsen, Ballstad, deputy mayor Jan Fredrik Jenssen, Vangsvik, general manager Astrid Bjørgås, Svolvær, secretary Vigdis Johnsen, Finnsnes, department manager - public sector representative Reidar Kroken, Bardu Elin Åsved, Leknes, employee representative - public sector representative - employee representative May Sissel Johansen, Finnsnes, Svanhild Berlin Nilsen, Kabelvåg, employee representative employee representative - employee representative - employee representative Stig Arne Engen, Regional General Manager

Regional Board of Directors – Vesterålen Deputy members Members Aase Marie Rollstad, Nordkjosbotn, general manager Ola Øraker, Melbu (Chairman), lawyer Per Jensen, Brøstadbotn, general manager Berit Pettersen, Sortland (Deputy Chairman), student Arne Bergland, Gibostad, mayor Evy Martinsen, Myre, personnel manager - public sector representative Inger Johanne Rygg, Bø, headmistress Trude Killie Solli, Finnsnes, employee representative Ketil Rønning, Stokmarknes, departmental engineer - employee representative - public sector representative Grethe Bertheussen, Sørreisa, Frode Andersen, Stokmarknes, employee representative employee representative - employee representative - employee representative Harry M. Pedersen, Regional General Manager Regional Board of Directors – Tromsø Members Deputy members Kjell Olav Pettersen, Tromsø (Chairman), May-Britt Johansen, Andenes, department manager managing director Arne F. Andersen, Bø, teacher Elin Wintervold, Tromsø (Deputy Chairman), Jon Helmersen, Risoyhamn, social security official goldsmith - public sector representative Finn Johannessen, Tromsø, merchant Randi Andersen, Boe, employee representative Kari Mette Darell Eliassen, Tromsø, student - employee representative Ben Schei, Tromsø, college director Gunnar Kristiansen, Sortland, - public sector representative employee representative Trude Jakobsen, Tromsdalen, - employee representative employee representative - employee representative Regional Board of Directors – Sør-Troms and Ofoten Ragnar Berg, Regional General Manager Members Ottar B. Nilsen, Harstad (Chairman), lawyer Deputy members Grete Wigen, Harstad (Deputy Chairman), Jan Elvheim, Tromsø, regional secretary regional manager Harry Higraff, Longyearbyen, works manager Odd H. Pedersen, Harstad, civil engineer Wenche Skallerud, Tromsø Ole R. Sande, Lødingen, general manager - public sector representative Trygve Simonsen, Harstad Jan Magnus Henriksen, Tromsdalen, - public sector representative employee representative Tove Brune, Harstad, employee representative - employee representative - employee representative Vivi Ann Pedersen, Tromsdalen, Kåre A. Markussen, Regional General Manager employee representative - employee representative

72 annual report 2003 Regional Board of Directors – Nord-Troms Regional Board of Directors – Vest-Finnmark Members Members Roy Johansen, Nord-Leangen (Chairman), Knut Bjørn Lindkvist, Bergen (Chairman), scientist full-time company chairman Arne Bjørnå, Havøysund (Deputy Chairman), Ann Karin Lindseth, Storslett (Deputy Chairman), Social Security Manager company owner Heintz R. Valvatne, Lakselv, Bjørnar Heimly, Skjervøy, merchant industrial and commercial development manager Gunnar Sollund, Alteidet, consultant Herold Paulsen, Hammerfest, station manager Knut Michalsen, Skjervøy, merchant Gunnar Milch, Hammerfest, senior teacher - public sector representative - public sector representative Øystein Soervoll, Lyngseidet, Jon Arve Møller, Hammerfest, employee representative employee representative - employee representative - employee representative Dagfinn Andreassen, Regional General Manager Per Trygve Holmgren, Regional General Manager

Deputy members Deputy members Inger Marie Olsen, Samuelsberg Børje Alander, Breivikbotn, administration manager Willy Ørnebakk, Skibotn, farmer Kristine Jørstad Bock, Hammerfest, corporate adviser Roger Henriksen, Skjervøy, Stål Nilsen, Bjørnevatn - public sector representative - public sector representative Unni Johansen, Storslett, employee representative Bjørg Banksund, Rypefjord, employee representative - employee representative - employee representative May-Britt Nilsen, Storslett, employee representative Wenche Stabell, Havøysund, - employee representative employee representative - employee representative Regional Board of Directors – Midt-Finnmark Members Regional Board of Directors – Øst-Finnmark Edgar Flaaten, Øksfjord (Chairman), Members general manager Kåre Harila, Vestre Jakobselv (Chairman), Tor Arne Pettersen, Alta (Deputy Chairman), accounting consultant company owner Wenche Randal, Kirkenes (Deputy Chairman), - public sector representative hotel director Ivar Pettersen, Alta, general manager Mari-Ann Nilssen, Nesseby, office manager Tore Kr. Lindi, Karasjok, general manager Hilja Bjerk, Båtsfjord, office clerk Anne Marie Gaino, Kautokeino, financial manager Nils P. Pedersen, Vadsø, social security manager Linn Knutsen, Alta, employee representative - public sector representative - employee representative Turid Ingebrigtsen, Kirkenes, John Ivar Nilsen, Regional General Manager employee representative - employee representative Deputy members Gunn May Olsen, Regional General Manager Britt Joerstad, Alta, station owner Berit Anne Oskal Kemi, Kautokeino, headmistress Deputy members Inger Lise Balandin, Alta, Harald Reisaenen, Vestre Jakobselv, general manager industrial and commercial development manager Arthur Masternes, Tana, technical manager - public sector representative Ann-Ågot Basma, Bjørnevatn, general manager Rita A. Strøm, Alta, employee representative - public sector representative - employee representative Kjell Kofoed, Vardø, employee representative Arne Clemens, Øksfjord, employee representative - employee representative - employee representative Grete Henriksen, Kirkenes, employee representative - employee representative

annual report 2003 73 regional and local branches

FINNMARK TROMS HÅLOGALAND NORDLAND • Hammerfest • Tromsø • Harstad • Bodø • Breivikbotn – Storgt. 65 • Evenskjer – Storgt. 40 • Lakselv – Sjøgata 8 • Borkenes – City Nord • Havøysund – Jekta • Hamnvik – Mørkved • Kjøllefjord – Amfi (Pyramiden) • Gratangen • Værøy • Honningsvåg – Flyplassen • Lødingen • Tverlandet • Alta – Universitetssykehuset • Narvik • Røst • Kautokeino • Sommarøy • Svolvær • Fauske • Øksfjord • Longyearbyen • Leknes • Straumen • Karasjok • Hansnes • Kabelvåg • Sulitjelma • Vadsø • Storslett • Ramberg • Sandnessjøen • Varangerbotn • Burfjord • Reine • Leirfjord • Båtsfjord • Olderdalen • Stamsund • Dønna • Berlevåg • Skibotn • Sortland • Glomfjord • Kirkenes • Skjervøy • Andenes • Ørnes • Tana • Lyngseidet • Risøyhamn • Nesna • Vardø • Nord-Lenangen • Myre • Træna • Oteren • Bø • Hamarøy • Finnsnes • Straumsjøen • Leinesfjord • Senjahopen • Stokmarknes • Rognan • Brøstadbotn • Melbu • Misvær • Gryllefjord • Moldjord • Skaland • Mo I Rana • Stonglandseidet • Brønnøysund • Andselv • Mosjøen • Øverbygd • Bardu (Setermoen) • Sørreisa • Sjøvegan • Tennevoll • Storsteinnes • Nordkjosbotn

74 annual report 2003 LOCAL BRANCHES REGIONAL BRANCHES

SpareBank 1 Nord-Norge has 92 branches in 72 of North Norway’s 89 municipalities.